California Court of Appeals, Fourth District, Second Division
from the Superior Court of Riverside County Nos. RIC1103551,
RIC1304240. Daniel A. Ottolia, Judge. Affirmed in part;
reversed in part with directions.
& Gaston, John B. Larson, and Gloria G. Medel for
Cross-defendant and Appellant.
K&L Gates, Timothy L. Pierce, and Kate G. Hummel for
Defendant, Cross-complainant, and Appellant.
Vranjes & Greer, Mark Vranjes, and Charles A. Phillips
for Plaintiff and Appellant.
case arises from an insurance dispute between a general
contractor, its subcontractor, and the subcontractor's
general liability carrier over water damage to a construction
site caused by heavy rains. The United States Department of
Veterans Affairs (VA) hired Kadena Pacific, Inc. (Kadena) as
the general contractor to oversee construction of its Center
for Blind Rehabilitation in Menlo Park. Kadena hired Global
Modular, Inc. (Global) to build, deliver, and install the 53
modular units that would comprise the rehabilitation center.
Because Kadena had hired a different subcontractor to install
the roofing, Global agreed to deliver the units covered only
by a roof deck substrate-a three-fourths of an inch base
sheet of plywood.
had originally scheduled delivery of the units for the summer
months, but delivery was delayed until October and November.
This meant the roofless units were exposed to the elements
during the rainy season, equipped with only a plywood
substrate. Despite Global's efforts to protect the units
by covering them with plastic tarps, the interiors suffered
water damage from October through January. In February,
Kadena and Global mutually agreed to terminate their contract
and Kadena oversaw the remediation of the water-damaged
interiors and completion of the project.
sued Kadena for failure to pay and Kadena countersued,
alleging Global had breached the contract in various ways,
including by failing to repair the water-damaged interiors.
Before trial, the parties entered a partial settlement.
Global paid Kadena $321, 975 to release all of Kadena's
claims arising from the VA project except for claims covered
by Global's insurance policy with North American Capacity
Insurance Company (NAC), and Global received $153, 025 to
dismiss its failure-to-pay claims. At trial, Kadena presented
evidence on the scope and cost of its water remediation and
argued Global was contractually responsible for the damage.
The jury agreed and awarded Kadena slightly over $1 million.
separate suit brought by NAC, Kadena and NAC filed competing
motions for summary judgment on the issue of whether
NAC's policy required it to indemnify Global for the
jury's damage award. The trial court ruled in favor of
Kadena, finding the damage award covered under NAC's
policy as a matter of law. The court also ruled that the
award must be offset by the $321, 975 Global paid in
settlement and that Global was liable to Kadena for $360, 000
in attorney fees.
appeal, NAC contends the trial court erred in finding the
water damages are covered under its policy; Kadena argues the
court erred in offsetting those damages with Global's
settlement payment; and Global and NAC argue the court erred
in awarding attorney fees. We conclude the trial court
properly determined NAC's policy covers the water damages
and Kadena is entitled to attorney fees. However, we reverse
the offset order because Global's settlement payment did
not compensate Kadena for the costs of its water remediation;
the parties agreed to reserve that issue for litigation.
Trial on the Water Remediation Damages
and Kadena presented the following evidence at trial. The
VA's project specifications called for a modular design
consisting of 53 units totaling over 37, 000 square feet. In
October 2009, Kadena hired Global to build, deliver, install,
and partially finish the modular units for the project, at a
contract price of about $3.5 million. Global's scope of
work included the units' frame, ceiling, drywall,
interior finishes, the HVAC and plumbing systems, and some
aspects of the roof design, such as the plywood substrate,
parapets, and hatches. The scope of work excluded flooring
and roofing. Article XIII of the Kadena-Global contract
stated Global assumed responsibility “for any loss or
damage to the [units]... however caused, until final
acceptance thereof by [Kadena].” The contract
conditioned “final acceptance” upon the VA's
approval of the units.
the overarching construction schedule, Kadena was to pour the
concrete foundations, then Global would deliver the units
partially constructed, set them in place on the foundation,
perform the additional construction required under the
contract, then align and fasten the units together to form
one main segment and two side wings. After Global's work
was complete, Kadena and other subcontractors would finalize
the project, which included installing the roofs and
flooring, stuccoing the exterior of the units, and finishing
the driveways and sidewalks. The VA had selected an EPDM
roof, a rubberized sheet that adheres to the plywood
substrate. According to Kadena, the roofing for all 53 units
had to be installed at the same time (as opposed to
piecemeal, as the units were delivered) in order to ensure
the roof manufacturer's extended warranty.
the project schedule called for Global to deliver and finish
the units during the summer months of 2010. But for various
reasons, the schedule shifted significantly and Global did
not deliver the units to the site until October and November.
