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D.R. Horton Los Angeles Holding Co., Inc v. American Safety Indemnity Company

January 5, 2012

D.R. HORTON LOS ANGELES HOLDING CO., INC., PLAINTIFF,
v.
AMERICAN SAFETY INDEMNITY COMPANY, DEFENDANT.



The opinion of the court was delivered by: Hayes, Judge:

ORDER

The matters before the Court are the Motion for Partial Summary Judgment filed by Plaintiff D.R. Horton (ECF No. 25) and the Motion for Summary Judgment, or Alternatively Partial Summary Judgment filed by Defendant American Safety Indemnity Company (ECF No. 33).

I. Procedural Background

This action arises out of an insurance dispute regarding coverage under four insurance policies (the "Policies") issued by Defendant American Safety Indemnity Company ("ASIC") to Ebensteiner Co. ("Ebensteiner").*fn1 The policies at issue in this litigation are: XGI 01-1261-003 ("03 policy") effective from August 1, 2001 through August 1, 2002; XGI 02-1261-004 ("04 policy") effective from August 1, 2002 through August 1; 2003, XGI 03-1261-005 ("05 policy") effective from August 1, 2003 through August 1, 2004; and ESL 0010410406 ("06 policy") effective from August 1, 2004 through August 1, 2005.

On January 15, 2010, Plaintiff D.R. Horton Los Angeles Holding Co., Inc. ("D.R. Horton") filed a Complaint against ASIC which was removed to this Court. (ECF No. 1). The Complaint alleges that D.R. Horton was engaged in a real estate development project named Canyon Gate ("Canyon Gate") and that D.R. Horton entered into a subcontractor agreement with Ebensteiner for grading work on the project. Id. at 10. The Complaint alleges that Ebensteiner purchased general liability insurance policies from ASIC and named D.R. Horton as an additional insured and third-party beneficiary of ASIC's obligations to Ebensteiner. Id. at 10-11.

The Complaint alleges that D.R. Horton received several notices to builder and several complaints and cross-complaints were filed against D.R. Horton in the following cases: Chang O. Kim, et al. v. City of Santa Clarita, et al., Los Angeles Superior Court Case No. BC407614 (the "Kim case"), Canyon Gate Maint. Ass'n v. City of Santa Clarita, et al., Los Angeles Superior Court Case No. BC415663 (the "Canyon Gate case"), and Warrick, et al. v. City of Santa Clarita, et al., Los Angeles Superior Court Case No. PC046442 (the "Warrick case") (collectively "the underlying actions"). The Complaint alleges that D.R. Horton made claims for benefits under the policies regarding the underlying actions and that ASIC declined coverage and refused to defendant D.R. Horton.

D.R. Horton asserts a claim for breach of contract and breach of the implied covenant of good faith and fair dealings against ASIC for failure to provide D.R. Horton with a defense in the underlying actions, for withholding or delaying payments, for failing to properly investigate D.R. Horton's claims, and for refusing and failing to respond to D.R. Horton's request for benefits and coverage. D.R. Horton also seeks declaratory relief "that [ASIC is] obligated to defend and indemnify [D.R. Horton] under said Policies; and, [t]hat [ASIC is] obligated to pay for the cost of [D.R. Horton's] defense in [the underlying actions] and to pay expenses and other settlement costs in connection with [the underlying actions]." Id. at 14.

On April 12, 2010, ASIC filed an Answer. (ECF No. 4). On October 22, 2010, ASIC filed a Counterclaim against D.R. Horton asserting a claim for declaratory relief. ASIC asserts that there is no potential coverage for Ebensteiner and that there is no potential coverage for Plaintiff D.R. Horton as an additional insured. (ECF No. 17).

On April 6, 2011, D.R. Horton filed a Motion for Partial Summary Judgment. (ECF No. 25). On May 2, 2011, ASIC filed an Opposition. (ECF No. 41). On May 9, 2011, D.R. Horton filed a Reply. (ECF No. 42). On May 20, 2011, D.R. Horton filed a Request for Judicial Notice in Support of its Motion for Partial Summary Judgment. (ECF No. 44).

On April 15, 2011, ASIC filed a Motion for Summary Judgment, or Alternatively Partial Summary Judgment. (ECF No. 33). On May 2, 2011, D.R. Horton filed an Opposition (ECF Nos. 39-40). On May 9, 2011, ASIC filed a Reply. (ECF No. 43).

On May 20, 2011, D.R. Horton filed a Request for Judicial Notice. (ECF No. 44). On May 23, 2011, ASIC filed an Opposition. (ECF No. 45).

On May 27, 2011, the Court heard oral argument on the motions. (ECF No. 46). On August 31, 2011, ASIC filed a Supplemental Brief.*fn2 (ECF No. 54). On September 14, 2011, D.R. Horton filed an Opposition to the Supplemental Brief. (ECF No. 55).

