CLARENDON America Ins. Co. v. North American CAPACITY Ins. Co.

• Decision Date: 15 June 2010
• Docket Number: No. E048176.,E048176.
• Citation: 112 Cal.Rptr.3d 339,186 Cal.App.4th 556
• Court: California Court of Appeals Court of Appeals
• Parties: CLARENDON AMERICA INSURANCE COMPANY, Plaintiff and Appellant, v. NORTH AMERICAN CAPACITY INSURANCE COMPANY, Defendant and Respondent.

186 Cal.App.4th 556

112 Cal.Rptr.3d 339

CLARENDON AMERICA INSURANCE COMPANY, Plaintiff and Appellant,

v.NORTH AMERICAN CAPACITY INSURANCE COMPANY, Defendant and Respondent.

No. E048176.

Court of Appeal, Fourth District, Division 2, California.

June 15, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Law Offices of Karen–Denise Lee, Karen–Denise Lee, Torrance; Blau & Associates and David S. Blau, Los Angeles, for Plaintiff and Appellant.

Grimm, Vranjes, McCormick & Graham, A. Carl Yaeckel, Charles A. Phillips and Mark Vranjes, San Diego, for Defendant and Respondent.

OPINION

KING, J.

I. INTRODUCTION

Eagle Ranch Residential, LLC, doing business as Tanamera Homes and Resort Communities, LLC (Tanamera), constructed a residential development in Victorville known as Shenandoah at Eagle Ranch (Eagle Ranch). Clarendon America Insurance Company (Clarendon) and North American Capacity Insurance Company (NAC), the parties to the present action, insured Tanamera under separate and consecutive general commercial liability policies.

[1] In the present action, Clarendon sued NAC for declaratory relief, equitable contribution, and partial equitable indemnity, seeking a proportionate or equitable share of sums Clarendon expended to defend Tanamera in a construction defect action brought by the owners of 43 Eagle Ranch homes (the Bradley action). ¹ NAC moved for summary judgment on the ground its duty to defend Tanamera in the Bradley action never arose because Tanamera never paid a $25,000 “per claim” self-insured retention (SIR) for each home involved in the Bradley action and completed after November 30, 2002, the effective date of the NAC policy.

Only eight of the 43 homes involved in the Bradley action were completed after November 30, 2002. Thus, NAC argued it had no duty to defend Tanamera unless and until Tanamera expended $200,000 (8 times $25,000) of its own funds in settlements, judgments, or “Claims Expense[s].” Clarendon maintained that the $25,000 SIR in the NAC policy applied only one time to the Bradley action as a whole, not to each of the eight allegedly defective homes covered by the NAC policy. The trial court granted NAC's motion, and Clarendon appeals from the ensuing judgment entered in favor of NAC.

We reverse. For the reasons we explain, NAC did not meet its burden of showing there was no potential for coverage under the terms of its policy, or no duty to defend Tanamera in the Bradley action, as a matter of law. NAC relied solely on the terms of its $25,000 SIR endorsement to support its motion, but in view of other terms of the NAC policy and the apparent circumstances at the time the policy was issued, as revealed by the evidence on the motion, Tanamera may have had an objectively reasonable expectation, at the time the policy was issued, that the $25,000 SIR would apply only once to the Bradley action as a whole, rather than to each of the eight homes constructed after November 30, 2002. NAC failed to show that Tanamera had no such reasonable expectation, as a matter of law, and all of the papers submitted on the motion leave this possibility open. Accordingly, NAC's motion was erroneously granted.

II. PROCEDURAL HISTORY AND UNDISPUTED FACTS ²

In late 2006, Leslie D. Bradley, an Eagle Ranch homeowner, sued Tanamera in a class action on behalf of a class consisting of the owners of approximately 273 Eagle Ranch homes, alleging the homes contained construction defects. The class action allegations were later dismissed and the complaint was amended to identify specific homeowners as plaintiffs. Ultimately, the Bradley action involved 73 Eagle Ranch homeowners and 43 Eagle Ranch homes.

Tanamera tendered the defense of the Bradley action to both Clarendon and NAC. Clarendon defended Tanamera under a reservation of rights, eventually settling the case with all 73 homeowners for a single lump sum amount of $690,000. NAC refused Tanamera's tender on the ground it had no duty to defend or indemnify Tanamera unless and until Tanamera satisfied the $25,000 “per claim” SIR in the NAC policy. According to NAC, the $25,000 SIR applied to each of the eight homes that were completed after November 30, 2002, and involved in the Bradley action. Thus, according to NAC, Tanamera had to expend $200,000 of its own funds in defense or settlement of the Bradley action before NAC's duty to defend Tanamera arose.

