Heidari v. Golden Bear Ins. Co.

• Decision Date: 28 February 2023
• Docket Number: A165815
• Parties: ALI HEIDARI, Plaintiff and Appellant, v. GOLDEN BEAR INSURANCE COMPANY, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

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ALI HEIDARI, Plaintiff and Appellant, v. GOLDEN BEAR INSURANCE COMPANY, Defendant and Respondent.

A165815^[1]

California Court of Appeals, First District, Second Division

February 28, 2023

NOT TO BE PUBLISHED

(Santa Clara County Super. Ct. No. 17CV306136)

Richman, J.

In 2014, appellant Ali Heidari filed suit against Saratoga Construction (Saratoga), alleging construction defects in Saratoga's construction of his home in Monte Sereno. Saratoga tendered defense of the action to respondent Golden Bear Insurance Company (GBIC), which insured Saratoga under a general commercial liability policy during part of the period during which the home was constructed. GBIC denied coverage. Heidari and Saratoga settled the underlying action, Saratoga assigned its rights under the policy to Heidari, and he brought suit against GBIC seeking declaratory relief regarding its duty to defend the underlying action. A bifurcated trial was held on the issue of GBIC's duty to defend, at the conclusion of which the trial court found that because subcontractors performed all the construction work on the property, coverage was barred under the contractors' warranty exclusion contained in the policy. We affirm.

BACKGROUND

The Factual Setting

On November 14, 2014, Heidari filed suit against Saratoga in Santa Clara Superior Court (Ali Heidari v. Wells Fargo Bank, N.A., et al, Case No. 114CV273242) (the underlying action) alleging construction defects in connection with the construction, between May of 2006 and June of 2008, by Saratoga of a residential property on Oak Drive in Monte Sereno, purchased by Heidari at a foreclosure sale in 2009 or early 2010.

The complaint in the underlying action alleged that "the residence's exterior decks and stairs allow water to enter into the structure," the "residence's exterior walls . . . allow unintended water to pass into the structure," "the residence's hardscape were installed in such a way as to cause water or soil erosion to enter into or come in contact with the structure," "the shower enclosure in the master bedroom shower leaks into the flooring system," "there are cracks in the ceiling in the family room," "there is flooding in front of the garage when it rains," "the residence's retaining walls and site walls (and the drainage systems associated with those walls) allow water to pass beyond, around or through its designed (or actual) moisture barrier," "there are gaps in the hardwood floor and the floor squeaks," and "the post supporting the driveway gate at the top of the property has settled causing damage to the post and the gate."

After service of the complaint, Saratoga tendered the defense and indemnity of the underlying action to its insurance carriers including respondent GBIC, which insured Saratoga under a commercial general liability policy between July 13, 2006 and March 9 2007.

By letter dated December 30, 2015, GBIC declined the request for defense and indemnity.

Heidari and Saratoga settled the underlying action on October 14, 2016. As part of the settlement agreement, Saratoga assigned to Heidari all claims and causes of action against GBIC for failure or refusal to defend. The matter then proceeded to an uncontested trial, at the conclusion of which the trial court entered a default judgment of $528,761, plus costs, against Saratoga.

The Proceedings Below

On February 8, 2017, Heidari filed the instant action against GBIC in Santa Clara Superior Court, seeking declaratory relief regarding GBIC's duty to defend and to indemnify and alleging breach of contract and breach of the implied covenant of good faith and fair dealing.

Both parties moved unsuccessfully for summary adjudication or summary judgment on the issue of GBIC's duty to defend.

On January 4, 2019, the parties filed a set of Stipulated Facts for Trial, including the following:

"• Saratoga was the general contractor for the demolition and construction of the property between approximately May of 2006 and June 30, 2008. [¶] . . . [¶]

"• Saratoga was responsible for supervising the work of all subcontractors and material suppliers at the property.

"• Saratoga retained subcontractors to construct the retaining wall at the property at issue in the litigation. [¶] . . . [¶] "• Saratoga cannot identify all subcontractors it retained to work on the Subject Property at issue in the litigation.

"• Saratoga cannot locate any copies of any subcontracts for the work at the property.

"• Saratoga cannot locate any copies of insurance certificates identifying Saratoga Construction, Inc. as an additional insured for Saratoga Construction, Inc.'s subcontractors' work at the property.

"• The demolition work began on or around May of 2006.

