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Discover Specialty Ins. Co. v. Certain Underwriters at Lloyd's London

California Court of Appeals, Second District, Second Division
Sep 17, 2008
No. B205333 (Cal. Ct. App. Sep. 17, 2008)

Opinion

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. BC355357, Ruth Ann Kwan, Judge.

Law Offices of Semha Alwaya, Semha Alwaya and Trelawney James-Riechert for Plaintiff and Appellant.

Soltman, Levitt & Flaherty and John S. Levitt for Defendant and Respondent.


CHAVEZ, J.

Plaintiff and appellant Discover Specialty Insurance Company (Discover) appeals from a judgment entered in favor of defendant and respondent Certain Underwriters at Lloyds London (Lloyds) following a trial by reference on Discover’s action for declaratory relief, indemnity, and contribution to recover indemnity and defense payments made by Discover on behalf of its insureds in two underlying lawsuits. We affirm the judgment.

BACKGROUND

1. The Parties and the Underlying Actions

Discover and Lloyds both issued liability insurance policies under which The Tides Building, LLC (the LLC) is a named insured. The LLC is a limited liability company formed in 1999 for the purpose of acquiring and developing real property. The LLC owned, constructed, and subsequently operated a mixed use commercial and residential building known as The Tides Building, located in Santa Monica, California (the Property). At all relevant times, the LLC was the sole owner of the Property.

The LLC’s operating agreement appointed one of its members, Braemar Urban Ventures LLP (Braemar), to manage the LLC and to supervise construction of the Property. Braemar entered into a construction contract with Vikron, Inc. to construct the Property. Some time between December 2002 and March 2003, Braemer appointed another LLC member, Mario Savvides (Savvides), to serve as co-manager.

Several members of the LLC, including Savvides, became dissatisfied with Braemar’s conduct as co-manager and prepared to sue Braemar. The LLC was named as a nominal defendant in the case, entitled Bosio v. Braemar Urban Ventures Limited Partnership, et al. (the Bosio action). The Bosio plaintiffs retained an expert to investigate alleged construction defects at the Property. In February 2005, the expert issued a report containing a defect list that included a leaking roof, doors and planters, light fixtures damaged by water intrusion, stained concrete, and rusting metal railings and doors. In July 2005, the Bosio plaintiffs submitted to Braemar a statement of claims alleging that a number of defective conditions at the Property, including water intrusion, roof leaks, and rusting railings, had been caused by Braemar’s negligence.

Braemar thereafter filed its own action against Savvides for breach of oral agreement, conversion, possession of personal property, trespass, fraud, negligence, injunctive relief, and declaratory relief (the Braemar action).

The respective defendants tendered the Bosio and Braemar actions to Discover, and Discover agreed to defend both actions. Discover then tendered the defense of both actions to Lloyds, who declined to defend on the grounds that none of the claims asserted were potentially covered under its policy, or were expressly excluded from coverage.

2. The Instant Action

Discover commenced this action against Lloyds on July 13, 2006. The parties stipulated to a trial by reference before retired judge Edward J. Wallin. In a recommended decision issued on October 18, 2007, Judge Wallin concluded that the only property damage claims asserted in the Braemar or Bosio actions were excluded from coverage under a policy exclusion for property damage to property owned by the named insured. Judge Wallin further concluded that the claims against Braemar and Savvides were in connection with their actions as professional property managers and were excluded from coverage by an endorsement to the policy excluding coverage for “liability arising out of the rendering of or failure to render professional services.” On November 14, 2007, the trial court entered judgment in favor of Lloyds. This appeal ensued.

3. The Relevant Policy Provisions

A. Insuring Agreement

The insuring agreement of the Lloyds policy provides in relevant part:

“a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply. . . .

“[¶] . . . [¶]

“b. This insurance applies to . . . ‘property damage’ only if:

“(1) . . . caused by an ‘occurrence’ that takes place in the ‘coverage territory’ [and]

“(2) . . . occurs during the policy period.”

