When an Intentional Act Results in Injury or Damage, it is not an Accident within the Meaning of an Insurance Policy Even When the Insured did not Intend to Cause the Injury or Damage

Gary L. LaHendro | Haight Brown & Bonesteel

In Maryam Ghukasian v. Aegis Security Insurance Company (No. B311310, filed April 14, 2022, and certified for publication on May 5, 2022), the Court of Appeal of the State of California, Second Appellate District held that Maryam Ghukasian’s insurer, Aegis Security Insurance Company (“Aegis”), had no duty to defend her in an underlying lawsuit alleging she cleared land and cut trees on her neighbors’ property without their consent. The appellate court explained Ms. Ghukasian’s acts of intentionally cutting the trees and clearing the land were not accidental for purposes of insurance coverage, even if she acted on the good faith but mistaken belief the trees were on her property.

Ms. Ghukasian owns a home in Glendale, California. She purchased a homeowner’s insurance policy from Aegis for the policy period of June 13, 2018 to June 13, 2019 (the “Aegis Policy”). In August 2018, Ms. Ghukasian hired a contractor to clear and cut trees she believed were on her property. However, the trees were on the property of her neighbors, Vrej and George Aintablian.

In February 2019, the Aintablians filed a lawsuit against Ms. Ghukasian, alleging causes of action for negligence and trespass. Both causes of action were based on Ms. Ghukasian’s cutting and clearing of the trees on the Aintablians’ property without their consent.

Ms. Ghukasian tendered the lawsuit to Aegis for defense and indemnity coverage. The Aegis Policy provides coverage for a suit “brought against [Ms. Ghukasian] for damages because of…property damage caused by an occurrence to which this coverage applies.” “Occurrence” is defined under the Aegis Policy in relevant part as an accident that results in property damage during the policy period. Aegis denied coverage for the Aintablians’ lawsuit on the basis their Complaint alleges intentional conduct by Ms. Ghukasian.

In response to Aegis’ denial of coverage, Ms. Ghukasian sued Aegis for declaratory relief, breach of the insurance contract and bad faith. Aegis moved for summary judgment, arguing it had no duty to defend Ms. Ghukasian in the Aintablians’ lawsuit because their Complaint did not allege an “occurrence” or accident.

The trial court held that Ms. Ghukasian’s mistaken belief as to the boundaries of her property does not transform her intentional act of hiring a contractor to cut trees and clear land into an accident for purposes of insurance coverage. Ms. Ghukasian appealed the trial court’s judgment in favor of Aegis to the Court of Appeal of the State of California.

The appellate court relied on Albert v. Mid-Century Ins. Co., 236 Cal.App.4th 1281 (2015) and Fire Ins. Exchange v. Superior Court, 181 Cal.App.4th 388 (2010) in reaching its decision. In Albert, an insurer denied coverage for a lawsuit filed against an insured by her neighbor for damages caused by the insured in pruning trees on the neighbor’s property. Albert held “it is completely irrelevant that plaintiff did not intend to damage the trees, because she intended for them to be pruned.”

The appellate court noted that Albert relied on Fire Exchange for the proposition that “[w]hen an insured intends the acts resulting in the injury or damage, it is not an accident ‘merely because the insured did not intend to cause injury.’ The insured’s subjective intent is irrelevant.” Albert, supra at 1291, quoting Fire Exchange, supra at 392.

Here, the appellate court found the Aintablians’ Complaint alleges harm from Ms. Ghukasian’s intentional conduct, as she specifically instructed her contractor to clear the land and cut the trees. According to the appellate court, Ms. Ghukasian’s mistaken belief about the boundaries of her property is irrelevant in determining whether the conduct itself – leveling land and cutting trees – was intentional.

As part of her appeal, Ms. Ghukasian argued that the California Supreme Court overruled Albert and Fire Exchange in Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., 5 Cal.5th 216 (2018). However, in reaching its decision, the appellate court distinguished Ms. Ghukasian’s case from Liberty Surplus, which addressed the issue of “when a third party sues an employer for the negligent hiring, retention, and supervision of an employee who intentionally injured that third party, does the suit allege an ‘occurrence’ under the employer’s commercial general liability policy.” Liberty Surplus concluded it can, absent an applicable exclusion.

The appellate court noted that Liberty Surplus found the employer’s alleged negligent hiring constituted an “occurrence” (i.e., accident) under the insurance policy because the causal sequence of events that led to the alleged injury began with the employer’s negligence in hiring the employee. The appellate court also noted Liberty Surplus‘ explanation that the employee’s molestation of the third party “may be deemed an unexpected consequence of [the employer’s] independently tortious acts of negligence.” By contrast, the appellate court found Ms. Ghukasian’s intentional conduct (i.e., leveling and cutting trees) was the immediate cause of the injury and that there was no independent act that produced the damage.