The parties spent a significant amount of trial time on the
reasons for the delay in the delivery schedule. According to
Kadena's witnesses, unexpected seismic and geological
issues set the project back about 118 days and Global caused
the rest of the delay by failing to timely build the units,
submit designs, and install weld plates in the foundation.
after Global delivered the first shipment of units in early
October, it rained and the interiors suffered water damage.
Kadena's project manager emailed Global's operations
manager and informed him that despite Global's use of
plastic tarps, “the units experienced rain leakage and
damage to the drywall and insulation.” Over the next
four months, the rains continued on and off and the units
suffered additional water damage. Kadena's project
manager sent several emails to Global's operations
manager over this period, directing him to remediate the
water damage and reminding him Global is responsible for the
damage under their contract. Global's operations manager
would respond to these emails by agreeing to address the
issue. At trial, Global's operations manager testified
that although his crew had tried to protect the units by
covering them with heavy-duty plastic tarps, the fact the
units were equipped with only a roof substrate made them
impossible to fully waterproof and weatherproof. He said it
was unusual for a client to exclude roofing from the scope of
work and that Global was used to installing the roofs in
their factory, prior to delivery, “to make sure that
the building is protected.”
early January 2012, Global hired ServiceMaster, a company
specializing in disaster response, to assist with the water
intrusion remediation. Around that same time, the roofing
contractor began installing the EPDM roof. By mid-February,
Global was still in the process of trying to remediate the
interior water damage and had not yet completed its work on
the units. At that point, the relationship between Kadena and
Global had deteriorated and the parties decided to terminate
their contract. Kadena then took on the task of remediating
the water damage and completing the units. Kadena used its
own crew in addition to the services of four other companies
to remove and replace water-damaged drywall, insulation, wood
framing, and ducting.
trial, Kadena presented evidence on the scope and cost of
this water remediation (the repair/replacement costs) and the
number of days it delayed the project (the delay damages).
Kadena argued Global bore the risk of loss for those damages
under Article XIII of their contract because the units were
not complete (that is, accepted by the VA) when they were
damaged. Global argued Kadena was responsible for the water
damage because, as the general contractor coordinating the
project, it should have developed a plan to protect the units
when it became evident rain was going to be an issue-for
example, by renting a place to store the units or having the
roof installed piecemeal instead of all at once.
jury agreed with Kadena and found Global contractually liable
for a total of $1, 068, 541.91 in water intrusion damages,
broken down as follows: $617, 332.86 for drywall and
insulation repairs; $113, 020.05 for carpentry repairs; $46,
125 for mechanical duct repairs; and $292, 064 for
Summary Adjudication of Insurance Coverage
sought a declaration it was not obligated to indemnify Global
for the water intrusion damages because they were not covered
under its commercial general liability (CGL) policy. That
policy covers “property damage” caused by an
“occurrence, ” which is defined as “an
accident, including continuous or repeated exposure to
substantially the same general harmful conditions.”
From this broad, occurrence-based coverage the policy carves
out a variety of exclusions. Relevant to this appeal are
exclusions j(5) and j(6) and exclusion m.
and NAC filed competing motions for summary judgment on the
issue of coverage. NAC argued exclusions j(5) and j(6) apply
to the costs of repairing and replacing the wet drywall,
insulation, framing, and ducting. As to the delay damages,
NAC argued they do not fall under the policy's insuring
clause because they are not “property damage”
and, even if they were, exclusion m applies to preclude
coverage. Kadena argued exclusions j(5) and j(6) do not apply
or are at the very least ambiguous, and thus should be
interpreted in favor of coverage. It argued the delay damages
fall under the insuring clause and exclusion m is
trial court ruled both types of damages are covered under the
policy and granted Kadena's motion for summary judgment.
