Triable Issue of Fact Exists as to Insurer’s Obligation to Provide Coverage Under Occurrence Policy

Valerie A. Moore and Kathleen E.M. Moriarty | Haight Brown & Bonesteel

In Guastello v. AIG Specialty Ins. Co. (No. G057714. filed 2/19/21 ord. pub. 2/23/21), a California appeals court held that triable issues of material fact exist which precluded summary judgment for an insurer seeking to disclaim coverage on the basis that the “occurrence” pre-dated the policy period where a dispute exists as to the timing of the subject “occurrence.”

In Guastello, a subcontractor built retaining walls from 2003 to 2004 for a housing development in Dana Point, California. In 2010, one of these retaining walls collapsed causing damage to a residential lot owned by Thomas Guastello.

Guastello initially sued the subcontractor alleging negligent design and construction and seeking various damages, including diminution in value of his property. The subcontractor had an “occurrence” policy with AIG Specialty Insurance Company with an effective period of 2003-2004. AIG denied any duty to defend or indemnify the subcontractor on the basis that the property damage occurred in January 2010 and was therefore outside of the policy period of 2003-2004.

Shortly after AIG’s disclaimer, Guastello obtained a default judgment against the subcontractor and filed a direct action against AIG for enforcement of the default judgment, breach of the covenant of good faith and fair dealing and declaratory relief pursuant to Insurance Code section 11580. AIG filed a motion for summary judgment contending Guastello did not suffer any property damage until the retaining wall collapsed in 2010, thus the occurrence did not take place until seven years after expiration of the policy.

Guastello’s opposition to AIG’s motion included a declaration by an expert civil engineer whose declaration proffered a latent construction defect theory. The expert opined that the contractor’s negligent construction of the retaining wall began to cause damage to the wall itself and to Guastello’s property within months of the wall’s substantial completion in 2003 by way of “continuous and progressive destabilization” to Guastello’s lot beginning before the end of November 2004. The engineer opined that the “continuous and progressive destabilization” eventually led to the complete collapse of the wall in 2010.

The trial court granted AIG’s motion for summary judgment as to all three causes of action, finding Guastello did not experience property damage until after the policy’s expiration and that all three causes of action were “predicated on” AIG’s “wrongful refusal to satisfy the judgment.”

Guastello appealed the trial court’s decision contending a triable issue of material fact existed as to whether the property damage took place during the coverage period of the AIG policy.

The Guastello court first discussed the general principles of law applying to liability insurance, distinguishing a “claims made” policy, which provides coverage if the claim is made during the policy period, and an “occurrence” policy, which provides coverage for damages which occur during the policy period, even if the claim is made after the policy expired. (Citing Carolina Casualty Ins. Co. v. L.M. Ross Law Group LLP (2010) 184 Cal.App.4th 196, 206-207 and Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 792.)

The AIG policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Where ‘continuing or progressive’ property damage is at issue, the ‘property damage’ shall be deemed to be one ‘occurrence’ and shall be deemed to occur when such…;’property damage’ first commenced.”

The AIG policy defined “property damage” as “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.”

Considering the language of the policy and the substance of the declaration of Guastello’s expert, the Guastello court found that timing of the “occurrence” — the alleged damage to Guastello’s property — was “plainly a disputed issue of material fact.”

AIG argued that the engineer’s declaration was inadmissible under Evidence Code section 720 because it lacked foundation, was speculative and conclusory because he did not personally inspect the retaining wall or affected property and Guastello had offered the expert’s opinions to rebut his own declarations as to the damages he had sustained.

The Guastello court flatly rejected AIG’s argument as to admissibility of the declaration, pointing to AIG’s failure to make an evidentiary objection to the declaration in the trial court, thereby waiving the objection. The Guastello court found the declaration was sufficient as the declarant set forth his education, training and experience and stated the bases for the opinions he gave.

Further, the Guastello court held that AIG’s arguments as to the validity of the expert’s opinions went to the weight of his testimony, which is a factual issue for a jury and not a legal issue for the court. (Citing Polk v. Ford Motor Co. (8th Cir. 1976) 529 F.2d 259, 271.)

Finally, AIG contended Guastello’s evidence in support of the default against the subcontractor established the alleged damage took place no earlier than 2010 and directly conflicted with the expert’s declaration that the damage began before the end of November 2004.

