Sterling Builders v. United Nat. Ins. Co.

• Decision Date: 17 March 2000
• Docket Number: No. G021514.,G021514.
• Citation: 79 Cal.App.4th 105,93 Cal.Rptr.2d 697
• Court: California Court of Appeals Court of Appeals
• Parties: STERLING BUILDERS, INC., et al., Plaintiffs and Appellants, v. UNITED NATIONAL INSURANCE COMPANY, Defendant and Respondent.

93 Cal.Rptr.2d 697

79 Cal.App.4th 105

STERLING BUILDERS, INC., et al., Plaintiffs and Appellants, v. UNITED NATIONAL INSURANCE COMPANY, Defendant and Respondent.

No. G021514.

Court of Appeal, Fourth District, Division 3.

March 17, 2000.

O'Melveny & Myers, Michael G. Yoder and Robert G. Loewy, for Plaintiffs and Appellants.

A. Raymond Hamrick III and Raymond C. Dion, for Defendant and Respondent.

OPINION

RYLAARSDAM, J.

Third party claimants sued an insured under a commercial general liability policy contending the insured had lied about its intentions to perform certain acts in return for the claimants granting it an easement over their property. The insured tendered the defense to its insurer; the latter refused to defend. We agree with the trial court that such a claim is not insured under a clause covering "wrongful entry or eviction or other invasion of the right of private occupancy." In affirming the judgment, we acknowledge that a dictum in this court's opinion in General Accident Ins. Co. v. West American Ins. Co. (1996) 42 Cal.App.4th 95, 104, 49 Cal. Rptr .2d 603, to the effect that a "noninvasive interference with the use and enjoyment of property" may constitute an "other invasion" under such an insuring clause, is erroneous.

FACTS

Joseph Caldwell and his wife sold 19 acres in the Chino Hills to Sterling Builders, Inc. Sterling intended to develop the property. In return for the land, the Caldwells received about $2.7 million, $500,000 in cash and the remainder in the form of a promissory note. About the same time, Sterling bought a six-acre parcel located adjacent to the parcel purchased from the Caldwells. Approximately two years later, the Caldwells and Sterling entered into a joint venture agreement to develop both parcels. The Caldwells received a 14.43 percent interest in the joint venture in return for forgiveness of $500,000 then due on the note.

The following year, the Caldwells and Sterling entered into another agreement wherein the Caldwells reacquired the 19 acres in return for a deed in lieu of foreclosure. Concurrently, Robert Lintz, Sterling's sole shareholder, agreed to make specified payments to the Caldwells and to pay for property taxes, insurance, and certain other obligations incident to ownership of the property. The Caldwells later asserted that Sterling had requested this transfer to provide it with certain benefits, and that the parties had agreed the property would subsequently be transferred back to the joint venture.

About 10 months thereafter, at Sterling's request, the Caldwells also took title to the adjacent six-acre parcel. At the same time, William Dohr, one of Sterling's officers, told the Caldwells that Sterling needed easements burdening the 19 acre parcel to enable Sterling to begin development of the parcels. In exchange for the easements, Dohr promised the Caldwells that Sterling would make a payment of $360,000, which was about to come due, and that the joint venture would, at some future time, take back title to the properties as previously agreed. In reliance on these promises, the Caldwells granted slope, landscaping, landscape maintenance, highway and road easements over their property.

After another two years passed, and Sterling having failed to keep its promises, the Caldwells sued Sterling, Lintz, and Dohr (hereafter collectively Sterling, unless the context indicates otherwise), asserting inter alia that Sterling never intended to fulfill the obligations it assumed in return for granting the easement. The Caldwell's seventh cause of action alleged that in granting the easements, they had been deprived of valuable property rights.

Sterling requested a defense of the Caldwells' suit from its commercial liability insurer, United National Insurance Company. Not having heard from United National, six months later Sterling filed the instant action for declaratory relief, breach of contract and bad faith. United National prevailed in a battle of cross-motions for summary adjudication on the duty to defend the issue, and the parties thereafter stipulated to a dismissal with prejudice of the balance of Sterling's causes of action, resulting in a final, appealable judgment.

DISCUSSION

Sterling contends that a clause in the personal injury endorsement of United National's policy defining "personal injury" to include "wrongful entry or eviction or other invasion of the right of private occupancy" afforded at least the possibility of coverage of the underlying Caldwell action, and hence gave rise to a duty to defend.

