A commercial general liability policy’s exclusion for “subsidence” resulting from the insured’s “operations” barred coverage for a landslide that allegedly resulted from the insured’s maintenance and construction activities. ( Philadelphia Indemnity Insurance Company v. Lakeside Heights Homeowners Association (2015) WL 3799576)
Facts
In 2013, a landslide caused extensive damage to property owned by various parties, including the Lakeside Heights Homeowners Association (HOA) and the County of Lake (County). The HOA subsequently filed a state court lawsuit against the County for inverse condemnation and dangerous condition of public property, apparently alleging that the landslide was caused by leaks in water pipes owned by the County. In response, the County cross-complained against the HOA, alleging that the landslide occurred because, among other things, the HOA: (1) negligently constructed improvements over an ancient slide area; (2) negligently failed to maintain its sprinkler system and private storm drain, causing water to saturate its property and surrounding properties; and (3) negligently failed to maintain its landscaping, causing loss of lateral support to surrounding properties.
The HOA tendered defense of the cross complaint to the HOA’s general liability insurer, Philadelphia Indemnity Insurance Company (Philadelphia). In response, Philadelphia agreed to defend the HOA, but Philadelphia reserved its right to assert that the policy’s “subsidence” exclusion barred coverage for any liability the HOA might have to the County. The policy’s “subsidence” exclusion provided that there was no coverage for property damage “caused by, resulting from, attributable or contributed to, or aggravated by the subsidence of land as a result of landslide, mudflow, earth sinking or shifting, resulting from operations of the named insured or any subcontractor of the named insured.”
Philadelphia then filed a federal court declaratory relief action seeking a determination that the policy’s “subsidence” exclusion relieved Philadelphia of any duty to defend the HOA against the County’s cross-complaint. Eventually, Philadelphia moved for summary judgment against the HOA based on the exclusion.
Holding
The federal district court, applying California law, granted Philadelphia’s motion for summary judgment. The policy’s “subsidence” exclusion barred coverage for property damage “caused by … subsidence … resulting from operations of the named insured … .” According to the court, the HOA’s “operations” included maintaining the HOA’s common areas such as irrigation systems, drainage systems, landscaping, etc. Those “operations” in turn, allegedly led to the landslide that caused the property damage claimed by the County. All of the theories that the County alleged against the HOA were dependent upon the HOA’s “operations,” and thus fell within the Philadelphia policy’s “subsidence” exclusion. As such, Philadelphia had no duty to defend or indemnify the HOA against the County’s underlying cross-complaint.
Comment
In an earlier case, City of Carlsbad v. Insurance Company of the State of Pennsylvania (2009)180 Cal.App.4th 176, a California state appellate court upheld an arguably broader, simpler “subsidence” exclusion. The subsidence exclusion in City of Carlsbad applied to “any property damage arising out of land subsidence for any reason whatsoever .”
In the above Lakeside Heights Homeowners Associationcase, the subsidence exclusion was perhaps narrower in that it only barred coverage for property damage caused by “subsidence … resulting from operations of the named insured or any subcontractor of the named insured.” Nevertheless, according to the federal district court, all of the claims against the insured involved subsidence that allegedly resulted from the insured’s “operations.” As such, the exclusion defeated any potential for coverage.