PJ ASSOCIATES v. UNIGARD SECURITY INSURANCE COMPANY (1993)

Statement of the Case

Two insurance companies appeal from a summary judgment granted in favor of two third party property owners who had filed a direct action to recover from the insurers an unsatisfied judgment previously obtained against their insured, a contractor.   The appeal involves interpretation of the terms of the comprehensive general liability policies issued by both insurers to the contractor and determination of whether the losses suffered by the property owners are embraced within the coverage afforded the contractor.   The trial court concluded there is coverage.   Our analysis of case law compels a contrary conclusion.   We therefore reverse the judgment.

Statement of Facts

Background of the Dispute

PJ Associates (PJ) and Barclay Curci Investments Company (BCI) owned six office buildings.   Cushman & Wakefield of California, Inc. (C & W) managed the properties.   In June 1985, C & W, as agent for PJ and BCI, entered into a contract with Air Development and Supply, Inc. (ADS) to service and maintain the heating, ventilation, and air conditioning systems (HVAC systems) at the buildings.   The contract recited that ADS would do the work “in a good and workmanlike manner” with “competent personnel” and provide all material at its expense.   ADS warranted that it would “keep employed, skilled and competent employees to perform the servcies [sic ].”   ADS performed these services until May 1987.

ADS was insured during most of its performance of the contract.   From January 1985 to January 1986, a comprehensive general liability policy issued by Unigard Security Insurance Company (Unigard) was in effect;  from May 1986 to May 1987, a comprehensive general liability policy issued by Central Mutual Insurance Company (Central) was in effect.  (The terms of the policies will be set forth in detail, post.)

Following termination of ADS's services in May 1987, PJ and BCI discovered that the HVAC systems were in serious disrepair.

In May 1988, PJ and BCI sued ADS for breach of contract and negligence.   They alleged that ADS had failed to perform and/or had negligently performed its service contract, resulting in damage to the HVAC systems.   Additionally, PJ and BCI, who had terminated its property management contract with C & W in November 1986, sued C & W, alleging breach of contract and negligent selection and supervision of ADS.   C & W filed a cross-complaint for indemnity against ADS.   Central engaged counsel to defend ADS subject to a reservation of rights;  Unigard declined to defend.

The Arbitration

In January 1990, the parties agreed to submit the lawsuits to binding judicial arbitration.   C & W had already settled with PJ and BCI for $70,000 but still participated in the arbitration because it sought indemnification from ADS.

A five-day unreported arbitration hearing was conducted during which expert testimony was presented and documentary evidence produced.   The arbitrator issued a detailed 16–page opinion.   He concluded that ADS had performed its work in a negligent manner;  that it had failed to properly repair and maintain the HVAC systems as required by the contract;  that its employees were not properly trained or supervised;  and that the poor condition of the HVAC systems was the direct result of ADS's actions or inactions.   The arbitrator awarded PJ and BCI $180,791.90 in damages “for breach of contract and negligent performance thereunder” ¹ plus attorney fees and costs but reduced that amount by the $70,000 settlement earlier paid by C & W.   In regard to C & W's cross-complaint against ADS, the arbitrator found that its settlement with PJ and BCI had been entered into in good faith and that C & W had not been negligent;  accordingly, the arbitrator awarded C & W judgment against ADS for $70,000, plus attorney fees and costs.

On February 27, 1990, the superior court entered judgment against ADS based upon the arbitrator's award.

On March 7, 1990, ADS filed for chapter 7 bankruptcy.

The Present Lawsuit

In July 1990, PJ and BCI, as well as C & W, filed actions against Unigard and Central, ADS's two insurers, in order to satisfy the judgment rendered against ADS.²  They pleaded two theories of recovery.   The first was that they were third party beneficiaries of the insurance contracts.   The second was Insurance Code section 11580, subdivision (b)(2) which provides that “whenever judgment is secured against the insured ․ in an action based upon ․ property damage, then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment.”

Central demurred to the complaints, essentially urging that its policy did not cover the damages awarded to PJ and BCI.   Following filing of opposition to the demurrer, the trial court overruled the demurrer and suggested that PJ, BCI, and C & W file motions for summary judgment because the coverage issue was “a total matter of law.”