B. “Property Damage” and “Occurrence” Defined

The Lloyds policy defines “property damage” as “[p]hysical injury to tangible property, including all resulting loss of use of that property” or “[l]oss of use of tangible property that is not physically injured.” It defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

C. Designated Premises Endorsement

An endorsement to the policy, entitled “Limitation of Coverage to Designated Premises or Project” states in pertinent part:

“This Insurance applies only to . . . ‘property damage’ . . . arising out of:

“1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises.”

The schedule to the endorsement identifies the Property as the premises covered by the endorsement.

D. Owned Property Exclusion

The Lloyds policy excludes coverage for damage to property owned by the named insured. It provides in part:

“This insurance does not apply to:

“[¶] . . . [¶]

“‘Property damage’ to:

“(1) Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property;

“[¶] . . . [¶]

“(4) Personal property in the care, custody or control of the insured.”

E. Named Insured and Insured Defined

The Lloyds policy defines the term “you” to mean the named insured. It states: “Throughout this policy the words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy.” The policy declarations page lists the LLC as the named insured.

The Lloyds policy defines the term “insured” as “any person or organization qualifying as such under Section II – Who Is An Insured.” Section II provides in part: “If you are designated in the Declarations as . . . [a] limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers.”

F. Professional Liability Exclusion

The Lloyds policy contains a professional liability exclusion that bars coverage for “liability arising out of the rendering of or failure to render professional services, or any error or omission, malpractice or mistake of a professional nature committed by or on behalf of the ‘Insured’ in the conduct of any of the ‘Insured’s’ business activities.

DISCUSSION

I. Standard of Review

We review the trial court’s factual findings for substantial evidence. (Bluehawk v. Continental Ins. Co. (1996) 50 Cal.App.4th 1126, 1130-1131.) The proper construction of an insurance policy is a question of law, however, and we review the construction of the policy de novo. (Waller v. Truck Ins. Exch. (1995) 11 Cal.4th 1, 18 (Waller).)

II. Duty to Defend

“[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. [Citation.] . . . ‘[T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.’ [Citation.] Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages are ultimately awarded. [Citations.]” (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.) “Any doubt as to whether the facts establish the existence of the defense duty must be resolved in the insured’s favor. [Citations.]” (Montrose Chem. Corp. v. Superior Court (1993) 6 Cal.4th 287, 299-300 (Montrose).) An insurer may be relieved of the duty to defend only “‘if the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.’ [Citation.]” (Id. at p. 300, quoting Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 276, fn. 15.)

“‘The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint may also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy. [Citation.]’” (Montrose, supra, 6 Cal.4th at p. 295.) “[T]he extrinsic facts which may create a duty to defend must be known by the insurer at the inception of the third party lawsuit.” (Gunderson v. Fire Ins. Exch. (1995) 37 Cal.App.4th 1106, 1114.) “An insured may not trigger the duty to defend by speculating about extraneous ‘facts’ regarding potential liability or ways in which the third party claimant might amend its complaint at some future date. . . . ‘[A] third party is not the arbiter of the policy’s coverage. [Citations.] A corollary to this rule is that the insured may not speculate about unpled third party claims to manufacture coverage.’ [Citation.]” (Ibid.)

III. Potential Coverage Under the Lloyds Policy

A. Analytical Framework

The California Supreme Court has outlined the approach courts must take when determining whether a claim is covered under a liability insurance policy: “[T]he insuring agreement . . . states the risk or risks covered by the policy, and the exclusion clauses . . . remove coverage for risks that would otherwise fall within the insuring clause. [Citation.] Before ‘even considering exclusions, a court must examine the coverage provisions to determine whether a claim falls within [the policy terms].’ [Citation.] ‘This is significant for two reasons. First, “. . . when an occurrence is clearly not included within the coverage afforded by the insuring clause, it need not also be specifically excluded.”’ [Citation.] [¶] ‘Second, although exclusions are construed narrowly and must be proven by the insurer, the burden is on the insured to bring the claim within the basic scope of coverage, and (unlike exclusions) courts will not indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.’ [Citation.] Accordingly, the insured has the burden of showing that there has been an ‘occurrence’ within the terms of the policy. [Citation.]” (Waller, supra, 11 Cal.4th at p. 16.)

