Saarman Constr., Ltd. v. Ironshore Specialty Ins. Co., Case No. 15–cv–03548–JST

• Decision Date: 31 January 2017
• Docket Number: Case No. 15–cv–03548–JST
• Court: U.S. District Court — Northern District of California
• Parties: SAARMAN CONSTRUCTION, LTD., Plaintiff, v. IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant.

230 F.Supp.3d 1068

SAARMAN CONSTRUCTION, LTD., Plaintiff,

v.IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant.

Case No. 15–cv–03548–JST

United States District Court, N.D. California.

Signed January 31, 2017

Samuel Fayette Barnum, Law Offices of Samuel F. Barnum, San Rafael, CA, David Francis Mangini, Hughes Gill Cochrane, P.C., Walnut Creek, CA, for Plaintiff.

William Campbell Morison, Brian Edward Sims, Joanne Michele Wendell, Philip David Witte, Morison & Prough, LLP, Walnut Creek, CA, for Defendant.

AMENDED ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT¹

Re: ECF Nos. 34, 35, 130

JON S. TIGAR, United States District Judge

Before the Court are Defendant Ironshore Specialty Insurance's Motion for Summary Judgment and Plaintiff Saarman Construction's Motion for Partial Summary Judgment. The Court grants Ironshore's motion and denies Saarman's motion.

I. BACKGROUND

A. The Condominium Repairs

The Westborough Court Condominiums, located in the City of South San Francisco, were developed and constructed in the late 1990's. ECF No. 34–5 at 2. Almost immediately after construction, the condominiums experienced significant water intrusion and resultant damage. Id. In 2006, the Westborough Court Condominiums Homeowner's Association retained Plaintiff Saarman Construction to be the general contractor responsible for conducting various repairs to the exterior of the buildings. Id. Saarman subsequently performed this remedial construction work at the property in 2006 and 2007. See id. ; ECF No. 1 at ¶ 14.

B. The Underlying Action

John and Stella Lee owned a unit in the Westborough Court Condominiums. ECF No. 34–5 at 34, ¶ 5. The Lees leased the unit to Tiffany Jane Molock. Id. at ¶ 6. At some point, Molock found mold in her unit.² In 2011, Molock sued the Lees, the Homeowner's Association, and other defendants in San Mateo County Superior Court. See id. at 6. She sought damages for several defects in the unit, including mold, plumbing leaks, and water intrusion. Id. at 9, ¶ 13. Molock eventually settled her claims. ECF No. 34–6 at 5.

The Lees subsequently cross-claimed against Saarman, the Homeowners Association, and the owners of two neighboring units. See ECF No. 34–5 at 32. The Lees' cross-complaint alleged that Saarman and its sub-contractors negligently performed repair work to the building, resulting in water intrusion and water damage to the interior of their unit that contributed to mold growth. ECF No. 34–5 at 43, ¶¶ 34–35 (noting "resulting omnipresent conditions of mold, toxic mold, and biological growth within the perimeter of the building"); ECF No. 34–5 at 54, ¶ 71 ("The cross-defendants' agents and contractors failed to perform and render services to the building ... and said failures foreseeably caused water and moisture intrusions into the property resulting [sic] the formation of and amplification of toxic mold within the building."); ECF No. 34–5 at 55, ¶ 75 ("As a proximate result of the cross-defendants continuing and intentional trespasses of water and moisture to the property, toxic mold has developed within the property resulting in it being uninhabitable."). The Lees claimed both bodily injury and property damage. See id. at 51, ¶ 64 (alleging that the cross-defendants' negligence "deprived the Lees of the safe, healthy and comfortable use of the property [and] were injurious to the health of occupants of the property"). The Lees alleged that they discovered the water damage in June 2011, when they had an environmental firm investigate the property. Id. ¶¶ 24–25. In addition, the Lees requested that Saarman and the other cross-defendants indemnify them against any damages ultimately recovered by Molock. ECF No. 34–5 at 62–63, ¶¶ 104–106. The Homeowner's Association filed a similar cross-complaint against Saarman, seeking indemnification and contribution from Saarman. ECF No. 34–7 at 4–6, ¶¶ 4, 6. Saarman eventually contributed $65,000 to settle the Lees' and the HOA's claims. ECF No. 34–2 at 17–18.

C. The Ironshore Insurance Policy

Ironshore issued Saarman a commercial general liability policy for the policy period of June 30, 2010 to June 30, 2011. See ECF No. 34–4 at 3. Under this agreement, Ironshore agreed to indemnify Saarman for "sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies." Id. at 6. Ironshore also agreed that it would have the "duty to defend the insured against any ‘suit’ seeking those damages." Id. The policy covered "bodily injury" and "property damage" that (1) "is caused by an ‘occurrence,’ " and (2) "occurs during the policy period." Id. In turn, the policy defined "occurrence" as "an accident, including continuing or repeated exposure to substantially the same harmful conditions." Id. at 18. In addition, the policy covered "completed operations"—that is, "all ‘bodily injury’ and ‘property damage’ ... arising out of ... ‘your product’ or ‘your work’ except ... work that has not yet been completed or abandoned." ECF No. 34–4 at 3, ¶ 4; ECF No. 34–4 at 18, ¶ 16.