Thereafter, various motions were filed.   Central moved for summary adjudication of the following two issues:  (1) Its policy did not cover damages caused by ADS's breach of contract;  and (2) The damages suffered by PJ, BCI, and C & W were based upon ADS's breach of contract.³  In a similar vein, Unigard moved for summary judgment, asserting that as a matter of law its policy did not cover the subject damages.   PJ and BCI also moved for summary judgment, contending that the two policies applied as a matter of law.

C & W did not file a summary judgment on its behalf but did submit opposition to the insurers' motions.

Following a reported hearing, the trial court granted the summary judgment motion brought by PJ and BCI and denied the motions brought by the two insurance companies.   Its minute order states, in part:  “The court finds that there is no triable issue that the ․ damages awarded by the arbitrator against defendants' insured for failure to perform services in a workman-like manner is covered by the respective policies.”   Appeals by Central and Unigard followed.⁴

Discussion

Standard of Review

 The insurers' appeals from the trial court's grant of summary judgment require interpretation of their insurance policies.   That raises a question of law.   When the meaning of a writing is in dispute and no conflicting evidence is presented to the trial court, this court conducts an independent review of the matter.  (Loyola Marymount University v. Hartford Accident & Indemnity Co. (1990) 219 Cal.App.3d 1217, 1221–1222, 271 Cal.Rptr. 528;   Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1083–1084, 258 Cal.Rptr. 721.)

The Insurance Policies

The pertinent provisions of the comprehensive general liability insurance policies issued to ADS by Central and Unigard are identical.   This is because the insurance industry has developed standard forms over the last 50 years which are utilized throughout the county.  (Tinker, Comprehensive General Liability Insurance—Perspective and Overview (1975) 25 Federation Ins.Coun.Q. 217, 218–221.)

The policies recite that the insurer “will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ․ property damage to which this insurance applies, caused by an occurrence․”  Property damage is defined as “physical injury to or destruction of tangible property which occurs during the policy period․”  An occurrence is defined as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”

Attached to each policy is an endorsement which modifies the coverage provided by the comprehensive liability insurance.   The sixth section of the endorsement is entitled:  “Broad Form Property Damage Liability Coverage.”   Its stated effect is to delete the two exclusions found in the policy which negate coverage for certain types of property damage and to substitute in their place two other exclusions.   Thus, as modified, the policies do “not apply” to:  “that particular part of any property, not on premises owned by or rented to the insured, (i) upon which operations are being performed by or on behalf of the insured at the time of the property damage arising out of such operations, or (ii) out of which property damage arises, or (iii) the restoration, repair or replacement of which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the insured․”  Additionally excluded is “․ property damage to work performed by the named insured arising out of such work or any portion thereof, or out of such materials, parts or equipment furnished in connection therewith.”

Case Law Interpretation of Policy Exclusions

As we shall explain, the cases which have interpreted a general comprehensive liability policy with these types of exclusions have concluded that the policy does not provide a contractor with coverage against claims of defective workmanship.   The policy provides coverage for injury to person or to property other than that which the insured has been hired to work upon but it excludes the cost of merely repairing the damage caused by the insured contractor's inferior work.   The latter is a commercial risk which is not borne by the insurer.   As one court aptly summarized:  “[T]he policy in question does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident.”  (Weedo v. Stone–E–Brick, Inc. (1979) 81 N.J. 233, 405 A.2d 788, 796.) ⁵

In Rafeiro v. American Employers' Ins. Co., supra, 5 Cal.App.3d 799, 85 Cal.Rptr. 701, the owner of two apartment buildings obtained a judgment against a builder for damages caused by defective workmanship on the two projects.   The judgment covered the cost to replace and repair the defective work and materials utilized.   The owner then sued the builder's insurer in an effort to satisfy the judgment.   The builder's policy excluded coverage for property damage “ ‘the restoration, repair, or replacement of which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the insured’ ” or to “ ‘work completed by or for the named insured.’ ”  (Id. at p. 808, 85 Cal.Rptr. 701.)   The court concluded that the owner's claim did not fall within the policy as she sought compensation for the cost to repair and replace the defective work rendered.   It reasoned:  “It appears from the above provisions that the insurance furnished, unlike malpractice insurance, was not intended to indemnify the contractor (and through him the owner) for direct damages resulting because the contractor furnished defective materials or workmanship.  (Cf. contractor's bond as contemplated by ․ Civ.Code, §§ 3235 and 3236․)”  (Ibid.)

