Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 05CC09102, Gail Andrea Andler, Judge.
Wood Smith Henning & Berman, Daniel A. Berman and Christopher M. Gilman for Appellant.
The Reis Law Firm and Sean P. Reis for Respondent.
IKOLA, J.
An insurance policy issued by defendant Evanston Insurance Company to plaintiff Intra-American Foundation & Drilling Company, Inc., a construction company specializing in deep foundations, obligated defendant to defend and indemnify plaintiff against property damage claims. When a general contractor sued plaintiff, plaintiff sought defense and indemnification from defendant under the insurance policy. Defendant denied any duty to defend. Plaintiff defended itself and settled with the general contractor.
Plaintiff subsequently brought this action against defendant for breach of contract and bad faith. In a general verdict, the jury awarded plaintiff damages of $462,000. We reverse. The insurance policy contained an endorsement excluding coverage for breach of contract claims. The underlying lawsuit brought by the general contractor created not even a potential for covered claims under the insurance policy. Any property damage allegations raised in or suggested by the lawsuit involved harm to the property of third parties (not the general contractor) for which plaintiff was contractually obliged to indemnify the general contractor, coverage for which was expressly excluded by the endorsement to the insurance policy.
FACTS
For an annual premium of $45,500, defendant issued to plaintiff a commercial general liability policy (the insurance policy). The insurance policy contained a standard commercial general liability coverage form (the CGL form) which obligated defendant to “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,” with defendant having “the right and duty to defend any ‘suit’ seeking those damages.”
The CGL form in this policy was the Insurance Services Office, Inc.’s standard form GL 00 01 0899.
The CGL form contained an exclusion from coverage for “contractual liability,” meaning “‘[b]odily injury’ or ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract . . . .” This exclusion, however, was subject to two exceptions. It did not apply to liability for damage (1) assumed in an “insured contract” (i.e., a contract pertaining to the insured’s business under which the insured assumed another party’s tort liability to pay for bodily injury or property damage), so long as the bodily injury or property damage occurred after the execution of the contract, or (2) that the insured would bear as tort liability independent of the contract.
In addition, an endorsement to the insurance policy — titled “BREACH OF CONTRACT EXCLUSION” in large bold capital letters — excluded breach of contract claims from coverage and contained no exceptions. We recite the endorsement below, adopting its capitalization of certain letters and its centering of certain captions:
“THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY
“BREACH OF CONTRACT EXCLUSION
“This endorsement modifies insurance provided under the following:
“COMMERCIAL GENERAL LIABILITY COVERAGE PART PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE FORM
“This insurance does not apply to claims for breach of contract, . . . whether ‘bodily injury’, ‘property damage’, ‘advertising injury’, ‘personal injury’ or an ‘occurrence’ is alleged. [¶] . . . [¶] Furthermore, no obligation to defend will arise or be provided by [defendant] for such excluded claims.”
The insurance policy commenced with a title page followed by: (1) declarations pages, (2) a table of contents entitled “POLICY FORMS LISTING” enumerating and identifying all endorsements to the policy, and (3) a page entitled “COMMON POLICY CONDITIONS” stating, inter alia, “This policy’s terms can be amended or waived only by endorsement issued by [defendant] and made a part of this policy.” Appearing next were the endorsements in the order stated in the policy forms listing table of contents. Each endorsement began on a separate page stating in bold capital letters at the top: “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.” Each endorsement also prominently listed in capital letters the coverage(s) it modified. Finally, appearing last, was the CGL form containing the contractual liability exclusion with exceptions.
In July 2001, ARB, Inc., a general contractor (the general contractor), subcontracted with plaintiff for the construction of cast-in drilled holes and 30-inch-diameter piers at a project called the Marsh Street Garage Expansion in San Luis Obispo for a contract price of $418,132. The subcontract between the general contractor and plaintiff (the subcontract) required plaintiff to indemnify the general contractor and the City of San Luis Obispo against claims, damages and expenses suffered by the general contractor or the city due to property damage caused by plaintiff.
In the section of the subcontract governing “CHANGES IN THE WORK,” plaintiff agreed to make any changes in the work required by the general contractor “at a reasonable addition to, or reduction from, the contract price.” The subcontract specified plaintiff was to make any changes in the work only with “the written direction” of the general contractor. In order to be compensated for any additional work under a “Change Order,” plaintiff was required within a specified timeframe (before starting the additional work or within 10 days of issuance of a “Change Order”) “to submit a Change Order estimate letter” to the general contractor describing the additional work, its estimated cost, and the estimated impact on the schedule. Failure to do so waived plaintiff’s right to additional compensation.
