HOME INSURANCE COMPANY v. LANDMARK INSURANCE COMPANY (1988)

This case presents the recurring question of who bears the loss on insurance claims for continuing property damage which occurs during successive policy periods of two separate insurers.   On cross-motions for summary judgment brought by plaintiff Home Insurance Company and defendant Landmark Insurance Company, the court ruled that Home, the insurer at the time of the first visible manifestations of damage, was responsible for the entire loss.   Home appeals from the judgment entered in favor of Landmark.   We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Home and Landmark were successive insurers of the Hotel Del Coronado Corporation (Hotel).   Home was on the risk from September 1, 1980, to October 1, 1981.   Landmark insured the Hotel from October 1, 1981, to October 1, 1983, and from October 1, 1983, to October 1, 1984, and for all relevant time periods thereafter including the date the claim was made.   The court found that the policies had identical definitions of “occurrence” and “property damage.”

For purposes of the cross-motions for summary judgment, the parties submitted an agreed statement of facts, which we quote in relevant part:

“5. In or about February 1973, Hotel Del Coronado Corporation completed construction of seven-story oceanfront building improvement ․ commonly known as the ‘Ocean Towers.’

“6. Said ‘Ocean Towers' improvement consisted of 200 hotel rooms together with extended balconies substantially constructed of reinforced concrete block masonry together with precast and cast-in-place concrete over reinforcing steel bars and steel mesh.

“7. In or about December 1980, concrete on the exterior of the ‘Ocean Towers' building and certain of the room balconies first began to visibly manifest deterioration in the form of concrete ‘spalling’ (cracking and chipping).

“After 1 October 1981, other room balconies first began to visibly manifest deterioration in the form of concrete ‘spalling’ (cracking and chipping).

“8. Said spalling of the concrete exterior and concrete room balconies continued from its first manifestations, becoming progressively worse, until on or about 1 December 1983 at which time Hotel Del Coronado Corporation completed repairs to the damaged room balconies and building exterior.

“Neither plaintiff nor defendant are able to ascertain the number of room balconies which first manifested the ‘spalling’ for the period December 1980 to 1 October 1981 and those which first manifested the ‘spalling’ thereafter.   Also, neither plaintiff nor defendant are able to ascertain the extent of exterior concrete ‘spalling’ which first manifested itself prior to 1 October 1981 and that which occurred thereafter.

“9. The concrete ‘spalling’ was caused by defects in the design and construction of the concrete exterior of the building and concrete room balconies in that such structures were improperly reinforced with steel and contained chemical components which when confronted with sea air and sea spray began a continuous and progressive course of deterioration from the date of installation.”

In 1983 and 1984 the Hotel Del Coronado made claims against both insurers for a sum in excess of $1 million.   In November 1984 the insurers settled for $385,000 with Home contributing $285,000 and Landmark $100,000, each reserving the right to seek contribution from the other.   Home filed an action for declaratory relief to determine how the payment should be apportioned.   Landmark cross-complained.   The court decided against Home and awarded Landmark $100,000.   This appeal ensued.

DISCUSSION

I

In most cases the wrongful act which causes an accident or injury occurs at or near the same time as the damage which gives rise to an insurance claim.   Different legal questions arise where there is an interval of time between the wrongful act and the damage.   Here a lapse of seven years occurred between the design and construction defects and the first visible manifestations of concrete spalling.

 California follows the general rule that the date of manifestation determines which carrier must provide indemnity for a loss suffered by its insured.  (Snapp v. State Farm Fire & Cas. Co. (1962) 206 Cal.App.2d 827, 24 Cal.Rptr. 44;  Remmer v. Glens Falls Indem. Co. (1956) 140 Cal.App.2d 84, 295 P.2d 19.)  “[T]he 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.”  (Remmer v. Glens Falls Indem. Co., supra, 140 Cal.App.2d at p. 88, 295 P.2d 19.)  “Once the contingent event insured against has occurred during the period covered, the liability of the carrier becomes contractual rather than potential only, and the sole issue remaining is the extent of its obligation, and it is immaterial that this may not be fully ascertained at the end of the policy period.”  (Snapp v. State Farm Fire & Cas. Co., supra, 206 Cal.App.2d at p. 832, 24 Cal.Rptr. 44.)

“To permit the insurer to terminate its liability while the fortuitous peril which materialized during the term of the policy was still active would not be in accord either with applicable precedents or with the common understanding of the nature and purpose of insurance;  it would allow an injustice to be worked upon the insured by defeating the very substance of the protection for which his premiums were paid.”  (Id. at p. 831, 24 Cal.Rptr. 44.)

