DocketNumber： D069814
Citation Numbers： 225 Cal. Rptr. 3d 221, 17 Cal. App. 5th 187
Judges： Aaron
Filed Date： 11/14/2017
Status： Precedential
Modified Date： 10/19/2024
*191I.
INTRODUCTION
McMillin Management Services, L.P. and Imperial Valley Residential Valley Residential Builders, L.P. (collectively "McMillin")
Whether an insurer owes an insured a duty to defend a third party's lawsuit depends, in the first instance, on a comparison of the allegations of the third party's complaint and the terms of the insured's policy. ( Scottsdale Ins. Co. v. MV Transportation (2005)
Lexington filed a motion for summary judgment in which it contended that it did not owe McMillin a duty to defend the underlying action because there was no potential for coverage for McMillin under the Lexington policies. Lexington noted that the policies contained additional insured endorsements that provided coverage *224to McMillin for " 'liability arising out of [the named insured subcontractors'] ongoing operations.' " (Italics altered.) Lexington argued that there was no potential for coverage for the construction defect claims asserted against McMillin in the underlying action because McMillin had "no liability to the homeowners until after the close of escrow of each homeowner's property" and thus, McMillin "did not have any *192liability to plaintiffs [in the underlying action] for property damage that took place while [the subcontractors] were working on the Project...." (Italics added.) The trial court granted Lexington's summary judgment motion on this ground, reasoning, that there was no possibility for coverage for McMillin as an additional insured under the policies "[b]ecause there were no homeowners in existence until after the subcontractors' work was complete[ ]...."
On appeal, McMillin contends that the fact that the homeowners did not own homes in the Project at the time the subcontractors completed their work does not establish that its liability did not arise out of the subcontractors' ongoing operations. In support of this contention, McMillin argues that the endorsements "make no reference to when liability must arise," and that nothing in the text of the endorsements "requires that the homeowners exist or make their claims during ongoing operations." In contrast, Lexington argues that "since the [h]omeowners' cause of action accrued after operations were completed, McMillin could have no liability to the homeowners during the [subcontractors'] 'ongoing operations.' " (Italics altered.) McMillin's argument is supported by the text of the endorsements, while Lexington's argument is not. The endorsements do not provide coverage solely for "liability ... during the [subcontractors'] 'ongoing operations' " (italics altered), but rather, broadly provide for coverage for liability " 'arising out of ' " (italics added) such operations. Thus, the fact that there were no homeowners in existence at the time the subcontractors completed their ongoing operations does not establish that McMillin could not have potential liability to the homeowners arising out of the subcontractors' ongoing operations. Accordingly, the trial court erred in granting Lexington's motion for summary judgment on this ground.
Financial Pacific also filed a motion for summary judgment on the ground that it did not owe McMillin a duty to defend the underlying action. Financial Pacific contended that McMillin was seeking coverage based on policies issued to subcontractors that installed drywall on the Project, and that neither the complaint in the underlying action nor any extrinsic evidence established that the homeowners in the underlying action had sought potentially covered damages arising out of the subcontractors' drywall installation. The trial court granted Financial Pacific's motion on this basis and entered a judgment in its favor.
On appeal, McMillin contends that the trial court erred in granting Financial Pacific's motion because there is a triable issue of fact with respect to whether there was a potential for coverage under the policies. In the unpublished portion of this opinion, we conclude that the trial court properly determined that there was "no potential for coverage" under the relevant polices and that Financial Pacific was entitled to judgment as a matter of law.
*193Accordingly, we reverse the summary judgment in favor of Lexington and affirm the summary judgment in favor of Financial Pacific.
II.
FACTUAL AND PROCEDURAL BACKGROUND
McMillin acted as the developer and general contractor of the Project. McMillin *225hired numerous subcontractors to perform construction work on the project, including Martinez Construction Concrete Contractor, Inc. (Martinez), Rozema Corporation (Rozema), A.M. Fernandez Drywall (A.M. Fernandez), and J.Q. Drywall.
Lexington issued CGL policies to Martinez and Rozema and Financial Pacific issued CGL policies to A.M. Fernandez and J.Q. Drywall. The Lexington and Financial Pacific policies name McMillin as an additional insured.
McMillin completed construction of the homes in the Project in June 2005.
