District Court Holds California’s 10- Year State of Repose Effectively Bars General Liability Coverage For Construction Defect Claims
October 11, 2016 Leave a comment
October 11, 2016 Leave a comment
On September 27, 2016 the U.S. District Court for the Northern District of California issued its opinion in Swiss Re International Se, et al. v. Comac Investments, Inc., et al., effectively closing the door on ISO form general liability coverage for construction defect claims that are subject to California’s 10-year statute of repose. 2016 U.S. Dist. LEXIS 132793 (N.D. Cal. Sept. 27, 2016).
California Code of Civil Procedure §337.15 provides that latent construction defect claims are subject to a 10-year statue of repose, which commences upon substantial completion of the construction. The statue of repose is not subject to equitable tolling and the only exception to the statue of repose is provided in subsection (f), which allows for “actions based on willful misconduct or fraudulent concealment” See Lantzy v. Centex Homes, 31 Cal.4th 363, 367 (2003); Cal. Code. Civ. Proc. §337.15(f).
In Comac, the plaintiff homeowner’s association sued the insured builder, Comac, in connection with alleged construction defects at a residential project. The Plaintiffs, however, filed suit more than 10 years after the project’s completion. Nonetheless, the Plaintiffs alleged that Comac’s responsible managing officer observed the defective workmanship, did not correct the defects in order to avoid additional costs, and in some cases “directed [the] condition be covered up….” Seeking to skirt California’s 10-year statue of repose, Plaintiffs alleged that Comac’s actions “amount[ed] to reckless disregard and/or willful misconduct as defined by [C.C.P.] §337.15(f).”
Each of Comac’s insurance policies required that property damage be caused by an “occurrence,” which was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Rejecting the plaintiffs’ argument that Comac did not intend any injury, the court held the homeowners’ allegations of willful misconduct could not, by definition, be an “accident.” In so holding, the court noted that the claims against Comac were limited to claims that “Comac’s deliberate acts caused the property damage” and did not include any alleged intervening, unexpected causes. Central to the court’s analysis were the allegations that “any contractor who chose not to remedy [the defects] would be doing so with actual or constructive knowledge that injury was a probable result” and “any knowledgeable construction supervisor who chose not to direct the contractor to remedy the condition would have done so with actual or constructive knowledge that injury was a probable result.”
The court harmonized the term “willful” under Cal. Code. Civ. Proc. §337.15(f) and Cal. Ins. Code §533, finding both encompassed conduct where a reasonable person under the same or similar circumstances would be aware of the highly dangerous character of his or her conduct and that neither necessarily required an actual intent to injure. Thus, the court found that Comac’s alleged willful misconduct was also subject to the policies’ “expected or intended” exclusions and California Insurance Code §533.