The appellate court also rejected Ms. Ghukasian’s contention that because the Aintablians’ Complaint includes a cause of action for negligence, it alleges an “occurrence.” The appellate court explained, “[t]he scope of the duty [to defend] does not depend on the labels given to the causes of action; instead it rests on whether the alleged facts or known extrinsic facts reveal a possibility that the claim may be covered by the policy.” (citing with emphasis Cunningham v. Universal Underwriters, 98 Cal.App.4th 1141, 1148 (2002)). The appellate court found that although the Aintablians allege a cause of action for negligence, the factual allegations reflect that Ms. Ghukasian committed intentional acts (i.e., leveling and cutting trees without consent).

Based on the foregoing, the appellate court held that the trial court did not err in granting Aegis’ motion for summary judgment.

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.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Montana: Unambiguous Exclusions Enforced Despite Lack of Table of Contents Required Under Statute

Alicia Gurries | Cozen O’Connor

A recent Supreme Court decision, High Country Paving, Inc. v. United Fire & Cas. Co., 2022 MT 72, ¶ 1, answered in the negative a question certified by a federal district court regarding tensions inherent in Montana’s  Property and Casualty Insurance Policy Simplification Act (“PSA”).  The Ninth Circuit had submitted the following state law question to this Court:

Whether, when an insurance policy does not include either a table of contents or a notice section of important provisions, in violation of Mont. Code Ann. § 33-15-337(2), the insurer may nonetheless rely on unambiguous exclusions or limitations to the policy’s coverage, given that § 33-15-334(2) provides that § 33-15-337(2) is “not intended to increase the risk assumed under policies subject to” its requirements?

The high court’s “no” response said that failure to meet formatting requirements in the PSA do not expand the risk assumed under a liability policy where unambiguous terms define it.  It, further delineated a boundary to its former holding, Mont. Petroleum Tank Release Comp. Bd. v. Crumleys, Inc., 341 Mont. 33, 174 P.3d 948, 959 (2008) (“Crumleys”), which it distinguished, and which held that an absence of a table of contents listing a contractual limitation period prohibited the insurer from enforcing that limitation.  The Court indicated that imposing CGL coverage here would represent changing the risk insured, whereas compliance with the contractual limitations provision in Crumleys has no impact on the scope of the underlying risk.

Factual and Procedural Background

This coverage dispute arises from an accident involving the transportation of construction equipment with an insured’s truck and trailer.   High Country Paving, Inc. (“High Country”) purchased a liability insurance policy (the “Policy”) from United Fire & Casualty Company (“United Fire”).  The Policy provided commercial general liability (“CGL”) coverage in the amount of $1 million per occurrence; commercial auto liability coverage in the amount of $1 million; and an umbrella policy with coverage in the amount of $2 million. 

As a result of an accident caused by an employee of High Country, one person died and another was critically injured. United Fire asserted there was no coverage for the accident under the CGL policy based on two exclusions: the Aircraft, Auto, or Watercraft exclusion, and the Multiple Liability Coverages Limitation endorsement.  Thereafter, over High Country’s objection, United Fire paid the $3 million combined limits of the commercial auto and umbrella policies without a release. United Fire agreed to – and did – continue to provide High Country with a defense of the claims against it. High Country then paid an additional $1.275 million to the Claimants to get a release. 

High Country then brought an action against United Fire for breach of contract, which United Fire removed to the United States District Court for the District of Montana.  The district court granted partial summary judgment to High Country and partial summary judgment to United Fire.  2020 WL 42722.  The  district court decided that (1) the provisions were unambiguous and excluded coverage, but that (2) the provisions were unenforceable based on a plain reading of  Crumleys because the provisions were not listed in a table of contents or notice section of important provisions in violation of requirements of the PSA. 

Both parties appealed.  On United Fire’s motion, the Ninth Circuit certified to the Montana Supreme Court the question of whether, when an insurance policy does not include either a table of contents or notice section of important provisions, in violation of state statute, the insurer may nonetheless rely on unambiguous exclusions or limitations to coverage.

Analysis

In Crumleys, the commercial liability policy provision required the insured to report any damage or loss to the insurer within 120 hours of the of the occurrence or loss. Crumleys, 174 P.3d at 954. The insured had denied coverage based on the insured’s failure to meet this requirement. Crumleys, 174 P.3d at 954.  On appeal, the court concluded the provision was void and unenforceable because it was not included in a table of contents or notice section and thus failed to conform with the requirements of the PSA.