In June 2010, several homeowners within the Project filed the underlying action against McMillin. The homeowners alleged that they had discovered defective conditions arising out of the construction of their homes.
McMillin tendered its defense of the underlying action to Lexington and Financial Pacific, among other insurers. Both Lexington and Financial Pacific refused to defend McMillin.
In October 2012, McMillin asserted claims against Lexington and Financial Pacific for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. With respect to each claim, McMillin contended that Lexington and Financial Pacific had breached their respective contractual obligations to defend McMillin in the underlying action.
Lexington and Financial Pacific each filed a motion for summary judgment in which they contended that they did not owe McMillin a duty to defend the underlying action and that McMillin would therefore be unable to establish any of its claims as a matter of law.
The trial court granted both motions. The court subsequently entered a summary judgment in favor of Lexington and a separate summary judgment in favor of Financial Pacific.
*194McMillin filed a notice of appeal from the summary judgment in favor of Lexington, and filed a second notice of appeal from the summary judgment in favor of Financial Pacific.
III.
DISCUSSION
The trial court erred in granting Lexington's motion for summary judgment, but properly granted Financial Pacific's motion for summary judgment
McMillin claims that the trial court erred in granting Lexington's and Financial Pacific's motions for summary judgment. McMillin maintains that the trial court erred in concluding that neither Lexington nor Financial Pacific had a duty to defend McMillin in the underlying action, and thus, that McMillin could not establish any of its claims for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing.
A. General principles of law relevant to both appeals
1. The law governing summary judgment
A moving party is entitled to summary judgment when the party establishes that it is entitled to the entry of judgment as a matter of law. ( Code Civ. Proc., § 437c, subd. (c).) A defendant may make this showing by demonstrating that the plaintiff *226cannot establish one or more elements of all of his causes of action, or that the defendant has a complete defense to each cause of action. ( Towns v. Davidson (2007)
In reviewing a trial court's ruling on a motion for summary judgment, the reviewing court makes " 'an independent assessment of the correctness of the trial court's ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law.' " ( Trop v. Sony Pictures Entertainment, Inc. (2005)
2. The duty to defend
In Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014)
The Hartford court also explained the manner by which a court is to determine whether an insurer owed its insured a duty to defend:
" 'Determination of the duty to defend depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy. [Citation.] But the duty also exists where extrinsic facts known to the insurer suggest that the claim may be covered.' [Citation.] This includes all facts, both disputed and undisputed, that the insurer knows or ' "becomes aware of" ' from any source.... 'Moreover, that the precise causes of action pled by the third party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.' [Citation.] Thus, '[i]f any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer's duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage.' [Citation.] In general, doubt as to whether an insurer owes a duty to defend 'must be resolved in favor of the insured.' " ( Hartford , supra , 59 Cal.4th at p. 287,172 Cal.Rptr.3d 653 ,326 P.3d 253 .)
However, "[w]hile the duty to defend is broad, it is 'not unlimited; it is measured by the nature and kinds of risks covered by the policy.' " ( *227Hartford , supra , 59 Cal.4th at p. 288,
The Hartford Court also explained the relative burdens of proof in a case in which the insured contends that an insurer breached the duty to defend:
" '[T]he insured must prove the existence of a potential for coverage , while the insurer must establish the absence of any such potential . In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot. ' " [Citation.] Thus, an insurer may be excused from a duty to defend only when ' "the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage." ' " ( Hartford , supra , 59 Cal.4th at p. 288,172 Cal.Rptr.3d 653 ,326 P.3d 253 .)
*196B. The trial court erred in granting Lexington's motion for summary judgment
1. Additional factual and procedural background
a. The Project
As noted in part II, ante , McMillin developed and acted as the general contractor for the Project. Martinez performed concrete flatwork on the Project between 2003 and November 2005. Rozema performed lath and stucco work on the Project between March 2003 and October 2005. McMillin completed construction of the homes in the Project by mid-June 2005.
b. Lexington's policies
i. The policy periods
Martinez and Rozema each obtained CGL coverage through policies issued by Lexington. Lexington issued two CGL policies to Martinez for the policy periods February 27, 2004 through February 27, 2005 and February 27, 2005 through February 27, 2006, respectively. Lexington issued a CGL policy to Rozema for the policy period October 1, 2004 through October 1, 2005.
ii. The insuring agreements
All three policies contain identical insuring agreements that provide that Lexington would pay those sums that the insured became legally obligated to pay because of " 'property damage' " caused by an " 'occurrence' " during the policy period. The policies define "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 *197"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."
