Property Damage During Policy Period Triggers Duty To Defend, Even If The Entity Claiming Damage Did Not Exist...08.25.2006
In Standard Fire Ins. Co. v. Spectrum Community Association, __ Cal.App.4th __, 46 Cal.Rptr.3d 804 (2006), the Court addressed the question of whether a homeowners association asserting property damage against an insured must have existed and owned the property during the policy period in order to trigger coverage under the insured's commercial general liability ("CGL") policy. The Court answered "no," stating that the critical question is rather whether the property damage occurred during the policy period.
In Spectrum, condominium owners and their homeowners association sued the condominium developers for construction defects. Standard Fire insured the developers under a CGL policy during the project. During the policy period, the developers owned the condominium project being built, and the homeowners association did not exist as it had not been formed. None of the individual homeowners owned any of the condominium units during the policy period.
Standard Fire asserted there could be no potential for coverage under the policy for any of the construction defect claims because none of the claimants could have suffered any damage during the policy period. Standard Fire contended the focus should be when the complaining party was harmed. It cited Remmer v. Glens Falls Indemnity Co., 140 Cal.App.2d 84 (1956), for the proposition "that the time of the occurrence of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed, but the time when the complaining party was actually damaged." Standard Fire further contended that Montrose Chemical Corporation v. Admiral Insurance Co., 10 Cal.4th 645 (1995) (known as "Montrose II"), approved the Remmer general rule in stating that "California courts have long recognized that coverage in the context of a liability insurance policy is established at the time the complaining party was actually damaged."
The Spectrum Court stated that Montrose II focused on the timing on the damage rather than who was damaged during the policy period, noting that Montrose II held the insurer had a duty to defend irrespective of the fact that the continuing damage began long before the policies in question were issued and before the claimant in that case purchased the damaged property. Noting the homeowners association in Spectrum had presented evidence to show that damage had occurred to the project during the policy period, the Court held that Standard Fire had a duty to defend.
The Court discussed the cases of Garriott Crop Dusting Co. v. Superior Court, 221 Cal.App.3d 783 (1990), and Century Indemnity Co. v. Hearrean, 98 Cal.App.4th 734 (2002), as more on point. In Garriott, the court held the insurer there had a duty to defend the insured, where the city suing the insured had acquired the subject property after the policy period. The Garriott Court noted that "the policies themselves do not expressly require that the eventual claimant own the property at the time the property is damaged for coverage to ensue; they merely require that the damage, the 'physical injury to ... tangible property,' take place during the policy period." In other words, the Court said, "[t]he question raised by the policy language is not when the [c]ity was damaged; it is, instead, when the property now owned by the [c]ity was damaged."
The Garriott Court dismissed the reference in Remmer to damage "to the complaining party" as meaning that damage to the claimant during the policy period was required. Remmer did not involve damage to property that changed hands between the date of damage and the date of claim, and the Remmer Court could refer to damage to "the complaining party" instead of damage to "the property" because the complaining party owned the property throughout all relevant time periods.
With respect to the Century Indemnity decision, the Spectrum Court also noted that the trigger of coverage there - the continuous and progressive injury to the property allegedly caused by defective design and construction - occurred during the policy period and activated the insurer's defense and indemnity obligations.
Thus, the Spectrum Court concluded that the insurer's duty to defend was determined by whether property damage occurred during the policy period. The question of whether the claimant suing for that damage was damaged during the policy period was irrelevant.
One point to note about the Spectrum decision is the parties are reported as not discussing the "owned property" exclusion that appears in standard CGL policies. That exclusion excludes damage to property owned by the insured and might have made the difference in the outcome of the decision.