Triable Issue of Fact Exists as to Insurer’s Obligation to Provide Coverage Under Occurrence Policy

In Guastello v. AIG Specialty Ins. Co. (No. G057714. filed 2/19/21 ord. pub. 2/23/21), a California appeals court held that triable issues of material fact exist which precluded summary judgment for an insurer seeking to disclaim coverage on the basis that the “occurrence” pre-dated the policy period where a dispute exists as to the timing of the subject “occurrence.”

In Guastello, a subcontractor built retaining walls from 2003 to 2004 for a housing development in Dana Point, California. In 2010, one of these retaining walls collapsed causing damage to a residential lot owned by Thomas Guastello.

Guastello initially sued the subcontractor alleging negligent design and construction and seeking various damages, including diminution in value of his property. The subcontractor had an “occurrence” policy with AIG Specialty Insurance Company with an effective period of 2003-2004. AIG denied any duty to defend or indemnify the subcontractor on the basis that the property damage occurred in January 2010 and was therefore outside of the policy period of 2003-2004.

Shortly after AIG’s disclaimer, Guastello obtained a default judgment against the subcontractor and filed a direct action against AIG for enforcement of the default judgment, breach of the covenant of good faith and fair dealing and declaratory relief pursuant to Insurance Code section 11580. AIG filed a motion for summary judgment contending Guastello did not suffer any property damage until the retaining wall collapsed in 2010, thus the occurrence did not take place until seven years after expiration of the policy.

Guastello’s opposition to AIG’s motion included a declaration by an expert civil engineer whose declaration proffered a latent construction defect theory. The expert opined that the contractor’s negligent construction of the retaining wall began to cause damage to the wall itself and to Guastello’s property within months of the wall’s substantial completion in 2003 by way of “continuous and progressive destabilization” to Guastello’s lot beginning before the end of November 2004. The engineer opined that the “continuous and progressive destabilization” eventually led to the complete collapse of the wall in 2010.

The trial court granted AIG’s motion for summary judgment as to all three causes of action, finding Guastello did not experience property damage until after the policy’s expiration and that all three causes of action were “predicated on” AIG’s “wrongful refusal to satisfy the judgment.”

Guastello appealed the trial court’s decision contending a triable issue of material fact existed as to whether the property damage took place during the coverage period of the AIG policy.

The Guastello court first discussed the general principles of law applying to liability insurance, distinguishing a “claims made” policy, which provides coverage if the claim is made during the policy period, and an “occurrence” policy, which provides coverage for damages which occur during the policy period, even if the claim is made after the policy expired. (Citing Carolina Casualty Ins. Co. v. L.M. Ross Law Group LLP (2010) 184 Cal.App.4th 196, 206-207 and Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 792.)

The AIG policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Where ‘continuing or progressive’ property damage is at issue, the ‘property damage’ shall be deemed to be one ‘occurrence’ and shall be deemed to occur when such…;’property damage’ first commenced.”

The AIG policy defined “property damage” as “a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.”

Considering the language of the policy and the substance of the declaration of Guastello’s expert, the Guastello court found that timing of the “occurrence” — the alleged damage to Guastello’s property — was “plainly a disputed issue of material fact.”

AIG argued that the engineer’s declaration was inadmissible under Evidence Code section 720 because it lacked foundation, was speculative and conclusory because he did not personally inspect the retaining wall or affected property and Guastello had offered the expert’s opinions to rebut his own declarations as to the damages he had sustained.

The Guastello court flatly rejected AIG’s argument as to admissibility of the declaration, pointing to AIG’s failure to make an evidentiary objection to the declaration in the trial court, thereby waiving the objection. The Guastello court found the declaration was sufficient as the declarant set forth his education, training and experience and stated the bases for the opinions he gave.

Further, the Guastello court held that AIG’s arguments as to the validity of the expert’s opinions went to the weight of his testimony, which is a factual issue for a jury and not a legal issue for the court. (Citing Polk v. Ford Motor Co. (8th Cir. 1976) 529 F.2d 259, 271.)

Finally, AIG contended Guastello’s evidence in support of the default against the subcontractor established the alleged damage took place no earlier than 2010 and directly conflicted with the expert’s declaration that the damage began before the end of November 2004.

The Guastello court disagreed with AIG, stating that the evidence submitted with the default motion was not necessarily inconsistent with the latent construction defect theory of liability proffered by the expert engineer and was arguably consistent with the latent construction defect theory. Fittingly, the Guastello court concluded “Again, this is a contested issue of material fact.”

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February 24, 2021