As to the repair/replacement costs, the court held exclusions
j(5) and j(6) are ambiguous and can reasonably be interpreted
to exclude damage to only the particular component of
Global's work that was defective. Applying this
interpretation to the undisputed facts from trial, the court
found none of the drywall, insulation, framing, or ducting
Kadena repaired or replaced was defective, and thus concluded
exclusions j(5) and j(6) did not apply. As to delay damages,
the court determined they were covered by the insuring clause
and exclusion m did not preclude coverage because, like
exclusions j(5) and j(6), it applied only to defective work.
Offset and Attorney Fees
the jury's verdict, Global filed a motion to offset the
damage award by the amount of its settlement payment to
Global and Kadena filed a motion for attorney fees. The court
granted both motions. It ruled offset was appropriate because
it saw no distinction between the claims Kadena had settled
and the jury's damage award. It found Kadena was entitled
to attorney fees under the Kadena-Global contract and
rejected Global's assertion Kadena had released its right
to obtain attorney fees under the settlement agreement.
The Summary Judgment Motions
Standards of review
purpose of the law of summary judgment is to provide courts
with a mechanism to cut through the parties' pleadings in
order to determine whether, despite their allegations, trial
is in fact necessary to resolve their dispute.”
(Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th
826, 843 (Aguilar).) Summary judgment is proper when
there are no triable issues of material fact and the moving
party is entitled to judgment as a matter of law. (Code Civ.
Proc., § 437c, subd. (c).) A plaintiff is entitled to
summary judgment if it establishes there is no defense to the
claim, and a defendant is entitled to summary judgment if it
establishes a complete defense to the plaintiff's claim,
or shows that one or more elements of the claim cannot be
established. (§ 437c, subd. (o); Aguilar, at p.
849.) The moving party bears the burden of showing it is
entitled to judgment as a matter of law. (Aguilar,
at p. 850.)
review a grant of summary judgment de novo, and decide
independently whether the facts not subject to triable
dispute warrant judgment for the moving party as a matter of
law. (Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342,
1348.) We are not bound by the trial court's stated
reasons for granting summary judgment. (Kids'
Universe v. In2Labs (2002) 95 Cal.App.4th 870, 878.)
interpretation of an insurance policy is a question of law we
review de novo, applying the general principles of contract
interpretation. (Clarendon America Ins. Co. v. General
Security Indemnity Co. of Arizona (2011) 193 Cal.App.4th
1311, 1317 (Clarendon).) The goal of contract
interpretation is to determine the mutual intent of the
parties, “if possible, solely from the written
provisions of the contract.” (Ibid.) When the
words of an insurance contract are unambiguous, we give them
their plain and ordinary meaning.
(Ibid.[“‘If contractual language is
clear and explicit, it governs'”].) “Courts
will not strain to create an ambiguity where none
exists.” (Waller v. Truck Ins. Exchange, Inc.
(1995) 11 Cal.4th 1, 18-19.) However, if the language is
ambiguous, it “will generally be construed against the
party who caused the uncertainty to exist.”
(Clarendon, at p. 1317.)
comes to interpreting a policy's exclusionary provisions,
the burden is on the insurer “to phrase exceptions and
exclusions in clear and unmistakable language.”
(Harris v. Glens Falls Ins. Co. (1972) 6 Cal.3d 699,
701.) It is a “fundamental principle that an insurer
cannot escape its basic duty to insure by means of an
exclusionary clause that is unclear.” (State Farm
Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193,
201.) As a result, we resolve all “doubts,
uncertainties and ambiguities” in exclusionary language
in favor of the insured. (Producers Dairy Delivery Co. v.
Sentry Ins. Co. (1986) 41 Cal.3d 903, 912.) This rule of
interpretation applies even when another construction, one
that would exclude coverage for the risk in question, is
equally reasonable. (Smith Kandal Real Estate v.
Continental Casualty Co. (1998) 67 Cal.App.4th 406,
these principles in mind, we turn to the language of