II. Factual Background

The 03 policy was issued by ASIC to Ebensteiner and covered the period from August 1, 2001 through August 1, 2002. (03 Policy, ECF No. 35-2 at 2). On March 4, 2002, Ebensteiner began performing grading work at the Canyon Gate project. (ASIC Stmt. of Undisputed Facts, ECF No. 33-2 at 3; Compl. ECF No. 1 at 10).

The 04 policy was issued by ASIC to Ebensteiner and covered the period from August 1, 2002 through August 1, 2003. (04 Policy, ECF No. 35-3 at 2).

On January 23, 2003, "certain owners of pre-existing single-family homes in a subdivision which was located ... adjacent to the Canyon Gate development ... instituted lawsuits against three D.R. Horton entities consolidated as [Fessler]." (ASIC Stmt. of Undisputed Facts, ECF No. 33-2 at 7; see also Fessler Compl. ECF No. 33-9 at 10). "The Fessler homeowners alleged damage to their homes due to the grading operations of Ebensteiner for D.R. Horton while grading the adjacent Canyon Gate project." (ASIC Stmt. of Undisputed Facts, ECF No. 33-2 at 7-8). "[T]he homeowners in the Fessler action alleged 'property damage' to their homes took place in 2002, commencing during the [03] policy [ASIC] issued to Ebensteiner." Id. at 8.

The 05 policy was issued by ASIC to Ebensteiner and covered the period from August 1, 2003 through August 1, 2004. (05 Policy, ECF No. 35-4 at 2).

During the course of the Fessler litigation, ASIC received Ebensteiner's job file which "reflected rough grading daily reports through May 2003." (Decl. Jean Fisher, ASIC attorney, ECF No. 35 at 4 ¶ 12). During the course of the Fessler litigation, ASIC received the Deposition of Jim Jordan who stated that construction of homes could not have begun at the Canyon Gate project until after May 2003 when the final tract map was approved. (Decl. Jean Fisher, ASIC attorney, ECF No. 35 at 4 ¶ 12; Depo. Jim Jordan, City of Santa Clarita, ECF No. 35-6 at 2, 5-6).

"After May 2003, [D.R. Horton] obtained various bids for the grading of the Canyon Gate lots." (ASIC Stmt. of Undisputed Facts, ECF No. 41-2 at 28). Ebensteiner was selected to perform the additional work.

The 06 policy was issued by ASIC to Ebensteiner and covered the period from August 1, 2004 through August 1, 2005. (06 Policy, ECF No. 25-10 at 2).

In October 2007, "ASIC paid for the defense of its Named Insured, Ebensteiner, and three D.R. Horton entities as purported 'additional insureds' under Ebensteiner's [03 policy]" to settle the Fessler litigation. (ASIC Stmt. of Undisputed Facts, ECF No. 33-2 at 8; Settlement Agmt., ECF No. 35-5 at 2).

On November 9, 2007, June Ebensteiner provided a Declaration to ASIC which stated: "The Ebensteiner Co. and the Ebensteiner Family Trust ceased to do business and had no ongoing operations as of July 31, 2004 [the end of the 05 policy period], and was not conducting business ...." (Decl. June Ebensteiner, ECF No. 35-7 at 2). On November 6, 2008, ASIC and June Ebensteiner entered into an agreement with ASIC to rescind the 06 policy. (ASIC letter, ECF No. 35-8 at 2-4, ASIC 2045-07).

On February 27, 2009, the complaint in the Kim case, one of the underlying actions, was filed. (Kim Compl., ECF No. 25-12 at 123). The Kim plaintiffs are homeowners within the Canyon Gate project who allege that between March 6, 2002 and January 2003, "multiple backcut failures, earth movement, and fissures and cracks in the ground surface occurred during the implementation of the unapproved design change for the shear keys by D.R. Horton, its subcontractors and engineers. During this entire time, D.R. Horton and its grading subcontractor were performing grading of the Canyon Gate project and extension of Golden Valley Road without approval from the City and doing so at 'their own risk.'" Id. at 138. The Kim plaintiffs allege that monitors "showed significant movement along the slide planes of these landslides commenced almost immediately after D.R. Horton began the rough grading of Canyon Gate, which movement continues to the present date." Id. at 143. The Kim plaintiffs allege that "the geologic hazards ... substantially interfered with the Plaintiffs use and enjoyment of their land." Id. at 161. The Kim plaintiffs allege: "As a direct, foreseeable and proximate result of said interference, Plaintiffs have incurred physical damage to their land, improvements and structures located on their residential real properties and/or a diminution-invalue of their residential properties as a result ...." Id. at 161-62.

On April 2, 2009, D.R. Horton tendered a request for coverage to ASIC based on the Kim case. (D.R. Horton letter, ECF No. 25-12 at 198).

On June 11, 2009, the complaint in the Canyon Gate case was filed on behalf of a homeowner's association for the Canyon Gate project. The Complaint asserted essentially the same facts and claims as asserted in the Kim case. (Canyon Gate Compl., ECF No. 25-13 at 2). The Canyon Gate case also asserts a claim of private nuisance against D.R. Horton and other builders and stated that: "As a direct, foreseeable and proximate result of said interference, [Plaintiff has] incurred physical damage to its Common Areas." Id. at 34.

