The California Court of Appeal has held that an engineer’s design errors are not “defective … methods in construction” and do not trigger a policy’s collapse coverage. ( Roberts v. Assurance Company of America (2008) 2008 WL 2468889)
Facts
Jim Roberts purchased an undeveloped lot located on a steep slope with the intention of building a home on it. Roberts also obtained a builder’s risk policy from Assurance Company of America.
Assurance issued two consecutive annual builder’s risk policies and, later, an unsold dwelling policy. The builder’s risk policies provided first-party property coverage during the course of construction and obligated Assurance to pay “for direct physical loss to Covered Property from any Covered Loss described in this Coverage Form.” The unsold dwelling policy provided first party property coverage for the property until it was sold or occupied and obligated Assurance to pay for “direct physical loss to Covered Property from a Covered Cause of Loss described in this Coverage Form.”
While construction was under way, Roberts noticed cracks in the foundation and a retaining wall next to the house, which worsened over the next few months. After a period of heavy rains, a landslide occurred, causing severe damage to the dwelling.
Assurance retained an engineer to investigate the causes of the landslide. The engineer concluded the damage was caused by an ancient landslide under the property, and that the ancient landslide was activated by the placement of fill soils on Roberts’ property and a neighboring lot during grading. The engineer also concluded that heavy rains accelerated the rate of slope subsidence that had already begun and constituted a second cause of the landslide.
Assurance’s policies contained exclusions for earth movement, weather conditions that contribute to a loss caused by earth movement, acts or decisions of any governmental, regulatory or controlling body, and loss caused by faulty, inadequate or defective planning, development, surveying, siting, design, construction or grading. The policies also provided coverage for “collapse” if caused by various named perils, one of which was “[u]se of defective materials or methods in construction, remodeling or renovation if the collapse occurs during the course of construction, remodeling or renovation.”
Ultimately, Assurance denied Roberts’ first-party claim. Thereafter, Roberts filed suit against Assurance for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief. The trial court granted summary adjudication in favor of Assurance, and Roberts appealed.
On appeal, Roberts argued that the predominant cause of the loss was a developer’s concealment of the existence of the underlying ancient landslide. Alternatively, Roberts argued that his own geotechnical expert’s failure to adequately survey, design or site the project—and the resulting overloading of the slope—was a “defective” method in construction and that the “collapse” coverage therefore applied.
Holding
The Court of Appeal held that the developer’s alleged concealment of the ancient landslide was not a conceptually distinct peril apart from the ancient landslide itself. According to the Court, the reason for the earth movement, whether due to the alleged concealment of the ancient landslide or due to the placement of fill, was immaterial. In addition, according to the Court, “[c]oncealment by the developer was not a separate cause for the loss, but merely a separate explanation for the single cause of the loss, i.e., earth movement.” The Court also noted that even if the predominant cause doctrine did apply, Roberts admitted that his own geotechnical engineer knew of the ancient landslide but failed to report its presence when performing engineering services for the lot.
Finally, the Court of Appeal held that Roberts’ geotechnical expert’s failure to adequately survey, design or site the project was a “design error,” not a “defective method in construction,” and that the collapse coverage provision therefore did not apply.
Comment
This case purports to draw a distinction between a “design error” and a “defective method in construction.” The Court appears to have relied upon the fact that there was no evidence that there was any defect in the fill soil placed on the slope. Instead, according to the Court, the fundamental cause of the failure was an excluded “design error”—Roberts’ geotechnical expert’s failure to detect the underlying ancient landslide and to then design and site the improvement accordingly.