Century Indemnity Co. v. Hearrean

• Decision Date: 22 May 2002
• Docket Number: No. H022046.,H022046.
• Court: California Court of Appeals Court of Appeals
• Parties: CENTURY INDEMNITY COMPANY et al., Plaintiffs and Appellants, v. Roy HEARREAN et al., Defendants and Respondents.

120 Cal.Rptr.2d 66

98 Cal.App.4th 734

CENTURY INDEMNITY COMPANY et al., Plaintiffs and Appellants, v. Roy HEARREAN et al., Defendants and Respondents.

No. H022046.

Court of Appeal, Sixth District.

May 22, 2002.

Rehearing Denied June 17, 2002.

Review Denied August 14, 2002.

Brandt L. Wolkin, Thomas A. Ostly, Emily Anne Smith, Wolkin & Timpaine, LLP, San Francisco, Attorneys for Plaintiffs and Appellants.

Roger S. Raphael, Lewis, D'Amato, Brisbois & Bisgaard LLP, Attorney for Defendants and Respondents.

WUNDERLICH, J.

In this declaratory relief action, plaintiffs Century Indemnity Company and Bankers Standard Insurance Company (collectively Century) sought a declaration from the trial court that it had no duty to indemnify a third party claimant, the purchaser of a hotel that was extensively expanded and remodeled by defendant insureds, Roy Hearrean and State Wide Investors, Inc. Both Century and the insureds filed cross-motions for summary judgment, and the trial court granted summary judgment in favor of defendant insureds. On appeal from the ensuing judgment, Century asserts that because the third party claimant did not suffer any injury or damage during the policy periods, as a matter of law, there was no coverage.

FACTS

The following facts come from the parties' stipulation of facts in support of cross-motions for summary judgment.

"The two insureds in this case are an individual, Roy Hearrean (Hearrean), and a company called State Wide Investors, Inc. (`State Wide'), of which Mr. Hearrean is the President. (Hearrean and State Wide are collectively referred to as the `Insureds.') [¶] ... Between 1988 and 1993, Bankers Standard Insurance Company ... and Insurance Company of North America ... issued several general liability polices to either one or both of the Insureds. Century Indemnity Company, as successor to CCI Insurance Company, as successor to Insurance Company of North America, is now responsible for those policies originally issued by INA.... [¶] ... [¶] ... The Insuring Agreement of all of the Policies provides as follows: [¶] `We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.' [All policies also provided that the insurance applies only to `bodily injury' or `property damage' that occurs during the policy period.] [¶] ... [¶] ... The Definitions section in all of the Policies provides as follows: [¶] `Property damage' means: [¶] a. Physical injury to tangible property, including all resulting loss of use of that property [...] or [¶] b. Loss of use of tangible property that is not physically injured. [...] [¶] `Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

"On June 10, 1988, Hearrean purchased a hotel in Santa Clara formerly known as the Ramada Hotel, and currently known as the Biltmore Hotel and Suites (`the Hotel'). [¶] ... From 1989 through August 1990, Hearrean and State Wide constructed improvements to the Hotel, including the addition of a nine-story `tower,' which were completed in August of 1990.[¶] ... On January 15, 1991, Hearrean transferred the Hotel to Union Federal Savings Bank (`Union Bank') via a deed in lieu of foreclosure. [¶] ... On June 5, 1992, Union Bank sold the Hotel to Kanwell Lodging Group, Inc. (`Kanwell'). [¶] ... Kanwell sold the Hotel to Kang Family Partners (the current owner and operator of the Hotel) on February 18, 1994." (Fn.omitted.)

"On February 9, 1996, Kang Family Partners sued Hearrean and State Wide in a lawsuit entitled Kang Family Partners, L.P., v. Ray Hearrean Construction, Case No. CV755848, in the County of Santa Clara (the `Underlying Action'). The Underlying Action alleges that Hearrean, State Wide and others negligently and defectively constructed improvements at the Hotel, thereby causing injury to Kang Family Partners.... [¶] ... The Underlying Action contained claims for `property damage' as defined in each of the Policies. Such damage took place both during and after the policy periods. [¶] ... Hearrean and State Wide tendered the Underlying Action to the Insurers. [¶] ... The Insurers, among others, provided a defense to Hearrean and State Wide under a reservation of rights to dispute coverage. [¶] ... The Insurers filed this declaratory relief action disputing coverage on June 25, 1998.[¶] ... On March 2, 1999, the Insurers paid $100,000 to settle the Underlying Action on behalf of Hearrean and State Wide. [¶] ... Neither Hearrean nor State Wide contributed to the settlement."

