In a Policy With a “Per Claim Self-Insured Retention” Where the Term “Claim” is Not Defined, the SIR May Apply to a Single Suit Rather Than to “Each Home”
Clarendon America Insurance Company v. North American Capacity Insurance Company
10 C.D.O.S. 8742 (4th District Court of Appeal)
The policy holder, a developer/general contractor in the construction of a residential development in Victorville, California, was insured by Clarendon America Insurance Company (Clarendon) and North American Capacity Insurance Company (NAC) under separate and consecutive general liability policies. In an underlying construction defect litigation in which several plaintiff homeowners sued the policyholder for numerous construction defect claims, the policyholder tendered the matter to both Clarendon and NAC.
Clarendon accepted dense and ultimately incurred indemnity and defense dollars in defending the policyholder and settling claims on its behalf.
On the other hand, NAC denied coverage claiming that because only a few of the plaintiff homes involved in the underlying action were completed after the date of NAC’s effective policy, NAC had no duty to defend the policyholder unless and until the policyholder expended $25,000 – the amount of its Self Insured Retention (SIR) – for each of the homes that were completed after NAC’s effective policy term.
After settlement of the underlying construction defect case, Clarendon sued NAC for declaratory relief, equitable contribution and partial indemnity to recover an equitable share of the sums Clarendon expended on behalf of the policy holder. Both carriers filed motions for summary judgment. The trial court granted NAC’s motion and Clarendon appealed.
The 4th district Court of Appeal reversed the lower court’s decision. The Appellate Court reasoned that NAC had relied solely on the terms of its SIR endorsement to support its summary judgment motion. However, in view of the other terms contained in the NAC policy, and the circumstances present at the time the policy was issued, the policy holder may have had an objectively reasonable expectation that the SIR would apply only once to the plaintiff’s construction defect action as a whole, rather than to each of the single homes constructed after the effective policy dates of the NAC policy.
The Court reasoned that for purposes of the “per claim” SIR, the term “claim” was undefined in the NAC policy. The carrier could not show that the term “claim” could only be understood as referring to each home involved in a single suit. It was noted that the NAC policy did not define the term “claim”, either for the specific purposes of the SIR or in the NAC policy as a whole.
As such, in their summary judgment motions, both NAC and Clarendon asserted that the NAC policy used the term “claim” in its “ordinary and popular sense”. AIU Insurance Company v. Superior Court (1990) 51 Cal.3d 807, 274 Cal.Rptr. 820. The Appellate Court reasoned that disputed policy language must be examined in context with regard to its function in the policy. This required a consideration of the policy as a whole, the circumstance of the case in which the case arose, and common sense. American Alternative 135 Cal.App.4th 1239, 37 Cal.Rptr.3d 918.
Because the NAC policy did not define the term “claim”, the SIR endorsement was deemed to contemplate that a “single suit” may represent either a “single claim” or “several claims”. Further, the Court reasoned that given the synonymous use of the terms “claim” and “suit” in the policy endorsements, a reasonable insured such as the policy holder, may have understood that the term “claim”, as used in the SIR endorsement, was synonymous with “suit”.
Thus, the Appellate Court ruled that NAC’s SIR “per house” contention was without merit and ruled in favor of Clarendon.