Western Employers Ins. Co. v. Arciero & Sons, Inc.

• Decision Date: 12 September 1983
• Citation: 146 Cal.App.3d 1027,194 Cal.Rptr. 688
• Court: California Court of Appeals Court of Appeals
• Parties: WESTERN EMPLOYERS INSURANCE COMPANY, Plaintiff and Respondent, v. ARCIERO & SONS, INC., Arciero Brothers, Frank Arciero, Sr., Frank Arciero, Jr., and Albert Arciero, Defendants and Appellants. Civ. 66750.

Page 688

194 Cal.Rptr. 688

146 Cal.App.3d 1027

WESTERN EMPLOYERS INSURANCE COMPANY, Plaintiff and Respondent, v. ARCIERO & SONS, INC., Arciero Brothers, Frank Arciero, Sr., Frank Arciero, Jr., and Albert Arciero, Defendants and Appellants.

Civ. 66750.

Court of Appeal, Second District, Division 7, California.

Sept. 12, 1983.

Hearing Denied Nov. 25, 1983.

Berg & Phelps and Arthur Paul Berg, La Canada, for plaintiff and respondent.

Burke, Williams & Sorensen and Peter M. Thorson, Los Angeles, for defendants and appellants.

JOHNSON, Associate Justice.

In this case we construe the "work product" exclusion contained in the standard form comprehensive general liability policy issued to a general contractor. This is a case of first impression in California. ¹

FACTS AND PROCEEDINGS BELOW

Arciero & Sons ("Arciero") was the general contractor on a condominium project. Subcontractors designed and constructed the condominium units as well as a slope and retaining wall. A few years after the project was completed the retaining wall collapsed. This caused structural damage to the condominium units and damage to the slope held by the wall. The condominium owners sued Arciero seeking reimbursement for damage to the wall, the slope and the units.

Arciero tendered defense of the action to Western Employers Insurance Company ("Western") pursuant to its general liability policy. Western accepted the defense of the action subject to a reservation of rights that the loss was not covered by the policy. Western settled the claims of the condominium owners and then sued Arciero for declaratory relief and restitution of the sums it paid in defending and settling the condominium owners' suit.

Western moved for summary judgment on the ground the damage to the condominium units, slope and wall were outside the coverage of Arciero's policy by reason of the "work product" exclusion. This exclusion provides that the policy does not apply "... (o) to property damage to work performed by or on behalf of the named insured Arciero concedes that this exclusion applies to the wall, and to the slope if it too was defective, but contends that the exclusion does not apply to structural damage to the units resulting from the defective wall and slope. Arciero admitted in the trial court and on appeal that the condominium owners suffered no physical injuries or property damage other than the structural damage to their units.

arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith ....

The trial court determined that, as a matter of law, the damages to the slope, wall and units were not covered by the insurance policy and, there being no issues of material fact, granted judgment to Western. We affirm.

DISCUSSION

The core issue in this case is whether the exclusion applies only to the work that fails or applies to other work of the insured that is damaged by the work that fails. Based on the plain language of the exclusion and the purpose behind it, we hold that the exclusion not only applies to the insured's defective work but also applies to the insured's satisfactory work that is damaged by the work that fails.

By its terms the exclusion applies "to property damage to work performed by or on behalf of the named insured ...." The parties agree that the contractor's work included the condominium units, the slope and the retaining wall. They also agree that the work that actually failed, i.e., the retaining wall and possibly the slope, is excluded from coverage. Whether the policy excludes damages to the condominium units themselves depends on whether the damage to them "[arose] out of the work or any portion thereof."

The condominium units were work performed by the contractor. The condominium units were damaged by the defective retaining wall, which was also work performed by the contractor. Thus, the application of the exclusion clause to the condominium units is compelled by the plain language of the clause itself. The decisions from every other jurisdiction which have addressed this exclusion are in accord with our interpretation. (See, e.g., Indiana Ins. Co. v. DeZutti (Ind.1980) 408 N.E.2d 1275; Weedo v. Stone-E-Brick, Inc. (1979) 81 N.J. 233, 405 A.2d 788; Breaux v. St. Paul F. & M. Ins. Co. (La.1977) 345 So.2d 204; Timberline Equip. Co., Inc. v. St. Paul F. & M. Ins. Co. (1978) 281 Or. 639, 576 P.2d 1244; Adams Tree Service v. Hawaiian Ins. Etc. (1977) 117 Ariz. 385, 573 P.2d 76; B.A. Green Const. Co., Inc. v. Liberty Mutual Ins. Co. (1973) 213 Kan. 393, 517 P.2d 563.)

It is well-known that any ambiguities in an insurance policy will be construed against the insurer. (Reserve Ins. Co. v. Pisciotta (1982) 30 Cal.3d 800, 808, 180 Cal.Rptr. 628, 640 P.2d 764 and cases cited therein.) This rule of construction explains the results in California cases construing earlier versions of the work product exclusion. (See, e.g., Eichler Homes, Inc. v. Underwriters at Lloyd's, London (1965) 238 Cal.App.2d 532, 47 Cal.Rptr. 843; Blackfield v. Underwriters at Lloyd's, London (1966) 245 Cal.App.2d 271, 53 Cal.Rptr. 838; Owens Pacific Marine, Inc. v. Insurance Co. of North America (1970) 12 Cal.App.3d 661, 90 Cal.Rptr. 826.) In Blackfield, a defective foundation resulted in structural damage to the house. In Owens Pacific Marine, an electric hot water heater exploded destroying a boat. These cases interpreted the work product exclusion as only excluding damages to the failed work itself, not to the remainder of the damaged work. This interpretation was not unreasonable given the language of the exclusions at issue in those cases. The policy in Blackfield and Eichler Homes excluded " '... damage to that particular part of any property upon which the Assured is or has been working caused by the faulty manner in which the work has been performed.' " (Blackfield v. Underwriters at Lloyd's, London, supra, 245 Cal.App.2d at 273, 276, 53 Cal.Rptr. 838, emphasis added.) The policy in Owens excluded "work ... out of which the occurrence arises." (Owens Pacific Marine, Inc. The ambiguity in these exclusions was whether the "work" excluded was the entire project, i.e., the home or the boat, or only the component part of the project that failed, i.e., the foundation or the electric heater. Thus, in Blackfield, the insurance companies attempted to extend the exclusion quoted above "to the whole house, including the nondefective parts thereof, on the theory that it is property upon which the respondents had worked." The court held, "This is an unreasonable interpretation of the provision. It only excludes damage to 'that particular part' or parts upon which the Assured has performed faulty work.... Moreover, if there is any ambiguity or uncertainty in this exclusionary provision, it should be resolved against the insurer." (245 Cal.App.2d at p. 276, 53 Cal.Rptr. 838.) Similarly, in Owens Pacific Marine, the insurance company argued that the exclusion applied to the boat as an individed whole. The insured...