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Axis Surplus Insurance Company v. Glencoe Insurance Ltd

April 11, 2012


(Super. Ct. No. 37-2009-00095815- CU-IC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Jeffrey B. Barton, Judge. Affirmed.

The opinion of the court was delivered by: Huffman, Acting P. J.


Axis Surplus Insurance Company and Glencoe Insurance Ltd. provided general liability insurance in favor of Pacifica Pointe L.P. Pacifica was sued in a construction defect suit and tendered claims to both Axis and Glencoe. Axis agreed to defend Pacifica subject to a reservation of rights. Glencoe declined the tender, but monitored the construction defect suit and asked Pacifica to inform it once it satisfied the self-insured retention (SIR) under the Glencoe policy.

Pacifica and Axis paid a total of $1 million to settle the construction defect suit. Although Glencoe refused to participate in the settlement, it approved of Pacifica contributing its SIR ($250,000) as part of the settlement, which Pacifica did.

After settling the construction defect suit, Axis sued Glencoe for declaratory relief and equitable contribution to recover at least a portion of the $750,000 it paid in settlement. After a bench trial, the court found in favor of Axis and allocated a 60/40 split of Axis's settlement payment to the advantage of Axis.

Glencoe appeals, claiming the court committed reversible error in finding Axis proved a potential for coverage under the Glencoe policy. In addition, Glencoe argues the court abused its discretion in allocating the amounts of contribution. We affirm.


The Construction Defect Litigation

In September 2004, Pacifica purchased the Carmel Pointe apartments. It subsequently converted the apartments to condominiums, and in turn, sold the condominiums to individual owners. A homeowners' association called the Carmel Pointe Homeowners Association (Association) then was created. The Association filed a construction defect suit against Pacifica. The Association brought claims for breach of warranties, negligence, nuisance, negligent misrepresentation, and intentional misrepresentation arising out of the condominium conversion project at Carmel Pointe.

The Tenders

Based on the construction defect suit, Pacifica tendered a claim to Axis. Axis provided insurance coverage to Pacifica through a general liability insurance policy issued to the Commercial Industrial Building Owners Alliance, Inc. (CIBA) under policy number ELP712476-05 from March 31, 2005 to March 31, 2006. The policy contained a $500,000 "per occurrence" SIR that was subject to an aggregate and was satisfied by the payment of claims unrelated to the construction defect suit. Axis also provided insurance coverage to Pacifica through a second policy issued to CIBA as policy number ELP700696-04 from March 31, 2004 to March 31, 2005. This policy also had a $500,000 "per occurrence" SIR that was subject to an aggregate and was satisfied by the payment of claims unrelated to the underlying litigation.

The Axis policies provided primary coverage with limits of liability of $5 million and $10 million and with defense expense outside the limit of liability. The Axis policies contained an "other insurance" clause, which provided for the sharing of a loss with a coinsurer by equal shares if the coinsurer also provides for sharing by equal shares. The Axis policies provided coverage for liability for property damage caused by an occurrence during their respective terms. The policies defined property damage as physical damage to tangible property caused by an occurrence or loss of use of property not physically damaged caused by an occurrence.

Axis accepted Pacifica's tender subject to a reservation of rights. Axis originally provided Pacifica with a defense under Axis policy no. ELP700696-04. However, the policy limits were exhausted in May 2008 as a result of unrelated claims. Axis then provided Pacifica with a defense under policy no. ELP712476-05. Axis paid $118,624.50 in attorney fees and costs on behalf of Pacifica in the construction defect suit.

Pacifica also tendered a claim to Glencoe. Glencoe issued a wrap-up/owner controlled insurance policy (no. CL-10586-00) to Pacifica specifically for the Carmel Pointe construction project with a policy period from September 2, 2004 through September 2, 2007. The Glencoe policy had a $5 million limit per occurrence and in the aggregate. The Glencoe policy provided coverage for property damage defined as physical damage to tangible property caused by an occurrence after the retroactive date of the policy prior to expiration of the extended reporting period. The retroactive date of the Glencoe policy is September 2, 2004, and the extended reporting period expires September 2, 2017.

The Glencoe policy contained an SIR in the amount of $250,000. The policy stated Glencoe had no duty to investigate or defend any claim until Pacifica satisfied the SIR. It also contained an "other insurance" provision similar to the one found in the Axis policy.

Glencoe did not accept Pacifica's tender, but instead, reserved its rights under its policy and requested that Pacifica provide evidence that it had satisfied the SIR.

The Settlement of the Construction Defect Suit

Although Glencoe declined to defend Pacifica, the construction defect suit progressed with Axis providing Pacifica's defense. The Association produced a preliminary defects list with a total cost of repair of $13,976,250, which included relocation costs and acoustical claims.

On October 22, 2008, the Association made a $1 million settlement demand on Pacifica, which would expire on November 14, 2008. Pacifica and the Association agreed to extend the expiration of the settlement to December 17, 2008.

In response to the Association's settlement demand, Pacifica sent experts to Carmel Pointe to evaluate defects and deficiencies and prepare a preliminary scope and cost of repair. Pacifica instructed its experts to identify all potential defects and not just those defects claimed by the Association. The experts created a preliminary repair estimate totaling $1,466,747.50. Pacifica's cost of repair did not include the Association's acoustical claims or relocation costs.

On November 3, 2008, Pacifica advised Glencoe about the Association's $1 million settlement demand. Before the end of November 2008, Glencoe was advised of the preliminary cost of repairs calculated by Pacifica's experts.

On December 16, 2008, the day before the settlement demand was to expire, Glencoe responded to Pacifica's request for approval of the settlement. Glencoe stated in part:

"It is our understanding that JPI West Coast [the original owner/developer of Carmel Pointe], as well as its direct and additional insurers are of the opinion that the information available at this time is insufficient to warrant contribution towards settlement. We share that concern when asked to fund a settlement without their contribution. We also have a concern with respect to the unorthodox manner of negotiation and settlement as well as the effective scope of the settlement negotiated on an expedited basis. [¶] . . . [¶] Axis' most recent demand for contribution requires an analysis of causation and damage which the current information available does not allow. The current deadline imposed by the [Association] does not allow [Glencoe] to fully evaluate this matter. We have inquired about an extension of time to respond to the settlement. We have been advised that an extension is not likely to be provided. We renew our request for an extension. Accordingly, while we lack sufficient information to agree to fund a settlement at this time, we will not object to Pacifica contributing its SIR to a settlement funded by Axis up to the proposed $1,000,000."

Glencoe also did not agree the settlement was for a covered loss.

On December 22, 2008, the Association and Pacifica entered into a written settlement agreement. On December 30, 2008, Axis issued a check to the Association for $750,000 as partial payment of the settlement. Eight days later, Pacifica issued a check to the Association for $250,000 toward ...

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