United Fire argued, and the Montana Supreme Court agreed, that Crumleys was distinguishable from the issue presented under the United Fire Policy because Crumleys concerned a notice provision that did not impact the extent of the risk insured under the policy, while reading the exclusions out of the United Fire Policy would result in a substantively different risk than was contemplated upon the issuance of the Policy.  The reason that the scope of the risk was relevant is that the PSA itself “expressly limits policies subject to its requirements from increased risk.”  To invalidate an express exclusion for “a technical violation of the PSA’s requirements” would undermine one of the PSA’s express limitations.  Thus, “High Country’s coverage unambiguously excludes the risk it now asks this Court to impose upon United Fire” which would “increase the risk assumed” by United Fire in contravention to the state’s PSA.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Endorsement to Insurance Policy Controls

David Adelstein | Florida Construction Legal Updates

I’ve said this before, and I’ll say it again: an insurance policy is a complicated reading and this reading gets compounded with endorsements that modify aspects of the policy.

What you think may be covered may in fact not be covered by virtue of an endorsement to the insurance policy.  This is why when you request an insurance policy you want to see the policy PLUS all endorsements to the policy.  And when you analyze a policy, you need to do so with a full reading of the endorsements.

An endorsement to an insurance policy will control over conflicting language in the policy.  Geovera Speciality Ins. Co. v. Glasser, 47 Fla.L.Weekly D436a (Fla. 4th DCA 2022) (citation omitted).

The homeowner’s insurance coverage dispute in Glasser illustrates this point.  Here, the policy had a water loss exclusion.  There was an exception to the exclusion for an accidental discharge or overflow of water from a plumbing system on the premises.   But there was an endorsement.  The endorsement modified the water loss exclusion to clarify that the policy excluded water damage “in any form, including but not limited to….”  Examples were then given which did not include the accidental discharge or overflow of water from a plumbing system.

The homeowner filed an insurance coverage dispute against the property insurance carrier for a water damage claim. Specifically, a pipe in a bathroom burst causing water damage.  The insured claimed this was covered because of the accidental discharge or overflow of water from a plumbing system exception.   The trial court agreed.  The appellate court did not.  Why?

The answer is simple. The endorsement.  “The insurer’s endorsement language…expressly excludes damages caused by water in any form, including plumbing system accidents. Although the policy’s ‘Exception [t]o c.(6)’ expressly covers accidental discharges of water from a plumbing system, it is superseded by the endorsement which excludes water loss in any form.”  Glasser, supra.

The insured argued, as it should, that the endorsement did not explicitly identify that water damage included accidental discharges of water from a plumbing system indicating that such was covered under the policy.  While true, the appellate court disagreed with this sentiment.  “‘[T]he mere fact that a provision in an insurance policy could be more clearly drafted does not necessarily mean that the provision is otherwise inconsistent, uncertain or ambiguous.’  While this policy may require the reading of multiple policy provisions, it is unambiguous and simply does not cover the water loss suffered by the insured.”  Glasser, supra (internal citation omitted).

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

California Court Rules Jury Must Resolve Dispute Between Homeowner And Subcontractor Insurer Over When Claim Occurred

Blake Robinson | Davis Wright Tremaine

The California Court of Appeal recently reversed a trial court’s dismissal of a lawsuit, concluding that because there was a dispute over when a homeowner’s claim “occurred” for purposes of an insurance policy, that dispute must be resolved by a jury.

Case Background

Guastello v. AIG Specialty Insurance Co.1 involved a dispute over whether a claim was covered by an insurance policy. The events in question began in 2003 and 2004, when a subcontractor built retaining walls in a housing development. Several years later, the plaintiff purchased a home in the development. Fast forward to 2010, when one of the retaining walls close to the plaintiff’s lot failed and caused significant damage to the plaintiff’s backyard perimeter wall, among other things.

The plaintiff obtained a default judgment of over $700,000 against the subcontractor. The plaintiff then filed a lawsuit against the subcontractor’s insurer, seeking payment on the judgment. The insurer filed a motion for summary judgment, seeking dismissal on the ground that the subcontractor only had a policy with the insurer in 2003 and 2004, but the property damage occurred in 2010.

In response to the motion, the plaintiff filed a declaration in which a geotechnical engineer stated that the retaining wall failed due to the subcontractor’s negligent construction. Significantly, the engineer stated that the damage to the retaining wall and surrounding area began within months of the construction’s completion, including through “continuous and progressive destabilization” of the area. The insurer, on the other hand, submitted evidence that no damage occurred until the retaining wall failed in 2010.