The policies define "occurrence" as:
"[A]n accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The policies further provide that Lexington has the duty to defend any suit seeking such damages.
iii. The additional insured endorsements
The Lexington policies contain substantively identical additional insured endorsements that amend the polices to provide coverage to McMillin " 'but only with respect to liability arising out of your [i.e., Martinez's or Rozema's] ongoing operations performed for [McMillin].' " The endorsements also each contain an exclusion that states:
*228"With respect to the insurance afforded to these additional insureds, the following exclusion is added:
"... Exclusions
"This insurance does not apply to 'bodily injury' or 'property damage' occurring after:
"(1) All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the site of the covered operations has been completed; or
"(2) That portion of 'your work' out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project."
c. McMillin's complaint in this action
McMillin alleged in its complaint in this action that Martinez and Rozema had acted as subcontractors on the Project. McMillin also alleged that Lexington had issued CGL policies to both Martinez and Rozema, and that the policies listed McMillin as an additional insured. McMillin further alleged *198that the complaint in the underlying action "sought damages against [McMillin] arising out of alleged negligent and defective work of [McMillin] and its subcontractors and suppliers on the Project."
d. Lexington's motion for summary judgment
Lexington filed a motion for summary judgment on the ground that it did not owe McMillin a duty to defend the underlying action because there was no possibility for coverage under the policies, in light of the additional insured endorsements. Specifically, Lexington noted that the endorsements provided coverage only for " 'liability arising out of your [i.e., Martinez's or Rozema's] ongoing operations performed for [McMillin].' " (Italics omitted.) Lexington argued that there was no possible coverage under the endorsements because there were no homeowners who could have brought construction defect claims against McMillin during the time that Martinez's or Rozema's operations were ongoing. Specifically, Lexington argued in relevant part:
"McMillin would have no liability to the homeowners until after the close of escrow on each homeowner's property. [¶] Furthermore, pursuant to well-established California law, a construction defect action does not accrue until the plaintiff discovers the defect. [Citation.] Therefore McMillin did not have any liability to the homeowners until after close of escrow of their property, and only after the homeowners discovered the defects complained of in the [underlying action]. [¶] ... [P]laintiffs [in the underlying action] waited approximately five to seven years after taking possession of their properties to file [the underlying action]. As such, because McMillin did not have any liability to plaintiffs [in the underlying action] for property damage that took place while Martinez and Rozema were working on the Project ... the allegations in the [underlying action] are not covered under the ongoing operations additional insured endorsements to the [p]olicies." (Italics added.)
Lexington further argued "it is clear that the claims at issue in the [underlying action] constitute claims for completed operations" (italics added), and that the language *229of the endorsements made clear that McMillin was entitled to coverage only for ongoing operations claims.
Finally, Lexington contended that McMillin "understood the difference between an 'ongoing operations' additional insured endorsement and a 'completed operations' version." In support of this contention, Lexington cited a memorandum that McMillin's risk manager, Jim Jordan, drafted in May of 2003, summarizing the standard additional insured endorsement form used in the Martinez and Rozema policies. Jordan's memorandum states in relevant part:
"[The ongoing operations endorsement] restricts coverage for the Additional Insured to liability only arising out of the subcontractors' 'ongoing operations.' In other words, the coverage for the Additional Insured ends *199when the subcontractor's work is no longer ongoing ... or, in other words, is finished or completed ...." (Emphasis and omissions are from Lexington's brief.)
e. McMillin's opposition
McMillin filed an opposition in which it argued that the fact that Martinez's and Rozema's work on the Project was completed before the homeowners owned their homes or made their claims in the underlying action did not establish the lack of a potential for coverage under the additional insured endorsements. McMillin noted that the endorsements in the relevant policies provided coverage to McMillin " 'with respect to liability arising out of ... ongoing operations performed' " for McMillin. McMillin argued, "This language does not incorporate any coverage limitations related to when the liability must arise. Instead, it told McMillin at the time operations were ongoing, that any liability 'arising out of' those operations would be insured."
