Fourth District Court of Appeal Decision holds that a general liability policy “Montrose” exclusion does not necessarily preclude the potential of insurance coverage.
Pennsylvania General Insurance Company v. American Safety Indemnity Company
4th District Court of Appeal10 C. D.O.S. 8298
Facts of the Case
Whiteacre Construction, Inc. was a framing subcontractor in a construction project. During a time that Whiteacre had entered into a subcontract to perform the work, as well as a time that the contractor had completed the work, Whiteacre was insured under a commercial general liability insurance policy issued by Pennsylvania General Insurance Company. At the conclusion of Pennsylvania General’s policy period, and after Whiteacre’s work on the project was completed, the contractor was insured by a subsequent carrier, American Safety Indemnity Company, under a CGL policy.
In a subsequent construction defect lawsuit involving Whiteacre as one of the cross-defendants, plaintiff homeowners alleged, among other things, that Whiteacre’s work on their houses was improperly done, causing defects and damages to the homes. Whiteacre tendered its defense to both Pennsylvania General and American Safety. Pennsylvania General accepted Whiteacre’s tender of defense, under a reservation of rights. The carrier ultimately paid the defense and settlement costs for Whiteacre. On the other hand, American Safety declined Whiteacre’s tender, asserting there was no possibility of coverage under its policy and thus, did not participate in defending or indemnifying Whiteacre.
After the underlying construction defect lawsuit was settled, Pennsylvania General filed a declaratory relief lawsuit against American Safety seeking equitable contribution for a portion of the defense indemnity cost paid by Pennsylvania General. Cross motions for summary judgment were filed by both Pennsylvania General and American Safety.
The trial court concluded that American Safety had no responsibility to pay for any portion of the defense or indemnity costs because there was no potential coverage under American Safety’s policy for the claims asserted based on the “Montrose” endorsement contained in the American Safety policy. The court interpreted that this endorsement eliminated any potential coverage. The trial court granted American Safety’s summary judgment and Pennsylvania General appealed.
In its moving papers in the underlying case, American Safety argued that because its policy contained language eliminating any potential coverage under the “progressive damage – continuous trigger” of Montrose Chemical Corporation v. Admiral Insurance Company (1995) 10 Cal.4th 645 42 Cal.Rptr.2d 324, the carrier could not have an obligation to defend and indemnify Whiteacre concurrent with any defense or indemnification by any prior insurer for Whiteacre. The carrier argued that the absence of any possibly concurrent obligation shared with Pennsylvania General precluded Pennsylvania General’s claim for equitable contribution.
However, in the subsequent appeal, the appellate court noted that “the time of occurrence of an accident within the meaning of an insurance policy is the time the complaining party was damaged, not the time the wrongful act was committed”. Hallmark Insurance Company v. Superior Court (1988) 201 Cal.App.3d 1014, 247 Cal.Rptr. 638; Remmer v. Glens Falls Indemnity Company (1956) 140 Cal.App.2d 84, 295 Pacific2d 19.
The ordinary trigger of coverage would focus on when damage was inflicted, not on when the causal acts were committed. The appellate court looked at whether American Safety’s Montrose exclusion, which attempted to revise the definition of “occurrence” altered the ordinary trigger of coverage by requiring the causal acts to be committed – as well as the resulting damage to first arise – during the policy period. The appellate court concluded that American Safety’s commercial general liability policy, read as a whole, remained reasonably susceptible to the interpretation that resulting damage, not the causal act, was still the defining characteristic of the occurrence that must take place during the policy period to create coverage.
Note: The endorsement contained in the American Safety policy is an early version of the “Montrose exclusion”. It contained language which has since been revised in later endorsements. The analysis used by this appellate court may not apply to the language used in subsequent “continuing loss” exclusions.