Regional Steel Corp. v. Liberty Surplus Ins. Corp. CA2/1
173 Cal. Rptr. 3d 91
Cal. Ct. App.2014Background
- Florentine Project: 14-story building in North Hollywood; Regional subcontractor providing reinforcing steel for columns, walls, floors; Webcor poured concrete encasing Regional’s rebar.
- Seismic tie hooks: Regional used 90° and 135° hooks in shop drawings approved by JSM and Babayan; correction later required exclusive use of 135° hooks.
- City notice and repair: City issued correction in Jan 2005; JSM halted pours May 2005; Regional began fabricating 135° hooks; defect led to repairs and withholdings of $545,000 by JSM.
- Insurance wrap: Liberty issued Commercial General Liability policy with wrap endorsement covering Florentine Project, extended to 2008; endorsements, including a wrap, altered coverage for the project but not necessarily retroactive/occurrence terms.
- Underlying action: JSM and others sued Regional and others for breach and defective work; Webcor cross-claims sought indemnity and damages; Regional tendered defense to Liberty in 2008 and 2009; Liberty denied coverage.
- Settlement: October 2009 settlement of underlying action released claims against Regional, including damages for out-of-level, cracked floors, without Liberty being a party.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Wrap Endorsement eliminates retroactive/occurrence requirement | Regional: wrap replaces retroactive/occurrence with project-site/orderly scope | Liberty: wrap limited to enumerated changes; does not alter retroactive/occurrence terms | Wrap did not modify retroactive/occurrence requirement |
| Whether defective tie hooks constitute property damage or an occurrence | Regional: incorporation of defective hooks into project can be property damage/occurrence | Liberty: no property damage; defect in work excluded; no occurrence | No coverage for defective tie hooks as property damage under policy |
| Whether impaired property exclusion applies to the JSM claim | Impaired property exclusion does not apply if there is damage to other property; regional claim alleged loss due to repairs | Exclusion bars coverage for impairment of property not physically injured arising from defect in your work | Impaired property exclusion applies; no coverage for JSM claims arising from Regional’s work |
| Duty to defend under Waller standard given pleadings and policy terms | There is potential for coverage based on property damage claims in underlying action | No potential for coverage; exclusions apply; wrap does not create coverage | Liberty had no duty to defend |
Key Cases Cited
- Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., 45 Cal.App.4th 1 (Cal. Ct. App. 1996) (injury from incorporation of hazardous materials into building constitutes property damage)
- F&H Construction, Inc. v. ITT Hartford Ins. Co., 118 Cal.App.4th 364 (Cal. Ct. App. 2004) (incorporation of defective work into a structure generally not property damage)
- Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal.App.4th 847 (Cal. Ct. App. 2000) (damages to embedded ingredients caused property damage to product)
- Eljer Mfg. v. Liberty Mut. Ins. Co., 972 F.2d 805 (7th Cir. 1992) (incorporation of defective plumbing into homes can cause property damage)
- Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1 (Cal. 1995) (duty to defend broader than duty to indemnify; policy interpretations guided by coverage)