McMillin also argued that whether it was covered under the endorsements was determined by "when the property damage occurred" (italics omitted) and that Lexington had presented "no evidence ... that any property damage could only have occurred after operations were completed."
McMillin maintained that Lexington was mistaken in contending that "no coverage is triggered because the homeowners' cause of action did not accrue until they discovered the defects." McMillin reasoned, "[T]hat is not the standard for the duty to defend[,] which depends upon when property damage occurs , not when it is discovered."
Finally, McMillin contended that, because the proper interpretation of the endorsements was a legal question, any statements made in Jordan's memorandum concerning coverage were "irrelevant and immaterial to whether a defense is owed." (Italics omitted.) McMillin also argued that, in any event, Jordan's memorandum merely reflected his understanding that coverage under the ongoing operations endorsement applies to property damage occurring before the completion of Martinez's and Rozema's work, which was consistent with McMillin's interpretation of the endorsement in its opposition to Lexington's motion.
f. Lexington's reply
In its reply, Lexington reiterated its argument that "[s]ince as a matter of law McMill[i]n could not have had liability to the ... plaintiffs ('Homeowners') until after the Homeowners took possession of their homes long after *200operations were complete, ... liability cannot have arisen from ongoing operations." For example, Lexington argued, "The critical question in this case ... is whether McMillin was liable to the Homeowners during Martinez ['s] and/or Rozema's ... ongoing operations." *230(Italics added.) Lexington then argued the answer to that question by stating, "McMillin had no liability to the Homeowners during Martinez'[s] and Rozema's ongoing operations because it is undisputed that the Homeowners took possession after all work had been completed." (Italics altered & boldface omitted.)
Lexington maintained that "[b]ecause the Homeowners in the [underlying action] could only sue for construction defect[s] after taking possession of their homes, and after all work had been completed, the word 'liability' in the [additional insured] endorsements must encompass a temporal element." Lexington made clear that, under its interpretation of the endorsements, McMillin had no possible coverage for construction defect claims, since such claims would accrue to homeowners only after the homeowners took possession of the homes and all of Martinez's and Rozema's work was complete. Lexington argued:
"Here, it is undisputed that [the underlying action] involves construction defect claims[ ] [citation] and that the subject [additional insured] endorsements limit coverage for the [additional insured] to liability arising out of Martinez's and Rozema's ongoing operations performed [for] McMillin. [Citation.] Accordingly, there is no coverage for McMillin under the ongoing operations [additional insured] endorsements and Lexington owed no duty to defend McMillin."
g. The trial court's ruling
After hearing argument from counsel, the trial court issued a ruling granting Lexington's motion for summary judgment. The court reasoned in relevant part:
"The additional insured endorsements ('AIE') provide[ ] coverage 'only with respect to liability arising out of [the subcontractors'] ongoing operations .' [Citation.] Because there were no homeowners in existence until after the subcontractors' work was completed, it follows that ... any potential liability to the homeowners arising out of the subcontractors' work must have arisen out of the subcontractor's completed operations ." (Italics added.)
The trial court reasoned further that "[t]here is a distinction between ongoing operations and completed operations coverage." (Citing Pardee Const. Co. v. Insurance Co. of the West (2000)
After an extensive discussion of Pardee , the trial court stated:
"Moreover, McMillin itself has acknowledged that [additional insured endorsement]
*201coverage for ongoing operations ends when the subcontractor's work is completed. [Citation.] [4 ][¶] [McMillin's] interpretation would also run afoul of the rule that insurance contracts must be construed to avoid rendering terms surplusage. [Citation.] McMillin contend [s] the endorsement provides coverage as long as liability arose out of the subcontractors' work. [McMillin] fail[s] to give any meaning to the phrase 'ongoing operations.' "
2. Governing law
a. Applicable principles of law govern *231ing the interpretation of an insurance policy
In Hartford , supra , the Supreme Court outlined the following relevant law governing the interpretation of an insurance policy:
"In determining whether a claim creates the potential for coverage under an insurance policy, 'we are guided by the principle that interpretation of an insurance policy is a question of law.' [Citation.] 'Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. ( Civ. Code, § 1636.)' [Citation.] In determining this intent, '[t]he rules governing policy interpretation require us to look first to the language of the contract in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it.' [Citation]. We consider the ' "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage." ' [Citation.] We must also 'interpret the language in context, with regard to its intended function in the policy.' " ( Hartford , supra , 59 Cal.4th at p. 288,172 Cal.Rptr.3d 653 ,326 P.3d 253 .)
