ASSOCIATED INDUSTRIES INSURANCE COMPANY INC v. SBE ELECTRICAL CONTRACTING INC (2024)

PROCEEDINGS: ORDER GRANTING PLAINTIFF'S MOTION FOR JUDGMENT ON THE PLEADINGS [19]

In this case, Plaintiff Associated Industries Insurance Company, Inc. (“Associated”) seeks a declaratory judgment that it owes no duty to defend or indemnify Defendant SBE Electrical Contracting, Inc. (“SBE”) in an arbitration involving Palmer Beaudry Avenue Properties LP (“Palmer”). (Dkt. 1 (Complaint, “Compl.”) ¶ 1.) SBE filed an answer (“Answer”) and Counterclaim (“CC”) for breach of contract on theories of failure to defend and failure to indemnify, and breach of the covenant of good faith and fair dealing. (Dkt. 10.) Before the Court is Associated's Motion for Judgment on the Pleadings (“Motion” or “Mot.”), in which it seeks judgment on both its Complaint and SBE's Counterclaim. (Dkt. 19.) SBE filed an Opposition (“Opp.”). (Dkt. 21.) Associated filed a Reply. (Dkt. 22.) And with leave of court, (Dkt. 28), SBE filed a sur-reply. (Dkt. 29.) The court found this matter appropriate for resolution without oral argument and took it under submission. (Dkt. 23 (citing Fed. R. Civ. P. 78(b); C.D. Cal. L.R. 7-15).) Based on the state of the record, as applied to the applicable law, the court GRANTS Associated's Motion.

I. Background

A. The Relevant Insurance Policy

Associated issued SBE a Commercial General Liability Policy (the “Policy”) effective between July 18, 2020, and July 18, 2021. (Compl. ¶ 5; CC ¶ 6, Ex. A (Policy).) The Policy states that Associated agrees to “pay those sums that [SBE] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies,” and that Associated “will have the right and duty to defend [SBE] against any ‘suit’ seeking those damages.” (Policy at I.Coverage A.1.a.) The Policy applies to “property damage” if the “ ‘property damage’ is caused by an ‘occurrence,’ ” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at I.CoverageA.1.b.(1), V.13.)

The Policy also contains various exclusions. Relevant here, the policy does not apply to “property damage” to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of these operations,” or to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” (Id. at I.CoverageA.2.j.(5)-(6).)

B. Factual Background

In July 2019, Palmer hired SBE to do electrical work related to the construction of three downtown Los Angeles luxury apartment buildings pursuant to a Trade Contractor Agreement (“TCA”). (See Answer ¶ 7; CC ¶¶ 12–13, Ex. C.) Specifically, Palmer hired SBE to acquire, provide, and install “large switchgear units in the Main Electrical Room for the Project, which was located in a basement level.” (CC ¶ 13.)

“Beginning in late December 2020, there were numerous flooding events in the basement of the Project. Some of these flooding events appeared to be the result of heavy rainfalls, while others appeared to be the result of plumbing leaks unrelated to SBE's work at the Project.” (CC ¶ 17.) Water from the flooding entered the Main Electrical Room through ducts SBE installed “and inundated the switchgear, damaging it.” (Id.) Government inspectors therefore rejected the switchgear. (Id.)

Palmer believed that SBE was at fault for the water damage to the switchgear which resulted in a six-month delay of building occupancy and a similar extension of Palmer's construction loan carrying costs, and also believed that SBE performed substandard work and failed to complete work on time. (Compl. ¶¶ 8, 11; CC ¶¶ 22–23, Ex. D.) In March 2022, Palmer sent SBE a letter giving it 48-hours’ notice to fix deficiencies in SBE's work. (CC Ex. H [Palmer Counterclaim, “Palmer CC”] ¶ 13, Ex. 2.) In May 2022, Palmer terminated SBE's subcontract because of these issues and replaced it with another electrical contractor to finish the work. (Compl. ¶ 8; CC ¶ 24, Ex. E; Palmer CC ¶ 14.)

