Pardee Const. Co. v. Insurance Co. of West

• Decision Date: 02 February 2000
• Docket Number: No. D031946.,D031946.
• Citation: 92 Cal.Rptr.2d 443,77 Cal.App.4th 1340
• Court: California Court of Appeals Court of Appeals
• Parties: PARDEE CONSTRUCTION COMPANY, Plaintiff and Appellant, v. INSURANCE COMPANY OF THE WEST et al., Defendants and Respondents.

92 Cal.Rptr.2d 443

77 Cal.App.4th 1340

PARDEE CONSTRUCTION COMPANY, Plaintiff and Appellant, v. INSURANCE COMPANY OF THE WEST et al., Defendants and Respondents.

No. D031946.

Court of Appeal, Fourth District, Division 1.

February 2, 2000.

Certified for Partial Publication.¹

As Modified on Denial of Rehearing Feb. 23, 2000.^*

Review Denied April 26, 2000.

Mower, Koeller, Nebeker, Carlson & Haluck, Robert C. Carlson, Megan K. Dorsey, Laura T. Barton and Jay M. Bulger, San Diego, for Plaintiff and Appellant.

Newmeyer & Dillion, Gregory L. Dillion, Gene M. Witkin and Timothy S. Menter, Newport Beach, for Fieldstone Communities, Inc., William Lyon Homes, Inc., Catellus Development Corporation, Kaufman and Broad Home Corporation, New Urban West, Inc., Presley Homes and Standard Pacific Corp. as Amici Curiae on behalf of Plaintiff and Appellant.

Edwards, Sooy & Byron, Michael M. Edwards, Napoleon L.D. Taylor, Thomas W. Byron, San Diego, for Defendants and Respondents Insurance Company of the West and U.S. Fire Insurance Company.

Kern and Wooley, Ronald J. Skocypec, Susan T. Olson and Lisa Kralik Hansen, Los Angeles, for Defendants and Respondents Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company.

Daniels, Baratta & Fine, James M. Baratta and Robin A. Webb, Los Angeles, for Defendant and Respondent Nationwide Mutual Insurance Company.

Law Offices of Glenn M. White, Glenn M. White and John J. Druci for Golden Eagle Insurance Company as Amici Curiae on behalf of Defendant and Respondent.

WORK, J.

The primary issue presented by this appeal is whether insurers that have issued commercial general liability (CGL) policies to subcontractors, including completed operations coverage as to projects completed before their inception, owe a duty to defend the additionally insured general contractor in third party litigation asserting its vicarious liability for their acts. Here, where the insurers acknowledge the subcontractors had such completed operations coverage for the project that gave rise to the underlying litigation, we conclude that absent language excluding such coverage in the policies, certificates and endorsements the insurers owe the general contractor a duty to defend.

Pardee Construction Company (Pardee) appeals judgments for four insurers, Liberty Mutual Insurance Company (Liberty), Insurance Company of the West (ICW), Nationwide Mutual Insurance Company (Nationwide) and U.S. Fire Insurance Company (U.S.Fire), dismissing its claims against them for breach of contract, bad faith, fraud and indemnity. The judgments were entered after the trial court declared the insurers did not owe a duty to defend Pardee, an additional insured under each CGL policy, in an underlying action alleging defective construction of a Pardee development. After Heritage Concord Square Unit II Community Association (Association) brought that action (Super. Ct. San Diego County, 1995, No. 695782) (Heritage II action), Pardee tendered its defense, as an additional insured, to the four insurers under policies issued to its subcontractors whose work on the project was allegedly defective. Each insurer denied coverage and/or failed to acknowledge its obligation to defend Pardee. Pardee challenges the trial court ruling that no insurer had a duty to defend it as an additional insured, because the policies did not incept until after the construction project on which the action was based was completed and the parties did not intend these policies to provide coverage for that project. Pardee also contests the court's orders granting the insurers' demurrers as to its fraud cause of action and their motions for judgment on the pleadings as to its remaining causes of action.

As we shall explain, we conclude the clear and unambiguous language of the policies, certificates and endorsements of ICW, Nationwide and U.S. Fire provide Pardee completed operations coverage as to the named insured subcontractors and thus a duty to defend this Heritage II action. Accordingly, we reverse the judgments for those insurers. However, as to Liberty, we conclude the trial court correctly found the allegations in the complaint regarding its insured subcontractor, supplemented by the surrounding extrinsic evidence, do not give rise to any potential for coverage. Therefore, we reverse the judgments in their entirety as to ICW, Nationwide and U.S. Fire and direct the trial court to grant Pardee's motions for summary adjudication as to their duty to defend as to ICW and Nationwide. With regard to U.S. Fire, the trial court is directed to address whether Pardee complied with any self-insured retention obligation in re-examining the parties' motions for summary adjudication. The judgment on behalf of Liberty is affirmed.