b. The meaning of the key terms in the endorsement
As discussed in part III.B.1.b.iii, ante , Lexington named McMillin as additional insured for " 'liability arising out of [Martinez's or Rozema's] ongoing operations performed for [McMillin].' "
i. Liability
We assume for purposes of this decision that Lexington is correct that the meaning of the term "liability" in the endorsements is "loss and legal obligation for [the loss]."
*202ii. Arising out of
In Acceptance Ins. Co. v. Syufy Enterprises (1999)
"California courts have consistently given a broad interpretation to the terms 'arising out of' or 'arising from' in various kinds of insurance provisions. It is settled that this language does not import any particular standard of causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship." ( Id. at p. 328,81 Cal.Rptr.2d 557 .)
iii. Ongoing operations
In St. Paul Fire and Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co. (2002)
3. Application
In order to resolve this appeal, we are faced with a narrow question. Did the trial court properly determine that there was no potential for coverage under the endorsements naming McMillin as an additional insured for " 'liability arising out of [Martinez's or Rozema's] ongoing operations performed for [McMillin]' " because there were no homeowners in the Project *232at the time of Martinez's and Rozema's ongoing operations?
Lexington contends that the answer to that question is "yes," and that we may affirm the judgment on this basis. As it argued in the trial court, Lexington contends that the fact that there were no homeowners at the time Martinez and Rozema were working on the Project establishes that McMillin did not have any liability to the homeowners during Martinez's and Rozema's ongoing operations. Lexington repeats this contention throughout its brief:
"The trial court correctly ruled that McMillin did not have any liability to the Homeowners during 'ongoing operations' because there were not Homeowners until after operations were completed." (Italics altered.)
*203"In other words, the determinative issue is whether McMillin's potential liability to the Homeowners arose during a named insured's 'ongoing operations.' " (Italics added.)
"On these facts, since the Homeowners' causes of action accrued after operations were completed, McMillin could have no liability to the Homeowners during the named insureds' 'ongoing operations.' " (Italics altered.)
"[T]he central question here is whether McMillin faced any liability to the Homeowners during the named insureds' 'ongoing operations,'...." (Italics added.)
"Under the terms of the Lexington [additional insured] [e]ndorsements, McMillin could have coverage for liability for bodily injury or property damage when that liability arises during ongoing operations." (Italics added.)
"The key issue is whether McMillin's liability arose during the named insureds' 'ongoing operations.' " (Italics added.)
"Specifically, the 'liability,' i.e., the loss and legal obligation for same, must take place during the named insured's ongoing operations." (Italics altered.)
Even assuming that Lexington is correct that McMillin did not face any liability to homeowners during Martinez's or Rozema's ongoing operations,
Indeed, as discussed above, the phrase "arising out of," has specifically been given a "broad interpretation," in the context of additional insured endorsements. (See Syufy , supra , 69 Cal.App.4th at p. 328,
*204provides only that McMillin's liability must be "linked," through a "minimal causal connection or incidental relationship" (
For example, consider the work of Lexington subcontractors such as those in this case, who performed concrete flatwork and stucco work. The improper pouring of concrete on a foundation or the improper installation of stucco could permit water damage to other portions of the home.
Both Lexington and the trial court have focused on the terms "ongoing operations" and "completed operations" in tandem, suggesting that any claim by a homeowner is necessarily covered, if at all, only by "completed operations" coverage. Lexington appears to suggest that an "ongoing operations" additional insured endorsement does not afford the additional insured with coverage provided under a named insured subcontractor's "products-completed" coverage.
The policies in this case state that " 'property damage' " covered under the " 'products-completed operations hazard' " does not include the named insured subcontractors ' "[w]ork that has not yet been completed or abandoned." Thus, the policy language makes clear that property damage occurring before completion of the named insured subcontractors' work would not be covered by "products-completed operations hazard."