On March 23, 2022, after Palmer refused to pay SBE for its work and also asserted SBE was liable for damages, SBE tendered the matter to Associated. (CC ¶ 25.) In May 2022, SBE filed a $3.2 million mechanic's lien on the apartment project, which amount SBE believed Palmer was wrongfully withholding from SBE. (Id. ¶ 27.) In July 2022, SBE filed a lawsuit to foreclose on the lien in Los Angeles Superior Court, noting that SBE filed the lawsuit solely to preserve claims since the matter was subject to arbitration under the TCA. (Id. ¶ 33.) On August 26, 2022, more than five months after SBE tendered the matter to Associated, Associated responded to SBE's tender with a Reservation of Rights letter. (Id. ¶ 34, Ex. F.) The letter stated, among other things, that “damages related to an accounting, uncompleted work, punch list items and breach of contract may not be ‘property damage’ as defined by the policy,” and “[t]o the extent that there is no [claim] for ‘bodily injury’ or ‘property damage’ caused by an accident or ‘occurrence’ or ‘personal and advertising injury’, no coverage is available for this matter under the policy.” (Id. Ex. F at 4-5.) The letter further stated that “[t]o the extent this matter involves ‘property damage’ caused by an ‘occurrence,’ and that damage is to: property in your care, custody or control; property on which you or any contractors or subcontractors working directly or indirectly on your behalf were performing operations, and the ‘property damage’ arises out of those operations; or property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it and that damage is not included in the ‘products-completed operations hazard,’ no coverage is available under the policy.” (Id. at 7.) The letter also stated that “[s]ince no ‘suit’ has been filed against SBE, as that term is defined by Associated's policy, there is no duty to defend SBE.” (Id. at 11.)

In December 2022, following contractually mandated pre-litigation procedures, SBE filed a demand for arbitration against Palmer seeking money Palmer allegedly owed SBE for its work on the project. (Compl. ¶ 9; CC ¶ 38, Ex. G.) Palmer counterclaimed “to recover the astronomical damages [SBE] has caused by [SBE's] plainly deficient and non-code-compliant electrical work on the 1150 unit apartment construction project,” alleging among other things that Palmer spent $3.6 million fixing SBE's “shoddy work” and over $7 million more “completing what [SBE] left unfinished.” (Compl. ¶ 10; CC ¶ 39; Palmer CC ¶¶ 1–2.)

In January 2023, SBE tendered Palmer's Counterclaim to Associated. (CC ¶ 43; see Compl. ¶ 13.) In late March 2023, the claims administrator issued a coverage position “advis[ing SBE] that Palmer's counterclaim is not covered by the terms of the Associated policy issued to SBE, ․ and that Associated respectfully disclaims any duty to defend or indemnify SBE in connection with Palmer's counterclaim.” (CC ¶ 51, Ex. I at 1.) Among other terms from the Policy, Associated relied on exclusions j(5) and j(6). (Id. Ex. I at 10.)

In June 2023, Associated filed this case seeking a declaratory judgment that it owes SBE no duty to defend or to indemnify SBE against the Palmer Counterclaim. (Compl. ¶ 16.)

In August 2023, after several mediation sessions, SBE and Associated accepted a mediator's proposal and settled their dispute. (CC ¶¶ 75–76, Ex. K.)

II. Legal Standard

Under Federal Rule of Civil Procedure 12(c), “[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings is properly granted “when there is no issue of material fact, and the moving party is entitled to judgment as a matter of law.” Unite Here Loc. 30 v. Sycuan Band of the Kumeyaay Nation, 35 F.4th 695, 700 (9th Cir. 2022) (citing Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009)). Because Rule 12(c) and Rule 12(b)(6) motions are “functionally identical,” the same standard of review applies to motions brought under either rule. Gregg v. Hawaii, Dep't of Pub. Safety, 870 F.3d 883, 887 (9th Cir. 2017).

Review is generally limited to the pleadings. Yakima Valley Mem'l Hosp. v. Dep't of Health, 654 F.3d 919, 925 n.6 (9th Cir. 2011). The court accepts “all factual allegations in the complaint as true and construe[s] them in the light most favorable to the non-moving party.” Herrera v. Zumiez, Inc., 953 F.3d 1063, 1068 (9th Cir. 2020) (citing Fleming, 581 F.3d at 925). However, the court is “not required to accept as true allegations that contradict exhibits attached to the [c]omplaint, or matters properly subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Chandavong v. Fresno Deputy Sheriff's Ass'n, 599 F. Supp. 3d 1017, 1020 (E.D. Cal. 2022) (quoting Seven Arts Filmed Entm't, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 1254 (9th Cir. 2013)); see also United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (“A court may, however, consider certain materials—documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice—without converting the motion to dismiss into a motion for summary judgment.”).

