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St. Paul Fire and Marine Insurance Co. v. Ace American Insurance

United States District Court, E.D. California

August 14, 2014

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a Minnesota corporation; and ST. PAUL MERCURY INSURANCE COMPANY, a Minnesota corporation, Plaintiffs,
v.
ACE AMERICAN INSURANCE, a Pennsylvania corporation, et al., Defendants.

ORDER

LAWRENCE K. KARLTON, District Judge.

Plaintiffs St. Paul Fire and Marine Insurance Company (St. Paul) and Travelers Property Casualty Company of America (Travelers) sue, inter alia, defendant Arch Specialty Insurance Company (Arch) in this diversity action for declaratory judgment and equitable contribution, claiming Arch breached its contractual duty to defend and/or indemnify Beazer Homes (Beazer) in an action brought by homeowners for construction defects.[1] Plaintiffs filed this action on December 18, 2012. The action is now proceeding on the first amended complaint, filed November 27, 2013 (ECF No. 197). It is before the court on cross-motions for partial summary judgment. By these motions, the parties seek resolution of whether Arch had a duty to defend Beazer in the underlying homeowners' action.

I. FACTS

A. Stipulated Facts

Plaintiffs St. Paul and Travelers and defendant Arch stipulate to the following facts for purposes of the instant cross-motions.

On April 29, 2010, the owners of 152 single family homes at housing developments in Yuba City, California filed an action in Yuba County Superior Court against Beazer.[2] On March 4, 2011, 273 owners of single family homes filed a second amended complaint in the superior court action. The homeowners alleged defects and damages in their homes.

Beazer was the developer and general contractor for six residential developments. Beazer entered into subcontracts with Borge Construction, Inc. dba Color Core and/or Color Core, Inc.; Tileco; Larry Methvin Installations; Michael Hopper Construction, Inc.; and Marble Palace, Inc. for various work at some or all of the six residential developments.

All of the homes at issue in the underlying action were completed sometime between February 20, 2004 and August 25, 2005. The homes in one of the residential developments, the Independence Trail development, were completed between February 20, 2004 and December 29, 2004.

Defendant Arch issued commercial general liability policies to Borge Construction, Inc. (Borge); Tileco; Larry Methvin Installations (Methvin); and Michael Hopper Construction (Hopper) (three policies in three consecutive years). Travelers issued a policy to Marble Palace, Inc.

On July 26, 2010, Beazer tendered its defense of the underlying action to Arch under the policies issued by Arch. Arch denied any duty to defend Beazer on various grounds, including limitations of the additional insured endorsements contained in the policies, which limit coverage to an otherwise qualifying additional insured to liability arising out of the named insured's "ongoing operations."

On June 24, 2011, Beazer tendered its defense of the underlying action to Travelers. On October 19, 2011, Travelers issued a letter denying the duty to defend Beazer.

B. Additional Facts

With one exception discussed below the following facts, though not contained in the parties' stipulation, are undisputed. Borge subcontracted to perform interior and exterior painting in at least three of the subdivisions. Exs. E, F, and G to LaSalle Decl. Tileco subcontracted to install kitchen countertops, sinks, and backsplashes in the Independence Trail subdivision. Ex. J to LaSalle Decl. Methvin subcontracted to perform the mirror, tub, and shower enclosure work at the Independence Trail subdivision. Ex. L to LaSalle Decl. Hopper subcontracted to perform millwork, interior trim, cabinetry trim, installation of finish hardware and weather stripping, fit and hang doors, and install cabinets at the Bridgeport Crossing, Sweetwater Ranch II, Bridgeport II, and Orchard Glen subdivisions. Exs. P, R, S and T to LaSalle Decl.[3]

Each of the four subcontractors was, pursuant to contract, required to obtain insurance coverage, including general liability coverage with Beazer as an additional insured. See Exs. E, F, G, J, L, P, Q, R, S, and T to Decl. of Scott LaSalle (ECF No. 229-4). With respect to this coverage, the contracts provide: "Additional Insured: Beazer Homes USA, Beazer Homes Holdings Corp., Homes Southern Northern California, it's affiliated and subsidiary companies, officers, directors, agents and employees to be named as Additional Insured with respect to work done by, or on behalf of, Subcontractor. Beazer Homes accepts endorsements with wording equivalent to completed and ongoing operations...' or arising out of your work...'" See, e.g., Ex. E to LaSalle Decl. (ECF[4] No. 229-4) at 62.

Arch issued commercial general liability policies to, respectively, Borge, Genesis, Methvin, and Hopper. Exs. D, I, K and O to LaSalle Decl. (ECF No. 229-4). Each of the policies specifies in relevant part that the insurance provided thereby "applies to bodily injury' or 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." See, e.g., Ex. D to LaSalle Decl. (ECF No. 229-4) at 9. "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." See, e.g., id. at 24.

Each of the policies was amended to include as an additional insured any entity "where required by written contract" "but only with respect to liability arising out of [Borge, Genesis, Methvin or Hopper]'s ongoing operations." See, e.g., id. at 29. "Ongoing operations" is not defined in the policies. Each of the policies also contain exclusions that exclude from coverage in relevant part:

j. Damage to Property
"Property Damage" to:
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or
(6) That particular part of any property that must be restored, repaired, or replaced because "your work" was ...

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