The Guastello court disagreed with AIG, stating that the evidence submitted with the default motion was not necessarily inconsistent with the latent construction defect theory of liability proffered by the expert engineer and was arguably consistent with the latent construction defect theory. Fittingly, the Guastello court concluded “Again, this is a contested issue of material fact.”

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.

Continuous and Progressive Damage Raised Factual Question as to the Timing of “Occurrence”

Jeffrey S. Crowe | Sheppard Mullin Richter & Hampton

Thomas Guastello v. AIG Specialty Insurance Company, — Cal.Rptr.3d –, 2021 WL 650878 (Cal. Ct. App., Feb. 19, 2021), Fourth Appellate District Court of Appeal, Case No. G057714.

Various stakeholders in the Pointe Monarch housing development in Dana Point, California, accused subcontractor C.W. Poss Inc. (“Poss”) of negligently designing and constructing retaining walls.  One such party, Thomas Guastello, sued Poss for damage to a perimeter wall in the backyard of Guastello’s property.  According to Guastello, in January 2010, a retaining wall close to his property designed and constructed by Poss failed and caused soil to collapse and damage a perimeter wall on Guastello’s property.

Poss’ liability insurer, AIG Specialty Insurance Company (“AIG”), disclaimed a duty to defend or indemnify Poss against Guastello’s suit.  AIG concluded that Guastello’s alleged property damage occurred in 2010 – many years after the 2003-2004 coverage period of Poss’ general liability insurance policy.  AIG’s policy offered occurrence-based coverage, meaning that it covered certain damages that occurred during its policy period.

Guastello obtained a default judgment against Poss in excess of $700,000.  He then sued AIG asserting claims as a judgment creditor under Insurance Code section 11580.  The trial court granted AIG’s motion for summary judgment, finding that Guastello’s property damage occurred “well past the expiration of the policy.”

The Court of Appeal reversed.  As a threshold matter, the Court of Appeal agreed with the trial court that Guastello could not pursue a direct action against AIG based on AIG’s alleged failure to defend Poss.  As the Court noted, a third party lacks standing to assert a claim that an insurer owed and breached a duty to defend its insured.  Nevertheless, the Court found that triable issues of fact regarding the timing of the property damage to Guastello’s property negated summary judgment.

In so holding, the Court recounted that “[a]n ‘occurrence’ policy provides coverage for damages that occur during the policy period, even if the claim is made after the policy has expired,” and that “it is well established that the time of the relevant ‘occurrence’ or ‘accident’ is not when the wrongful act was committed but when the complaining party was actually damaged.”  Quoting Whittaker Corp. v. Allianz Underwriters, Inc., 11 Cal.App.4th 1236, 1241 (1992).

According to the Court, Guastello submitted evidence in opposition to AIG’s motion supporting that damage to his property began during the 2003-2004 policy period.  More specifically, Guastello submitted a declaration from a civil engineer opining that Poss’ negligent construction of the retaining wall led to damage to the retaining wall itself and to the surrounding property, including Guastello’s property.  The engineer opined that, while Poss’ retaining wall failed completely in 2010, there had been continuous and progressive destabilization and damage to Guastello’s property since 2003.  These facts and allegations led the Court to conclude that Guastello had raised a triable issue of material fact as to when the “occurrence” took place, and thus, the timing or triggering of AIG’s coverage under Poss’ liability insurance policy.

Triable Issue of Fact Exists as to Insurer’s Obligation to Provide Coverage Under Occurrence Policy

Valerie Moore and Kathleen Moriarty | Haight Brown & Bonesteel

In Guastello v. AIG Specialty Ins. Co. (No. G057714. filed 2/19/21 ord. pub. 2/23/21), a California appeals court held that triable issues of material fact exist which precluded summary judgment for an insurer seeking to disclaim coverage on the basis that the “occurrence” pre-dated the policy period where a dispute exists as to the timing of the subject “occurrence.”

In Guastello, a subcontractor built retaining walls from 2003 to 2004 for a housing development in Dana Point, California. In 2010, one of these retaining walls collapsed causing damage to a residential lot owned by Thomas Guastello.

Guastello initially sued the subcontractor alleging negligent design and construction and seeking various damages, including diminution in value of his property. The subcontractor had an “occurrence” policy with AIG Specialty Insurance Company with an effective period of 2003-2004. AIG denied any duty to defend or indemnify the subcontractor on the basis that the property damage occurred in January 2010 and was therefore outside of the policy period of 2003-2004.

