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Am. Home Assur. Co. v. SMG Stone Co., Inc.

United States District Court, N.D. California

June 11, 2015

AMERICAN HOME ASSURANCE COMPANY et al., Plaintiffs,
v.
SMG STONE COMPANY, INC. et al., Defendants

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[Copyrighted Material Omitted]

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For American Home Assurance Company, Insurance Company of the State of Pennsylvania, Plaintiffs, Counter-defendants: Lejf E. Knutson, Patrick Fredette, LEAD ATTORNEYS, McCormick Barstow Sheppard Wayte & Carruth LLP, Fresno, CA; Robin Danean Korte, LEAD ATTORNEY, Selvin Wraith Halman, Oakland, CA; Gary Robert Selvin, Selvin, Wraith, Halman, LLP, Oakland, CA.

For SMG Stone Company, Inc., J. Colavin & Son, Inc., Webcor Construction LP, doing business as Webcor Builders, doing business as Webcor Construction, Inc., Defendants: Bruce P. Loper, Lombardi Loper & Conant, LLP, Oakland, CA.

For Steadfast Insurance Company, Defendant: Christine Marie Fierro, Ramiro Morales, LEAD ATTORNEYS, Morales Fierro & Reeves, Pleasant Hill, CA.

For J. Colavin & Son, Inc., SMG Stone Company, Inc., Webcor Construction LP, Counter-claimant: Bruce P. Loper, Lombardi Loper & Conant, LLP, Oakland, CA.

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ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT Re: Dkt. Nos. 43, 49

HAYWOOD S. GILLIAM, JR., United States District Judge.

Pending before the Court are the parties' cross-motions for summary judgment. Plaintiffs American Home Assurance Company (" AHA" ) and Insurance Company of the State of Pennsylvania (" ISOP" ) seek summary judgment that the insurance policies at issue do not cover the claims by Defendants SMG Stone Co. (" SMG" ), J. Colavin & Son, Inc. (" Colavin" ), Webcor Construction LP (" Webcor" ), and Steadfast Insurance Co. (" Steadfast" ). Defendants seek summary judgment that Plaintiffs had a duty to defend the underlying arbitration and litigation proceedings. For the reasons stated below, Defendants' motion is DENIED, and Plaintiffs' motion is GRANTED.

I. BACKGROUND

The following facts are undisputed unless stated otherwise.

A. Underlying Insurance Claim

In October 2007, owner and developer Olympic & Georgia Partners LLC (" Olympic" ) contracted with Defendant Webcor to construct a 54-story hotel and luxury condominium highrise in downtown Los Angeles (the " Project" ). Webcor, in turn, subcontracted with Defendants SMG and Colavin to install stone floor tiles at the Project. Plaintiffs provided general commercial liability insurance to Olympic, Webcor, SMG, and Colavin in connection with the Project.

SMG and Colavin began the floor tile installation work in November 2009. In early 2010, Olympic discovered fractures in some of the stone floor tiles installed by SMG and Colavin. A few weeks later, the fractured tiles were removed and replaced. This remediation process required the removal and replacement of portions of drywall and concrete subfloor installed by other subcontractors.

In a letter dated May 12, 2010, Olympic provided " notice of a claim of fractured stone tile" to AHA and explained:

The Project is nearing completion and its Owner, [Olympic], was about to close escrow on certain Residences and proceed with the sale of the remainder. However, the demolition and repair of fractured stone tile will preclude completion and closing of the Residences on schedule, and as a result, Owner will suffer substantial damages, including carrying costs, etc. Owner desires to mitigate damages by proceeding immediately to investigate and repair. Time is of the essence.

Dkt. No. 44-3.

In a letter dated July 27, 2011, Defendant Webcor " formally plac[ed] [AHA] on notice of the alleged claims and tender[ed] [its] defense and indemnity (and those of [its] subcontractors) pursuant to the" AHA insurance policy. Dkt. No. 44-5. Webcor explained that " the owner[s] of the project invited various parties to attend a presentation regarding alleged construction defects concerning various tiles installed at the project." Id. Counsel for AHA and ISOP attended the presentation, which described " shrinkage-induced fractures" and " loading-induced fractures" to the tiles. Dkt. No. 44-7 at 49. Olympic contended that these fractures were caused by various installation defects, such as " installation

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over concrete with excessive moisture," " improper substrate preparation," and " improper mortar application." See Dkt. Nos. 44-7 at 63, 44-8 at 76, & 44-9 at 104. The presentation listed a total of $39,342,201 in projected damages. See Dkt. No. 44-9 at 133-34.

In November 2011, Olympic initiated an arbitration proceeding against Webcor, SMG, and Colavin. Webcor ultimately paid Olympic $8 million to settle the dispute, $7 million of which was paid by Webcor's insurer, Steadfast.

SMG and Colavin subsequently sued Webcor for non-payment for services rendered in connection with the floor tile installation, and Webcor cross-complained. Webcor alleged that " SMG failed to perform its tile work in a manner that was of good quality and workmanship," and that " [a]s a proximate and legal result of SMG's negligence, the stone tile work at the Project is alleged to be defective and that construction defect has led to resulting and consequential damages." Dkt. No. 1-2 ¶ ¶ 14, 20. Webcor sought damages " [f]or all monies expended or to be expended to repair, replace and remediate SMG's defective work." Id. p.10. SMG and Colavin tendered claims for defense and indemnity in relation to the lawsuit and the arbitration with Olympic, which Plaintiffs denied.

B. Insurance Policies

AHA issued a general commercial liability insurance policy to Olympic--and, as modified by endorsement, to Defendants Webcor, SMG, and Colavin--covering the time period of May 25, 2009 through May 25, 2010. See Dkt. No. 48-1 (" Policy" ). ISOP issued a " Follow Form Excess Liability" policy to Olympic covering the time period of May 25, 2007 through August 25, 2011. See Dkt. No. 48-2.

The " Insuring Agreement" section of the Policy reads:

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.

Section I ¶ 1(a).

The promised coverage applies to " property damage" only if, in relevant part, the " property damage" is caused by an " occurrence." Id. ¶ 1(b)(1). " Property damage" is defined as (1) " [p]hysical injury to tangible property, including all resulting loss of use of that property," or (2) " [l]oss of use of tangible property that is not physically injured." Section V ¶ 17. " Occurrence" is defined as " an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. ¶ 13.

The Policy contains several exclusions. Relevant here, Exclusion j excludes certain types of " property damage" from the Policy's ambit. Section I ¶ 2(j). Exclusion j(5), as modified by endorsement, removes from coverage " property damage" to " [t]hat particular part of real property on which you, any insured contractor, or any other contractors or subcontractors working directly or indirectly on behalf of you, any insured contractor or subcontractor, are performing operations, if the 'property damage' arises out of those operations." Id. ¶ 2(j)(5) & Endorsement 81705.

Exclusion j(6), as modified by endorsement, removes from coverage " property damage" to " [t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly ...


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