"• The Notice of Completion for improvement of the property was recorded on November 30, 2007.

"• The Final Inspection of the property took place and passed inspection on June 30, 2008.

"• GBIC issued CGL policy number GBL 07088 to Saratoga effective July 13, 2006, through July 13, 2007 (the 'Policy').

"• The Policy was cancelled due to non-payment of the premium, with an effective cancellation date of March 9, 2007.

"• Saratoga's owner, Reza Norouzi, destroyed all project job file documents when the property entered foreclosure."

A three-day bifurcated bench trial on the issue of GBIC's duty to defend took place in May of 2019, with testimony from Beth Ossino, GBIC's claims manager; Reza Norouzi, Saratoga's owner and principal; and Michael Stevens, Saratoga's attorney.

GBIC argued that coverage was barred by various exclusions in its policy, including-as will be discussed in greater detail-a contractors' warranty exclusion providing that coverage "shall not apply to occurrences arising out of operations performed by Independent Contractors unless, as a condition precedent," Saratoga obtained agreements from its subcontractors to hold Saratoga harmless for liabilities incurred and certificates of insurance listing Saratoga as an additional insured. GBIC also argued that coverage was barred under the policy because Saratoga's work on the property was not completed during the policy term.

At trial, Ossino testified regarding Saratoga's application for insurance from GBIC, on which it had indicated that "90%" of the work was to be performed by subcontractors, and in describing the work that was subcontracted, wrote that "ALL TRADES ARE SUBBED OUT":

"Q. What was your understanding in reading the terminology 'All trades are subbed out?'

"A. That all the actual work performed out there was done by subcontractors, that Saratoga probably provided just supervision, probably scheduling timing permanent type work, but all the actual trades-the actual construction work was performed by subcontractors.

"Q. Right in the middle of that box next to that section, there is a-it looks like percent symbol, work subcontract, it says: '90%.' Do you see that?

"A. Yes.

"Q. What is your understanding of that when you had this statement: 'All trades subbed out.' How did this correlate?

"A. The ten percent would have been the insured supervision work, and 90 percent would be all the actual construction work on the projects. [¶] . . . [¶]

"Q. Did you have any understanding at all whether Saratoga Construction had worksite employees?

"A. Based on what they told the inspector, I think at that time, they said that they only had one other full-time employee who was a job superintendent, and I think on the application, it also notes an accounting person. So we didn't have any indication that they had anybody actually out there performing work, other than supervisory work."

Norouzi testified to the contrary, that Saratoga's own employees did perform construction work on the project, including the "site drainage installation," and "the waterproofing and the drainage work behind the retaining wall."

Norouzi also testified regarding Saratoga's insurance application:

"Q. You see, maybe you want to use the magnifying glass right there, where it says: 'Percentage work subcontracted.'

"A. Yes.

"Q. So Saratoga Construction didn't-did not subcontract out all the work on his projects, only the trades?

"A. For sure, yes. "Q. And the trades aren't all of the work on the project, are they? "A. No. [¶] . . . [¶] "Q. Who are the trades? "A. Subcontractors. "Q. You were naming them? "A. Roofing, foundation, framing, electrical, plumbing, sheet rock, stucco, yeah. "Q. Those things were subbed out, correct? "A. Yes. "Q. And Saratoga Construction still had some men working, right? "A. I had some workers, yes. "Q. And they did work that were not the trades? "A. Yes.

"Q. Is this an accurate statement here that 90 percent of the work for the trades work, which is 90 percent of the total work was subbed out?

"A. Yes. [¶] . . . [¶]

"Q. Mr. Norouzi, I believe you previously testified that you-Saratoga self-performed some site drainage work?

"A. Yeah. [¶] . . . [¶] The drainage behind the retaining wall. Yes."

At the conclusion of the trial, the trial court rendered an oral statement of decision, finding as follows:

"THE COURT: Thank you. All right. [¶] So in this matter, I thought a lot about all of the evidence that was presented during the trial, and I considered the credibility of the witnesses. And in considering credibility, the Court considered the demeanor of the witnesses while they were testifying, the consistency of the testimony while testifying, and compared to other admissible evidence including their depositions. It's coherently [sic], and whether or not the testimony was corroborated. And based on those factors, the Court found Mrs. Ossino to be credible.

"Mr Norouzi was not credible. His demeanor consistently changed when he was caught in a...