The typical situation for a "wrongful entry or eviction or other invasion of the right of private occupancy" to occur is a trespass onto the claimant's real property. This court's decision in General Accident Ins. Co. v. West American Ins. Co., supra, 42 Cal.App.4th 95, 49 Cal.Rptr.2d 603 is illustrative. There, partners were alleged to have literally "ousted" and "ejected" the part owner of a small business from his physical office space. This court held that such allegations constituted an invasion of the private occupancy right. (Id. at p. 105, 49 Cal.Rptr.2d 603.) Similarly, Martin Marietta Corp. v. Insurance Co. of North America (1995) 40 Cal. App.4th 1113, 47 Cal.Rptr.2d 670 held that a pollution cleanup claim was such an invasion because the "migration of pollutants from one property to another may constitute a trespass." (Id. at p. 1132, 47 Cal. Rptr.2d 670, emphasis added.)

In contrast, claims that do not involve the physical occupation of or trespass upon real property are not within the meaning of the phrase, even though the claim may entail interference with rights relating to such property. Tinseltown Video, Inc. v. Transportation Ins. Co. (1998) 61 Cal.App.4th 184, 71 Cal.Rptr.2d 371 held that a partnership dispute involving the transfer of the physical assets of a video store did not constitute an invasion of the right of private occupancy. (Id. at pp. 196-197, 71 Cal.Rptr.2d 371.) There, the partners-policyholders' trespass was against the claimant's partnership rights; there was no invasion of the partnership's real property. Similarly, in Wilmington Liquid Bulk Terminals, Inc. v. Somerset Marine Inc. (1997) 53 Cal.App.4th 186, 61 Cal.Rptr.2d 727, the clause afforded no coverage for the breach of a contract to build a dock for a cement shipper because the "`invasion'" was "no more than an interference with an expectancy of future use under an executory contract." (Id. at p. 196, 61 Cal.Rptr.2d 727.)

In Fibreboard Corp. v. Hartford Accident & Indemnity Co. (1993) 16 Cal. App.4th 492, 512, 20 Cal.Rptr.2d 376, the court stated the "other invasion" language implicates a "trespass paradigm." Fibreboard held that there was no invasion when the insured put asbestos products into the stream of commerce even if the products, when physically incorporated into various structures, ultimately resulted in displacing the claimants from their real property. The court reasoned that the policyholder was not guilty of a "direct or indirect entry or intrusion ... upon the plaintiffs' lands." (Ibid.; also see Nichols v. Great American Ins. Companies (1985) 169 Cal.App.3d 766, 776, 215 Cal.Rptr. 416 [no coverage for airwave piracy claim involving sale of devices to intercept cable television signals because the complaint alleged "no invasion of any interest attendant to the possession of real property"].)

Sterling argues an easement "by definition constitutes a non-physical invasion of the right of private occupancy." As such, Sterling's allegedly obtaining the easements by fraud supposedly "interfered with the Caldwells' right to use and possess their property." But there is no such thing as a nonphysical invasion of a right of private occupancy. "Occupancy" requires a physical entry upon real property. Here there are no allegations Sterling invaded or trespassed upon the Caldwell's servient estate. Rather, Sterling simply obtained one of the "bundle of sticks" constituting Caldwell's ownership rights in their land.

Stein-Brief Group, Inc. v. Home Indemnity Co. (1998) 65 Cal.App.4th 364, 76 Cal. Rptr.2d 3 shows there must be an occupation of the real property, as distinct from a mere affecting of a right related to real property, before an invasion takes place. In Stein-Brief, a developer assumed a contractual duty to prevent a certain parcel from having more than a one-story house built on it. The developer allegedly breached the agreement, and allowed a two-story building to be built on the property. There was no coverage under the "invasion" language, because, although the claimant's property was affected, there was no actual occupation of his property. The court said the "other invasion" clause "`connotes disruptions of the ability to actually occupy [the claimant's] property.'" (Id. at p. 373, 76 Cal.Rptr.2d 3.)

In its brief, Sterling derives comfort from two cases from other jurisdictions that have deviated from the requirement of a physical occupation of or incursion onto real property, Town of Goshen v. Grange Mut. Ins. Co. (1980) 120 N.H. 915, 917 and American States Ins. Co. v. Canyon Creek (N.D.Cal. 1991) 786 F.Supp. 821, 825 and from this court's dictum in General Accident Ins. Co. v. West American Ins. Co., supra, 42 Cal.App.4th 95, 49 Cal.Rptr.2d 603, which uncritically cited these cases. As we shall explain, the analyses contained in Town of Goshen and American States do not bear up under scrutiny. As a result the dictum in General Accident lacks foundation.

In Town of Goshen a developer sued the insured, a local government, for delay in the approval of a subdivision application which had prevented him from using his property as planned. The town sought insurance coverage for the suit. The trial court ruled for the town, and the New Hampshire Supreme Court affirmed in a short per curiam decision which held that a "regulatory obstacle to the use of real property" could fall within the "other invasion" language. (...