In St. Paul Fire & Marine Ins. Co. v. Coss (1978) 80 Cal.App.3d 888, 145 Cal.Rptr. 836, homeowners successfully sued a contractor for negligence and breach of contract, alleging that he had failed to build the home in a workmanlike manner.   The issue on appeal was whether the contractor's insurer was obligated to pay the judgment by virtue of its comprehensive general liability policy.   The policy provided indemnity for property damage but excluded from its reach “ ‘the restoration, repair or replacement [of property] which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the Insured.’ ”  (Id. at p. 893, 145 Cal.Rptr. 836.)   Relying upon Rafeiro, supra, the court concluded that the policy “did not intend to, nor did it, extend coverage to include reimbursement (in some form or another) to a builder for expenditures required to correct his own defective product made so by his poor workmanship and use of substandard materials.”   (80 Cal.App.3d at p. 896, 145 Cal.Rptr. 836.)

In Western Employers Ins. Co. v. Arciero & Sons, Inc. (1983) 146 Cal.App.3d 1027, 194 Cal.Rptr. 688, a contractor built a condominium complex, including a slope and retaining wall.   Several years later, the retaining wall collapsed, damaging the slope held by the wall as well as the condominium units.   The contractor's comprehensive general liability policy excluded “ ‘property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.’ ”  (Id. at p. 1029, 194 Cal.Rptr. 688.)   The issue was whether the exclusion applied not only to the contractor's defective work (the retaining wall) but also to that portion of the contractor's satisfactory work (slope and condominium units) which was damaged by the defective work.   In concluding that both aspects of the damage were excluded from coverage, the court reiterated the pertinent principle that a comprehensive general liability policy is neither a performance bond nor an all-risk policy and that “the effect of the policy is to make the contractor stand its own replacement and repair losses while the insurer takes the risk of injury to the property of others.”  (Id. at p. 1031, 194 Cal.Rptr. 688;  see also Blanchard v. State Farm Fire & Casualty Co. (1991) 2 Cal.App.4th 345, 348–349, 2 Cal.Rptr.2d 884;  Maryland Casualty Co. v. Reeder (1990) 221 Cal.App.3d 961, 967–968, 971–974, 270 Cal.Rptr. 719;  and Maryland Casualty Co. v. Imperial Contracting Co. (1989) 212 Cal.App.3d 712, 723–724, 260 Cal.Rptr. 797.)

The Policy Exclusions Apply to ADS

 These authorities demonstrate that the claims made by PJ and BCI against ADS were not covered by either of the insurance policies.   Their lawsuit alleged that the HVAC systems were extensively damaged as a result of ADS's actions.   The proper maintenance and servicing of the systems was the very job ADS contracted to do.   ADS's negligent performance of its services and/or its breach of its contractual obligation caused the damages to the HVAC systems.⁶  To permit recovery on the policy would effectively negate the exclusion against recovery for “the restoration, repair or replacement of [property] which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the insured.”

To avoid the force of this conclusion, PJ and BCI make the following argument.  “Unlike the insured parties in the cases just discussed, ADS did not construct, manufacture or fabricate [the] HVAC systems.   Rather, it was hired to service and maintain existing equipment.   It did so in a manner which caused physical injury to that equipment.   Again, the underlying judgment did not compensate [PJ and BCI] for the cost of redoing ADS's defective repair work.   It compensated [them] for the physical damage to its property caused by ADS.”   The argument is unpersuasive.

To begin, PJ and BCI err in urging that the judgment did not compensate for the cost of repair.   The arbitrator's opinion specifically recites that he is awarding $151,340 as “the actual cost of the ․ corrective work done.”

Moreover, the fact that this case involves a contract to provide maintenance services whereas case precedent involves construction contracts is only a distinction without a difference.   One commentator has explained the policy reasons behind the rule excluding coverage for construction contractors as follows:  “Replacement and repair costs are to some degree within the control of the insured.   They can be minimized by careful purchasing, inspection of material, quality control and hiring policies.   If replacement and repair costs were covered, the incentive to exercise care or to make repairs at the least possible cost would be lessened since the insurance company would be footing the bill for all scrap.”  (Macaulay, Justice Traynor and the Law of Contracts (1961) 13 Stan.L.Rev. 812, 825–826.)

