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City of Carlsbad v. Insurance Company of the State of Pennsylvania

November 20, 2009

CITY OF CARLSBAD ET AL., PLAINTIFFS AND APPELLANTS,
v.
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of San Diego County, William R. Nevitt, Jr., Judge. Affirmed. (Super. Ct. No. 37-2007-00072351-CU-IC-CTL).

The opinion of the court was delivered by: Nares, J.

Filed 11/20/09; pub. order 12/17/09 (see end of opn.)

This action arises out of a landslide that occurred as a result of the City of Carlsbad and the Carlsbad Municipal Water District's (together, the City) negligent maintenance of its water system, which caused a hillside to become saturated with water. The landslide resulted in damage to and the destruction of several condominium units within the City, and the City paid approximately $12 million to settle lawsuits brought by the homeowners. The City sought indemnity from its liability insurer, Insurance Company of the State of Pennsylvania (ISOP).

When ISOP denied coverage, the City sued, and the parties brought cross-motions for summary judgment. The court granted ISOP's motion, finding an exclusion that barred coverage for "any property damage arising out of land subsidence for any reason whatsoever" barred coverage for the property damage.

On appeal, the City asserts the court erred in granting summary judgment because (1) the exclusion is ambiguous as to whether it covers landslides regardless of the cause; (2) the exclusion does not apply to landslides caused by man-made forces; and (3) under the "efficient proximate cause" doctrine and Insurance Code*fn1 section 530, the City is entitled to indemnification. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Relevant Policy Language

ISOP insured the City under two general liability policies. The policies covered losses resulting from bodily injury and property damage to third parties resulting from the City's negligence. The policies defined property damage as "[p]hysical injury to or destruction of tangible property, including all resulting loss of use of that property."

However, the policy also had a series of exclusions, including "Exclusion X," which provided, "[w]e will not defend or pay under this Policy for claims or suits against you: [¶]... [¶] For property damage arising out of land subsidence for any reason whatsoever." (Italics added.) The policy defined "land subsidence" as follows: "Land subsidence means the movement of land or earth, including, but not limited to, sinking or settling of land, earth movement, earth expansion and/or contraction, landslide, slipping, falling away, caving in, eroding, earth sinking, and earth rising or shifting or tilting." (Italics added.)

B. The Landslide

The parties stipulated to the relevant facts. The La Costa de Marbella Condominium Complex (Marbella) is located in the City. In March 2005, as a result of the City's negligent maintenance and repair of a fire hydrant and water line located within Marbella, an earthen slope above Marbella became saturated with water and failed, resulting in a landslide that damaged or destroyed a total of 15 units and caused damage to the common areas.

The Marbella Homeowners Association, owners, and residents filed four lawsuits against, among others, the City, seeking damages for property damage to the complex and emotional distress suffered by the individuals. ISOP extended a defense to the City under a reservation of rights.

The City settled the lawsuits in the total amount of $12,670,000. ISOP indemnified the City for the bodily injury claims, but denied ...


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