OVERLAND MECHANICAL, INC., Plaintiff and Appellant, v. MARYLAND CASUALTY COMPANY and Northern Insurance Company of New York, Defendants and Respondents.
Plaintiff Overland Mechanical, Inc., appeals from a summary judgment, entered July 16, 1991, in its action against respondents Maryland Casualty Company and Northern Insurance Company of New York. We affirm.
This is insurance coverage litigation. Overland was the insured under six general liability policies issued by defendants. (The two defendants were affiliated entities, and neither side has differentiated between them, or among the six policies.) On March 27, 1989, Overland was sued by Scott Company of California in Los Angeles superior court. Overland demanded defense and indemnification; defendants refused; the present action ensued.
The Scott complaint alleged the following facts, which appear to be uncontested. Scott was a prime contractor on a government contract for construction of a postal facility in Los Angeles. In September 1986 Scott subcontracted to Overland, a mechanical contractor, the work of furnishing and installing part of the heating, ventilation, and air conditioning system. The subcontracted work included supply and installation of 54 pieces of equipment, known as air handling units (AHUs), with a delivery deadline of September 23, 1988. The subcontract required that plans for the AHUs be submitted to the government in advance. In January 1988 the government informed Scott that Overland's plans for the AHUs did not meet contract specifications. Scott and Overland promptly attempted to cure the deficiency, but were unable to cure it to the government's satisfaction. On March 7, 1988, the government terminated the prime contract with respect to the AHUs and notified Scott it would be held responsible for the government's cost to cover (known as reprocurement costs) and incidental damages. In turn, Scott notified Overland of termination of the AHU portion of the subcontract and of Scott's intention to shift this loss to Overland, in accordance with the terms of the subcontract. On May 31, 1988, Scott and Overland agreed, in writing, to take an administrative appeal from the government's termination decision, with Overland to bear the entire expense of that appeal. The administrative appeal was unsuccessful.
The government determined that the reprocurement cost would be $1.44 million, and by the end of 1988 it had withheld that sum from its progress payments to Scott. At about the same time the government informed Scott that an additional $1.05 million would be withheld on account of the cost of resizing the openings already cut in the roof for installation of the AHUs. (These openings were apparently cut by the government, using a different contractor.)
Scott, in turn, withheld its progress payments to Overland. These withholdings were insufficient to cover the entire liability to the government. Scott demanded that Overland pay Scott the difference, about $950,000. Scott refused. Scott then filed suit against Overland.
Overland tendered the Scott complaint to defendants, demanding defense and indemnification. Defendants declined the tender. As a result, Overland filed the present action against defendants for breach of contract and the adjunctive tort.
The trial court granted defendants' motion for summary judgment. This appeal followed.
The case involves the million-dollar expense for resizing of the roof openings; it does not involve the AHU reprocurement cost. Overland contends the resizing expense was “property damage” covered by its liability policies issued by defendants, or at least potentially covered, so as to trigger a duty to defend. Overland also contends that the administrative appeal was undertaken in defense of a property damage claim and therefore its expense must be borne by defendants under the policies. Defendants, however, denied the roof resizing expense was covered, or even potentially covered.
There were minor, immaterial differences in phrasing among the six policies. We will quote from the text of the Northern Insurance policy in effect for the year commencing March 27, 1987:
Insuring agreement: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’․ The ‘bodily injury’ or ‘property damage’ must be caused by an ‘occurrence.’ ․ We will have the right and duty to defend any ‘suit’ seeking those damages․ This insurance does not apply to ‘bodily injury’ or ‘property damage’ expected or intended from the standpoint of the insured.” 1
Property damage: “ ‘Property damage’ means: a. Physical injury to tangible property, including all resulting loss of use of that property; or b. Loss of use of tangible property that is not physically injured.” 2
Occurrence: “ ‘Occurrence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” 3
In analyzing whether the roof resizing expense was “property damage” and whether it was caused by an “occurrence,” we have endeavored to understand what necessitated the roof repairs. The record does not answer this question with exactitude. (1) In its complaint against its insurers, plaintiff alleged that it was the claim of the government and Scott that 54 openings were cut in the roof for the 54 AHUs “based on dimensions approved by plaintiff,” and that those dimensions were incorrect, necessitating the million-dollar repair. (2) In Scott's complaint against Overland, Scott alleged that the government's reprocurement of the 54 AHUs necessitated the repair. (3) In a letter to Overland dated August 26, 1988, Scott contended that Overland had approved the government's drawings which showed the dimensions of the roof openings to be cut. (4) Overland's counsel, replying to that letter thirteen days later, complained it was Scott's fault the roof openings were cut prematurely, because Scott approved the cutting without consulting Overland, and when Overland learned what was being done it protested that the cutting was premature. This letter, however, did not address Scott's contention that Overland had approved the government drawings containing the dimensions. (5) Overland, in its brief, asserts that even if the government had approved, rather than rejecting, Overland's plans for the AHUs, roof repairs would still have been necessary because the holes cut in the roof did not even fit the AHUs Overland proposed to install. This assertion, however, is unsupported by the cited record, in which Overland's counsel, in a declaration, reported the government's factual theories. (6) Overland's president, in a declaration, said the openings cut in the roof were not part of Overland's work or product; but he did not say anything about who determined, approved, or reviewed the dimensions for those openings.