Once the insured has met its burden of bringing the claim within the basic scope of coverage, “[t]he burden then shifts to the insurer to prove the claim falls within an exclusion. [Citation.]” (Merced Mut. Ins. Co. v. Mendez (1989) 213 Cal.App.3d 41, 47, fn. omitted.)

B. Property Damage

The applicable provisions of the Lloyds policy cover “property damage” that is caused by an “occurrence.” As noted, “property damage” is defined in the policy as “[p]hysical injury to tangible property, including all resulting loss of use of that property” or “[l]oss of use of tangible property that is not physically injured.”

The focus of the property damage coverage provision is the property itself. It does not encompass intangible economic losses. (Waller, supra, 11 Cal.4th at p. 17.)“‘Strictly economic losses like lost profits, loss of goodwill, loss of the anticipated benefit of a bargain, and loss of an investment, do not constitute damage or injury to tangible property covered by a comprehensive general liability policy. [Citations.] A complaint seeking to recover damages of this nature from an insured falls within the scope of the insurance coverage only where these intangible economic losses provide “a measure of damages to physical property which is within the policy’s coverage.” [Citations.]’ [Citation.]” (Id. at pp. 17-18.)

Discover contends Lloyds owed a duty to defend the underlying Bosio and Braemar actions because they asserted claims for property damage caused by Braemar’s and Savvides’s alleged negligence.

In this appeal, as in the trial court below, Discover argues that the negligence causes of action asserted in the Bosio and Braemar actions are the bases for coverage under the Lloyds policy.

1. The Bosio Complaint

The Bosio complaint alleges that Braemar breached its duty of care to the LLC by (A) allowing Vikron to collect the full fixed fee for construction of the Property even though the plans were changed to eliminate a second story of parking; (B) allowing a material departure from the preliminary plan of development for the Property, which negatively impacted the profitability and time frame of the Property; (C) using the operating income of the LLC to pay for repairs to defective workmanship and materials; (D) allowing Vikron to charge excessive contractor fees; (E) allowing Braemar to charge excessive fees; (F) refusing to authorize Savvides to pursue claims for reimbursement or repair of construction defects; (G) executing a letter of intent to sell the Property and subsequently refusing to sign a contract to sell the Property at or above its market value; (H) unreasonable delays in the construction of the Property; and (L) other and further acts of self-dealing.

The Bosio complaint alleges no claim for “property damage” within the meaning of the Lloyds policy. (See, e.g., Montrose, supra, 6 Cal.4th at p. 303 [“a suit seeking recovery for injuries to intangible economic interests is not a suit ‘of the nature and kind’ covered by a CGL policy”]; Golden Eagle Ins. Corp. v. Cen-Fed, Ltd. (2007) 148 Cal.App.4th 976, 987 [claim that defendant failed to maintain building in the condition in which it contracted to maintain it is claim for economic loss, not “property damage”].) All of the claims asserted in the Bosio complaint are for economic harm allegedly caused by Braemar’s breach of the duty of care, and none of the claims comes under the policy definition of property damage -- physical injury to tangible property or loss of use of tangible property that was not physically injured. Allegations (A), (D), and (E) concern overpayment of fees, a purely economic loss. Allegations (B), (G), and (H) concern lost profits and diminution in the value of the Project. Allegation (C) is framed as a misuse of LLC funds, and allegation (F) as a failure to pursue legal claims.

2. Extrinsic Information

Although the Bosio complaint, on its face, does not allege “property damage” as defined under the Lloyds policy, Discover provided Lloyds with extrinsic information, in the form of the July 2005 statement of claims and the February 2005 defect list, showing that recovery for property damage was being sought in the Bosio action. The statement of claims lists rusting metal railings among the claims asserted against Braemar. The defect list includes claims for light fixtures damaged by planters that retain water, rusting metal railings and doors, and stained floors from water leaking through door thresholds. This extrinsic information, in conjunction with the Bosio complaint, is sufficient to constitute “property damage” within the meaning of the Lloyds policy.