On June 1, 2000, Century filed a motion for summary judgment and the insureds filed a cross-motion for summary judgment. At the hearing on the two motions, the trial court granted the insureds' crossmotion and denied Century's motion. This appeal followed.

STANDARD OF REVIEW

"`"Since a summary judgment motion raises only questions of law regarding the construction and effect of the supporting and opposing papers, we independently review them on appeal, applying the same three-step analysis required of the trial court. [Citations.] First, we identify the issues framed by the pleadings since it is these allegations to which the motion must respond by establishing a complete defense or otherwise showing there is no factual basis for relief on any theory reasonably contemplated by the opponent's pleading. [Citations.] [¶] [Second], we determine whether the moving party's showing has established facts which negate the opponent's claim and justify a judgment in [the] movant's favor.... [¶] When a summary judgment motion prima facie justifies a judgment, the third and final step is to determine whether the opposition demonstrates the existence of a triable, material factual issue."` [Citation.]" (Pepperell v. Scottsdale Ins. Co. (1998) 62 Cal.App.4th 1045, 1054, 73 Cal.Rptr.2d 164 (Pepperell).)

DISCUSSION

Century contends the policyholders are not entitled to coverage as a matter of law because the third party claimant, the Kang Family Partners, did not purchase the hotel until after the expiration date of all five policies. Century explains, "[t]he terms of Century Indemnity's policies clearly preclude coverage for the Underlying Action .... [¶] In order to come within the scope of the insuring agreements, and thus to obtain coverage, the Policyholders must be liable to the claimant for injuries that the claimant suffered during the policy period. However, the claimant in this case, Kang Family Partners, did not purchase the Hotel until after the expiration of all five of the Policies. Thus, the claimant did not (and could not) [sic ] have suffered any injuries during any of the Policy periods, and no coverage under the Policies attaches."

Since Century argues that the "policies clearly preclude coverage," we shall begin by examining those policies. The first and second, issued by Bankers Standard Insurance Company, insured State Wide from April 1, 1988, to April 1, 1989, and from April 1, 1989, to April 1, 1990. The third, also issued by Bankers Standard, insured Hearrean and State Wide from April 1, 1990, to April 1, 1991. The fourth and fifth, issued by Century's predecessor, Insurance Company of North America, insured Hearrean and State Wide from April 1, 1991, to April 1, 1992, and from April 1, 1992, to April 1, 1993.

The insuring agreements of all five of these policies stated, "We will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." In addition, the first and second policies provided: "This insurance applies only to `bodily injury' and 'property damage'which occurs during the policy period." The three remaining policies contained a similar provision: "This insurance applies to `bodily injury' and `property damage' only if: ... [¶] The `bodily injury' or 'property damage' occurs during the policy period." The definitions section of all policies provided: "`Property damage' means: [¶] a. Physical injury to tangible property, including all resulting loss of use of that property [...] or [¶] [b.] Loss of use of tangible property that is not physically injured. [...] [¶] `Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.'" (Italics added.)

Century asserts that under "occurrence-based liability" policies, as here, "coverage is determined based upon the facts that existed at the time the complaining party was actually injured." (Italics omitted.) The Kang Family Partnership was not injured, Century argues, until after it purchased the hotel in 1994, which was after each of the five Century and Bankers Standard policies had expired. Consequently, Century maintains there can be no coverage.

For this strict construction of insurance law, Century relies on this court's opinions in AC Label Co. v. Transamerica Ins. Co. (1996) 48 Cal.App.4th 1188, 56 Cal.Rptr .2d 207 (AC.Label) and FMC Corp. v. Plaisted & Companies (1998) 61 Cal.App.4th 1132, 72 Cal.Rptr.2d 467 (FMC Corp.), and the California Supreme Court opinion in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 42 Cal.Rptr.2d 324, 913 P.2d 878 (Montrose ).

In AC Label, we stated, "In order to determine whether these allegations stated a cause of action, we must first determine the scope of the coverage which [plaintiff] was obligated to provide to [defendants] under this CGL `occurrence' policy. `California courts have long recognized that coverage in the context of a liability insurance policy is established at the time the complaining party was actually damaged.' [Citation.] The coverage under such a policy must be construed in accord with `the mutual intention of the parties at the time the contract is formed.' [Citation.] While ambiguities are generally resolved in favor of coverage, this rule only...