The soil at the project site was soft and prone to caving in; as a result, plaintiff initially used a vibratory hammer to drill holes for rebar cages, concrete, and piers. But in August 2001, the job was “shut down” and the drilling and vibratory hammer operations stopped because the owner and tenants of an adjacent building had complained that the vibrations were “excessive,” cracked the bricks, disturbed people, and caused shelves to fall. Plaintiff then devised a method to mitigate the vibrations by excavating the first 20 feet of soil without using the vibratory hammer, but the method was “more expensive than the original work . . . initially bid upon,” was “very slow,” and required additional concrete. As to the damage already caused to the adjacent building, the building’s owner lodged a property damage claim against the City of San Luis Obispo, the city submitted the claim to the general contractor, and the general contractor pressed the claim against plaintiff.
Four months later, in December 2001, a second property damage event occurred when plaintiff drilled through an underground high tension cable, “blew up [an electrical] transformer and . . . shut down all the power [in] the adjacent buildings and parking garage.” Pacific Gas & Electric (the utility company) lodged a property damage claim, as did the parking garage, a sports facility and some retail stores that lost holiday revenue due to the power outage. The general contractor advised plaintiff that plaintiff would “be back-charged” for the damage and any disruption to the general contractor’s construction schedule.
In March 2002, the general contractor advised plaintiff the total charge for electrical equipment damage was $17,543 (split between the City of San Luis Obispo, the sports facility, the general contractor and the utility company). The general contractor preferred to handle “the actual payments to these various entities,” and therefore asked plaintiff to pay the $17,543 directly to the general contractor.
In an April 29, 2002 letter to plaintiff, the general contractor’s attorney demanded plaintiff obtain the removal of stop notices filed by plaintiff’s suppliers and subcontractors (including an asphalt paver) who were allegedly owed “significant sums” by plaintiff. (At trial plaintiff testified it had not paid the asphalt paver because the general contractor was withholding funds from plaintiff.) The general contractor’s attorney stated the general contractor had withheld almost $133,000 from the contract price originally owed to plaintiff because “the amount of lineal feet of drilling was reduced during the course of the Project thereby reducing” the scope of work, plaintiff “delayed the Project [and] caused damage to existing structures and to electrical utilities, and a pier was added for which [plaintiff] was responsible.”
On April 30, 2002, defendant asked the general contractor to make contractual payments to plaintiff, rather than withholding such payments to cover claimed damages due to the December 2001 electrical equipment damage. Defendant assured the general contractor that funds were available to cover the loss and defendant would “honor any claimed damages [plaintiff was] legally responsible for.” Defendant argued the general contractor, by “withholding these contractual funds [was] in essence taking away [plaintiff’s and defendant’s] right to make liability determinations addressing potential responsibility of all parties involved, as well as their legal right to defend these claims and allow a decision based upon the merits of each claim by the appropriate court if the claims can not be resolved.”
Investors Underwriting Managers, Inc., a general liability carrier and “third party claims handler,” and its litigation claims specialist Chris Meyer acted on defendant’s behalf. All further references to “defendant” herein encompass Evanston Insurance Company, Investors Underwriting Managers, Inc., and/or Chris Meyer.
In a June 26, 2002 letter to plaintiff, the general contractor’s attorney (replying to plaintiff’s May 8, 2002 letter) denied the general contractor owed plaintiff any additional compensation. (The record does not contain plaintiff’s letter.) The attorney first disputed plaintiff’s claim the contract price was too low. (In its May 8 letter, plaintiff had apparently contended it “did not review the plans and specifications prior to submitting its bid to” the general contractor, and the general contractor should have known plaintiff’s “bid was unreasonably low based on other bids.”) The attorney further disputed plaintiff’s claim that the general contractor’s back charging plaintiff for issues related to “subsurface conditions like soils” was improper; the attorney noted plaintiff failed to advise the general contractor promptly of “changed conditions” as defined in the subcontract. In the attorney’s view, the general contractor’s “deduction for lineal footage [was] appropriate” as “a decrease in the scope of the work,” plaintiff’s “claim of restricted access to the site [was] nonsense,” and plaintiff’s contention it should be compensated for unloading rebar was “ridiculous.” Only after refuting the foregoing claims for additional compensation did the attorney address the two property damage events, stating plaintiff damaged existing structures by using “the vibrating method,” delayed the project, and “damaged electrical equipment.” The attorney demanded plaintiff submit the property damage claims to plaintiff’s insurance carrier promptly. Finally, the attorney demanded plaintiff resolve the stop notice claims and contended plaintiff owed the general contractor “payment on this Project,” rather than vice versa.
In July 2002, the asphalt paver subcontractor sued plaintiff and the general contractor for failing to pay the paver. Plaintiff tendered defense of the asphalt paver’s complaint to defendant, although the paver had not sustained any property damage. Defendant denied any duty to defend or indemnify plaintiff.
