Archer Western Contractors, Ltd. v. National Union Fire Insurance Co. of Pittsburgh , 680 F. App'x 604 ( 2017 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 2 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ARCHER WESTERN CONTRACTORS, No. 15-55648
LTD., an Illinois Corporation,
D.C. No.
Plaintiff-counter- 2:14-cv-03041-DMG-MAN
defendant-Appellant,
v. MEMORANDUM *
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH,
PENNSYLVANIA, a Pennsylvania
Corporation,
Defendant-counter-claimant-
Appellee.
Appeal from the United States District Court
for the Central District of California
Dolly M. Gee, District Judge, Presiding
Argued and Submitted February 8, 2017
Pasadena, California
Before: SCHROEDER, DAVIS** and MURGUIA, Circuit Judges.
This appeal arises out of an insurance coverage dispute between Plaintiff-
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Andre M. Davis, United States Circuit Judge for the
U.S. Court of Appeals for the Fourth Circuit, sitting by designation.
Appellant Archer Western Contractors, Ltd. (“AWC”) and Defendant-Appellee
National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National
Union”). AWC served as the general contractor1 for the San Diego County Water
Authority’s (“Water Authority”) emergency water storage project. After settling a
construction defect lawsuit brought against it by the Water Authority, AWC filed
the instant action against one of its insurers, National Union, for failing to
indemnify portions of its settlement obligations. The district court determined that
two exclusions barred coverage for the underlying construction defect claims, and
it granted summary judgment in favor of National Union. AWC timely appealed
the judgment. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.
1. We review de novo a district court’s grant of summary judgment.
Botosan v. Paul McNally Realty, 216 F.3d 827, 830 (9th Cir. 2000). We also
review de novo a district court’s analysis of contractual language and its
application of principles of contract interpretation, Sentry Select Ins. Co. v. Royal
Ins. Co. of Am., 481 F.3d 1208, 1216 (9th Cir. 2007), as well as its interpretation of
state law, Wash. Pub. Power Supply Sys. v. Pittsburgh-Des Moines Corp., 876 F.2d
690, 692 (9th Cir. 1989). Under California law, an insurer’s duty to indemnify
runs only “to claims that are actually covered [by the policy], in light of the facts
1
Until oral argument, AWC did not dispute that it was (and in fact
affirmatively characterized itself as) the general contractor on the project.
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proved.” Buss v. Superior Court, 939 P.2d 766, 773 (Cal. 1997) (citations
omitted). Where, as here, a case settles prior to trial, the duty to indemnify is
determined “on the basis of the settlement, i.e., the undisputed facts set forth in the
underlying complaint and those known to the parties.” Sentry Select Ins. Co., 481
F.3d at 1215 (internal quotation marks and citations omitted).
2. The district court properly concluded that exclusions e(5) and e(6) of
National Union’s insurance policy precluded coverage of the underlying
construction defect claims. The e(5) exclusion precludes coverage for property
damage to “that particular part of real property on which [the contractor] . . . [is]
performing operations, if the Property Damage arises out of those operations,” and
the e(6) exclusion precludes coverage for property damage to “that particular part
of any property that must be restored, repaired, or replaced because [the
contractor’s] Work was incorrectly performed on it.” Under California law,
exclusionary clauses are interpreted narrowly against the insurer. Reserve Ins. Co.
v. Pisciotta, 640 P.2d 764, 768 (Cal. 1982). However, given that “[t]he risk of
replacing and repairing defective materials or poor workmanship has generally
been considered a commercial risk which is not passed on to the liability insurer,”
Maryland Casualty Co. v. Reeder, 270 Cal. Rptr. 719, 722 (Cal. Ct. App. 1990)
(citations omitted), California courts have consistently adopted broad
interpretations of the phrases “that particular part” and “arises out of” when
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applied to a general contractor. See Health Net, Inc. v. RLI Ins. Co., 141 Cal. Rptr.
3d 649, 673 (Cal. Ct. App. 2012), as modified on denial of reh’g (June 12, 2012)
(broadly defining “arising out of”). Specifically, California courts have construed
“that particular part” to encompass the entire project on which a general contractor
is performing operations. See Clarendon Am. Ins. Co. v. Gen. Sec. Indem. Co. of
Arizona, 124 Cal. Rptr. 3d 1, 11 (Cal. Ct. App. 2011); George F. Hillenbrand, Inc.
v. Ins. Co. of N. Am., 128 Cal. Rptr. 2d 586, 601-02 (Cal. Ct. App. 2002); Toll
Brothers, Inc. v. OneBeacon Ins. Co., No. G042196, 2011 WL 883000, at *7 (Cal.
