After a developer obtained an approximately $1.5 million default judgment against a subcontractor, the developer’s excess liability insurer prevailed in a judgment creditor action against the subcontractor’s general liability insurer. (Insurance Company of the State of Pennsylvania v. American Safety Indemnity Company (2019) 244 Cal.Rptr.3d 310)
Facts
New Millennium Homes LLC (NMH) was the developer of a housing development. In 2004, NMH hired Camarillo Engineering, Inc. (Camarillo) to perform mass grading, compacting and finish grading at the development. The subcontract gave NMH indemnity rights against Camarillo for claims of property damage “arising out of or resulting from the activities of” Camarillo.
In December 2005, Amir and Brenda Moghadam bought one of the homes from NMH. In early 2009 the Moghadams began to notice cracks in their house, and in May 2009 the Moghadams complained to NMH. A geotechnical engineer concluded that the distress to the Moghadam residence was due in part to differential settlement caused by improper soil compaction.
In September 2011, the Moghadams instituted arbitration proceedings against NMH for defective construction, alleging total damages of “at least $2,347,592.” The arbitrator concluded that the Moghadams’ house had been damaged due to differential settling resulting from improper soil compaction. The arbitrator awarded the Moghadams $1,176,633 against NMH, and the arbitrator’s award was confirmed as a judgment. NMH’s excess liability insurer, Insurance Company of the State of Pennsylvania (ISCOP), fully indemnified NMH for that judgment.
While the arbitration was pending, NMH sued Camarillo for contractual indemnity. NMH’s complaint against Camarillo included as an exhibit the Moghadams’ arbitration claim in which the Moghadams alleged damages of “at least $2,347,592.” Camarillo sought defense and indemnity from its commercial general liability insurer, American Safety Indemnity Company (ASIC), which had issued six consecutive policies that were in effect from December 1, 2003 until August 1, 2009. ASIC declined to defend or indemnify Camarillo against NMH’s lawsuit. NMH eventually obtained a default judgment against Camarillo consisting of damages of $1,176,633 and attorney fees of $356,340 for a total of $1,532,973.
Pursuant to Insurance Code section 11580, ICSOP (as subrogee of NMH) then brought a judgment creditor action against ASIC (as liability insurer of Camarillo) in an effort to collect the $1,532,973 default judgment that NMH had obtained against Camarillo. The trial judge entered summary judgment in favor of ICSOP, finding that ICSOP was entitled to recover $1,532,973 from ASIC. ASIC appealed.
Holding
The California Court of Appeal affirmed. It ruled that pursuant to Insurance Code section 11580, ICSOP was entitled to recover the full $1,532,973 from ASIC.
ASIC argued that pursuant to Code of Civil Procedure section 580, the default judgment NMH had obtained against Camarillo in the underlying action was void because NMH’s complaint failed to specify the amount of damages sought against Camarillo. The appellate court disagreed, reasoning that the Moghadams’ arbitration claim against NMH was attached to and incorporated by reference in NMH’s complaint against Camarillo. The Moghadams’ arbitration claim specified the damages the Moghadams sought from NMH, for which NMH in turn sought indemnity from Camarillo. Because the Moghadams’ arbitration claim sought damages of “at least $2,347,592” against NMH, NMH’s complaint put Camarillo on notice of what Camarillo’s maximum liability might be, and thus a default judgment of $1,532,973 did not violate Camarillo’s due process rights.
ASIC next argued that NMH’s default judgment against Camarillo was not based upon “property damage.” The appellate court disagreed. In the arbitration proceeding, the Moghadams recovered damages from NMH because of “property damage” (i.e., physical injury to tangible property), and in the indemnity action, NMH passed those same damages along to Camarillo (i.e., the party who had caused the property damage). Thus, NMH’s default judgment against Camarillo was based upon “property damage.”
ASIC also argued that there was insufficient proof as to when property damage “first occurred” at the Moghadams’ property. The appellate court likewise rejected that argument. ASIC’s sixth policy covered property damage that “occurs during the policy period” (i.e., August 1, 2008 through August 1, 2009), but excluded any property damage that commenced before the policy’s effective date (i.e., August 1, 2008). Here, ICSOP showed that the Moghadams’ property damage occurred in May 2009 (i.e., during ASIC’s sixth policy period), and ASIC failed to show that the Moghadams’ property damage commenced before August 1, 2008 (i.e., before ASIC’s sixth policy period).
Last, ASIC argued that its policies all contained self-insured retention (SIR) or deductible clauses making Camarillo’s payment of an SIR or a deductible a “condition precedent” to coverage, and that ICSOP had not proven Camarillo ever paid any SIR or deductible amount. The appellate court rejected that argument as well. The court reasoned that the ASIC policies’ SIR and deductible clauses stated that Camarillo was required to pay an SIR or a deductible “at our [ASIC’s] request,” and ASIC failed to show that it ever asked Camarillo to pay any SIR or deductible amount.
Comment
ASIC also raised some other arguments in the appellate court, but the appellate court refused to consider those arguments because ASIC had not properly raised them in the trial court.
At some earlier point, ASIC presumably had been very confident of its coverage position, because ASIC declined to even defend Camarillo in the contractual indemnity lawsuit brought by NMH. That resulted in NMH obtaining the approximately $1.5 million default judgment against Camarillo, which then led to ICSOP (as subrogee of NMH) successfully pursuing the judgment creditor action against ASIC (as liability insurer of Camarillo).