Shortly after AIG’s disclaimer, Guastello obtained a default judgment against the subcontractor and filed a direct action against AIG for enforcement of the default judgment, breach of the covenant of good faith and fair dealing and declaratory relief pursuant to Insurance Code section 11580. AIG filed a motion for summary judgment contending Guastello did not suffer any property damage until the retaining wall collapsed in 2010, thus the occurrence did not take place until seven years after expiration of the policy.

Guastello’s opposition to AIG’s motion included a declaration by an expert civil engineer whose declaration proffered a latent construction defect theory. The expert opined that the contractor’s negligent construction of the retaining wall began to cause damage to the wall itself and to Guastello’s property within months of the wall’s substantial completion in 2003 by way of “continuous and progressive destabilization” to Guastello’s lot beginning before the end of November 2004. The engineer opined that the “continuous and progressive destabilization” eventually led to the complete collapse of the wall in 2010.

The trial court granted AIG’s motion for summary judgment as to all three causes of action, finding Guastello did not experience property damage until after the policy’s expiration and that all three causes of action were “predicated on” AIG’s “wrongful refusal to satisfy the judgment.”

Guastello appealed the trial court’s decision contending a triable issue of material fact existed as to whether the property damage took place during the coverage period of the AIG policy.

The Guastello court first discussed the general principles of law applying to liability insurance, distinguishing a “claims made” policy, which provides coverage if the claim is made during the policy period, and an “occurrence” policy, which provides coverage for damages which occur during the policy period, even if the claim is made after the policy expired. (Citing Carolina Casualty Ins. Co. v. L.M. Ross Law Group LLP (2010) 184 Cal.App.4th 196, 206-207 and Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 792.)

The AIG policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Where ‘continuing or progressive’ property damage is at issue, the ‘property damage’ shall be deemed to be one ‘occurrence’ and shall be deemed to occur when such…;’property damage’ first commenced.”

The AIG policy defined “property damage” as “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.”

Considering the language of the policy and the substance of the declaration of Guastello’s expert, the Guastello court found that timing of the “occurrence” — the alleged damage to Guastello’s property — was “plainly a disputed issue of material fact.”

AIG argued that the engineer’s declaration was inadmissible under Evidence Code section 720 because it lacked foundation, was speculative and conclusory because he did not personally inspect the retaining wall or affected property and Guastello had offered the expert’s opinions to rebut his own declarations as to the damages he had sustained.

The Guastello court flatly rejected AIG’s argument as to admissibility of the declaration, pointing to AIG’s failure to make an evidentiary objection to the declaration in the trial court, thereby waiving the objection. The Guastello court found the declaration was sufficient as the declarant set forth his education, training and experience and stated the bases for the opinions he gave.

Further, the Guastello court held that AIG’s arguments as to the validity of the expert’s opinions went to the weight of his testimony, which is a factual issue for a jury and not a legal issue for the court. (Citing Polk v. Ford Motor Co. (8th Cir. 1976) 529 F.2d 259, 271.)

Finally, AIG contended Guastello’s evidence in support of the default against the subcontractor established the alleged damage took place no earlier than 2010 and directly conflicted with the expert’s declaration that the damage began before the end of November 2004.

The Guastello court disagreed with AIG, stating that the evidence submitted with the default motion was not necessarily inconsistent with the latent construction defect theory of liability proffered by the expert engineer and was arguably consistent with the latent construction defect theory. Fittingly, the Guastello court concluded “Again, this is a contested issue of material fact.”

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.

New York Court Finds No Coverage Owed for Asbestos Losses Because Insured Failed to Prove Material Terms

Marianne Bradley and Gregory Capps | White and Williams

In the long-tail insurance context, it is not unusual to have issues arise addressing “lost” or “missing” policies. In an opinion issued on January 22, 2021, a New York court ruled that an insurer did not owe coverage to its insured for underlying asbestos claims because the insured had failed to establish the material terms of a “lost” policy under which it sought coverage for the underlying claims. The lawsuit, Cosmopolitan Shipping Company, Inc. v. Continental Insurance Company,[1] arose out of a coverage dispute between Plaintiff Cosmopolitan Shipping Co., Inc. (Cosmopolitan) and its insurance carrier, Continental Insurance Company (CIC), in connection with bodily injury claims arising out of asbestos exposure. The case provides a good analysis of what an insured must do to establish coverage under a “lost” or “missing” policy.