*205As our example above demonstrates, the lack of homeowners does not establish that any property damage caused by the named insured subcontractors' work occurred after the completion of their work. Thus, even assuming that Lexington is correct that an "ongoing operations" additional insured endorsement does not provide the additional insured with the same coverage afforded under a named insured subcontractor's "products-completed" coverage, a homeowner's construction defect claim is not, as Lexington suggests in its brief, necessarily one that is brought to recover under the "products-completed" coverage of a named insured subcontractor's policy. On the contrary, if property damage occurs before the named insured finishes *234work at the jobsite, under the plain language of the policy, an additional insured may be entitled to coverage pursuant to an "ongoing operations" endorsement.
This court's decision in Pardee , supra ,
"The insurers could have limited coverage by express policy language that coverage was limited to claims arising from work performed during the policy period. However, they did not. Indeed, they acknowledge they intended to provide the named insureds completed operations coverage for projects completed before inception of policies. Similarly, the insurers could have used the form 2009 additional endorsement, which has been widely employed since the mid-1980's to add a contractor as an additional insured under a subcontractor's policy and which clearly excludes 'completed operations.' Again, they did not." ( Id. at p. 1358,92 Cal.Rptr.2d 443 , fn. omitted.)
The Pardee court stated that, alternatively, the insurers could have used additional insured endorsements that restricted coverage to the ongoing operations of the named insured. ( Pardee , supra , 77 Cal.App.4th at p. 1359,
"[I]n 1993, the Insurance Services Office (ISO) [10 ] revised the language of the form 2010 endorsement utilized by the insurance industry to expressly restrict coverage for an additional insured to the 'ongoing operations' of the named insured.[ ] This revised language effectively precludes application of the endorsement's coverage to completed operations losses. [Citation.] One insurance commentator stated regarding the 1993 revisions of the standard additional insured endorsement forms: 'The restriction of coverage in the two endorsements to only ongoing operations makes it clear that additional insureds will have no coverage under the named insured's policy for liability arising out of the products-*235completed operations [11 ] exposure.... The effect of this change-restricting the coverage to ongoing operations-is, however, much more profound on [form 2010]. Previous editions of [that form] contained no completed operations exclusion and, thus, could be called on to cover an additional insured for liability arising out of the products-completed operations hazard.' [Citation.] Similarly, construction industry and underwriting spokespersons have echoed this assessment: 'Completed Operations Coverage. Prior to the 1993 ... revisions, the standard ISO additional insured endorsements provided the additional insured with coverage for liability arising out of "your operations performed for" the additional insured, which included completed operations. More recent editions of these endorsements provide coverage only with respect to "your ongoing operations," which effectively eliminates coverage for completed operations.' [Citation.] Although these 1993 revisions postdated the insurers' policies here with the exception of [one insurer], they evince as to [the other insurers] alternative express limiting language that could have been employed. [¶] Consequently, the insurers' failure to use available language expressly excluding completed operations coverage implies a manifested intent not to do so." ( Id. at pp. 1358-1359,92 Cal.Rptr.2d 443 .)
Since the Pardee court was discussing how the insurers in that case could have restricted coverage "for projects completed before inception of [the] policies" ( Pardee , supra , 77 Cal.App.4th at p. 1358,
Moreover, even assuming that an ongoing operations additional insured endorsement may have a broader effect (e.g., by restricting coverage to damages that occur before the completion of the subcontractors' ongoing operations), the trial court did not conclude that Lexington had established as a matter of law that all of the property damage in the underlying action occurred only after the completion of the Martinez's and Rozema's ongoing operations .