Thus in situations involving continuing damage after the policy has expired, the insurer on the risk at the time the damage was first discovered is liable for the entire loss.   The court correctly applied these principles in granting summary judgment in favor of Landmark.

 Home argues that responsibility for settlement payments should be apportioned between Home and Landmark based on the exposure theory commonly utilized in asbestos cases (see Ins. Co. North America v. Forty–Eight Insulations (6th Cir.1980) 633 F.2d 1212, opn. on par. rehg. (6th Cir.1981) 657 F.2d 814, cert.den. (1981) 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650) and recently applied in the context of continuing property damage in California Union Ins. Co. v. Landmark Ins. Co. (1983) 145 Cal.App.3d 462, 193 Cal.Rptr. 461, a case on which Home relies.   Asbestos lung disease progresses slowly without symptoms for many years, but because scar tissue forms within a short time of inhalation, courts adopting the exposure theory view each deposit of scar tissue as a separate occurrence of bodily injury in a continuing tort.  (See Ins. Co. North America v. Forty–Eight Insulations, supra, 633 F.2d 1212.)   Thus under the exposure theory an insurer is liable for any policy period in which there is exposure to an injury causing agent.   (Hancock Laboratories, Inc. v. Admiral Ins. (9th Cir.1985) 777 F.2d 520, 525.)  California Union involved damages resulting from the installation of a leaking swimming pool.   The pool leaked for more than 18 months following installation, during which time Landmark's policy period ended and California Union's began.   Repairs were made during Landmark's policy period which were believed to correct the problem.   However, because the underlying cause had not been determined, the repairs were ineffective and additional damage occurred during California Union's policy period.   The court determined that the damage constituted “one occurrence” but nonetheless held California Union jointly and severally liable for damage which occurred during its policy period after the initial effort at repair.   We are not persuaded that the reasoning of that case should apply here.   We also note the same appellate division later limited the California Union holding to “the distinct circumstances of the case.”  (See Harbor Ins. Co. v. Central National Ins. Co. (1985) 165 Cal.App.3d 1029, 1038, 211 Cal.Rptr. 902.)

Common sense tells us that property damage cases, even those involving continuous damage such as the one before us, differ from asbestos cases where injury is immediate, cumulative and exacerbated by repeated exposure.   As Home aptly notes “The asbestosis cases are sui generis and not a basis for a wholesale re-writing of settled principles of common law.”

 Furthermore, to apportion damage and hold an insurer liable for damage manifested in another insurer's policy period violates the loss in progress rule, i.e., that an insurance company may insure only against contingent or unknown risks.¹  Liability will not be imposed under an all-property insurance policy where damages occur and are apparent before the date the policy takes effect.  (See e.g., Southern Cal. Edison Co. v. Harbor Ins. Co. (1978) 83 Cal.App.3d 747, 148 Cal.Rptr. 106.)   For these reasons the trial court properly ruled that California Union, supra, is not controlling.

II

 Home also argues the court erred in inferring that spalling sufficient “to put a reasonable person on notice of a possibly defective structure” (United States Fidelity & G. Co. v. American Ins. Co. (1976), 169 Ind.App. 1, 345 N.E.2d 267, 272) occurred in December 1980 when Home insured the property.²  Home asserts Landmark should be solely liable for the sum paid in settlement given the fact that no claim was made until 1983 and the damage occurred over a three-year period, two of which were during Landmark's coverage.

Because the question of when spalling is sufficient to put a reasonable person on notice of the possibility of a defect is a factual question (United States Fidelity & G. Co. v. American Ins. Co., supra, 345 N.E.2d at p. 272), we initially viewed Home's argument as an effort to raise a triable issue of material fact.   However, Home has not asked the trial court or this court for relief from its stipulation that deterioration was first visibly manifested in December 1980.   Nor would there have been a need for a stipulation if Home were contending there was a factual dispute as to the time damage was sufficiently manifested.

We conclude the court was reasonable in assuming the agreed statement of facts was intended by Home to include the inference that the December 1980 deterioration was severe enough to put a reasonable person on notice of a potential claim.   The court did not err in holding Home liable for the entire settlement amount.

DISPOSITION

Judgment affirmed.   Costs to Landmark Insurance Company.

FOOTNOTES

1.   Insurance Code section 22 reads:“Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”Insurance Code section 250 provides in part:“[A]ny contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this code.”

2.   We have been cited to no California case which adopts the “reasonable person” standard of United States Fidelity and our discussion should not be read as adopting that standard to determine when damage is sufficiently manifested.

WIENER, Acting Presiding Justice.

TODD and THAXTON,* JJ., concur.