Pines of La Jolla Homeowners Assn. v. Industrial Indemnity

• Decision Date: 16 April 1992
• Docket Number: No. D013384,D013384
• Citation: 5 Cal.App.4th 714,7 Cal.Rptr.2d 53
• Court: California Court of Appeals Court of Appeals
• Parties: PINES OF LA JOLLA HOMEOWNERS ASSOCIATION, etc., Cross-Complainant and Appellant, v. INDUSTRIAL INDEMNITY, etc., Cross-Defendant and Respondent.

Page 53

7 Cal.Rptr.2d 53

5 Cal.App.4th 714

PINES OF LA JOLLA HOMEOWNERS ASSOCIATION, etc., Cross-Complainant and Appellant, v. INDUSTRIAL INDEMNITY, etc., Cross-Defendant and Respondent.

No. D013384.

Court of Appeal, Fourth District, Division 1, California.

April 16, 1992.

Aguirre & Eckmann, James K. Eckmann, and Duane Shinnick, San Diego, for cross-complainant and appellant.

Hughes & Nunn and Randall M. Nunn, San Diego, for cross-defendant and respondent.

FROEHLICH, Associate Justice.

This case presents the narrow issue of whether an insurer may rely on a clause in its insurance policy (the so-called "other insurance" clause) to escape liability for damages which may have occurred during its policy period, merely because a second insurer in fact paid such damages as part of a settlement on behalf of the insured. We conclude, on the facts presented here, that mere payment of settlement proceeds by the second insurer did not constitute that insurer's binding admission of its liability for all claims presented in the lawsuit, and hence summary judgment based on the "other insurance" clause was inappropriate. We therefore reverse.

FACTUAL AND PROCEDURAL BACKGROUND

I. The Project

The facts, construed most strongly in favor of appellant, reflect that between 1979 and 1984, a 247-unit condominium project known as "Pines of La Jolla" was developed. A & A Construction Company, Inc. and Augusto Angelucci (hereinafter "insureds") were involved in developing the project.

II. The Insurance Policies

The insureds had five different insurers during the relevant time period, only two of which are germane to our analysis. For the period of April 26, 1981 through April 26, 1982, the insureds were covered under a comprehensive general liability policy issued by respondent Industrial Indemnity (I.I.). After a one-year period of coverage by another insurer, Fireman's Fund Insurance Company (Fireman's Fund) issued similar liability coverage to the insureds for the period 1983 through 1986.

The policies issued by both I.I. and Fireman's Fund were occurrence-based policies which, in relevant part, contained identical language insuring against identical risks. Both policies (1) insured against liabilities of the insureds for "property damage ... caused by an occurrence"; (2) defined "occurrence" as an "accident ... which results in ... property damage neither expected nor intended from the standpoint of the insured"; and (3) defined "property damage" as "physical injury to ... tangible property which occurs during the policy period."

III. The Lawsuits

A. The Construction Defect Litigation

The evidence submitted in opposition to I.I.'s summary judgment motion indicated the project may have begun suffering damages from defective construction beginning in 1981 or early 1982, during I.I.'s tenure as insurer. For example, demand letters from attorneys representing the project's homeowners association, Pines of La Jolla Homeowners Association (Pines), stated the project suffered from problems created by improperly installed light fixtures and lack of water. Repair records also showed that during I.I.'s tenure the project suffered from problems created by water intrusion, defective plumbing, improperly sealed windows, and defective electric gates. Furthermore, depositions of three homeowners suggested that during I.I.'s tenure they had discovered defects, such as crumbling concrete, cracked balconies, leaky walls, etc.

In 1984 the homeowners association for the project, Pines, sued the insureds for a host of distinct construction defects in the project. None of the insurers conceded either coverage or a duty to defend the insureds for the claims asserted in the construction defect lawsuit. However, Fireman's Fund provided a defense to the insureds, eventually funding a settlement Under the settlement agreement, Fireman's Fund paid $2.9 million to Pines. As additional consideration for Pines' agreement to release the insureds from the construction defect lawsuit, Fireman's Fund assigned to Pines any rights held by Fireman's Fund to seek contribution or indemnity from three of the other insurers, ¹ including I.I. Thus, the settlement contemplated that any additional recoupment by Pines for damages would have to be pursued through the "coverage litigation," i.e., Pines would have to seek recovery from the three other insurers (including I.I.) on Fireman's Fund's claims for contribution, indemnity or subrogation.

which extricated the insureds from the lawsuit. Although Fireman's Fund paid the costs of defense and settlement proceeds, it settled in order to "stop the bleeding" of the mounting defense costs spawned by this extremely complex litigation, not because it conceded the other insurers had no liability for the claims asserted in the construction defect lawsuit.