During and after World War II, Cosmopolitan chartered and operated a number of shipping vessels on behalf of United Nations Relief and Rehabilitation Administration (UNRRA). In the 1980s, seamen who had worked on board Cosmopolitan’s vessels between 1946 and 1948 filed lawsuits against Cosmopolitan seeking damages for injuries arising out of alleged exposure to asbestos on Cosmopolitan’s vessels. Cosmopolitan sought coverage from CIC for the claims, alleging that CIC had insured Cosmopolitan’s vessels during the relevant time period under a protection and indemnity policy issued to the UNRAA (the P&I Policy).

Except for three endorsements, the P&I Policy could not be located, and CIC denied coverage on that basis. Cosmopolitan filed a declaratory judgment action, and the court held an evidentiary hearing at which both parties relied upon expert and lay witness testimony to support their respective positions.

After the hearing, Cosmopolitan filed affidavits to establish that it had conducted a sufficiently diligent search for the relevant insurance policies. New York law provides that, where an insured demonstrates it has made a “diligent but unsuccessful search and inquiry for the missing policy,” the insured may rely on secondary evidence to prove the existence and terms of the policy.

Cosmopolitan submitted evidence that it had: (1) asked its former broker to search for policies from the relevant time period; (2) conducted a thorough search of its own internal records; (3) issued subpoenas to other insurance entities permitted to provide P&I coverage for UNRRA vessels during the relevant time frame; and (4) searched various archives for insurance policies issued to Cosmopolitan and the UNRRA. The court determined that such efforts constituted a “sufficiently diligent” search, and Cosmopolitan was accordingly permitted to introduce on secondary evidence.

New York law is unclear as to whether a party using secondary evidence to establish coverage under a “lost policy” must prove the existence and terms of the lost policy by a preponderance of the evidence or by clear and convincing evidence. However, determination of the proper standard was unnecessary in this case because – although Cosmopolitan had proven by clear and convincing evidence that CIC provided insurance to the UNRRA – Cosmopolitan had nevertheless “failed to prove even by a preponderance of the evidence” the terms of the P&I Policy.

The clear and convincing evidence establishing that CIC provided coverage to the UNRRA during the relevant time period included: (1) the three endorsements identified by Cosmopolitan – one of which included language stating that it should be attached to the P&I Policy “of Continental Insurance Company and issued to the UNRRA”; (2) the dates on the three endorsements, which showed coverage from at least May of 1946 to August of 1947; and (3) Cosmopolitan’s witness’ testimony, which established that only four insurance carriers, including CIC, were writing P&I insurance during the relevant time frame.

Although Cosmopolitan established the existence of the P&I Policy, the court still found that CIC did not owe coverage. To create a binding contract, there must be evidence of a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms. In this case, Cosmopolitan failed to establish one of the most critical terms of the contract: the limits of the policy. Without knowing the policy limits, the court was unable to determine how much insurance was available to Cosmopolitan for each eligible asbestos plaintiff under the Policy. Accordingly, because the use of secondary evidence did not establish the material terms of the P&I Policy, CIC was not obligated to provide coverage for the underlying asbestos claims.

The Cosmopolitan case provides insurers with guidance when addressing “lost” or “missing” policy issues, which should be considered for spotting issues to assist in defending these types of coverage claims. The decision reflects that the insured has a significant burden and insurers should be aware of that burden and hold the insured to their proofs.


[1] 2020 U.S. Dist. LEXIS 241310 (S.D.N.Y., Dec. 22, 2020)

Does a No-Damages-for-Delay Provision Preclude a Claim for Disruption Damages?

Erik M. Coon | Smith Currie & Hancock

Delays and disruptions on construction projects are very similar, but there are important conceptual differences, even though the claims often arise on the same project. The primary distinction is that a disruption or loss of productivity claim usually involves the increased cost of less efficient work, while a delay claim involves the cost of not being able to work at all. In a recent decision by the United States Court of Appeals for the Fourth Circuit, United States ex rel. Aarow/IET LLC v. Hartford Fire Ins. Co., the appellate court reversed a federal trial court’s dismissal of a subcontractor’s breach of contract and Miller Act claims. Although it declined to answer whether the subcontract’s no-damages-for-delay provision also barred claims for disruptions, this decision emphasizes the importance for contractors to be mindful of the language they use in presenting a claim for delay or disruption when faced with similar contractual provisions.