The Clarendon policy was in effect from November 28, 2000 through November 28, 2002. The NAC policy was in effect from November 26, 2002 through May 30, 2005. Coverage under the NAC policy applied to “ ‘bodily injury,’ ‘property damage,’ ‘personal and advertising injury’ and medical expenses” arising out of the “ownership, maintenance or use” of the Eagle Ranch premises and the “project,” which was defined as 450 single-family dwellings.

Pursuant to the terms of an endorsement to the NAC policy entitled “Exclusion—Designated Work,” coverage under the NAC policy excluded “all construction prior to 11–30–02 except homes under construction/not yet completed.” As indicated, only eight of the 43 homes involved in the Bradley action were completed after November 30, 2002. Thus, only eight of the 43 homes were covered by the NAC policy. The premium for the NAC policy was $404,320. The aggregate liability limit was $2 million.

The record does not reveal the total number of Eagle Ranch homes constructed during the two and one-half year period of the NAC policy. Thus, the record does not indicate the total number of Eagle Ranch homes, if any, completed after November 30, 2002, other than or in addition to the eight homes involved in the Bradley action.

In 2007, while the Bradley action was still pending and before Clarendon settled it for a lump sum payment of $690,000, Clarendon sued NAC in the present action for declaratory relief, equitable contribution, and partial equitable indemnity. Clarendon alleged that NAC's duty to defend Tanamera arose after Tanamera satisfied a single $25,000 SIR, or expended $25,000 of its own funds in relation to the Bradley action.

NAC moved for summary judgment on Clarendon's complaint on the ground it was not liable to Clarendon “under any of its alleged theories.” Specifically, NAC argued that its duty to defend or indemnify Tanamera had never arisen because Tanamera had never met the $25,000 SIR for each of the eight homes involved in the Bradley action and potentially covered by the NAC policy. Thus, NAC argued it had no duty to indemnify Clarendon for any part of the monies it expended in defense or settlement of the Bradley action.

In support of its motion, NAC relied solely on the terms of its policy, specifically its $25,000 SIR endorsement. The following appears at the top of the first page of the two-page SIR endorsement: “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. [¶] SELF–INSURED RETENTION [¶] Per Claim [¶] Self–Insured Retention: $25,000 Per Claim[.]”

In its initial paragraph, the SIR endorsement provides that the terms of the policy are subject to the terms, conditions, and provisions stated in the endorsement, and in the event of a conflict, the terms, conditions, or provisions of the endorsement control over those of the policy. Thereafter, the SIR endorsement contains 13 numbered paragraphs. Pertinent portions of those paragraphs read as follows:

“1. The Self–Insured Retention, shown above, applies to each and every claim made against any insured, to which this insurance applies, regardless of how many claims arise from a single ‘occurrence’ or are combined in a single ‘suit.’

“2. ... The Limits of Insurance will apply only in excess of the Self–Insured Retention, hereinafter referred to as the ‘Retained Limit.’ We have no duty to defend or indemnify unless and until the amount of the ‘Retained Limit’ is exhausted by payment of settlements, judgments, or ‘Claims Expense’ by you.

“3. Should any claim under this policy result in a settlement or judgment not exceeding the ‘Retained Limit,’ including ‘Claims Expense,’ then no ‘Claims Expense,’ damages or indemnity will be payable by us.

“4. Should any claim arising under this policy result in a settlement or judgment, including ‘Claims Expense’ incurred by the insured or on the insured's behalf, in excess of the ‘Retained Limit,’ we will pay those amounts in excess of the ‘Retained Limit’ to which this insurance applies subject to the Limits of Insurance as specified in the Declarations.

“5. The ‘Retained Limit’ will only be reduced by payments made by the insured.”

In support of its motion, NAC proffered 12 undisputed facts with supporting evidence. These concerned the number of homes involved in the Bradley action, the effective dates of the NAC policy, the terms of the SIR endorsement, the exclusion of coverage under the NAC policy for homes completed before November 30, 2002, and, finally, the fact Clarendon was claiming that Tanamera had satisfied the $25,000 SIR—one time—by expending $25,000 of its own funds in defense of the Bradley action. As indicated, NAC maintained that its SIR endorsement, or $25,000 “per claim” SIR, applied to each of the eight homes involved in the Bradley action that were completed after November 30, 2002.

Clarendon did not dispute that only eight of the homes involved in the Bradley action were completed after November 30, 2002, and subject to the NAC policy. It argued, however, that the $25,000 SIR applied only one time to the Bradley action as a whole. In support of its position, Clarendon proffered eight additional facts, alleging that the Bradley action was a “collective” action involving questions of law and fact common to all 43 Eagle Ranch properties; the plaintiffs in the action did not seek damages on a “per-home” basis and did not present individual settlement demands, the action was defended in its entirety, and “only one settlement” was paid to resolve the “homeowners' portion” of the action. These...