 These considerations apply with equal force to a contractor, such as ADS, who primarily provides services.   The contractor, through proper hiring, training, and supervision of employees, is in the best position to ensure that the work is properly done;  the insurer is in no position to reduce the risk of poor workmanship.   If a contractor could expect coverage from a comprehensive general liability policy for losses incurred because of faulty performance of a contractual obligation, the contractor's incentive to ensure that proper services were provided at the outset would be substantially diminished.   This could, in violation of public policy, encourage substandard work or fraud;  if insurance proceeds were used to pay for the repair or replacement of faulty workmanship, a contractor could receive payment from the client for the initial work and then later receive more payment from its insurer for the cost to repair the work which it (the contractor) had agreed at the outset to do in a workmanlike manner.   In essence, the contractor would be assured that its substandard performance would be corrected at no expense to it.  (Knutson Const. v. St. Paul Fire & Marine Ins. (Minn.1986) 396 N.W.2d 229, 232–236;  Centex Homes Corp. v. Prestressed Systems (Fla.App. 3 Dist.1984) 444 So.2d 66, 67;  LaMarche v. Shelby Mut. Ins. Co. (Fla.1980) 390 So.2d 325, 326–327.)   This would transform the liability policy, in derogation of the insurer's express exclusions, into a warranty for services provided.⁷  (See Tinker, Comprehensive General Liability Insurance—Perspective and Overview, supra, 25 Feder.Ins.Coun.Q. 217, 224, and 225–226;  and Southern Cal. Edison Co. v. Harbor Ins. Co. (1978) 83 Cal.App.3d 747, 756–757, 148 Cal.Rptr. 106.)   We believe the cost of repair occasioned by faulty work is a business expense to be borne by the contractor, regardless of whether the contractor is building a structure or merely providing maintenance and repair services.

Exclusion (a)

 In the trial court, PJ and BCI contended that exclusion (a), found in each policy, created coverage on one of two theories.   The trial court agreed.   Although PJ and BCI have not pursued that contention on this appeal, for the guidance of the trial court on remand we shall explain why the contention is without merit.

Exclusion (a) provides that the comprehensive general liability insurance does not apply “to liability assumed by the insured under any contract or agreement except an incidental contract;  but this exclusion does not apply to a warranty of fitness or quality of the named insured's products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner.”   Each policy defines an incidental contract as “any oral or written contract or agreement relating to the conduct of the named insured's business.”

The Exception for Warranty Claims Does Not Create Coverage

PJ and BCI urged, and the trial court agreed, that the warranty exception to exclusion (a) provided coverage because the damages were the result of ADS's poor workmanship.   Case law is to the contrary.

In St. Paul Fire & Marine Ins. Co. v. Coss, supra, 80 Cal.App.3d 888, 145 Cal.Rptr. 836, the contractor's policy contained a provision identical to exclusion (a) The contractor urged it granted coverage for damages to the homeowners' house resulting from his breach of the warranty of fitness.   The court rejected the claim.   It concluded that the warranty exception to exclusion (a) merely removed a breach of warranty claim from the specific exclusion relating to contractual liability.   That is, if the policy otherwise provided for coverage of breach of warranty claims, exclusion (a), which prohibits coverage for contractual claims, would not bar coverage for a warranty claim.  (Id. at pp. 895–896, 145 Cal.Rptr. 836.)   However, because the policy did not provide coverage for warranty claims but, in fact, excluded coverage for property damage caused by the insured's faulty workmanship, the warranty exception to exclusion (a) did not create coverage.   Stated another way, the warranty claim must otherwise be cognizable under the general grant of coverage in order to constitute a claim “to which this insurance applies.”   A contrary conclusion would violate the basic principle that an exclusion provision subtracts from coverage rather than grants coverage.