Ct. App. Mar. 15, 2011). Cf. Western Employers Ins. Co. v. Arciero & Sons, Inc.,
194 Cal. Rptr. 688, 690 (Cal. Ct. App. 1983) (interpreting work product exclusions
that were drafted without the “particular part” language but finding that the
purpose of liability insurance policies is “to make the contractor stand its own
replacement and repair losses”).
Federal courts interpreting identical exclusions under California law are in
accord. See Arroyo v. Unigard Ins. Co., No. 14-16878, --- F. App’x ---, 2016 WL
6156045, at *1 (9th Cir. Oct. 24, 2016) (unpublished); Am. Home Assurance Co. v.
SMG Stone Co., 119 F. Supp. 3d 1053, 1062-63 (N.D. Cal. 2015). Here, the
alleged property damage was to the pump house and turbine generators, discrete
portions of the property for which AWC was partially if not fully responsible, and
the damage flowed from its allegedly defective work on the property. We
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therefore agree with the district court that the above exclusions precluded
coverage, and we find that summary judgment was properly entered in favor of
National Union.
3. To the extent AWC relies on Eichler Homes, Inc. v. Underwriters at
Lloyd’s, London, 47 Cal. Rptr. 843 (Cal. Ct. App. 1965), and Blackfield v.
Underwriters at Lloyd’s, London, 53 Cal. Rptr. 838 (Cal. Ct. App. 1966), for the
proposition that the exclusions’ plain meaning is ambiguous, this reliance is
misplaced. The question before the Eichler court was whether an insurer’s broader
duty to defend was triggered by damage to property well outside the scope of the
project on which the contractor had worked, such as damage to the homeowner’s
personal appliances and furniture. Eichler, 47 Cal. Rptr. at 847. The Eichler
decision is therefore materially distinguishable and does not alter our conclusion.
We note that Blackfield was decided over fifty years ago, and no California state
court has reaffirmed its extremely narrow interpretation of the phrase “that
particular part” as applied to a general contractor. In light of the California courts’
consistently broad reading of this phrase following Eichler and Blackfield, there is
no indication that the exclusionary language is ambiguous.
AFFIRMED.
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FILED
MAR 2 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
Archer Western Contractors v. Nat'l Union Fire Ins Co. of PA., No. 15-55648
DAVIS, Circuit Judge, concurring.
I concur in the majority’s decision to affirm the judgment. However, I note
that no California court has expressly abrogated or overruled the relevant holding
in Blackfield v. Underwriters at Lloyd’s, London, 53 Cal. Rptr. 838, 840-41 (Cal.
Ct. App. 1966), which narrowly interpreted the phrase “that particular part” in the
context of a general contractor. This narrow interpretation by the First District of
the California Courts of Appeal, which formally remains good law, is clearly at
odds with the broader interpretation adopted in more recent cases. Notably,
however, none of the above cases cited by the majority were decided by or in the
First District. Clarendon Am. Ins. Co. v. Gen. Sec. Indem. Co. of Arizona, 124 Cal.
Rptr. 3d 1, 11 (Cal. Ct. App. 2011) (Second District); George F. Hillenbrand, Inc.
v. Ins. Co. of N. Am., 128 Cal. Rptr. 2d 586, 601-02 (Cal. Ct. App. 2002) (Third
District); Toll Brothers, Inc. v. OneBeacon Ins. Co., No. G042196, 2011 WL
883000, at *7 (Cal. Ct. App. Mar. 15, 2011) (Fourth District); Western Employers
Ins. Co. v. Arciero & Sons, Inc., 194 Cal. Rptr. 688, 690 (Cal. Ct. App. 1983)
(Second District). Given this inconsistency within California’s intermediate
appellate courts, as well as the high financial stakes at issue in this case, I would
certify this question of law to the California Supreme Court. See Cal. Rule of Ct.
8.548; Nordyke v. King, 229 F.3d 1266, 1270 (9th Cir. 2000) (certifying a question
of law where “there is tension in the reasoning underlying several decisions of the
Courts of Appeal of the State of California.”).
Nonetheless, I understand “we have a duty to [certify questions of law]
sparingly and sensibly,” especially given the realities of certification and docket
congestion. See Kremen v. Cohen, 325 F.3d 1035, 1044, 1050-51 (9th Cir. 2003)
(Kozinski, J., dissenting) (noting that the California Supreme Court is burdened by
a heavy docket and has rejected a significant number of cases certified by this
Circuit). “Where there is no convincing evidence that the state supreme court
would decide differently, a federal court is obligated to follow the decisions of the
state’s intermediate appellate courts,” Ryman v. Sears, Roebuck and Co., 505 F.3d
993, 995 (9th Cir. 2007) (alteration marks, internal quotation marks, and citation
omitted), and the majority identifies the California Courts of Appeal’s more recent
and consistent efforts to broadly interpret the relevant language. In light of these
considerations, I concur in the majority’s decision to affirm the judgment.
2