3. The Braemar Complaint

The Braemar complaint alleges that Savvides negligently performed property management duties for the LLC, as follows: “While acting as property manager, Savvides was instructed by the Manager to make certain repairs at the Property, including without limitation, a request that the rusting of metal railings at the Property be repaired forthwith. Savvides refused to make the repairs to the metal railings, thereby reducing the life expectancy of the metal railings in half.” This allegation is insufficient to constitute “property damage” within the meaning of the policy. There is no allegation that Savvides’s refusal to make the repairs resulted in any “physical injury” to the railings themselves, or to any other tangible property. The claim that the “life expectancy of the metal railings” was reduced “in half” is a claim for diminution in the value of property, a purely economic loss. (See Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2007) ¶ 7:1425.1, p. 7E-20 [under policy definition of “property damage” “[e]conomic loss, such as the cost of repair or correcting defective work, is not sufficient”]; Waller, supra, 11 Cal.4th at pp. 17-18; New Hampshire Ins. Co. v. Vieira (9th Cir. 1991) 930 F.2d 696, 696-702 [applying California law and concluding that remedial measures designed to prevent damage from reoccurring not covered].) The Braemar complaint does not allege property damage within the meaning of the Lloyds policy.

The Braemar complaint also alleges causes of action for breach of oral agreement for Savvides’s failure to relinquish his property management duties after Braemar acted to terminate Savvides’s authority, conversion of checkbooks and rental income, possession of personal property, trespass, fraud, and injunctive and declaratory relief. Discover does not contend these causes of action are potentially covered under the Lloyds policy.

C. Occurrence

The Lloyds policy covers property damage only if it is caused by an “occurrence.” The term “occurrence” is defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The term “accident” is not defined in the policy, and in the absence of such definition, is given a commonsense interpretation. (St. Paul Fire & Marine Ins. Co. v. Superior Court (1984) 161 Cal.App.3d 1199, 1202.) “‘In its plain and ordinary sense, “accidental” means arising from extrinsic causes . . . occurring unexpectedly or by chance . . . [or] happening without intent or through carelessness.’ [Citation.]” (Croskey, et al., Cal. Practice Guide: Insurance Litigation, supra, ¶ 7:44, p. 7A-15, quoting Quan v. Truck Ins. Exch. (1998) 67 Cal.App.4th 583, 597.)

The term “accident” has also been interpreted to mean the unexpected or unintended consequence of an insured’s conduct, even if that conduct is intentional. (See State Farm Fire & Casualty Co. v. Superior Court (2008) 164 Cal.App.4th 317 [claim against insured who deliberately picked up victim and threw him into a swimming pool, causing unintentional injury to victim was an accident potentially covered under liability insurance policy].) “[C]overage is not always precluded merely because the insured acted intentionally and the victim was injured. An accident, however, is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage. [Citation.]” (Merced Mut. Ins. Co. v. Mendez, supra, 213 Cal.App.3d at p. 50, italics added.)

The Bosio complaint asserts claims for property damage that was unintended or unexpectedly caused by Braemar’s alleged negligence. Those claims come within the definition of an “occurrence” under the Lloyds policy. We therefore conclude that Discover met its burden of establishing that the Bosio action was potentially covered under the Lloyds policy.

The allegations of the Braemar complaint, however, do not come within the definition of an “occurrence.” The Braemar complaint alleges that Savvides “refused” to repair already rusting metal railings, after being specifically instructed to do so, “thereby reducing the life expectancy of the metal railings.” Savvides’s alleged refusal to undertake the repairs was an intentional act that resulted in a foreseeable outcome. There was no occurrence within the meaning of the policy.

D. Exclusions to Coverage

Discover satisfied its burden of establishing potential coverage under the Lloyds policy for claims asserted in the Bosio action. The burden shifted to Lloyds to prove that an exclusion applies to bar coverage of those claims. As we discuss, Lloyds met that burden.

The exclusions in the Lloyds policy that bar coverage for the claims asserted in the Bosio action apply equally to those asserted in the Braemar action. Because we conclude Discover failed to meet its burden of establishing potential coverage under the Lloyds policy for the Braemar claims, however, we limit our discussion concerning the applicable exclusions to the Bosio claims.

