Community Redevelopment Agency v. Aetna Casualty & Surety Co., No. B077182

• Court: California Court of Appeals
• Writing for the Court: CROSKEY; KLEIN, P.J., and KITCHING
• Citation: 57 Cal.Rptr.2d 755,50 Cal.App.4th 329
• Decision Date: 29 October 1996
• Docket Number: No. B077182
• Parties: , 96 Cal. Daily Op. Serv. 7934, 96 Daily Journal D.A.R. 13,145 COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, Plaintiff and Respondent, v. AETNA CASUALTY AND SURETY COMPANY et al., Defendants and Respondents. United Pacific Insurance Company, Defendant, Cross-Complainant and Appellant; Scottsdale Insurance Company, Cross-Defendant and Respondent. COMMUNITY REDEVELOPMENT AGENCY of the CITY of LOS ANGELES, Plaintiff, v. GRANITE STATE INSURANCE COMPANY, Defendant. TOKYO MARINE and FIRE INSURANCE COMPANY, Plaintiff, v. AETNA CASUALTY and SURETY COMPANY, Defendant.

Page 755

57 Cal.Rptr.2d 755 50 Cal.App.4th 329, 96 Cal. Daily Op. Serv. 7934, 96 Daily Journal D.A.R. 13,145 COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, Plaintiff and Respondent,
v.
AETNA CASUALTY AND SURETY COMPANY et al., Defendants and Respondents.
United Pacific Insurance Company, Defendant, Cross-Complainant and Appellant;
Scottsdale Insurance Company, Cross-Defendant and Respondent.
COMMUNITY REDEVELOPMENT AGENCY of the CITY of LOS ANGELES, Plaintiff,
v.
GRANITE STATE INSURANCE COMPANY, Defendant.
TOKYO MARINE and FIRE INSURANCE COMPANY, Plaintiff,
v.
AETNA CASUALTY and SURETY COMPANY, Defendant. No. B077182. Court of Appeal, Second District, Division 3, California. Oct. 29, 1996.
As Modified Nov. 13, 1996.

Page 756

[50 Cal.App.4th 332] Wasserman, Comden & Casselman, David B. Casselman and Glenn A. Brown, Jr., Tarzana, for Defendant, Cross-Complainant and Appellant.

Cooksey, Howard, Martin & Toolen, Phil Woog and Thomas Zimmerman, Costa Mesa, for Cross-Defendant and Respondent.

No appearance for Plaintiff and Respondent.

No appearance for Defendants and Respondents.

CROSKEY, Associate Justice.

In this action, which appears to be the final part of a major and complex construction defect case, we are called upon to construe the provisions of an excess liability policy which calls for the application of the horizontal exhaustion rule. The precise question presented is whether an excess insurer, under policy provisions such as those presented here, has any obligation, in a continuing loss case, to "drop down" and provide a defense to a common insured before the liability limits of all primary insurers on the risk have been exhausted. Consistent with the horizontal exhaustion rule, we answer this question in the negative. We therefore affirm the judgment.

The appellant, United Pacific Insurance Company ("United"), seeks reversal of the trial court's declaratory judgment in favor of the respondent, Scottsdale Insurance Company ("Scottsdale"), in which the court held that Scottsdale, an excess insurer, had no duty to defend the common insureds and therefore had no obligation to contribute to the very substantial defense costs which United had expended in providing that defense. ¹

50 Cal.App.4th 333

FACTUAL AND PROCEDURAL BACKGROUND ²

In the mid-1970's, developers, including the Community Redevelopment Agency of

Page 757

the City of Los Angeles ("CRA"), embarked upon a major redevelopment project for the Monterey Hills area of Los Angeles. The redevelopment area initially consisted of three hilly masses with slopes ranging from moderate to steep. The CRA undertook to determine the feasibility of developing the site for residential use. Under the plan adopted, the CRA was responsible for constructing public improvements, including, among other things, the cut, fill compaction, grading, installation of drainage devices, subdrainage systems and preparation of building pads. The improved parcels were then to be sold by CRA to a redeveloper for construction of low and moderate income housing units.

As part of the redevelopment, two major fills were created: Pullman Canyon and Lomitas Canyon. In some instances these fills were over 100 feet in depth. Commencing in the late 1970s and continuing until early 1984, the Carley Capital Group, J.D. Carley and/or Carley Pacific (collectively, "Carley"), as the redevelopers and general contractors, along with numerous subcontractors, designed and constructed a number of condominium, townhouse and apartment complexes in the redevelopment area. In early 1984, California Coast Development Group, Inc. ("Cal Coast") succeeded to certain of the interests of J.D. Carley and Carley Pacific and engaged in the construction of two additional complexes. The construction of most of the complexes had been completed by September of 1983.