The court's inquiry concerns “whether the complaint at issue contain[s] ‘sufficient factual matter, accepted as true, to state a claim of relief that is plausible on its face.’ ” Harris v. Cnty. of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012) (alteration in original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)) (citation omitted). “Establishing the plausibility of a complaint's allegations is a two-step process that is ‘context-specific’ and ‘requires the reviewing court to draw on its judicial experience and common sense.’ ” Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 996 (9th Cir. 2014) (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937). Under this standard, “[m]ere conclusory statements in a complaint and ‘formulaic recitation[s] of the elements of a cause of action’ are not sufficient.” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012) (second alteration in original) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Rather, “[a] claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).

III. Discussion

Palmer's counterclaim asserts two theories: (1) that SBE did substandard work on the project before being fired, and (2) that SBE is liable for the flooding damage to the switchgear because it failed to protect the switchgear despite being contractually obligated to do so. Associated moves for judgment on the pleadings on both its Complaint and SBE's Counterclaim, arguing it owed SBE no duty to defend or indemnify against either of those theories. (See generally Mot.) Palmer opposes Associated's motion only as to the second theory. (See generally Opp.) The court finds that Associated did not owe SBE a duty to defend or indemnify against either theory.

A. SBE's Allegedly Substandard Work

The majority of Palmer's counterclaim alleges that SBE did poor work on the project. Indeed, Palmer alleged that when Palmer terminated SBE, “nearly every unit bore defects.” (Palmer CC ¶ 16.) The alleged defects included “[m]any short circuits, requiring the tracing of un-labeled lines and sometimes removing drywall to install new circuits or to identify the issues,” “[e]lectrical receptacles found in rooms where they were not specified, and dry-walled over,” “[i]ncorrect or absent grounding, including the grounding touching the hot lines, or the grounding missing entirely,” “[i]ncorrect wiring, including mixed neutral and hot wiring which sets off breakers, and mixed GFCI loads and lines in the kitchens which means that certain receptacles in the kitchen do not work properly, and switches being wired to the wrong lights,” “[c]rossed circuits,” and “[i]nverters out of place.” (Id. ¶ 21.) Palmer alleged that the Los Angeles Department of Building and Safety issued several correction notices for SBE's “shoddy and non-code-compliant work.” (Id. ¶¶ 17-18.) It further alleged SBE was “not properly equipped to perform electrical work on large wood structures and is instead specialized in servicing reinforced concrete construction,” and “should not have bid the Project.” (Id. ¶ 19.)

The court finds Palmer's counterclaim seeking damages for SBE's allegedly inferior work did not seek “property damage” under the Policy and Associated therefore had no duty to defend or indemnify SBE against Palmer's counterclaim seeking damages based on the allegedly inferior work.¹ The Policy states that Associated has a duty to defend SBE against any suit seeking damages for property damage to which the Policy applies. (Policy at I.Coverage A.1.a.) The Policy applies to “property damage” if the “ ‘property damage’ is caused by an ‘occurrence,’ ” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at I.CoverageA.1.b.(1), V.13.) SBE's allegedly shoddy work does not constitute “property damage” under the Policy's definitions. Any damage was not caused by an “occurrence” such as an accident or other similar event, but rather simply by SBE's alleged failure to perform the work in a satisfactory manner. Associated did not owe SBE any duty to defend or indemnify against Palmer's counterclaim seeking damages based on its allegations that SBE did poor work. See, e.g., Gonsalves & Santucci v. Greenwich Ins. Co., 634 F. Supp. 3d 830, 839 (C.D. Cal. 2022) (granting summary judgment based on determination that allegedly defective installation of torque down pile units did not constitute “property damage” within the meaning of the policy); Webcor Constr., LP v. Zurich Am. Ins. Co., 372 F. Supp. 3d 1061, 1070–71 (N.D. Cal. 2019), aff'd, 801 F. App'x 557 (9th Cir. 2020) (granting summary judgment in favor of insurer when the only purported “property damage” was the contractor's defective work itself, not damage to other property); see generally Maryland Cas. Co. v. Reeder, 221 Cal. App. 3d 961, 967, 270 Cal.Rptr. 719 (Ct. App. 1990), modified (July 25, 1990) (explaining that general liability insurance policies “are not designed to provide contractors and developers with coverage against claims their work is inferior or defective”) (internal citations omitted).

