Pulte Home Corp. v. Am. Safety Indem. Co.
14 Cal. App. 5th 1086
Cal. Ct. App. 5th2017Background
- Pulte was general contractor/developer for two residential projects; subcontractors (Concrete, Frontier, Foshay) carried CGL policies issued by American Safety and named Pulte as an additional insured via endorsements.
- Homeowners sued Pulte in two construction-defect actions (2011, 2013) alleging water intrusion, foundation and related damage potentially implicating subcontractors' work. Pulte tendered defense; American Safety refused.
- American Safety's additional-insured endorsements limited coverage to "liability arising out of 'your work'" and included language referencing "ongoing operations"; policies also contained faulty-workmanship exclusions. Some Foshay endorsements referenced "projects on file."
- Trial court (after summary adjudication that a duty to defend existed under at least one policy) found American Safety had a duty to defend Pulte under all policies, breached that duty in bad faith, awarded Pulte contract damages for defense costs, Brandt attorney fees, costs, and punitive damages.
- On appeal the court affirms liability findings (duty to defend, bad faith, punitive entitlement) but reverses and remands the Brandt fee and related punitive awards for recalculation because Pulte modified its contingency fee to an hourly arrangement posttrial in a way the panel found problematic for Brandt allocation.
Issues
| Issue | Pulte's Argument | American Safety's Argument | Held |
|---|---|---|---|
| Duty to defend under AIE language | AIEs ("liability arising out of 'your work'") reasonably read to include potential completed-operations exposure; tender revealed facts creating potential coverage | AIEs limited coverage to "ongoing operations," excluding completed-operations claims once homes were sold; exclusions for faulty workmanship bar coverage | Court held AIE language ambiguous; reasonable potential for coverage existed (completed or ongoing); duty to defend owed |
| Effect of faulty-workmanship exclusions | Exclusions did not conclusively negate potential coverage because plaintiffs alleged interrelated damage and timing was uncertain | Exclusions j.(5)/(j.(6)) preclude coverage for damage to the insured's own work or parts requiring repair, eliminating potential coverage | Exclusions not shown by insurer to conclusively eliminate coverage on the record; cannot defeat duty to defend absent undisputed facts |
| Bad faith/liability for claims handling | ASIC unreasonably and systematically denied additional-insured tenders without case-specific analysis; knew AIEs were purchased for completed-operations protection | Denials were based on a reasonable policy interpretation (ongoing-operations limitation) and related defenses | Substantial evidence supported the trial court's finding of unreasonable denial and bad faith (pattern of denials, form letters, disregard of adverse precedent) |
| Brandt fees and punitive-damage amount | Pulte sought recovery of actual fees incurred (after a posttrial modification from contingency to hourly) as Brandt damages; punitive award tied to Brandt fees | ASIC argued posttrial fee modification improperly inflated Brandt award; Brandt allocation must follow contingency basis and Cassim apportionment rules | Court affirmed Brandt entitlement but reversed and remanded the Brandt fee award and dependent punitive award for recalculation consistent with the originally effective contingency fee/agreed Brandt allocation |
Key Cases Cited
- Pardee Constr. Co. v. Ins. Co. of the W., 77 Cal.App.4th 1340 (Cal. Ct. App.) (interpreting additional-insured endorsements in construction-defect context; completed-operations potential)
- Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287 (Cal.) (insured must show potential for coverage; insurer must prove absence of any potential)
- Brandt v. Superior Court, 37 Cal.3d 813 (Cal.) (attorney fees recoverable as contract damages for insurer's wrongful denial)
- Cassim v. Allstate Ins. Co., 33 Cal.4th 780 (Cal.) (procedures for apportioning Brandt fees where contingency agreements cover mixed tort/contract work)
- Waller v. Truck Ins. Exchange, 11 Cal.4th 1 (Cal.) (standards for de novo review of insurance policy interpretation)