In the context of a general liability policy as a whole, a $25,000 “per claim” self-insured retention endorsement applied only once to a construction defect action involving multiple homes. ( Clarendon America Ins. Co. v. North American Capacity Ins. Co. (2010) 186 Cal.App.4th 556)
Facts
Tanamera Homes and Resort Communities, LLC (Tanamera) was the developer of a 450-home residential development in Victorville, California. Clarendon American Insurance Company (Clarendon) and North American Capacity Insurance Company (NAC) insured Tanamera under separate and consecutive CGL policies. The NAC policy included a self-insured retention (SIR) endorsement that required Tanamera to pay a $25,000 SIR with respect “to each and every claim made against any insured…regardless of how many claims arise from a single ‘occurrence’ or are combined in a single ‘suit’.”
Owners of 43 homes within the project sued Tanamera for alleged construction defects at their homes (the underlying action). Tanamera tendered the defense of the underlying action to both Clarendon and NAC. Clarendon agreed to defend Tanamera under a reservation of rights. However, NAC declined to defend Tanamera unless and until Tanamera satisfied the NAC policy’s $25,000 “per claim” SIR with respect to each of eight homes at the project to which the NAC policy potentially applied (i.e., NAC asserted that Tanamera had to pay $200,000 before the NAC policy would be triggered).
Clarendon filed a contribution action against NAC seeking to recover some portion of the defense costs that Clarendon had paid in defending Tanamera. Clarendon argued that Tanamera had spent $25,000 of its own funds in defense of the underlying action, thus satisfying the NAC policy’s per claim SIR. NAC, on the other hand, argued that the $25,000 SIR applied to each of the eight homes in the underlying action to which the NAC policy applied, and that Tanamera’s $25,000 payment thus did not satisfy the NAC policy’s SIR endorsement.
The trial court entered summary judgment in favor of NAC. Clarendon appealed.
Holding
The Court of Appeal reversed and remanded. The Court noted that NAC had the burden of demonstrating that the terms of NAC’s SIR endorsement were never met and that therefore NAC never had a duty to defend.
The Court first looked to whether the parties’ intent could be inferred from the written provisions of the contract. Both NAC and Clarendon asserted that the policy used the term “claim” in its “ordinary and popular sense,” but advanced different meanings of the term. In evaluating whether the NAC policy’s “per claim” SIR applied to each of the homes involved in the underlying action or only to the one single action, the Court surveyed the use of the terms “claim” and “suit” within the NAC policy to determine whether the term “claim” was synonymous with “suit.” Given the mixed use of the word “claim” in the context of the policy as a whole, the Court concluded that, as used in the SIR endorsement, the term “claim” had no ordinary and popular meaning as applied to the underlying action.
Next, the Court reasoned that an ambiguity may be construed against the insurer only if the insured had an objectively reasonable expectation there would be coverage under the policy consistent with the ambiguity. Thus, NAC had the burden of showing that Tanamera could not have had an objectively reasonable expectation that the SIR would apply only one time to a single construction defect lawsuit involving numerous homeowners and homes. According to the Court, NAC failed to meet its burden because it did not proffer any extrinsic evidence as to Tanamera’s objectively reasonable expectations. The Court concluded that NAC had not shown Tanamera did have had an objectively reasonable expectation that the $25,000 per claim SIR would apply only one time to a single construction defect lawsuit involving numerous homes. Because NAC failed to meet its burden, the appellate court reversed the trial court’s order granting NAC summary judgment.
Comment
While other California courts have observed that the words “suit” and “claim” are not synonymous, the appellate court in this case noted the importance of evaluating the terms in the context of the policy as a whole and the circumstances at issue. The court observed that NAC had charged a premium of over $400,000 for the policy. The policy potentially covered as many as 450 homes with limits up to $2 million. Assuming the policy covered 450 homes, if the SIR applied on a “per claim” basis for each home, that would mean Tanamera paid $400,000 in premiums but would potentially have to pay an additional $11.25 million (450 times $25,000) in defense or settlement expenses before it could access the $2 million in limits the NAC policy afforded, even for purposes of the duty to defend.