1. Owned Property Exclusion

The Lloyds policy excludes coverage for “property damage” to property owned, rented, or occupied by the named insured. All of the alleged property damage in the Bosio action is to property owned by the LLC, the named insured under the Lloyds policy. All such damage is therefore excluded from coverage.

Discover contends that a potential for coverage exists because “it is unclear” whether the stained concrete identified in the February 2005 defect list was damage to the LLC’s property or to tenant improvements, and whether certain repairs necessitated by water intrusion were to the LLC’s property or to tenants’ property. The Bosio complaint, however, does not assert claims for damage to tenant improvements or tenant property. Discover cannot base its argument for coverage on speculation about claims that have not been alleged or asserted. (Golden Eagle Ins. Corp. v. Cen-Fed, Ltd., supra, 148 Cal.App.4th at pp. 986-987; see also Friedman Prof. Management Co., Inc. v. Norcal Mutual Ins. Co. (2004) 120 Cal.App.4th 17, 35 [duty to defend depends on “possibility of actual indemnity coverage, not the mere existence of a plausible argument”].)

Discover further contends the owned property exclusion should not be interpreted to bar coverage for property damage claims asserted against persons other than the named insured, such as Braemar, who does not own the LLC’s Property. There is no authority to support such an interpretation. Smith Kandal Real Estate v. Cont’l Casualty Co. (1998) 67 Cal.App.4th 406 (Smith Kandal), on which Discover relies, is inapposite. That case involved a professional liability insurance policy covering Smith Kandal, a real estate broker, as the named insured. The policy excluded coverage for claims arising from the sale of real property owned by “you” or “any entity in which you have a financial interest.” The policy defined “you” to include Smith Kandal’s partners and employees, “but only while acting within the scope of their duties for you.” The policy also specifically excluded coverage for claims “arising out of activities performed by or on behalf of Ventana Ranch,” a real estate development entity in which Kevin Smith, a partner of Smith Kandal, owned a 25 percent interest.

Smith Kandal, Kevin Smith, and an employee named Elsa Benedict were subsequently sued by the buyers in a real estate transaction in which Smith Kandal had acted as the broker. Ventana Ranch was the seller of the property. Smith Kandal tendered defense of the action to the insurer, who denied coverage on the ground that the policy defined the term “you” to include Kevin Smith as a partner of Smith Kandal, and excluded coverage for claims arising from the sale of any property owned by “any entity in which you have a financial interest.”

In the ensuing coverage litigation between Smith Kandal and the insurer, the trial court granted summary judgment in the insurer’s favor, ruling that the financial interest exclusion and the Ventana Ranch exclusion were both clear and unambiguous and precluded coverage for the underlying claims. The Court of Appeal reversed, concluding that the financial interest exclusion was ambiguous and reasonably susceptible to an interpretation making it inapplicable to the underlying lawsuit. (Smith Kandal, supra, 67 Cal.App.4th at pp. 415-417.) The court reasoned that because the policy defined the term “you” to include multiple insureds, use of the term “you” in its singular form in the financial interest exclusion “permits the reasonable interpretation that the exclusion [should be] applied severally to each insured and is applicable only if the claim against the insured arises from the sale of property owned by the insured against whom the claim is made, rather than from the sale of property owned by another member of the group of insureds.” (Id. at p. 417.)

Under the circumstances presented here, the relevant policy language is not similarly ambiguous. The Lloyds policy defines the term “you” to refer only to “the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy.” The LLC is the only named insured shown in the policy declarations. Braemar does not claim to be a “named insured” under the policy.