B. The Damaged Switchgear

The court turns, then, to whether Associated owed SBE a duty to defend or indemnify against Palmer's counterclaim seeking damages based on its allegation that SBE “failed to protect the Project-level electrical equipment at the Property – the switchgear – from water damage.” (Palmer CC ¶ 23.) The TCA required SBE to “use all means necessary to protect material before, during, and after installation and to protect the installed work and materials of all other trades.” (TCA Ex. A (General Conditions) ¶ 8].) Nevertheless, Palmer alleged SBE did not use any means to protect the switchgear from water intrusion—it did not cover the switchgear with plastic (even though doing so was an industry practice), install temporary curbs, or take any other measures. (Palmer CC ¶¶ 26-27.) Not only that, but SBE's employees drilled a hole in the deck above the switchgear room and did not seal or cover it. (Id. ¶ 25.)

Associated argues that exclusions j(5) and j(6) apply to bar coverage against Palmer's counterclaim that SBE failed to protect the switchgear from water damage. Exclusions like the Policy's exclusions j(5) and j(6) are sometimes called “faulty workmanship exclusion[s].” Letgolts v. David H. Pierce & Assocs., PC, 71 Cal. App. 5th 272, 282, 286 Cal.Rptr.3d 215 (2021). “The principle [of such exclusions] is simple. The insurance company says, ‘Contractor, you are on the hook for your own bad construction work. We are not.’ ” Id. This commercial arrangement exists to prevent “a moral hazard for insurance companies to sell insurance to contractors that would tempt the contractors then to exploit by doing cheap construction work for clients, only to leave the insurers responsible for fixing the faults.” Id. In other words, “[t]he prospect of legal liability for poor work helps deter builders from cutting corners,” but “it would dull that discipline if contractors could obtain insurance indemnifying them for the costs of fixing their own shoddy work.” Id. Insurance companies recognize that “[i]t would be unprofitable for them to encourage insureds to magnify the very risks against which the insurance company is insuring,” so “[r]ational companies will write policies to eliminate moral hazard.” Id. at 283, 286 Cal.Rptr.3d 215.

1. Exclusion j(5)

The court finds exclusion j(5) applies to Palmer's allegations that SBE is liable for the flooding damage to the switchgear and therefore that Associated owed SBE no duty to defend or indemnify SBE against those allegations. As stated, exclusion j(5) excludes from coverage “property damage” to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of these operations.” (Policy at I.CoverageA.2.j.(5).)

There is no question that the switchgear was the “particular part of real property on which” SBE was “performing operations.” (Id.) “SBE's scope of work on the Project included the acquisition, provision, and installation of large switchgear units in the Main Electrical Room for the Project, which was located in a basement level of the Project.” (CC ¶ 13.)

And the damage to the switchgear arose out of SBE's operations. In construing faulty workmanship exclusions, “California courts interpret the term ‘arising out of’ broadly.” Archer W. Contractors, LTD v. Liberty Mut. Fire Ins. Co., 2015 WL 11004493, at *8 (C.D. Cal. Mar. 31, 2015), aff'd sub nom. Archer W. Contractors, Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pennsylvania, 680 F. App'x 604 (9th Cir. 2017). That term “links a factual situation with the event creating liability and does not import any particular standard of causation or theory of liability into an insurance policy,” instead being “generally understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of’ or ‘flowing from’ or in short, ‘incident to, or having connection with.’ ” Id. (cleaned up).