The policy includes two coverage exclusions that are potentially relevant to this dispute. First, it contains the following "Mold, Fungi or Bacteria Exclusion" ("Mold Exclusion"), located in an endorsement separate from the main body of the policy:

Notwithstanding anything to the contrary contained in the policy or any endorsement attached thereto, this insurance does not apply to and shall not respond to any claim, demand, or "suit" alleging:

1. "Bodily Injury," "Property Damage," or "Personal and Advertising Injury" arising out of, in whole or in part, the actual, alleged, or threatened discharge, inhalation, ingestion, dispersal, seepage, migration, release, escape or existence of any mold, mildew, bacteria or fungus, or any materials containing them, at any time.

2 ....; or

3. [A]n obligation to contribute to, share damages with, repay or indemnify someone else who must pay damages, loss, cost or expense because of "Bodily Injury," "Property Damage," or "Personal and Advertising Injury" as set forth in 1., 2.a., or 2.b. above.

Id. at 41. In turn, the contract defines a "suit" as "a civil proceeding in which damages because of ‘bodily injury’ [or] ‘property damage’ ... to which this insurance applies are alleged." Id. at 19.

Second, the policy includes the following "Continuous or Progressive Injury or Damage Exclusion" ("CP Exclusion"):

This insurance does not apply to any "bodily injury" or "property damage":

1. which first existed, or is alleged to have first existed, prior to the inception of this policy. "Property damage" from "your work," or the work of any additional insured, performed prior to policy inception will be deemed to have first existed prior to the policy inception, unless such "property damage" is sudden and accidental and takes place within the policy period [sic]; or

2. which was, or is alleged to have been, in the process of taking place prior to the inception date of this policy, even if such "bodily injury" or "property damage" continued during this policy period; or

3. which is, or is alleged to be of the same general nature or type as a condition, circumstance or construction defect which resulted in "bodily injury" or "property damage" prior to the inception date of this policy.

Id. at 32.

D. Saarman's Tender and Ironshore's Denial

Saarman's attorney, Paul Lahaderne, notified Ironshore's third-party claims administrator about the Molock cross-complaints in a letter sent on February 3, 2014.³ See ECF No. 34–5 at 2. Lahaderne told the claims administrator that "Ms. Molock did not name Saarman Construction as a defendant," and that "Ms. Molock's claims regarding the mold on the interior walls have no causal connection to the reconstruction work performed by Saarman on the exterior building envelope." Id. at 3. He further notified the claims administrator that the Lees' cross-complaint alleged that Saarman's construction activities "resulted in mold infestation in the unit interior." Id. at 4–5. In addition to mold damage, Lahaderne informed the claims' administrator that the Lees alleged that Saarman's repair work had caused a water leak in the northwest corner of the kitchen that caused property damage as a well as a "threshold leak." Id. Lahaderne, however, disputed that Saarman's work to the exterior of the building caused the water intrusion and mold-related damage to the interior of the building. See Id. Lahaderne attached both Molock's initial complaint and the Lees' cross-complaint to the letter. See Id. at 6, 32. Lahaderne subsequently responded to the claim examiner's requests for more information and provided supplemental documentation related to the Molock action, including the Homeowner's Association's cross-complaint. See ECF Nos. 34–6; 34–7.

On August 21, 2014, Ironshore informed Saarman that it refused to defend or indemnify Saarman in the Molock action. ECF No. 34–9 at 3. Ironshore declined coverage based on both the Mold Exclusion and CP Exclusion in the policy. Id. at 8–9. First, Ironshore explained that Saarman completed its work on the properties prior to the policy inception date and, therefore, coverage was excluded by the CP Exclusion. Id. at 8. Second, Ironshore explained that coverage was independently excluded by the Mold Exclusion because Molock alleged in her complaint that she sustained personal injury and property damage caused by the presence of mold in her unit. Id. at 9.

E. Procedural History

On July 31, 2015, Saarman filed the present action against Ironshore. ECF No. 1. Saarman's Complaint alleges that Ironshore improperly refused to provide Saarman with a defense regarding the two cross-complaints in the Molock action. Id. at ¶ 36. Saarman asserts that Ironshore's refusal to defend was a breach of contract and a breach of the implied covenant of good faith and fair dealing. Id. at ¶¶ 45, 53. Saarman also seeks a declaration...