Braemar qualifies as an “insured” under Section IIc of the policy, but an “insured” is not the same as a “named insured.” (See Croskey, et al., Cal. Practice Guide: Insurance Litigation, supra, ¶ 7:18.5, p. 7A-7 [a CGL policy covers the “named insured” (person identified on the declarations page); other persons within the policy’s definition of “insured” and “additional insureds”].) The Lloyds policy itself also distinguishes between the two types of insureds. For example, Section IVb of the policy, which sets forth the duties in the event of an occurrence or claim states: “If a claim is made or ‘suit’ is brought against any insured, you must” record the specifics of the claim and notify Lloyds as soon as possible. (Emphasis added.) Section IVc states: “You and any other involved insured must” send copies of any demands or legal papers received in connection with any claim; authorize Lloyds to obtain records; and assist and cooperate in the investigation and defense of any claim. (Emphasis added.)

The exclusionary language is not reasonably susceptible to the interpretation urged by Discover -- that it should apply severally to each “insured” and exclude coverage only if the claim against that insured was for damage to property owned by that insured. Where an exclusion is clear, a court will not rewrite the insurance contract to impose coverage when none was contemplated. (Titan Corp. v. Aetna Casualty & Sur. Co. (1994) 22 Cal.App.4th 457, 469.) The owned property exclusion precludes coverage for the claims asserted in the underlying Bosio action.

Discover cites Maryland Casualty Co. v. Reeder (1990) 221 Cal.App.3d 961 (Reeder) as further support for its interpretation of the owned property exclusion, but that case is also distinguishable. Reeder concerned interpretation of the “alienated premises” exclusion in commercial liability insurance policies issued to several entities, including a partnership, a corporation, a joint venture, and a general contractor, as named insureds. The policies contained a broad form property damage endorsement that eliminated coverage for property damage to work performed by the named insured if the property damage arose out of the named insured’s work, but afforded coverage for the completed work when the damage arose out of work performed by a subcontractor. (Id. at pp. 971-972.) The alienated premises exclusion precluded coverage for “property damage to premises alienated by the named insured arising out of such premises or any part thereof.” The various insureds developed and constructed residential condominium units that the corporation sold to several individuals who sued for damage to their units allegedly caused by soil subsidence and water intrusion. The insurer denied coverage based on the alienated premises exclusion, and coverage litigation ensued.

The court in Reeder concluded that although the condominium units at issue had been alienated (sold) to the plaintiffs by one of the named insureds, the alienated premises exclusion did not bar coverage as to the partnership and general contractor, who were also named insureds, but who did not own the property, and therefore could not have sold the property to the plaintiffs. (Reeder, supra, 221 Cal.App.3d at p. 977.) In reaching this conclusion, the court relied on the insurance industry interpretive bulletins and circulars which stated that the purpose of the alienated premises exclusion was to “‘deny coverage to an insured who has failed to repair property prior to its sale or who has failed to disclose the existence of a defect in the premises at the time of sale’” (Prudential-Lmi Commercial Ins. Co. v. Reliance Ins. Co. (1994) 22 Cal.App.4th 1508, 1512), and not to deny broad form endorsement coverage to developers and contractors for their completed operations in units constructed for resale. (Reeder, supra, at p. 978.) The court in Reeder interpreted these industry publications to mean that for purposes of applying the alienated premises exclusion, “coverage depends upon who owned the property,” and “where an insured is not an owner the exclusion does not apply.” (Id. at p. 977.)

Discover has provided no insurance industry interpretive documents indicating the owned property exclusion should not apply to bar coverage for the claims asserted against Braemar in the circumstances of this case. We decline to extend the Reeder court’s analysis and interpretation of the alienated premises exclusion to the owned property exclusion at issue here. Braemar’s status as a non-owner of the Property does not make the owned property exclusion inapplicable to it.

Discover argues that a separation of insureds provision in the Lloyds policy supports its interpretation that the owned property exclusion should apply severally to each insured, but provides no authority to support this argument. Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, on which Discover relies, did not discuss the separation of insureds provision or its application to any policy exclusion.

The separation of insureds provision in the Lloyds policy states in part that “this insurance applies . . . [s]eparately to each insured against whom claim is made or ‘suit’ is brought.”

Discover cites the absence of a provision in the Lloyds policy barring coverage for lawsuits between insureds as another factor that supports its argument against barring coverage for the claims Braemar and Savvides assert against each other in the underlying actions. That the Lloyds policy does not exclude coverage for all claims between insureds does not make the owned property exclusion inapplicable to the insureds’ claims against each other for property damage to the Property owned by the LLC.