SBE was contractually obligated to “use all means necessary to protect material before, during, and after installation and to protect the installed work and materials of all other trades,” but failed to protect the switchgear from water intrusion. (TCA Ex. A ¶ 8].) The damage to the switchgear “flow[ed] from” or “ha[d] connection with” SBE's failure to protect it. Archer W. Contractors, 2015 WL 11004493, at *8. Associated therefore had no duty to defend or indemnify SBE against Palmer's counterclaim regarding the damaged switchgear. See, e.g., Clarendon Am. Ins. Co. v. Gen. Sec. Indem. Co. of Arizona, 193 Cal. App. 4th 1311, 1325, 124 Cal.Rptr.3d 1 (2011) (finding summary judgment properly granted on the j(5) exclusion because “[t]he insurer is not obligated to indemnify a policyholder for property damage that occurs while the insured is performing operations on that property”); Gonsalves, 634 F. Supp. 3d at 845–46 (“Here, even if there was physical property damage as covered by the policy, all such property damage occurred to the TDPs and the surrounding area on the concourse where Conco and its subcontractors were working. Thus, this exclusion would apply.”); Arroyo v. Uniguard Ins. Co., 2014 WL 4644365, at *4 (N.D. Cal. Sept. 17, 2014), aff'd sub nom. Arroyo v. Unigard Ins. Co., 669 F. App'x 881 (9th Cir. 2016) (“All of the damage alleged in the underlying complaint is alleged to be caused by JNS's failures and mistakes in the planting and management of the vineyard. Arroyo alleged that JNS failed to properly manage the water resources available, including a failure to properly study the water needs and water availability and that JNS mismanaged deer and turkey populations and their access to the grapevines. The alleged damage arose out of JNS's operations. Accordingly, the Court finds that Uniguard did not owe a duty to defend JNS in the underlying complaint and, thus, is not liable to Arroyo.”) (citation omitted); Nautilus Ins. Co. v. Farrens, ––– F. Supp. 3d ––––, ––––, 2024 WL 885109, at *5 (D. Mont. Mar. 1, 2024) (“The pool shell, aluminum tanks, spa frame, and deck floor were all part of the floating floor pool system upon which Rock and Water continued to perform work until April 2018. As such, the alleged property damage was to the particular part of real property that was the direct focus of Rock and Water's continued operation. Coverage is therefore excluded under j(5).”); see generally Certain Underwriters at Lloyd's of London v. Superior Ct., 24 Cal. 4th 945, 958, 103 Cal.Rptr.2d 672, 16 P.3d 94 (2001) (“[W]here there is no duty to defend, there cannot be a duty to indemnify.”).

2. Exclusion j(6)

The court also finds exclusion j(6) applies to Palmer's allegations that SBE is liable for the switchgear damage. Exclusion j(6) states that the Policy does not apply to “property damage” to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” (Policy at I.CoverageA.2.j.(6).) The switchgear had to be replaced. (Palmer CC ¶ 29 (noting that replacing the switchgear costed $900,000).) And it had to be replaced because SBE failed to protect it, even though protecting the switchgear was part of SBE's assigned work. (Id. ¶ 26 [citing TCA Ex. A ¶ 8]); see, e.g., Nautilus, ––– F. Supp. 3d at ––––, 2024 WL 885109, at *6 (“Rock and Water designed and installed all of the pool components and those components needed to be replaced because of Rock and Water's design decisions and material choices. As it relates to the aluminum components, Rock and Water installed them without protecting them from the chlorine in the pool․ Because the property damage alleged here was a result of ‘your work’ by Rock and Water, coverage for those damages is also excluded under j(6).”); Am. Home Assurance Co. v. SMG Stone Co., Inc., 119 F. Supp. 3d 1053, 1063 (N.D. Cal. 2015) (finding exclusion j(6) barred coverage for fracturing of stone floor tiles caused by subcontractors’ defective installation of the tiles).

SBE argues Associated had a duty to defend and indemnify it against Palmer's counterclaim regarding the damaged switchgear because there was a possibility that SBE could have been liable for the damage based on a contractual theory rather than based on SBE's negligence. (Opp. at 7-9.) In support, SBE points to the TCA provision requiring SBE to “use all means necessary to protect material before, during, and after installation” and, “[i]n the event of damage,” to “make all repairs and replacements necessary to the approval of [Palmer] at no additional cost to [Palmer].” (Id. at 7.) It also points to a TCA provision making SBE “responsible for all of [its] materials until they are installed and accepted by [Palmer],” with “[a]ny loss due to breakage, theft, etc.” being SBE's responsibility. (Id.)

