Ins. Co. of Pa. v. Am. Safety Indem. Co.

• Decision Date: 01 March 2019
• Docket Number: B283684
• Citation: 244 Cal.Rptr.3d 310,32 Cal.App.5th 898
• Court: California Court of Appeals Court of Appeals
• Parties: The INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, Plaintiff and Respondent, v. AMERICAN SAFETY INDEMNITY COMPANY, Defendant and Appellant.

32 Cal.App.5th 898

244 Cal.Rptr.3d 310

The INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, Plaintiff and Respondent,

v.AMERICAN SAFETY INDEMNITY COMPANY, Defendant and Appellant.

B283684

Court of Appeal, Second District, Division 8, California.

Filed March 1, 2019

Chamberlin & Keaster, Robert W. Keaster and Michael A. Miller, Encino, for Defendant and Appellant.

Herold & Sager, Andrew D. Herold, Michael D. Douglas and Brooke M. Finley, Encinitas, for Plaintiff and Respondent.

GRIMES, J.

SUMMARY

This is a dispute between insurers. Under Insurance Code section 11580 ( section 11580 ), when a judgment is obtained against an insured based upon property damage, the judgment creditor may bring an action on the policy against the insurer, to recover on the judgment. Here, plaintiff’s insured (a general contractor) secured a default judgment against defendant’s insured (a subcontractor), after a homeowner obtained an arbitration award of more than $1.1 million against the general contractor.

Plaintiff indemnified the general contractor for the arbitration award. Defendant refused to indemnify the subcontractor for the amount of the default judgment. In this lawsuit, plaintiff (as subrogee of its insured) sought recovery from defendant under section 11580 of the amount of the default judgment against the subcontractor.

Both parties filed summary judgment motions, and the trial court granted summary judgment for plaintiff. Defendant appeals on three principal bases. Defendant contends the default judgment was void because the underlying complaint failed to specify the amount of damages sought. ( Code Civ. Proc., § 580.) Defendant further contends the default judgment was an award for economic loss rather than property damage, and therefore not recoverable under section 11580. And, defendant contends plaintiff did not prove the default judgment was covered under any of defendant’s policies. Defendant also raises other points not presented to the trial court before it granted summary judgment.

We find no merit in defendant’s principal contentions, and do not consider claims not presented to the trial court until after it heard and ruled on the summary judgment motions. Accordingly, we affirm the judgment.

FACTS

1. The Parties and the Background

Plaintiff is The Insurance Company of the State of Pennsylvania. Plaintiff was the excess liability insurer for New Millennium Homes LLC and NM Homes One, Inc. (collectively, NMH).¹ NMH was the builder and developer of a housing development in Calabasas. Amir and Brenda Moghadam bought one of the homes from NMH in December 2005 (the Moghadam property).

Defendant is American Safety Indemnity Company. Defendant was the commercial general liability insurer for Camarillo Engineering, Inc. (Camarillo). Defendant issued six different policies to Camarillo covering annual periods that began on December 1, 2003, and ended on August 1, 2009. Each of the policies provides that defendant will pay "those sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’ to which this insurance applies." Property damage is defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property."² The insurance applies to property damage if it is "caused by an ‘occurrence’ that takes place in the ‘coverage territory’ " and if the property damage "occurs during the policy period."

In 2004, Camarillo performed "mass grading, compacting, and finish grading" of the soils at the Moghadam property under a November 2004 subcontract with NMH. The subcontract required Camarillo to indemnify and hold NMH harmless from claims (including attorney fees "incurred as a result thereof") for property damage "arising out of or resulting from the activities of or work performed" by Camarillo.

In early 2009, the Moghadams " ‘began to notice drywall and stucco cracks, separation and cracking of interior tiles, and lifting of exterior flagstones’ " on their property. They complained to NMH " ‘[i]n approximately May 2009.’ " An ensuing geotechnical investigation found the distress to the Moghadam residence was due to " ‘differential fill settlement, as well as expansive soil activity,’ " and that "an inadequate design and construction of the post-tension slab foundation system are exacerbating the distress." A construction engineer hired to prepare a repair estimate concluded the entire structure was compromised and should be demolished and rebuilt at a cost of almost $1.9 million.

In September 2011, the Moghadams filed a claim in arbitration against NMH for defective construction, alleging their total current damages were "at least $2,347,592." Their claim alleged most of the stress features (the cracks and separations mentioned above) had occurred on the southeastern portion of the house, where the fill was deepest. The claim also described a floor tilted downward, as well as hairline wall and ceiling cracks throughout the house.

