Southern Cal. Edison Co. v. Harbor Ins. Co.

Decision Date11 August 1978
CourtCalifornia Court of Appeals Court of Appeals
PartiesSOUTHERN CALIFORNIA EDISON COMPANY, a corporation, et al., Plaintiffs and Appellants, v. HARBOR INSURANCE COMPANY, a corporation, et al., Defendants and Respondents. Civ. 50771.
Tucker & Coddington, William G. Tucker, F. Leonard Sisk, Patrick L. Johnston, and Richard A. Vachon, Los Angeles, for plaintiffs and appellants

Cummins, White & Breidenbach, James O. White and Howard L. Halm, Los Angeles, Bogert, Ehrmann & Halpern, David C. Bogert and Frances Ehrmann, Los Angeles, for defendants and respondents.

STEPHENS, Acting Presiding Justice.

Following a nonjury trial, judgment was entered declaring that insureds under two insurance policies were not entitled to reimbursement for expenses claimed pursuant to "sue and labor" clauses contained in each policy. Insureds appeal from the judgment.

A consortium consisting of six utility corporations and a political subdivision of the State of Arizona, headed by Southern California Edison Company, Inc., 1 joined together to construct a coal-fired steam generating plant located near Farmington, New Mexico. The plant comprised units Nos. 4 and 5 of a larger complex called the Four Corners Project. A number of insurance companies, each assuming a specific percentage of risk, combined to issue to Edison two insurance policies. 2 The policies provided successive periods of coverage. The first, a Builder's Risk policy, provided coverage during the course of construction of the units. The Builder's Risk policy became effective on April 4, 1966, and continued in effect (with an exception not relevant here) until the commercial operating dates of units 4 and 5, July 1, 1969, and July 1, 1970, respectively. Unless specifically excluded, the Builder's Risk policy covered "all property and work performed, pertaining to designated projects, the construction, installation or repair of which the named assured is performing or will be performing, owned by the named assured or an additional assured or held by any of them in trust or in joint account with others, . . . ( P ) . . . against loss and/or damage from any cause whatsoever . . ." As pertinent, among the exclusions specified, was: "(G) Cost of making good faulty workmanship, construction or design; but this exclusion shall not apply to damage The second policy, designated by the parties as the All Property policy was at risk from the commercial operating date of each unit and provided coverage for "(a)ll real and personal property of every description . . . ( P ) . . . against all risks of direct physical loss or damage from any cause, howsoever and wheresoever occurring . . . ." The All Property policy remained effective until November 1, 1970. Among the exclusions specified in said policy were: "(O) Property while in the course of construction or installation to the extent that such properties are otherwise insured. . . . ( P ) (X) Cost of excavations, grading, filling, dredging, sidewalks, fences, paving and/or blacktopping, and foundations and footings. . . . ( P ) (Z) Loss or damage caused by or resulting from, contributed to or aggravated by any of the following: . . . 3. Water below the surface of the ground including that which exerts pressure on or flows, seeps or leaks through sidewalks, driveways, foundations, walls, basement or other floors, or through doors, windows, or any other openings in such sidewalks, driveways, foundations, walls or floors; . . ."

resulting from such faulty workmenship, (sic) construction or design."

Each policy contained essentially similar sue and labor clauses, which required that the insured, without prejudice to their claims under the basic insurance policy, "sue, labor and travel for, in and about the defense, safeguard and recovery" of property insured. Under the sue and labor clauses, the insurers were made expressly liable for expenses so incurred.

The contract for designing and building the units was awarded to Bechtel Corporation. Construction of the project was commenced in 1966. Prior to the commercial operating dates of units 4 and 5, the foundations underlying the units began to settle differentially. In certain areas, the settling amounted to more than one and one-half inches.

Commencing in 1969, mudjacking operations were instituted by Edison to lift the foundations of units 4 and 5. In mudjacking, a mixture called grout, consisting of sand, silt, clay and cement, is compressed into the rock formations underlying the formations; the grout expands and raises the foundations. By this method, the foundations were successfully raised near to their initial and intended elevation.