The parties have not cited, and our own research has not uncovered, any relevant California authority specifically addressing whether an ongoing operations additional insured endorsement such as the one in the Lexington policies provides coverage to the additional insured only for damages that occur before the completion of the named insured's ongoing operations. Cases from other jurisdictions are in conflict on this issue. (Compare e.g., Noble v. Wellington Assocs. (Miss.App. 2013)
However, we need not decide this issue in this appeal, because Lexington has not established as a matter of law that all of the damages in the underlying action occurred after the completion of Martinez's and Rozema's ongoing operations. Rather, as discussed above, we need decide only whether Lexington and the trial court are correct that the nonexistence of homeowners at the time Martinez and Rozema ceased ongoing operations establishes as a matter of law the lack of potential for coverage for McMillin under the policies. On this issue, neither the Pardee court, nor any other case that Lexington has cited or of which we are aware, has held that the fact that there were no homeowners at the time the named insured subcontractor ceased ongoing operations demonstrates that an additional insured did not suffer liability arising out of the named insured's ongoing operations. The one out-of-state case that Lexington cites, without discussion, that comes closest to stating as much, Hartford Ins. Co. v. Ohio Cas. Ins. Co. (2008)
We acknowledge that the Ohio court did conclude that an insurer had no duty to defend the additional insured in that case, in part, because "the condo owners did not own the units until after the completion of subcontractor operations." ( Ohio , supra , 145 Wash.App. at p. 780,
Lexington's argument that we may affirm the judgment on the ground that McMillin's interpretation of the endorsement would render the term "ongoing" surplusage also fails. Lexington contends that we may affirm the judgment on this ground because McMillin purportedly argues that it is entitled to coverage for claims arising out of the subcontractors' completed operations, "since even 'completed operations' (under McMillin's argument) arise out of operations which were, at some point, ongoing."
We also reject Lexington's argument that we may affirm the judgment on the ground that the May 2003 Jordan memorandum demonstrates that McMillin understood that the endorsements would provide no coverage for the claims in the underlying action. Even assuming that the Jordan memorandum is properly considered as extrinsic evidence of the parties' understanding of the endorsements, the Jordan memorandum merely states, "[c]overage for the Additional Insured ends when the subcontractor's work is no longer ongoing ... or, in other words, is finished or completed...." (Italics omitted.)
*238Since homeowners are not mentioned in the cited portion of the Jordan memorandum, the memorandum does not constitute evidence that McMillin believed that the fact that there were no homeowners during the subcontractor's ongoing operations demonstrated that McMillin would have no potential coverage for construction defect claims under the endorsements.
*210Accordingly, we conclude that the trial court erred in granting Lexington's motion for summary judgment.
C. The trial court properly granted Financial Pacific's motion for summary judgment
IV.
DISPOSITION
The summary judgment in favor of Lexington is reversed. The summary judgment in favor of Financial Pacific is affirmed.
McMillin is entitled to recover its costs in its appeal from the summary judgment entered in favor of Lexington. Financial Pacific is entitled to recover its costs in McMillin's appeal from the summary judgment entered in favor of Financial Pacific.
WE CONCUR:
BENKE, Acting P. J.
DATO, J.
None of the parties make any argument concerning the significance of the distinctions between these parties. Accordingly, we refer to them collectively as McMillin.
McMillin states in its brief on appeal that "the duty to indemnify is not at issue in this action."
As indicated in the text, the parties' statements of undisputed facts state that McMillin completed construction of the homes in the Project by mid-June 2005, but that Martinez performed work on the Project until November 2005 and Rozema performed work on the Project until October 2005. The trial court repeated these dates in its summary judgment order. The parties do not explain this apparent incongruity in their briefing. However, McMillin states in its opening brief, "McMillin concedes the homeowners did not exist until after the Project was completed." Accordingly, we assume for purposes of this decision that all of Martinez's and Rozema's work was completed prior to the date on which homeowners purchased the homes in the Project.
In support of this point, the trial court cited to two undisputed material facts referencing the May 2003 Jordan memorandum discussed in part II.B.1.d, ante, that stated in relevant part, "In other words, the coverage for the Additional Insured ends when the subcontractor's work is no longer ongoing ... or, in other words, is finished or completed...." (Italics omitted.)
We emphasize that we do not conclude that Lexington would have been entitled to summary judgment if the endorsements restricted coverage to liability occurring during ongoing operations.
We emphasize that we mention such potential damages by way of example for illustrative purposes and not to in any way suggest that this is the basis of the potential coverage in this case.
In Pulte Home Corp. v. American Safety Indemnity Co.(2017)
"American Safety incorrectly focuses on when the current property owners became financially damaged through purchases. This begs the question of when the subject property damage occurred from the work of the subcontractors. The coverage potential depends on when the property became physically damaged." (Id. at. p. 1113,223 Cal.Rptr.3d 47 .)