This analysis is consistent with that followed by the vast majority of courts in other jurisdictions.   In Peerless Ins. Co. v. Wells (1990) 154 Vt. 491, 580 A.2d 485, a contractor improperly constructed a home.   The homeowner sued for damages.   The contractor's insurer commenced a declaratory relief action to determine if its general liability policy afforded coverage for the damages sought by the homeowner.   The policy provided that it did not apply, inter alia:  “to liability assumed by the insured under any contract or agreement except an incidental contract;  but this exclusion does not apply to a warranty of fitness or quality of the named insured's products or warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner.”  (Id. at p. 487.)   The Supreme Court of Vermont rejected the argument that the exception for coverage for breach of warranty created coverage.   It reasoned:  “[T]he exception in (a) is not a grant of coverage;  it simply provides that the exclusion for liability assumed by the insured under any contract or agreement does not apply to a warranty of fitness or a warranty that work performed by the insured will be done in a workmanlike manner.  [The work performed exclusion] unequivocally excludes coverage for property damage to the work performed by or on behalf of the insured.   The exclusions read together, as they must be, limit the coverage afforded by the policy to damage to property other than the insured's work․  See Biebel Bros. v. United States Fidelity & Guar. Co., 522 F.2d 1207 (8th Cir.1975) (construing Missouri law);  U.S. Fire Ins. Co. v. Colver, 600 P.2d 1 (Alaska 1979);  St. Paul Fire & Marine Ins. Co. v. Coss, 80 Cal.App.3d 888, 145 Cal.Rptr. 836 ․ (1978);  Indiana Ins. Co. v. DeZutti, 408 N.E.2d 1275 (Ind.1980);  Weedo v. Stone–E–Brick, Inc., ․ 405 A.2d 788 (1979).”   (Peerless Ins. Co. v. Wells, supra, 580 A.2d at p. 488;  accord:  Bulen v. West Bend Mut. Ins. Co. (1985) 125 Wis.2d 259, 371 N.W.2d 392, 393–395;  Sturla, Inc. v. Fireman's Fund Ins. Co. (1984) 67 Haw. 203, 684 P.2d 960, 963–965;  Fresard v. Michigan Millers Mut. Ins. Co. (1982) 414 Mich. 686, 327 N.W.2d 286, 290;  Vernon Williams & Son v. Continental Ins. Co. (Tenn.1979) 591 S.W.2d 760, 761–765;  and Haugan v. Home Indemnity Company (1972) 86 S.D. 406, 197 N.W.2d 18, 21–22.)

The Incidental Contract Provision Does Not Create Coverage

 Pointing to the fact that each policy provides coverage for an incidental contract and defines an incidental contract as one “relating to the conduct of the named insured's business,” PJ and BCI convinced the trial court that coverage existed because ADS's liability arose out of its contract to provide maintenance and repair services on the HVAC systems.   This approach misapprehends the scope of coverage afforded by the provision.

Haugan v. Home Indemnity Company, supra, 197 N.W.2d 18, involved facts similar to the case at bench.   There, the contractor constructed a building and aircraft hanger.   After taking possession, the owner brought suit against the contractor, seeking damages for the cost to repair work done improperly.   On appeal, the issue was whether a comprehensive general liability policy issued to the contractor provided coverage for the owner's claim.   The policy provided, in part:  “ ‘This insurance does not apply:  (a) to liability assumed by the insured under any contract or agreement except an incidental contract.’ ”  (Id. at p. 21, italics omitted.)   The contractor urged this provision provided coverage because the owner was asserting a claim of breach of the implied warranty of workmanship.   The Supreme Court of South Dakota rejected this argument.   It reasoned:  “Breach of an implied warranty is not a contractual assumption of liability.   The coverage under this section of the policies applies only to an assumption of another's liability.   This contemplates an express contractual assumption of another's potential liability by an agreement to indemnify or hold another harmless for an obligation not otherwise imposed by law.  [Citation.]”  (Id. at p. 23.)

This analysis is consistent with other cases which have interpreted identical policy provisions, albeit in different factual settings.   The cases have emphasized that the predicate for finding coverage under the incidental contract provision is that the incidental contract is one in which the insured has assumed liability.   The phrase “liability assumed by contract” has consistently been interpreted to pertain to a very particular type of contract—an indemnification or hold harmless agreement.  (Smithway Motor Xpress, Inc. v. Liberty Mut. (Iowa 1992) 484 N.W.2d 192, 196, and cases cited therein;  Olympic, Inc. v. Providence Wash. Ins. Co. (Alaska 1982) 648 P.2d 1008, 1010–1012, and cases cited therein;  Aetna Cas. & Sur. v. Spancrete of Illinois, Inc. (N.D.Ill.1989) 726 F.Supp. 204, 206–207;  and Commercial Union Ins. v. Basic American Medical (E.D.Mich.1989) 703 F.Supp. 629, 632–633;  Cf. Cal–Farm Ins. Co. v. TAC Exterminators, Inc. (1985) 172 Cal.App.3d 564, 578, 218 Cal.Rptr. 407.)   The phrase does not pertain to the liability that the insured may incur as a result of its breach of a contractual provision to perform a job in a workmanlike manner.   A contrary conclusion would overlook the very important distinction between incurring liability by breaching a contract and incurring liability by contracting to assume the liability of another.   If this distinction were not made, the provision would create coverage for all incidental contracts, regardless of their nature.

