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Regional Steel Corp. v. Liberty Surplus Insurance Corp.

California Court of Appeals, Second District, First Division

May 16, 2014

REGIONAL STEEL CORPORATION, Plaintiff and Appellant,

APPEAL from a judgment of the Superior Court of Los Angeles County No. BC464209, Rolf M. Treu, Judge.

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George Chuang & Associates and George Chuang for Plaintiff and Appellant.

Sheppard, Mullin, Richter & Hampton, Frank Falzetta, James F. McShane and Brenda Bissett for Defendant and Respondent.



Regional Steel Corporation (Regional) appeals judgment entered in favor of its insurer, Liberty Surplus Insurance Corporation (Liberty). The trial court found that Liberty had no duty to defend Regional against claims brought by JSM Construction, Inc. (JSM) arising out of Regional’s installation of defective steel framing in an apartment building JSM was constructing. We affirm.


1. The Florentine Project

JSM Florentine, LLC (JSM Florentine) is the owner of an apartment building, the Florentine Apartments, under construction in North Hollywood in 2004 (Florentine Project). The Florentine Project complex consists of 14 stories, including retail space on the ground floor, four floors of parking, and 180 residential units on the upper floors. JSM was the general contractor on

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the project. Regional was a subcontractor engaged pursuant to a June 4, 2004 subcontract to provide reinforcing steel to the Florentine Project’s columns, walls, and floors. Webcor Construction LP (Webcor) was engaged to supply and pour concrete to encase Regional’s rebar skeleton.

From May through September 2004, Regional prepared and submitted shop drawings that used both 90 degree and 135 degree seismic tie hooks in shear walls. JSM and the structural engineer for the project, Babayan & Associates (Babayan), approved the drawings. In October 2004, Regional began construction on the project, using both the 90 degree and 135 degree seismic hooks as approved in the shop drawings. Webcor poured concrete encasing the rebar and tie hooks.

In January 2005, a City building inspector issued a correction notice requiring the exclusive use of 135 degree hooks. In April 2005, JSM became aware of the problem and informed Regional that it needed to use 135 degree hooks. On May 3, 2005, JSM stopped the pouring of concrete pending resolution of the hook issue. Regional immediately began to fabricate 135 degree hooks. In June 2005, the City notified JSM that garage levels one through three, and some on level four, had defective tie hooks and required repair. JSM refused to pay Regional’s invoices and withheld $545, 000.

2. The Policy[1]

In August 2005, JSM purchased a commercial liability policy from Liberty (Policy) with an effective date of August 5, 2005. Liberty added Regional as an additional named insured, effective as of October 5, 2005. The Policy consists of various standard, preprinted ISO (Insurance Services Organization) forms, as well as several endorsements, including a wrap endorsement (Wrap Endorsement converting the Policy into a “wrap” policy specific to the Florentine Project. The Policy provides in relevant part that Liberty will “pay those sums the insured becomes legally obligated to pay as damages because of... ‘property damage’ to which this insurance applies.” The Policy applies to “‘property damage’” caused by an “‘occurrence’” that takes place on or after the policy’s “Retroactive Date” of August 5, 2005. Through a series of endorsements, the Policy was extended to November 5, 2008.

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The Policy excludes coverage for “‘[p]roperty damage’” to “‘impaired property’” or property that “has not been physically injured, arising out of . . . .[¶] . . . .[a] defect, deficiency, inadequacy or dangerous condition in ‘your product’ or ‘your work.’” “‘Property damage’” is defined as “[p]hysical injury to tangible property, including all resulting loss of use of that property . . . .[¶] . . . .Loss of use of tangible property that is not physically injured.... shall be deemed to occur at the time of the ‘occurrence’ that caused it.” “‘Impaired Property’” is defined as “tangible property, other than ‘your product’ or ‘your work’ that cannot be used or is less useful because . . . .[¶] . . . .[i]t incorporates ‘your product’ or ‘your work’ that is known or thought to be defective, deficient, inadequate, or dangerous; . . . .[¶] if such property can be restored to use by . . . .[¶] . . . .the repair, replacement, adjustment or removal of ‘your product’ or ‘your work.’” An “‘[o]ccurrence’” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”[2]

The Wrap Endorsement modified the ISO form by providing that “[t]his insurance applies only to... ‘property damage’... that occurs at a Project Site... and arises solely out of that portion of operation performed: [¶] . . . . by... an Additional Named Insured; [¶] . . . .that are within the scope of a Designated Project listed in the Designated Project Schedule; and [¶] . . . .at the Project Site listed for that Designated Project.”

The Wrap Endorsement did not specify a retroactive date or an occurrence date.

3. The Underlying Action

In August 2007, Regional filed an action against JSM for ...

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