The Dispute, Contractual Provision, and Request for Equitable Adjustment

The case deals with an electrical subcontractor’s breach of contract claim against the prime contractor arising out of a Virginia Marine Corps Base construction project. The subcontractor also sued the prime contractor’s payment bond surety under the federal Miller Act.

The subcontract included a “no-damages-for-delay” provision, which in relevant part, provided:

  1. In the event of any delays, entailed as a result of fault of Contractor. . ., then Contractor shall grant Subcontractor an extension of time equal to the delay and Subcontractor shall be entitled to no other or further damages against Contractor. . .
  2. Any delays or additional work entailed as a result of weather conditions, storms, acts of God, delays in construction, and delays by governmental bodies will not entitle the Subcontractor to any extras whatsoever.

The subcontractor sent the prime contractor a written request for equitable adjustment (“REA”) seeking $2.9 million for various “Delay Costs,” including additional time, labor, general conditions, overhead, and bond costs for 298 days of Project extension “Delay Days.” After the prime contractor refused to pay, the subcontractor filed suit, claiming that “the Project suffered from numerous disruptions, all of which impacted [the subcontractor’s] ability to prosecute its work on the Project in the timely, efficient, and sequential manner which it originally anticipated and planned when it compiled its price to perform its work on the Project.”

The Trial Court’s Ruling

In response, the prime contractor filed a motion to dismiss, arguing in part that the subcontractor’s complaint failed to plead facts that indicated the prime was responsible for the alleged disruptions to the subcontractor’s work or that the prime breached the subcontract. The subcontractor then filed an Amended Complaint, this time specifically claiming that the prime’s poor project management caused numerous disruptions, including labor inefficiencies and loss of productivity through comeback work, stacking of trades, out-of-sequence work, and idle labor crews, all of which adversely affected the subcontractor’s ability to perform its work in accordance with the schedule that the subcontracted price was based on.

The prime contractor filed another motion to dismiss, this time arguing that the disruption claims were barred by the subcontract’s no-damages-for-delay provision because the disruption claims were essentially delay claims as a matter of contract law. It also argued that the Amended Complaint was defective under the exhibit-prevails rule, because the REA conflicted with the disruption allegations in the Amended Complaint by calculating damages based on delay days.

In response, the subcontractor first insisted that there are meaningful distinctions between disruption and delay claims that would become clearer with discovery. It then argued that the exhibit-prevails rule is inapplicable because the REA does not state a delay claim and therefore did not conflict with the Amended Complaint. The subcontractor explained that the REA actually asserts a disruption claim and simply utilizes delay days to estimate the additional costs caused by the disruptions.

The trial court agreed with the subcontractor that there may be meaningful distinctions between disruption claims and delay claims. The court, however, sided with the prime contractor’s argument concerning the exhibit-prevails rule, finding that the REA was a delay claim and that the costs sought in the REA were a result of that delay, and therefore conflicted with the Amended Complaint’s disruption allegations.

As a result, the trial court dismissed the breach of contract claim against the prime contractor and the Miller Act claim against the surety because the Miller Act claim depended on the prime contractor’s liability for breach of contract.

Reversal By The Appellate Court

On appeal, the Fourth Circuit disagreed with the trial court’s finding that the REA states a delay claim and thus conflicts with the Amended Complaint’s disruption allegations. Although the REA repeatedly used the word “delay” and calculated “Delay Costs” based on “Delay Days,” the appellate court found that the REA also referred to “disruptions” and, according to the Amended Complaint, was not prepared until after the subcontractor sent several notices to the prime about disruptions to its work on the Project. The appellate court explained that because the notices may shed light on the meaning of an otherwise ambiguous REA, the district court erred by relying on the REA and the exhibit-prevails rule to dismiss the subcontractor’s breach of contract claim.

Practical Takeaways

Although the question of whether a no-damages-for-delay provision, such as the one contained in this subcontract, precludes a claim for disruption damages remains unanswered in this case at this point, this decision highlights the need for contractors to document their projects and be conscious of the language used in light of the relevant contractual provisions when preparing notices and claims.