We therefore conclude that the provision does not create coverage for the damages to the HVAC systems caused by ADS's breach and/or negligent performance of its maintenance agreement to service and repair those very systems.   The provision would have afforded coverage to ADS only if it (ADS) had entered into an incidental contract, that is, “one plainly collateral to and independent of the principal agreement” (Globe Indem. Co. v. State of California (1974) 43 Cal.App.3d 745, 753, 118 Cal.Rptr. 75) of providing maintenance and repair services by which it (ADS) had agreed to indemnify a third party for injury to the person or property of another caused by its (ADS's) negligence.   The provision cannot and does not create coverage for a claim to correct defective workmanship done on the very property which is the subject matter of contract, a contract which is the very essence of the insured's business.

Conclusion

The policies issued to ADS do not grant coverage as a matter of law to the claim made by PJ and BCI.   The policies would have covered a claim for injury to the person or property of third persons.   Similarly, if ADS had executed an indemnification or hold harmless agreement in favor of PJ and BCI for a claim made by third persons, the policies would have covered that explicit contractual assumption of liability.   But the claim made herein seeks merely to recoup the cost to repair and replace, an expense necessitated by ADS's breach and/or negligent performance of its contractual obligation.   No coverage is afforded for that claim as that expense constitutes a business loss which ADS must assume because it is in the best position to protect against it.   Consequently, PJ and BCI may not look to the policies issued to ADS for recovery.   The trial court's grant of summary judgment in favor of PJ and BCI was therefore error.

We will therefore reverse the judgment and remand the case to the trial court with directions to proceed in accordance with the views expressed herein.

Disposition

The summary judgment granted in favor of PJ Associates and Barclay Curci Investment Company is reversed, and the trial court is directed to proceed in accordance with the views expressed herein.   The two insurers are to recover their costs on appeal.

FOOTNOTES

1.   $151,340 was the cost to repair the HVAC systems and $29,451.90 represented the cost to obtain expert surveys of the equipment which determined the nature and extent of damage to the systems.

2.   The two actions were consolidated three months later upon motion of Central.

3.   Central also filed answers to the complaints.

4.   The trial court's grant of summary judgment in favor of PJ and BCI did not include the attorney fees and costs which the arbitrator had earlier awarded to them.   PJ and BCI filed a cross-appeal from the judgment to contest that portion of the court's ruling but have since abandoned the claim for $113,251.50 in attorney fees and now only seek recovery of $9,205.70 in costs.   However, our disposition of the insurers' appeal renders moot any consideration of the cross-appeal.

5.   The existence of substantial case precedent interpreting policy provisions very similar or identical to those at bench precludes PJ and BCI from resorting to the rule of construction that any ambiguity or uncertainty in the insurance policy should be resolved against the insurer.  (Rafeiro v. American Employers' Ins. Co. (1970) 5 Cal.App.3d 799, 805–806, fn. 4, 85 Cal.Rptr. 701, and cases cited therein.)

6.   The parties spill much ink debating whether the damages were caused by ADS's negligence or its breach of contract.   That dispute is a nonissue.   The arbitrator found for PJ and BCI on both theories.   In any event, the characterization of the wrong committed by ADS makes no difference in this case.   The dispositive and uncontested point is that ADS damaged the very systems it had agreed to maintain and repair.   That damage is simply not covered by the policies regardless of whether ADS's liability is characterized as arising “ex contractu” or “ex delicto.”

7.   Although the procurement of a performance bond can shift to an insurer the risk that the contractor will not properly perform its contractual obligations, the contractor still remains liable.   This is because the performance bond merely permits the owner to look to the surety for indemnification for the cost of repairs but the surety can still seek recoupment from the contractor for the monies paid to the owner.   In contrast, if the position advocated by PJ and BCI were adopted, the comprehensive general liability policy would completely shift to the insurer the risk that the contractor would not properly perform because the insurer would have to pay for the cost of repair but would have no right of reimbursement from the contractor.  (Knutson Const. v. St. Paul Fire & Marine Ins., supra, 396 N.W.2d at p. 234, including fn. 7.)

CHARLES S. VOGEL, Associate Justice.

ARLEIGH WOODS, P.J., and SOVEN, J.*, concur.