B. The Coverage Litigation

In 1989, Fireman's Fund filed its lawsuit (the "coverage lawsuit") for declaratory relief, equitable subrogation and contribution against West American Insurance Company, seeking reimbursement for a share of the amounts expended by Fireman's Fund to defend and settle the construction litigation. Pines later became involved in this coverage lawsuit by its cross-complaint, which alleged Pines' status as assignee of Fireman's Fund's rights, and which pleaded claims for declaratory relief, equitable subrogation and contribution as against I.I., seeking reimbursement of a share of the amounts Fireman's Fund paid to defend and settle the construction lawsuit.

C. The Summary Judgment

The current appeal tests the validity of the trial court's order granting I.I.'s motion for summary judgment against Pines in the coverage lawsuit. I.I.'s motion depended entirely on the efficacy of the "other insurance" clause of I.I.'s policy to insulate it from liability. I.I. argued that under the terms of the "other insurance" clause in the I.I. policy, ² I.I. was solely an "excess carrier" for any liability of its insureds because there was other "available" insurance--the Fireman's Fund policy. I.I. therefore argued that, as an excess carrier, it was not required to defend or indemnify its insured unless and until all other "available" insurance had been exhausted, pointing out that, here, the policy limits of the other available insurance (Fireman's Fund) had not been exhausted by the settlement.

Pines opposed the summary judgment motion, arguing there were triable issues of fact as to whether some of the defects first became manifest during I.I.'s policy period, and that the "other insurance" clause does not become operative unless two policies apply to the same loss. ³ Pines The trial court accepted I.I.'s argument, rejected Pines' argument, and granted I.I.'s motion. Following entry of judgment, Pines appealed.

pointed out that because the I.I. policy covered a time frame different from that covered by the Fireman's Fund policy, and there were manifestations of losses during I.I.'s policy period, the "other insurance" clause did not permit I.I. to avoid liability as an "excess carrier."

We conclude the trial court erred in entering summary judgment based on the "other insurance" clause. The evidence created triable issues of fact as to when damages caused by different defects at the project first became manifest. The relevant policy language provided the insureds protection against liability for damages suffered during each policy period. Each insurer therefore was liable for all of the damages attributable to a defect first manifested during the period that insurer was "on risk." Hence, the existence of insurers in subsequent years does not render those later policies "available" to cover the previously manifested loss. Because the multiple policies here do not cover the same loss, the "other insurance" clause is irrelevant to assessing priorities among the competing insurers, and the fact of settlement (in the absence of a determination of coverage) does not make the settling insurer liable for losses which occurred on another insurer's watch.

ANALYSIS

I. The Insuring Language Contained in These Policies Provides that the Insurer on Risk at the Time the Particular Defect Was First Manifested Is Liable for All Damages Caused by the Defect, Even Though the Damages Grew During a Later Insurer's Policy Period

With the entry of summary judgment solely on the basis of I.I.'s "other insurance" clause, we must initially decide which policy or policies undertook the risk of insuring against liability for losses which first surfaced during I.I.'s tenure. We begin by noting that Pines produced evidence showing that some of the claimed damages may have first "occurred" during I.I.'s policy period. Both the policies of I.I. and Fireman's Fund appear to be standard liability policies indemnifying their insureds for liability based on "occurrences" during the policy period (Chu v. Canadian Indemnity Co. (1990) 224 Cal.App.3d 86, 94-95, 274 Cal.Rptr. 20); therefore at issue are the relative responsibilities of successive insurers for a loss which begins in one insurer's term and continues during a subsequent insurer's term.

The language of the liability policies here makes clear that the insurers only undertook the risk of injuries occurring during their respective policy period. An injury does not necessarily occur when the wrongful act is committed, either for the purpose of accrual of the injured parties' cause of action (Allen v. Sundean (1982) 137 Cal.App.3d 216, 222, 186 Cal.Rptr. 863) or for the purpose of determining whether the tortfeasor's liability insurer must provide coverage for the injury. (Remmer v. Glens Falls Indem. Co. (1956) 140 Cal.App.2d 84, 88, 295 P.2d 19.) Instead, an injury occurs when appreciable damage is suffered by the injured party. In Remmer, the court examined a third party liability policy containing language substantively indistinguishable from the insuring language of the instant policies. The Remmer court held...