Prior to the construction of any structures in the redevelopment area, mass grading and filling was accomplished. The trial court found that this work was improperly done and concluded that the Lomitas and Pullman Canyon fills and the building pads were defective and damaged for the following reasons: (a) large quantities of colluvial material (unsuitable soil) were left at the bottom of said fills; (b) the fill was inadequately compacted; (c) portions of the subdrain system collapsed; (d) excessive moisture was retained in said fills; and (e) other improper materials were contained in said fills, (e.g., boulders, wood fragments, roots and other organic materials).

Based on these findings, the trial court concluded that the fills and the earthen pads, which were placed totally or partially on such fills, were defectively designed, engineered, constructed and inspected. Such defects [50 Cal.App.4th 334] caused and, as of the date of trial, were continuing to cause the fills and pads to settle, which in turn resulted in continuing damages to the structures and improvements located thereon. The fills and building pads were initially damaged during the grading and construction process because the fills experienced an immediate excessive subsidence. To be more precise, the trial court concluded that the excessive settlement or subsidence commenced upon completion of the Lomitas Canyon and Pullman Canyon fills in April 1977 and has continued to the present day.

From this, the trial court drew the further conclusion that the damage to the fills and building pads, including the resulting damage to structures and improvements, was a continuing loss or damage that was generic to all of the complexes that were totally or partially constructed over said fills. Therefore, the court concluded, every cause of action alleged in the underlying actions which claimed excessive subsidence, damage to structures and improvements, damage to the fills or damage to the building pads located at the redevelopment area, potentially referred to this continuing loss or damage.

United had issued two successive CGL policies to Carley for the periods May 31, 1982 to May 31, 1983 and May 31, 1983 to May 31, 1984. A third policy was issued to Carley and Cal Coast for the period May 31, 1984 to May 31, 1985. Each of these United policies was primary insurance and was in the face amount of $1,000,000. There is no dispute that these policies provided coverage for the property damage claims asserted against Carley and Cal Coast in the underlying actions which were ultimately brought by the several homeowner associations and individuals who sued to recover for the extensive damages and losses sustained to their homes as a result of the above described subsidence.

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In addition, Cal Coast had purchased another primary CGL policy with coverage for $1,000,000 from State Farm Fire and Casualty Insurance Company ("State Farm"). The effective dates of coverage for this policy were June 15, 1985 to June 15, 1986. Finally, Cal Coast also purchased a $5 million umbrella policy from Scottsdale which was specifically (but not exclusively) excess to the State Farm policy. Scottsdale's policy was effective from July 19, 1985 through June 14, 1986. It not only covered Cal Coast, but also Carley and the CRA.

The relevant provisions of the Scottsdale policy ³ are as follows:

"DEFENSE, SETTLEMENT AND SUPPLEMENTARY PAYMENTS

[50 Cal.App.4th 335] "The company shall have the right and duty to defend any suit against the INSURED seeking damages which are payable under the above insuring Agreement, even if any of the allegations of the suit are groundless, false, or fraudulent, provided, however, that no other insurance affording a defense or indemnity against such a suit is available to the INSURED

"......

"UNDERLYING LIMIT--RETAINED LIMIT

"The Company shall be liable only for the ULTIMATE NET LOSS in excess of the greater of the INSURED'S: (A) Underlying Limit--An amount equal to the Limits of Liability indicated beside the underlying insurance listed in the Schedule of Underlying Insurance (Schedule A),[ ⁴] plus the applicable limits of any other underlying insurance collectible by the INSURED;

"...

"LIMITS OF LIABILITY

"... In the event of reduction or exhaustion of the aggregate limits of liability under said underlying insurance by reason of the payment of damages for PERSONAL INJURY, PROPERTY DAMAGE or ADVERTISING LIABILITY, which occur during each policy period, this policy, subject to the above limitations, shall:

(A) in the event of reduction pay in excess of the reduced underlying limits, or

(B) in the event of exhaustion continue in force as underlying insurance subject to all the terms and conditions of such underlying insurances.

"......

"OTHER INSURANCE: The insurance afforded by this policy shall be excess insurance over any other valid and collectible insurance available to the INSURED, whether or not described in the Schedule of Underlying Insurance....

"ENDORSEMENT NO. 2

"Subsidence Exclusion

[50 Cal.App.4th 336] "It is agreed that this policy shall not apply to any liability for Bodily Injury or Property Damage caused by the subsidence of land & arising out of or attributable to any operations of the insured." (Italics added.)

The extensive damages sustained by a number of individual homeowners and homeowner associations resulted, subsequent to 1984, in at least 27 separate damage actions (plus one unwritten and unfiled "claim") against Carley, Cal Coast and the CRA (as well as a number of other parties whose interests are not material to the instant matter). Not unexpectedly, a substantial amount of expensive litigation activity ensued. In February of 1988, State Farm negotiated a settlement, on behalf of Carley, of all of the claims asserted by the Drake Terrace Homeowner's Association...