But whether an insurer has a duty to defend “depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy.” Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643, 31 Cal.Rptr.3d 147, 115 P.3d 460, 466 (2005). Although an insurer “might also have a duty to defend an action where extrinsic facts known to the insurer suggest that the claim may be covered,” an insured “may not trigger the duty to defend by speculating about extraneous facts regarding potential liability or ways in which the third party claimant might amend its complaint at some future date.” Los Angeles Lakers, Inc. v. Fed. Ins. Co., 869 F.3d 795, 805-06 (9th Cir. 2017). Palmer's counterclaim clearly alleged SBE failed to protect the switchgear like it was supposed to, which caused the switchgear damage. (Palmer CC ¶¶ 26-27.) Associated's faulty workmanship exclusion applies to these allegations. See, e.g., Letgolts, 71 Cal. App. 5th at 284, 286 Cal.Rptr.3d 215 (“Paragraph (k)(6) excluded Pinchevskiy's faulty workmanship from the policy” when “[t]he initial and seemingly main reason Letgolts and Plattner were unhappy with Pinchevskiy was that he botched their remodel,” “[h]e took too long and left too soon,” and “[t]he work he did do was of low quality”). In determining whether it had a duty to defend, Associated was not required to speculate about other theories like the ones SBE now posits that Palmer might come up with supporting its assertion that SBE was liable for the switchgear damage. See Los Angeles Lakers, 869 F.3d at 805-06; Scottsdale, 31 Cal.Rptr.3d 147, 115 P.3d at 466.

Finally, SBE argues that “the very nearly identical case of Global Modular, Inc. v. Kadena Pacific, Inc., 15 Cal.App.5th 127, 222 Cal.Rptr.3d 819 (2017)” shows that Associated had a duty to defend SBE against Palmer's counterclaim regarding the switchgear damage. (Opp. at 11.) That case concerned Global Modular, Inc. (“Global”), a subcontractor that a general contractor hired to build, deliver, and install modular units for a rehabilitation center. Global, 15 Cal. App. 5th at 131, 222 Cal.Rptr.3d 819. The general contractor had hired a different subcontractor to install the units’ roofing, so Global agreed to deliver the units covered only with a sheet of plywood. Id. When the scheduled summer delivery was delayed until October and November, the units “were exposed to the elements during the rainy season, equipped with only a plywood substrate,” and “[d]espite Global's efforts to protect the units by covering them with plastic tarps, the interiors suffered water damage from October through January.” Id.

Contrary to SBE's argument, this case is materially different from Global. Significantly, “Global affirmed a summary judgment because there was a fact question about whether the contractor's work was faulty.” Letgolts, 71 Cal. App. 5th at 285, 286 Cal.Rptr.3d 215. Indeed, the Global court noted that it “d[id] not know whether Global's rain protection was defective or simply overcome by heavy rain.” 15 Cal. App. 5th at 144, 222 Cal.Rptr.3d 819. Here, on the other hand, Palmer alleged that SBE did not protect the switchgear from rainfall at all, despite such protection being the industry norm, and despite SBE's contractual obligation to protect the materials it installed. (Palmer CC ¶¶ 26-27.)

In summary, Palmer's counterclaim did not seek damages for any property damage covered by the Policy. Most of the allegations in that counterclaim assert that SBE did defective or inferior work. Such allegations do not concern “property damage,” which the Policy defines to be caused by an “occurrence.” The remaining allegations concern flooding damage to the switchgear. The Policy's faulty workmanship exclusions apply to those allegations, which concern property damage on the particular part of the project on which SBE was working that arose out of those operations, and to property that had to be replaced because SBE's work, including protecting the materials it installed, was incorrectly performed. Associated therefore owed no duty to defend or indemnify SBE against the Palmer counterclaim.

IV. Disposition

For the reasons set forth above, Associated's Motion is GRANTED. The court DIRECTS Associated to lodge a proposed judgment by June 25, 2024.

IT IS SO ORDERED.

FOOTNOTES

1.   Notably, SBE did not argue otherwise in its opposition. (See generally Opp.)

FRED W. SLAUGHTER, UNITED STATES DISTRICT JUDGE