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Philadelphia Indemnity Insurance Co. v. Danco Builders

United States District Court, N.D. California

June 27, 2017

PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff,
v.
DANCO BUILDERS, et al., Defendants.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          William H. Orrick United States District Judge

         I held a bench trial on June 5 and 6, 2017 on plaintiff Philadelphia Indemnity Insurance Company (“Philadelphia”)'s equitable subrogation claim against Dan Johnson Construction, Inc. dba Danco Builders (“DANCO”) arising out of a fire that occurred on the balcony of Apartment F at the Willow Creek Apartments, in Willow Creek, California, in December of 2013. Philadelphia asserted that DANCO, the general contractor that built the Willow Creek Apartments, negligently installed a highly flammable Green Deck material on the balconies of the apartments and that the Green Deck on the balcony of Apartment F caused the fire to spread, substantially increasing the property damage resulting from the fire. DANCO denies liability. Philadelphia, the insurer, paid approximately $664, 000 for fire damage repair costs and lost rent following the fire. In this order I issue my findings of fact and conclusions of law, determining that Philadelphia is not entitled to equitable subrogation against DANCO.

         I. FINDINGS OF FACT AND CONCLUSIONS OF LAW

         A. Undisputed Facts

         On May 1, 2006, DANCO and Willow Creek Family Partnership executed a construction contract for DANCO to act as general contractor for the construction of an apartment project near Willow Creek, California (the “Willow Creek Apartments”). UF 1, 7. The contract price of construction was around $3.6 million. UF 7, 45. The International Fire Code's Wildland Urban Interface Code (“WUI”) was not adopted by Humboldt County at the time the Willow Creek Apartments were planned and constructed. UF 33.

         Eric Roberts dba Pacific West Architecture was hired as the architect for the Willow Creek project and drafted the architectural plans. UF 4-5. Per the plans, the apartment complex was to consist of four buildings, each with six units. UF 46. Each building was to have two second-story units, each with a deck around 100 square feet. UF 47. It was DANCO's general standard practice to follow a project's plans and specifications in completing a project. UF 8.

         The plans for the Willow Creek Apartments had a conflict in that they called for both UltraGuard PVC and a two-inch lightweight concrete to be used for the second-story decks. UF 12-13, 50. DANCO did not issue a written request for information to the architect or structural engineer to clear up this conflict, UF 27, and there is no evidence that DANCO and the structural engineer discussed what decking material to use for the second floor balconies. UF 10.

         On September 25, 2006, the Humboldt County Building Inspection Department approved using Procell PVC deck boards for the decking material on the second floor balconies at Willow Creek. UF 14. DANCO never sent UltraGuard PVC specifications or installation instructions to the building department for approval. UF 28. There is no evidence that DANCO submitted a written change order, signed by the owner, architect, or Department of Agriculture, regarding the material to use for second floor decking. UF 9, 31. The only change order signed by the architect in the DANCO job file related to additional fire sprinklers in the bathroom and no documents were removed from the DANCO job file prior to production in this litigation. UF 11.

         In building the Willow Creek Apartments, DANCO performed some work itself and subcontracted other work out. UF 3. In 2007, DANCO installed, or gave one of its subcontractors approval to install, polyethylene deck boards (“Green Deck”) on the second-floor balconies instead of the Procell PVC (approved by Humboldt County) or the UltraGuard PVC or lightweight concrete (specified in the plans). UF 15, 52. The manufacturer and origin of the Green Deck is unknown. UF 30. Green Deck was installed on all the second floor balconies at the Willow Creek Apartments. UF 29.

         On June 26, 2008, there was a fire on the second-floor balcony of Apartment F at the Willow Creek Apartments. UF 16, 55. The fire was caused by a lit cigarette, which caught fire to materials on the Green Deck and burned the vinyl siding of the balcony wall. UF 18-19, 53. It was first suppressed by a passerby with a water hose. UF 20. An alarm for the fire went off at approximately 11:10 p.m. and the fire department arrived about eight minutes after the alarm. UF 17. The fire department quickly contained the fire and there were no injuries. UF 54. The fire caused $13, 009.92 in damage, primarily to the vinyl siding, which DANCO repaired. UF 21. There was no significant damage to the Green Deck. UF 54.

         A second fire occurred on the second-floor balcony of Apartment F on December 16, 2013. UF 22. This fire was also caused by a lit cigarette. UF 25. The tenant in Apartment F negligently discarded a lit cigarette in an ashtray and dumped the ashtray into a paper bag that contained combustible debris on the deck. UF 25. The fire was first reported by a driver on Highway 96, approximately 400 yards away from the Willow Creek Apartments around 11:59 a.m. UF 26, 56. The fire department arrived at 12:07 p.m., eight minutes later. UF 56. Only 3-4% of the Green Deck burned through during the 2013 fire, concentrated in the northwest corner of the deck. UF 57.

         DANCO bid on and was awarded the contract to repair the damage from the 2013 fire. UF 35. It made repairs of like kind and quality to the damaged portions of the building. UF 34. Plaintiff Philadelphia is a corporation authorized to conduct insurance business in California. UF 38. It insured the Willow Creek Apartments at the time of the 2013 fire. UF 39. Philadelphia paid $581, 500.00 for fire repair costs. UF 40. In addition to being the general contractor of the Willow Creek Apartments, DANCO was the property manager of the buildings at the time of the fire. UF 42. It calculated the lost rent and provided its lost rent figures to Philadelphia's adjuster for consideration. UF 43-44. Philadelphia paid $82, 552.49 for lost rent due to fire damage. UF 41.

         B. Additional Findings of Fact

         a. The 2013 fire burned for approximately 12-17 minutes before the fire department ...


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