I FACTUAL AND PROCEDURAL BACKGROUND

In the mid-to-late 1980's, Pardee as developer and general contractor built the multi-phase Heritage Concord Villas project (Heritage project) in the Mira Mesa area of San Diego. It hired subcontractors to construct and install each component of the project, including the stucco, landscaping, concrete, insulation and mechanical components, generally pursuant to one subcontract that remained in force during the six phases of construction. As the construction was completed on the various phases, three separate homeowners' associations were formed. The underlying construction defect litigation here was brought by the second of the three associations, Heritage Concorde Square Unit II (Heritage II).

Pardee subcontracted with Schmid Insulation (Schmid) to install all insulation pursuant to a subcontract dated October 1, 1985. In the same year, Pardee hired Strang Heating and Air Conditioning (later renamed Strang Mechanical, Inc. (Strang)) pursuant to two separate subcontracts to supply and install all sheet metal and heating/air conditioning systems. By contract dated October 1, 1985, Pardee contracted with Coast Plastering, Inc. (Coast) to complete the stucco and plastering work on the project. R.E. Hazard Contracting Company (Hazard) was responsible for the asphalt paving and concrete installation under a December 19, 1985 subcontract agreement, signed by Hazard in January, 1986. Finally, Pardee contracted with Doose Landscape (Doose) to supply and install landscaping, hardscape, drainage, backfill, retaining walls and irrigation, as well some fine grading and exterior site electrical work pursuant to several contracts dated from December 27,1985 through August 20,1987.

Each subcontract required that the subcontractor obtain general liability insurance naming Pardee as an additional insured on all policies for work performed on the Heritage project, including completed operations. The insurance clause provided:

"Subcontractor shall at all times maintain in effect throughout the performance of this agreement workers' compensation insurance, as required by law covering all employees. Subcontractor shall also at all times maintain in effect bodily injury and property damage liability insurance for (a) all operations, (b) subcontract work, (c) contractual obligations, (d) products and completed operations, (e) all vehicles, and (f) non-owned vehicles. Bodily injury liability, including auto, shall be in the amounts of $500,000/$1,000,000. Property damage liability, including auto, shall be in the amount of $300,000. All such insurance shall be written in form and underwritten by companies approved by Pardee, and will name Pardee as an additional insured. Subcontractor shall deliver to PARDEE certificates evidencing all such insurance issued by the insurers prior to commencement of the work. Failure of the Subcontractor to deliver all such certificates by the time Subcontractor is to commence the work shall be a default under this agreement."

ICW insured Coast and Strang. However, neither Coast nor Strang was insured by ICW in 1985 when their subcontracts with Pardee were executed. In fact, when the Heritage project was completed on March 15, 1988, no ICW policy had yet been issued to them. ICW issued a CGL policy to Strang on July 1, 1988, which continued in effect until July 1, 1990. Pardee was named an additional insured under the policy. ICW also issued a CGL policy to Coast for the period April 21, 1992 through April 21, 1993. Although no additional insured endorsement naming Pardee was issued by ICW under the policy, Pardee did receive a certificate of insurance, dated May 13, 1992, naming it as an additional insured for all operations and all jobs.²

Nationwide insured Doose and Coast. Again, however, neither Doose nor Coast was insured by Nationwide at the time the subcontracts were entered into or before completion of all work required of Doose and Coast. Nationwide insured Doose from December 31, 1990 through December 31, 1993. Pardee was named as an additional insured under endorsements issued for each of the three years the policy was in effect, which provided Pardee coverage to the extent it is held liable for Doose's acts or omissions arising out of and in the course of operations performed for Pardee. Nationwide insured Coast from February 1, 1988 through February 1, 1989 and from March 1, 1989 through March 1, 1990. Pardee was named as an additional insured for the two years of coverage, but only for liability arising out of Coast's work performed for Pardee.

Liberty insured Schmid, naming Pardee as an additional insured in its policies for the policy periods June 1, 1986 through June 1, 1988.

U.S. Fire insured Hazard. Approximately four years after the Heritage project was completed and while Hazard was working on a different construction project for Pardee, U.S. Fire in 1992 began to provide Hazard with liability insurance coverage, naming Pardee as an additional insured. It continued to do so for five policy periods from May 8, 1992 through May 8, 1997.

On December 27, 1995, the Association sued Pardee for breach of implied warranties, strict liability and...