On September 22, 2009, the complaint in the Warrick case was filed asserting essentially the same facts and claims as asserted in the Kim case. (Warrick Compl., ECF No. 25-13 at 61). The Warrick plaintiffs are homeowners within the Canyon Gate project who assert a claim of private nuisance against D.R. Horton and other builders and allege: "As a direct, foreseeable and proximate result of said interference, [Plaintiffs] have incurred physical damage to their land, improvements and structures located on their residential real properties and/or a diminution-in-value of their residential properties." Id. at 93.

On October 1, 2009, D.R. Horton tendered a request upon ASIC for coverage regarding the Kim, Canyon Gate,and Warrick cases which "concern[ed] the grading and soils stabilization work performed during construction of [the Canyon Gate project]." (D.R. Horton letter, ECF No. 25-13 at 130). D.R. Horton provided copies of several notices to builder received by D.R. Horton from November 14, 2008 through June 5, 2009 as well as copies of the Kim, Canyon Gate,and Warrick complaints. Id. at 130-31.

The insurance policies at issue provide coverage as follows:

We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages. However, we will have no duty to defend the insured against any 'suit' seeking damages for 'bodily injury' or 'property damage' to which this insurance does not apply....

This insurance applies to 'bodily injury' and 'property damage' only if:

(1) The 'bodily injury' or 'property damage' is caused by an 'occurrence' that takes place in the 'coverage territory'; and

(2) The 'bodily injury' or 'property damage' occurs during the policy period.

(03 Policy, ECF No. 25-8 at 28; 04-05 Policies, ECF No. 25-9 at 4, 66; 06 Policy, ECF No. 25-10 at 4).

The term "property damage" is defined as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the 'occurrence' that caused it.

(03 Policy, ECF No. 25-8 at 40; 04-05 Policies, ECF No. 25-9 at 16, 78; 06 Policy, ECF No. 25-10 at 16). The term "occurrence" is defined as: "'Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (03 Policy, ECF No. 25-8 at 39; 04-05 Policies, ECF No. 25-9 at 15, 77; 06 Policy, ECF No. 25-10 at 20).

On October 29, 2009, ASIC issued a letter to D.R. Horton declining D.R. Horton's request for coverage under the policies. The letter stated that ASIC had "evaluated the job file of the named insured to reaffirm that all of its work was concluded May 13, 2003 ...." (ASIC letter, ECF No. 35-9 at 3). The letter states that ASIC was "not aware of any ... tangible property existing at the plaintiffs' lots during [the 04 policy], and we are informed construction occurred at Canyon Gate after 8/01/03 [during the 05 policy]." Id. The letter states:

In regard to [the 03 policy], there is no potential for 'property damage' claimed by plaintiffs as there was no 'property damage' existing on the lots during the policy period. The homes at issue in the new lawsuit were not started until after the expiration of [the 03 policy] and therefore, there is no potential for covered 'property damage' under this policy.

Id. at 5.

The letter stated that the 98 10 additional insured endorsement required a project to be "on file" but "a review of the underwriting file shows no indication of this project on file...." Id. at 8. The letter stated:

As this Additional Insured Endorsement applies to on-going operations only, and the claim filed by the homeowners is for completed operations, there would be no Additional Insured coverage for this claim.... Further, the coverage was intended to provide additional insured coverage for liability arising out of or relating to the Named Insured's sole negligence whereas the complaint of Kim et. al. does not pertain to the sole negligence of Ebensteiner Co. While DR Horton may have qualified as an additional insured on the [03] policy issued to Ebensteiner during its work to cover the claims in the Fessler matter, there is no coverage available for this claim involving completed operations. In comparison, there is no additional insured coverage available to DR Horton for these claims involving 'property damage' which potentially first arose at a time when Ebensteiner's operations were completed and were not ongoing.

Id. The letter does not address coverage under the 06 policy.

III. Contentions of the Parties

D.R. Horton contends that it is an additional insured under two endorsements to the 03, 04, 05, and 06 policies. D.R. Horton contends that ASIC improperly relied on policy exclusions to deny coverage and to refuse to defend D.R. Horton. D.R. Horton contends that the damage alleged in the underlying litigation was not Ebensteiner's work product. D.R. Horton contends that the damage alleged in the underlying litigation occurred during Ebensteiner's ongoing operations. D.R. Horton contends that the damage alleged in the underlying litigation may have arisen out of Ebensteiner's sole negligence. D.R. Horton contends that D.R. Horton's wrap policies do not apply to this case.

D.R. Horton further contends that the 03 policy limits were not exhausted by ASIC's payment of $1,000,000 to settle the Fessler suit. D.R. Horton contends that Ebensteiner performed work during the 06 policy period and that the rescission of the 06 policy was barred as a matter of law. D.R. Horton contends that ASIC's duty to defend began when D.R. Horton provided ASIC ...


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