Fortunately, the insurance coverage issue does not turn on why the roof openings were cut to a size that did not fit the AHUs eventually procured and installed. Nor does it turn on whether or not the openings would have fit the AHUs Overland planned to install. It was undisputed that the openings did not fit the AHUs ultimately installed, and therefore had to be resized. It was also undisputed that the government held Scott responsible, and Scott passed the loss down the chain to Overland.
In a building under construction, the cutting of openings in a roof, accomplished in accordance with the construction drawings, cannot be characterized as “physical injury to property neither intended nor expected from the insured's standpoint” just because the drawings were erroneous. In addition, the intentional cutting of the openings to dimensions shown on the drawings cannot be characterized as an “occurrence” within the meaning of those policies which defined occurrence as an accident (though it might qualify as an “act” or an “event”). (See United Pacific Ins. Co. v. McGuire Co. (1991) 229 Cal.App.3d 1560, 281 Cal.Rptr. 375.) For those reasons, the judgment must be affirmed.
The three property-damage cases relied upon by Overland are distinguishable; unlike the present case, the damage in each was the result of an accident. In Geddes & Smith, Inc. v. St. Paul Mercury Indemnity Co. (1959) 51 Cal.2d 558, 561–562, 334 P.2d 881, the Supreme Court restated various judicial efforts to define “accident:” “a casualty—something out of the usual course of events and which happens suddenly and unexpectedly and without design of the person injured”; “any event which takes place without the foresight or expectation of the person acted upon or affected by the event”; “an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.” That particular case involved defective doors bought from the insured and installed in houses constructed by plaintiff, a building contractor. The court decided the door failures were accidents, in part because each door, when it failed, failed suddenly; “At one moment it was a usable door, at the next it was not.” In the present case, there was no roof failure; the cutting of the roof openings was done intentionally, deliberately, after planning, and to the intended dimensions.
In Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 91 Cal.Rptr. 153, 476 P.2d 825, a lumberyard saw manufactured by the insured was defective, with the result that it ruined the lumber it was used to cut, in that the lumber was cut too narrow for its intended purpose. The destruction of the lumber was held to be an accident. The insurer argued there was no accident because the lumberyard already knew, when it cut the lumber, that the saw was cutting to the wrong size, but the court rejected that factual contention as contrary to the evidence. In the present case, in contrast, there was no defect, malfunction, or miscutting in the cutting of the roof openings; they were cut exactly as intended.
In Economy Lumber Co. v. Insurance Co. of North America (1984) 157 Cal.App.3d 641, 204 Cal.Rptr. 135, the insured specially milled and sold wood siding to a building contractor for use in constructing houses, but the siding was milled to uneven dimensions not conforming to the contract specifications. The building contractor did not discover the defect until the siding had been applied to eight houses under construction. The court held that application of the siding to the eight houses constituted an “occurrence” damaging the eight houses. That decision is distinguishable for the same reason as the Hogan decision.
Two of the six insurance policies (two Maryland Casualty umbrella policies) defined “occurrence” as “an accident or event ․ which results in personal injury or property damage neither expected nor intended from the standpoint of the insured․” In United Pacific Ins. Co. v. McGuire Co., supra, 229 Cal.App.3d 1560, 281 Cal.Rptr. 375, the insured successfully contended its liability carrier was required to defend it, under its bodily injury liability coverage, against a wrongful employment-termination suit which included an emotional distress allegation. The liability policy included a special endorsement, for which the insured had paid an increased premium, affording an extended definition of “occurrence” to include “events” as well as “accidents,” and the usual language disclaiming coverage for ‘damage expected or intended’ was placed within this extended definition of “occurrence” rather than elsewhere in the policy. According particular significance to those facts, the court agreed with the insured that “the definition of occurrence provides coverage for intentional actions that result in bodily injury but excludes coverage for those elements of damages that were expected or intended by the insured.” (229 Cal.App.3d at p. 1566, 281 Cal.Rptr. 375.)