Lloyds met its burden of demonstrating that the underlying claims come within the owned property exclusion and that there is no potential coverage under its policy.

2. Professional Liability Exclusion

The underlying claims are also excluded from coverage under the Lloyds policy pursuant to an endorsement that excludes coverage for “liability arising out of the rendering of or failure to render professional services, or any error or omission, malpractice or mistake of a professional nature committed by or on behalf of the ‘Insured’ in the conduct of any of the ‘Insured’s’ business activities” also applies to exclude coverage for the underlying claims. The term “professional services” is not defined in the policy; accordingly, the ordinary understanding of the term applies. (Waller, supra, 11 Cal.4th at p. 18; Amex Assurance Co. v. Allstate Ins. Co. (2003) 112 Cal.App.4th 1246.)

“‘Professional services’ are defined as those ‘“arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual, rather than physical or manual.”’ [Citation.] It is a broader definition than ‘profession,’ and encompasses services performed for remuneration. [Citation.]” (Tradewinds Escrow v. Truck Ins. Exch. (2002) 97 Cal.App.4th 704, 713.) Courts have applied the professional services exclusion broadly to bar coverage for damages resulting from a wide range of professional services. (See, e.g., Hollingsworth v. Commercial Union Ins. Co. (1989) 208 Cal.App.3d 800, 807 [store employees negligently pierced customer’s ears]; Amex Assurance Co. v. Allstate Ins. Co., supra, 112 Cal.App.4th at p. 1252 [plumber installing water heater]; Tradewinds Escrow, supra, at p. 713 [negligent performance of escrow services].) Construction management and property management are both professional services that would come under this exclusion.

All of the allegedly negligent conduct by Braemar occurred while it was acting as professional property managers for the LLC. The Bosio complaint states that Braemar “is, and at all times material herein was, a . . . manager of The LLC”; that “[a]s Manager,” Braemar retained Vikron to construct the Property; that construction of the Property “was a nightmare of cost overruns, delays and construction defects due to the gross mismanagement” of Braemar; and that Braemar breached its duty of care by allowing Vikron to collect excessive fees and compensation, allowing Vikron to depart from the development plan for the Property, refusing to authorize legal action against Vikron to remedy construction defects, and charging the LLC excessive management fees. The professional services exclusion bars coverage for all of these claims.

Discover contends an endorsement to the policy entitled “Limitation of Coverage to Designated Premises or Project” conflicts with the professional services exclusion and gives rise to an ambiguity in the Lloyds policy that must be construed in favor of coverage. The designated premises endorsement modifies the commercial general liability coverage part of the policy. It states in relevant part:

“This insurance applies only to . . . ‘property damage’ . . . arising out of:

“1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; or

“2. The project shown in the Schedule.”

The schedule to the endorsement lists the address of the Property as the “premises” referred to in the endorsement.

The endorsement, by its terms, limits coverage under the policy to a single location -- the Property owned by the LLC. The reference in the endorsement to “maintenance” of the premises and “operations necessary or incidental to those premises” does not conflict with the provisions of the professional services exclusion. It does not give rise to any ambiguity in the Lloyds policy, nor does it afford coverage for the underlying claims at issue here.

DISPOSITION

The judgment is affirmed. Lloyds is awarded its costs on appeal.

We concur: BOREN, P. J., DOI TODD, J.


Summaries of

Discover Specialty Ins. Co. v. Certain Underwriters at Lloyd's London

California Court of Appeals, Second District, Second Division
Sep 17, 2008
No. B205333 (Cal. Ct. App. Sep. 17, 2008)
Case details for

Discover Specialty Ins. Co. v. Certain Underwriters at Lloyd's London

Case Details

Full title:DISCOVER SPECIALTY INSURANCE COMPANY, Plaintiff and Appellant, v. CERTAIN…

Court:California Court of Appeals, Second District, Second Division

Date published: Sep 17, 2008

Citations

No. B205333 (Cal. Ct. App. Sep. 17, 2008)