Judge Lee W. Tsao, Case 20NWCV0069 2023-05-16 Tentative Ruling

Judge: Lee W. Tsao, Case: 20NWCV0069, Date: 2023-05-16 Tentative Ruling

Case Number: 20NWCV0069 Hearing Date: May 16, 2023 Dept: C

KITCHEN GALLERY, et al. v. AMGUARD INSURANCE COMPANY, et al.

CASE NO.: 20NWCV00699

HEARING: 5/16/23 @ 1:30 PM

TENTATIVE RULING

Defendant AmGuard Insurance Company’s motion for summary judgment is DENIED.

Opposing Party to give NOTICE.

Plaintiffs sue insurer AmGuard Insurance Company (“AmGuard”) to collect on a judgment against its insured, a subcontractor Plaintiffs sued in an underlying action (Case No. VA067227). Defendant AmGuard moves for summary judgment pursuant to CCP § 437c.

FIRST AMENDED COMPLAINT

Plaintiff Villa Madrid, LLC is the owner of the Property. (FAC, ¶ 8.) Villa Madrid hired Plaintiff Kitchen Gallery as its general contractor to construct a 22-unit apartment building on the Property. (Id.) Kitchen Gallery then hired East & West Plumbing, Inc. (“E&W”) to perform certain plumbing work on the Project. (Id.) Plaintiffs sued E&W in Case No. VC067227. (Id.)

“At the time of the Underlying Action, AmGuard insured E&W/Reyes against
liability for the claims alleged by Plaintiffs in the Underlying Action. With respect to AmGuard, E&W/Reyes were insured with a commercial general liability policy, policy number EABP784704, with coverage in the amount of $2,000,000. The AmGuard insurance policy was in full force and effect at all relevant times, with a policy period of December 16, 2016 to December 16, 2017, which is during the period in time which E&W/Reyes caused damage to the Property and the losses at issue in the Underlying Action.” (FAC, ¶ 9.) “E&W/Reyes had an insurance policy with Preferred, and this policy provide coverage in supplement to the police provided by AmGuard.” (Id., ¶ 10.) “In addition to directly insuring E&W/Reyes under the foregoing policy(ies), Plaintiffs are informed and believe, and based thereon allege that KG was an additional insured under the AmGuard policy of insurance, policy number EABP784704.” (Id., ¶ 14.)

“On or about March 4, 2019, KG directly notified AmGuard of the claims at issue in the Underlying Action. By email dated March 11, 2019, AmGuard’s claims representative, Carolyn Ward, responded by asserting there was “no coverage” for the claim, and indicated in her response that there was no applicable policy. Ms. Ward, again acting on behalf of AmGuard, stated that Plaintiffs were not additional insureds under policy number EABP784704, and on that basis she refused to provide Plaintiffs with any information regarding policy number EABP784704. Ms. Ward’s representations, however, were false and Plaintiffs have since learned that AmGuard did in fact issue a policy of insurance, and AmGuard has represented to Plaintiffs that Exhibit “A” hereto is a copy of policy number EABP784704. The policy requires AmGuard to pay sums its insured become legally obligated to pay as damages because of “property damage” caused by its insured.” (Id.) “AmGuard’s denial of insurance coverage for the claims alleged in the Underlying Action was improper and in bad faith. The allegations in the complaint filed in the Underlying Action clearly triggered both a duty to defend and indemnify.” (Id., ¶ 15.)

“After E&W/Reyes… failed to comply with its discovery obligations in the
Underlying Action… E&W/Reyes’ answers in the Underlying Action were stricken… [and] Judgment was subsequently entered in favor of KG… in the amount of $430,269.82… [and in favor of VM]… in the amount of $714,312.73.” (FAC, ¶ 16.)

Based thereon, the FAC asserts three causes of action for Breach of Statutory Duty pursuant to Ins. Code § 11580.

STANDARD

A defendant has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to the cause of action. Once the defendant or cross-defendant has met that burden, the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto. (CCP § 437c(p)(2).)

MERITS

Judicial Notice is taken of Exs. 4-8. (Ev. Code §§ 452-453.)

“Whenever judgment is secured against the insured… in an action based upon bodily injury, death, or property damage, then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment.” (Ins. Code § 11580(b)(2).)

Coverage provisions in a policy are interpreted broadly, to afford the insured the greatest possible protection, while exclusionary clauses are interpreted narrowly against the insurance company. (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 648.)

Prior Knowledge

Amguard argues that there is no coverage afforded under the policy because E&W/Reyes knew of the damage to the project prior to the policy period.

The policy precludes coverage for “property damage” that the insured “knew” prior to the policy period “had occurred, in whole or in part.” (Cousineau Decl., Ex. 2, the Policy at Section II,1.b.(1)(c).)

SECTION II, 1.b.(1)(c) provides, “This insurance applies: (1) … “property damage” only if: (a) The… “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; (b) The… “property damage” occurs during the policy period; and (c) Prior to the policy period, no insured… knew that the… "property damage" had occurred, in whole or in part. If such a listed insured or authorized "employee" knew, prior to the policy period, that the… "property damage" occurred, then any continuation, change or resumption of such… "property damage" during or after the policy period will be deemed to have been known before the policy period.” (DSS 54.)

“‘Property damage’ means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.” (Cousineau Decl., Ex. 2, the Policy at Section II, F.17.)

