Condominium construction work excluded in liability insurance policy: looks can be deceiving

Posted in: Construction Law, Contract Law, Insurance Law by Steven Vartabedian on

During my time on the trial court bench, I would often hear the following analogy argued concerning the concept of circumstantial evidence: “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.” I doubt that poet James Whitcomb Riley, when he first coined this phrase in about 1884, could have imagined he was providing attorneys with trial argument material.

In California Traditions, Inc. v. Claremont Insurance Co. (filed June 21, 2011, certified for publication on July 11, 2011) 2011 DJDAR 10405, the project developed by plaintiff consisted of 146 separate residences with no shared walls, halls, roofs or plumbing or electrical lines. But to avoid minimum set-back requirements for non-condominium single family homes and to allow higher density, the project was developed, marketed and sold as condominiums. Plaintiff hired Ja-Con Systems to do the rough framing work. Ja-Con was insured under a comprehensive general liability policy issued by defendant. That policy provided an exclusion for work on condominium and townhouse projects. In a separate action homeowners sued for defective construction; plaintiff developer obtained a $2 million judgment on its indemnity cross complaint against Ja-Con and now seeks to satisfy that from the policy.

The San Diego Superior Court granted defendant’s motion for summary judgment based on the undisputed fact that the condominium exclusion precluded recovery. Plaintiff had argued that Ja-Con had a reasonable expectation of coverage because the units gave the outward appearance of non-condominium detached homes.

The Court of Appeal, Fourth Appellate District, Division One, affirmed. The appellate court was not persuaded by plaintiffs claim that the term “condominium project” was ambiguous as used in the contract of insurance. An insured’s reasonable expectation is merely an interpretative tool only if ambiguity exists. (Fire Ins. Exchange v. Superior Court (2004) 116 Cal.App.4th 446) Moreover, plaintiffs proffered interpretation, that an insured would reasonably understand the term to not include a project of free standing units, runs counter to Civil Code section 1351, subdivision (f), which states the description of a condominium unit may refer to “an entire structure containing one or more units.” This contemplates single units within a development.

I find it very interesting that the very company who took great pains to gain the advantage of labeling this as a condominium project, vicariously asserted the expectation of an apparently negligent subcontractor that the development was something different based on its physical appearance. The principle of estoppel is not discussed in the opinion, but one might wonder if something akin to that was on the court’s mind. As it turns out, this duck was a swan for the defendant.

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