One prominent commentator explains that "[t]he 'products-completed operations hazard' covers liability for accidental bodily injury or property damage following completion of the insured's work or operations. This type of coverage is generally conditioned on damage occurring during the policy period, as long as the work was completed before the damage occurred...." (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2017) ¶ 7:1429, p. 7E-27 (second italics added).) Thus, "products-completed" coverage only covers damage that occurs after the named insured completes operations.
As discussed in the text, post, we need not, and do not, decide whether an additional insured is entitled to coverage under an "ongoing operations" endorsement where the property damage occurs after the named insured finishes work at the jobsite but before the termination of the policy.
In a footnote at this portion of the quotation, the Pardee court described the ISO as follows:
" 'ISO is a nonprofit trade association that provides rating, statistical, and actuarial policy forms and related drafting services to approximately 3,000 nationwide property or casualty insurers. Policy forms developed by ISO are approved by its constituent insurance carriers and then submitted to state agencies for review. Most carriers use the basic ISO forms, at least as the starting point for their general liability policies.' " (Pardee, supra, 77 Cal.App.4th at p. 1359,92 Cal.Rptr.2d 443 .)
"[P]roducts-completed operations coverage applies to defects in merchandise or improper workmanship after the product has been completed and distributed." (Travelers Casualty & Surety Co. v. Employers Ins. of Wausau(2005)
Coverage for property damage under an occurrence based CGL policy, such as the policies in this case, is deemed "to occur over the entire process of the continuing injury," and not simply when the damage is discovered or becomes manifest. (Pepperell v. Scottsdale Ins. Co.(1998)
In addition, Lexington does not contend that it presented evidence that established as a matter of law that the exclusions contained in the additional insured endorsements related to the timing of the occurrence of property damage applied. (See pt. III.B.1.b.iii, ante["This insurance does not apply to ... 'property damage' occurring after: (1) All work ... at the site of the covered operations has been completed; or (2) That portion of 'your work' out of which the injury or damage arises has been put to its intended use...."].)
Noble is also distinguishable because, as discussed in footnote 12, ante, California law does not require that property damage become "manifest" in order to trigger coverage under a CGL policy. (Pepperell, supra, 62 Cal.App.4th at p. 1052,
The Ohio court suggested that the additional insured would have had coverage "[i]f there were allegations in the complaint [in the underlying construction defect action] or other evidence that would have shown that [the insurer] was being asked to cover [the additional insured] for liability arising from work in progress...." (Ohio, supra, 145 Wash.App. at p. 780,
The Ninth Circuit has distinguished Ohio (Tri-Star, supra, 426 Fed.Appx. at p. 512 ) and criticized a portion of its reasoning (Id. at p. 514 ).
We quote from Lexington's respondent's brief.
One can imagine that damage from a subcontractor's ongoing operations might occur either prior to the completion of ongoing operations (e.g., a poorly installed pipe that causes a leak that begins to cause water damage to drywall while the subcontractor continues to work on the project, but that is not discovered until the home is purchased) or after the completion of ongoing operations (e.g., a poorly installed pipe that causes a leak that begins to cause water damage to drywall after the subcontractor ceases operations).
We are not persuaded by Lexington's contention that we may affirm the judgment on the basis that McMillin failed to address the surplusage interpretation issue and the Jordan memorandum issue in its opening brief. While Lexington asserts that these issues are "independent grounds," upon which the trial court granted summary judgment, in fact, they are not. (Italics added.) The trial court's reasoning with respect to both issues was related to the sole ground on which the court granted summary judgment, namely, that Lexington established that it had no duty to defend McMillin in the underlying action because there was no possibility for coverage under the policies given the " 'ongoing operations' " limitation in the additional insured endorsements. McMillin adequately addressed this issue in its opening brief, and Lexington is not entitled to affirmance merely because McMillin did not address in its opening brief every aspect of the court's reasoning in granting summary judgment.
In its respondent's brief, Lexington raises two claims under separate headings that we need not consider in this appeal. Specifically, Lexington contends that it is entitled to "summary adjudication of McMillin's claim for bad faith." Lexington also maintains that McMillin is "not entitled to punitive damages." (Capitalization & boldface omitted.) Neither claim constitutes a basis for affirming the trial court's order granting summary judgment in favor of Lexington. We therefore express no opinion with respect to either issue.
See footnote *, ante.