Edison filed a proof of loss form in the amount of $1,855,000, representing costs expended by it as of the date of the form and the present worth of estimated future costs. The claimed losses were for costs of mudjacking and expenses associated with mudjacking (surveying, drilling, monitoring, etc.). The insurers under both policies denied coverage.

Upon the denial of coverage, Edison brought the present action against the Builder's Risk and All Property insurers for a declaration that the costs of mudjacking claimed were included within the coverage of the respective policies. 3

After conclusion of trial, the court found that the costs of mudjacking claimed by Edison were not covered in either policy. The court held that the costs were excluded from coverage under the Builder's Risk policy pursuant to provision (G). With regard to the All Property policy, the court concluded that the events or occurrences causing the claimed costs happened prior to the time when the policy was at risk. Moreover, the court concluded that, in any event, coverage of costs were excluded under the All Property policy by provisions (O), (X), and (Z) (3).

In reaching its conclusions, the court made the following pertinent findings of fact, which, with two exceptions noted below, are not challenged by Edison on appeal. (Renumbered for convenience.)

1. "The final basic manuscript form of (the Builder's Risk policy) contained eight pages and was not prepared by any of the insurance company defendants.

2. "Prior to the Commercial Operating Dates of Units 4 and 5, while the (Builder's Risk policy) was in effect, the foundations underlying Units 4 and 5 began to settle differentially, causing loss and damage to plaintiffs. Said differential settlement of foundations was the efficient cause of all loss and damage suffered by plaintiffs. . . .

3. "The foundations underlying Units 4 and 5 were spread footings and turbine mats, bottomed at shallow elevations in a strata of weathered sandstone containing lenses of gypsum and other salts, and belled caissons bottomed in and on a deep strata of hard, unweathered sandstone or bedrock.

4. "That part of Units 4 and 5 supported on the belled caissons experienced no significant settlement whereas that part of Units 4 and 5 supported on the spread footings and turbine mats settled more than one and one-half inches in certain areas.

5. "Overall design and construction of the Four Corners Project was based in part on an expected differential settlement of no more than one-half inch.

6. "This cause of the settlement of that part of the foundations resting on spread footings and turbine mats was the dissolution and leaching of the gypsum lenses in the upper strata of weathered sandstone, and said dissolution and leaching resulted from the rise in the underground water table and the increase in temperature of the underground water as a function of the construction and operation of Units 4 and 5.

7. "The increase in elevation of the water table and the rise in temperature of the subsurface water beneath Units 4 and 5 directly resulted from faulty design and construction of said Units 4 and 5 which included unlined, unsealed water intake and discharge canals connecting said units to a nearby cooling pond sometimes referred to as Lake Morgan. The fact that the canals were unlined permitted water to escape therefrom into the exposed strata, from whence it flowed, migrated and percolated through the permeable weathered sandstone underlying Units 4 and 5, dissolving and leaching soluble gypsum lenses deposited interstitially throughout the strata. The leaching of the lenses created voids which were collapsed and consolidated by the weight of the structures being supported, resulting in excessive settlement of the foundations bottomed in the upper strata.

8. "The differential settlement resulted from faulty foundation design which failed to take into account the known presence of gypsum lenses in the permeable weathered sandstone upper strata.

9. "The differential settlement resulted from faulty foundation design which bottomed part of the foundations in shallow strata subject to further consolidation and compaction and bottomed the other part of the foundations in deep strata subject to little or no further consolidation and compaction.

10. "All of the loss or damage alleged by plaintiffs was caused by, did result from, contributed to, or was aggravated by water below the surface of the ground.

11. "The property damaged or to which loss occurred was in the course of construction or installation, and within the meaning of the All Property Coverage, was "otherwise insured" at the time of the damage or loss.

12. "All of the damage or loss suffered by plaintiffs was the cost of filling, foundations and footings.

13. "Prior to commencement of construction, plaintiff Arizona Public Service Company and plaintiffs' agent, general contractor Bechtel Corporation, had in their possession an extensive geologic analysis of the strata located in close proximity to and directly beneath the site of the proposed Units 4 and 5, which analysis referred to the presence of gypsum lenses and the possibility of...

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