The court finds that triable issues exist regarding when E&W/Reyes “knew” that “property damage had occurred.” AmGuard submits evidence that on November 30, 2016, Plaintiffs’ project manager, Ramin Youssefzahed, emailed Reyes to notify him that E&W/Reyes had used ABS pipes instead of cast iron pipes as specified by the plans. (Defense Separate Statement (“DSS”) 7-8). According to AmGuard, this email proves E&W/Reyes’ knowledge of property damage prior to the policy period which began on December 16, 2016. (DSS 52). However, Plaintiff alleges this damage was corrected before December 16, 2016, and is separate from Plaintiffs’ property damage claim in the Underlying Action. (Mir Decl., ¶ 5.) In the underlying action, Plaintiff alleged “E&W had deviated from the plans and improperly double stacked vent pipes on drain lines, which the inspector refused to approve.” (Cousineau Decl., Ex. 5, Mir Decl., ¶ 6.)

Faulty Work Exclusion

Amguard argues that there is no coverage under the “faulty workmanship” exclusion to the policy.

Exclusion k(5) excludes coverage for “‘Property damage’ to... That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the “property damage” arises out of those operations.” (Cousinau Decl., Ex. 2, Policy at Section II, B.k(5).)

Exclusion k(6) excludes coverage for “‘Property damage’ to… That particular part of any property that must be restored, repaired or replaced because of ‘your work’ was incorrectly performed on it.” (Cousinau Decl., Ex. 2, Policy at Section II, B.k(6).)

“‘Your work’… means: (1) Work or operations performed by you or on your behalf; and (2) Materials, parts or equipment furnished in connection with such work or operations. b. Includes: (1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”; and (2) The providing of or failure to provide warnings or instructions.” (Cousineau Decl., Ex. 2, the Policy at Section II, F.22.)

This exclusion is similar to the exclusion analyzed in Global Modular, Inc. v. Kadena Pacific, Inc. (2017) 15 Cal.App.5th 127. There, the court held that the exclusion “employs a narrow construction, restricting the excluded damage to only that particular part on which the insureds are performing operations.” (Global Modular, supra, 15 Cal.App.5^th 137 and 141.) Global Modular focused on the language of “particular part” to observe that only the very specific parts of the subcontractor’s work could fall under this exclusion, and the exclusion is inapplicable to damage caused by a subcontractor’s work to other parts of improvements. The court finds Letgolts v. David H. Pierce & Associates, PC (2021) 71 Cal.App.5^th 272, relied upon by AmGuard, is distinguishable because the contractor at issue was a general contractor, whose scope of work included the entire project, as opposed to Global Modular, which dealt with a subcontractor, whose scope of work was part of the project, which is similar to the present facts. (See also Roger H. Proulx & Co. v. Crest–Liners, Inc. (2002) 98 Cal.App.4th 182.)

Here, exclusion k(5) and k(6) may exclude E&W/Reyes’s work that was incorrectly performed, but does not exclude damages to other parts of the Project. (See Global Modular, supra, 15 Cal.App.5^th 141.) This damage included “the repair of framing damage, electric work where wires had to be pulled to accommodate the vents E&W failed to install originally, further rough plumbing work that E&W was unable or unwilling to complete, replacement of insulation damaged by E&W, stucco work damaged as a result of E&W, water damage caused when E&W vented water pipes in the partially completed Project, the retention of an engineer to inspect E&W’s repair work to the framing and to ensure it was structurally sound.” (Cousineau Decl., Ex. 5, Mir Decl., ¶ 10; Mir Decl., ¶ 8.)

Occurrence

Amguard argues E&W’s actions were intentional and not accidental, and thus not caused by an “occurrence” to trigger coverage under the policy. According to AmGuard, “[a]n accident does not occur when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.” (Fire Ins. Exchange v. Superior Court (2010) 181 Cal.App.4th 388, 392.)

“‘Occurrence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Cousineau Decl., Ex. 2, the Policy at Section II, F.13.)

The term “accident” for purposes of a general liability means “an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.” (Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co. (2018) 5 Cal.5th 216, 221.) The term accident is more comprehensive than the term negligence and includes negligence. (Ibid.)

For example, in Gogerty v. General Acc., Fire & Life Assur. Corp. (1965) 238
Cal.App.2d 574, 575-576, an architect’s approval of defective concrete used by a general contractor to construct defective arches in a building constituted an “accident” within the meaning of a liability policy. In Geddes & Smith, Inc. v. St. Paul-Mercury Indem. Co. (1959) 51 Cal.2d 558, 561, the insured intentionally constructed and sold doors to a purchaser under a contract. The purchaser sued the insured, alleging the doors were discovered to be defective after installation. (Ibid.) The court concluded the “door failures were unexpected, undesigned, and unforeseen,” and were therefore an accident, even though the doors were intentionally constructed and deliberately sold pursuant to a contract. (Id. at 564.)

Amguard has failed to establish, as a matter of law, that E&W knew, foresaw, or expected its conduct would damage other parts of the project. The court finds that a triable issue exists whether E&W’s conduct qualifies as an “occurrence” within the meaning of the policy.

Damages

AmGuard argues that certain damages including but not limited to disgorgement of profits, attorney’s fees and unpaid sanctions, do not constitute either bodily injury or property damage under the terms of the Policy, and are therefore not recoverable.

However, AmGuard brought a motion for summary judgment, not a motion for ssummary adjudication. This issue would not completely dispose of the action in AmGuard’s favor.

Further, even if AmGuard brought a proper motion for summary adjudication, this issue does not completely dispose of the cause of action, defense, damages claim under CC § 3294 or duty issue to which it is directed. (CCP § 437c(f)(1).) Summary adjudication is not allowed as to a single item of compensatory damages which does not dispose of the entire claim.

Accordingly, the motion is DENIED.