Ultimately, the trial court sided with the insurer, and the plaintiff subsequently filed an appeal.

Occurrence vs. Claims-Made

The appeals court noted that the subcontractor had an occurrence policy, which “provides coverage for damages that occur during the policy period, even if the claim is made after the policy has expired,” as opposed to a “claims-made” policy—which “provides coverage only if the claim is made during the policy period.” Accordingly, the key question was whether the damage that the plaintiff suffered occurred during the 2003-2004 policy period.

In answering that question, the appeals court relied on the “settled rule” that “when continuous or progressively deteriorating damage or injury first manifests itself, the insurer remains obligated to indemnify the insured for the entirety of the ensuing damage or injury.”

Ultimately, the court concluded that—based on the expert declaration—there was evidence from which a jury could find that the damage began occurring shortly after the retaining wall’s completion in 2003. Therefore, the Court of Appeal held that the trial court erred in dismissing the plaintiff’s claim on summary judgment, and the case was sent back to the trial court so a jury could resolve the disputed issue of when the damage began to occur.

Lessons in Insurance

As this case illustrates, both owners and contractors should be aware of the types of insurance policies that they and those with whom they contract have. Whether it is a claims-made or occurrence policy can sometimes make the difference between whether a claim is covered or not.

Footnote

1. 61 Cal.App.5th 97, 275 Cal.Rptr.3d 370 (2021)

This, That, and the Other: Different Insurance Policies Can Cover the Same Loss

Kenneth Gorenberg | Barnes & Thornburg

As policyholder counsel, we’re frequently asked which insurance policy may cover a particular claim. Sometimes, the answer is not just one but more than one.

How a Claim Can Be Covered By More Than One Policy

There are several circumstances in which more than one policy may respond to a given claim.

For example, in compliance with a contract between Companies A and B, Company A may have made Company B an “additional insured” on a policy carried by Company A. A claim against Company B may thereby be covered by both B’s own policy and the one purchased by A. The same contract may require A to provide a certificate of insurance to B, identifying A’s policy. That may allow B to provide notice directly to A’s insurance company as well as B’s. Depending on the requirements of the contract between A and B, as well as the policy language and the law in some jurisdictions, B may even be allowed to target its tender to A’s insurer as the only one to cover the claim, leaving B’s own policy essentially untouched.

Another possibility is that Company X may have purchased more than one policy for itself that potentially covers the same loss. For example, an architectural or engineering firm typically carries both commercial general liability (CGL) and professional liability (PL) (also known as errors and omissions (E&O)) insurance. Depending on the allegations and any facts that may be proven about something that goes wrong on a job, both policies may cover the claim. That’s particularly likely if a lawsuit alleges only general negligence rather than professional negligence, even though much of Company X’s work may be considered professional in nature. Company X should consider notifying both its CGL and PL insurers.

How Multiple Insurance Policies May Interact In Covering a Claim

When more than one policy can cover a given loss, another issue is how the policies interact to determine which insurance company pays what portion or in what order. Many policies actually anticipate this situation.

In our earlier example regarding Companies A and B, their contract may require that A’s policy will be “primary and non-contributory.” A’s policy, if it complies with that requirement, probably will have an endorsement that says, in effect, it will cover B up to the dollar limit of A’s policy, and B’s policy does not have to contribute unless A’s insurer paid its entire limit.

An insurance policy may also contemplate the existence of another policy by including an “other insurance” provision. This clause comes in one of basically three varieties.

  • A so-called “pro rata” clause states that multiple insurance policies will contribute simultaneously, perhaps in equal amounts or prorated according the dollar limits of liability in the respective policies
  • An “excess” provision states that the policy becomes excess, paying only after the other policy has been fully paid and only to the extent the loss exceeds the limit of the other policy
  • An “escape” clause says that policy will not provide coverage, allowing that insurer to escape liability entirely if there is another policy that covers the same loss

Importantly, the “other insurance” provisions of all triggered policies must be considered. One can imagine that they might conflict. For example, if two policies have “excess” clauses, it’s obviously impossible for each policy to operate in excess of the other. In that situation, applicable state law generally provides a default rule for the two policies to share the loss, with neither being excess of the other.

Takeaways

When thinking about which policy may cover a claim, consider the possibility that multiple policies may apply. It’s at least worth looking at more than one policy, including various types, seemingly different policy periods, or even those purchased by other companies. While it may seem daunting to analyze or strategize about the availability of coverage under more than one policy, that’s usually a good problem to have.