In December 2011, while the arbitration was pending, NMH sued Camarillo and two other defendants for contractual and equitable indemnity, contribution and related causes of action.³ Paragraph 8 of the NMH complaint incorporated by reference, and attached as exhibit A, the Moghadams’ arbitration claim that alleged the Moghadams’ current damages were "at least $2,347,592." The NMH complaint further alleged (par. 19) "that Defendants, and each of them, had and have a duty to defend, indemnify, and hold harmless [NMH] for the claims made in the Moghadam Claimants’ Arbitration Complaint, including attorneys’ fees and costs." NMH’s complaint did not otherwise specify the amount of damages sought, alleging damages "in an amount to be established at the time of trial."

Camarillo did not answer NMH’s complaint or otherwise appear in the NMH lawsuit, and its default was entered in March 2012.⁴

In October 2012, after hearings in June and July, the arbitrator in the Moghadam arbitration entered an award against NMH. The arbitrator stated that, "[g]iven the various testing that was conducted, it is undisputed that the house is damaged due to differential settling resulting from improper soil compaction."⁵ The arbitrator also found "the soil is still settling and there is a potential for significant settlement over many years."

The final binding award gave the Moghadams "damages for diminution in value in the amount of $1,026,750, with interest at the legal rate accruing as of the date of the Interim Award dated August 13, 2012." As the prevailing party under the purchase agreement and joint escrow instructions, the Moghadams were awarded attorney fees of $105,000 and costs of $8,840.38, with interest at the legal rate accruing as of the date of the final award (October 9, 2012).

The award was confirmed in December 2012, in the principal sum of $1,140,590.38, plus prejudgment interest of $28,417.84, for a total award of $1,169,008.22. The Moghadams recovered an additional $7,625 for attorney fees and costs incurred in preparation and filing of the petition to confirm the award, bringing their total recovery to $1,176,633.22.

Plaintiff fully indemnified NMH for the arbitration award to the Moghadams.

On August 7, 2013, NMH obtained a final default judgment against Camarillo in the amount of $1,532,973.87, consisting of damages of $1,176,633.22 and attorney fees of $356,340.65.⁶ (The request for default judgment was supported by declarations and documents including the subcontract, evidence from the Moghadam arbitration, and the arbitration award.)

2. The Complaint

In July 2015, plaintiff brought this lawsuit against defendant. Plaintiff alleged causes of action for declaratory relief, subrogation, recovery of the judgment under section 11580, and breach of contract. The complaint alleged defendant’s policies provided coverage for the entire amount of the default judgment; defendant had a duty under those policies to indemnify Camarillo for the amount of the default judgment; and plaintiff was subrogated to NMH’s rights to recover the amount of the default judgment, from Camarillo and defendant, by virtue of having indemnified NMH for the arbitration award.

3. The Motions for Summary Judgment

Both parties moved for summary judgment.

Defendant contended, in opposition to plaintiff’s motion, that plaintiff could not prove all the elements of any cause of action against defendants.

First, defendant asserted the default judgment was void as a matter of law under Code of Civil Procedure section 580, because NMH’s complaint against Camarillo did not specify the amount of damages sought. Second, defendant asserted the arbitration award on which the default judgment was based was for economic loss, not property damage, and section 11580 permits an action against the insurer only when the judgment against the insured is "in an action based upon bodily injury, death, or property damage." ( § 11580, subd. (b)(2).) Third, defendant contended plaintiff did not satisfy its burden to prove the default judgment was covered under any of defendant’s policies. This was because (a) plaintiff did not prove "when property damage first occurred" at the Moghadam property, and (b) plaintiff did not prove that Camarillo satisfied the applicable self-insured retention (SIR) or deductible under any of the policies. (We will describe and discuss these and other policy provisions to the extent necessary in connection with our legal discussion, post .)

Defendant’s own summary judgment motion was based on the first two of defendant’s three contentions.

Plaintiff argued that the default judgment was not void because the NMH complaint attached and incorporated by reference the Moghadam arbitration claim, specifying the damages sought from NMH for which NMH sought indemnity from Camarillo. Further, the arbitration award based on diminution in value was not an award for economic loss, because diminution in value was merely the measure of damages, and did not change the fact that the damages awarded...