The case at bench is distinguishable. Here the definition of occurrence in the two umbrella policies was not part of a form purporting to afford extended coverage, and Overland did not pay an additional premium for that definition. The United Pacific opinion cited, and did not criticize, nine reported decisions, none involving an extended definition of occurrence, which denied coverage for intentional conduct on the basis, “more or less explicitly,” of their interpretation of the word “accident.” (229 Cal.App.3d at pp. 1563–1564, 281 Cal.Rptr. 375.) Indeed, the court remarked that those decisions appeared to treat the ‘intended or expected’ language not as an independent limitation on coverage, but rather as “language affirming the significance of the term accident.” (Id. at p. 1564, 281 Cal.Rptr. 375.) United Pacific is also distinguishable because there the insured intended to fire its employee, but not to cause him bodily injury as a result, whereas here the “event” and the “damage” were identical, consisting of the cutting of the roof openings.
A third policy here (the Northern Insurance umbrella policy for the year commencing March 27, 1988) defined “occurrence” as “an act, accident or event,” but the “intended or expected” limitation was placed elsewhere in the policy, constituting a distinct coverage exclusion. This arrangement further distinguishes this particular policy from the policy in United Pacific.
Our decision is consistent with what the insured would reasonably expect from examining the policy. (See, e.g., AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822, 274 Cal.Rptr.820,799P.2d1253.) Notwithstanding the declarations of Overland's president and its counsel that the insured expected to enjoy liability coverage for property damaged by Overland while working on the project, the insured could not reasonably have expected, if a claim was made that it had improperly performed its work, or had improperly failed to correct errors in the plans of others, requiring that work be redone, that its general business liability insurers would defend and pay the claim.
Defendants also contend the roof repairs fell within several policy exclusions:
(1) [Exclusion b] Liability for bodily injury or property damage imposed on the insured only because it assumed such liability by contract, unless the contract was an “insured contract.” An insured contract was defined as a contract, pertaining to the insured's business, under which the insured agreed to assume the tort liability of another for bodily injury or property damage. The subcontract between Scott and Overland contained an extensive indemnity provision whereby Overland agreed to assume at least some of Scott's tort liability, as well as to indemnify Scott for many other types of losses and expenses.
(2) [Exclusion j(5) ] Liability for damage to real property arising out of work the insured was doing, directly or indirectly, on that real property.
(3) [Exclusion j(6) ] Liability for needed repairs to property because the insured's work on the property was incorrectly performed.
(4) [Exclusion m] Liability for damage to property rendered less useful, or unusable, because that property incorporated the insured's inadequate, defective, or deficient work, or because the insured breached a contract.
(5) [Exclusion n] Liability for expense incurred by others for repair of work done by the insured, if that work was “withdrawn ․ from use” because of its deficiencies.
Even if we had found a potential for coverage under the insuring agreement portion of the policy, that potential was eliminated by exclusions j(5), j(6), and m. If Overland had any responsibilities with respect to the sizing of the roof cutouts (which it denied, but others may have contended), then those responsibilities were part of “the insured's work.” If Overland had no such responsibilities, and Scott's effort to shift the loss was based solely on the subcontract, then Overland's liability flowed from the insured's breach of contract.
Nothing in this opinion is intended to express any opinion on the dispute among the government, Scott, and Overland.
The judgment is affirmed. Costs to respondents.
1. In some of the policies, the “expected or intended” exclusion appeared within the definition of “occurrence.”
2. Some of the policies also included “destruction of tangible property” in the definition of “property damage.”
3. Under two policies, “occurrence” included an “event” as well as an “accident.” Under another, “occurrence” included an “act” and an “event” as well.
BRETT KLEIN, Justice Assigned.** FN** Judge of the Municipal Court for the Los Angeles Judicial District, sitting under assignment by the Chairperson of the Judicial Council.
CHARLES S. VOGEL, Acting P.J., and HASTINGS, J., concur.