The general contractor quickly filed a cross-complaint against plaintiff alleging the following: The general contractor and the City of San Luis Obispo entered into a construction contract for the Marsh Street Garage Expansion Project. The general contractor subcontracted with plaintiff for plaintiff to perform “cast-in drilled holes and 30 [inch] diameter piers, and related work for the Project” for an initial contract price of $418,132, “subject to additions and deductions for changes in the work.” Plaintiff acted unreasonably and breached the subcontract by various acts and omissions, including “failing to make payment to subcontractors, suppliers and materialmen and failing to complete the original scope of work . . . .” The cross-complaint’s first cause of action, for breach of contract, alleged, inter alia, plaintiff failed to fully perform obligations under the subcontract, including “[t]o make payments to subcontractors, suppliers and materialmen”; “[t]o complete the Subcontract work in accordance with the terms thereof and within the original Subcontract price”; “[t]o administer and perform [its] obligations in a manner that is consistent with the Subcontract’s requirements, the duty of due care, industry standards, customs, and practices, and the implied covenant of good faith and fair dealing,” and as a result of these “acts of breach,” the general contractor was “damaged in extra charges for property damages, backcharges for unacceptable work and/or deductions to the work, bond expenses and other disbursements and liabilities . . . .” The second cause of action, for express indemnity, alleged the subcontract provided for plaintiff to satisfy or cause to be removed any lien or claim of a “subcontractor, laborer, materialman or supplier” of plaintiff and to indemnify the general contractor from any such lien or claim or action brought thereon and from related losses and damages incurred by the general contractor.
The general contactor’s cross-complaint contained two more causes of actions, for equitable indemnity and declaratory relief, but plaintiff does not rely on these to support its contention the general contractor potentially made property damage claims.
Plaintiff cross-complained against the general contractor, seeking $381,000 in extra costs beyond the contract price.
In September 2002, defendant reiterated its position denying any duty to defend or indemnify plaintiff in the litigation, including the general contractor’s cross-complaint, “because the suit is for breach of contract . . . and does not seek damages due to bodily injury or property damage.” Defendant explained its position had not changed since its July 23, 2002 letter denying plaintiff’s defense or indemnity against the asphalt paver’s complaint; in that letter, defendant argued the paver’s cause of action against plaintiff for breach of contract triggered the policy’s breach of contract exclusion endorsement. Defendant requested and received advice of counsel on this issue; defendant’s attorney concluded defendant had no duty to defend plaintiff on either the paver’s complaint or the general contractor’s cross-complaint.
In the meantime, however, defendant did work on resolving claims related to the August and December 2001 property damage events. On or before August 6, 2002, defendant proposed to settle with the general contractor the claims related to the electrical equipment damage. Defendant suggested it “would take care of the damages with the [third] party entities, but . . . that [the general contractor] absorb any costs [it had] associated with this issue.” The general contractor replied favorably but asked to be reimbursed for a $750 invoice. On August 12, 2002, defendant emailed the general contractor with questions about the excessive vibration claim and asking if the general contractor would be “willing to split a compromised settlement.” Defendant stated it would “try to get the electrical damage claim out of the way in the next week or so then . . . try to wrap up this one as well.” Defendant’s subsequent notes of November 14, 2002 stated the vibration damages had been handled and the electrical damages had also been resolved with the exception of the utility company’s claim. As to the utility company’s claim, defendant left a message with the utility company and the utility company eventually sent defendant “supporting documentation to [the company’s] invoice . . . for damages to [its] electrical facilities.”
On appeal defendant contends it adjusted and settled all third party claims for property damage stemming from the August and December 2001 events, and its file notes entered into evidence below support that contention.
The litigation continued. In January 2003, in a response to plaintiff’s special interrogatory, the general contractor stated: “[The general contractor] contends that [plaintiff] failed to complete the original scope of work according to the terms of the Subcontract by various acts and omissions, including but not limited to, failing to make payment to subcontractors, suppliers and materialmen and failing to satisfy or discharge any claims brought by any subcontractor, supplier or materialman, failing to indemnify, protect and save harmless [the general contractor] from and against any claims and actions brought by any subcontractor, supplier or materialman, damaging existing structures and businesses at the Project, and failing to complete the original scope of work within the original Subcontract price. For example, [plaintiff’s] performance resulted in damage [to] existing structures, including electrical transformers and buildings adjacent to the Project. [Plaintiff] had a contractual obligation to protect adjacent structures and it failed to do so. In addition, [plaintiff] is alleging massive cost overruns for a scope of work that was not increased, but actually was decreased. These cost overruns have resulted in claims by [plaintiff’s] subcontractors, suppliers or materialmen against [the general contractor] and its bonding companies. [Plaintiff] has a contractual obligation to indemnify, protect and save harmless [the general contractor] from and against any claims and actions brought by any subcontractor, supplier or materialman and [plaintiff] has failed and refused to meet these contractual obligations. Also, [plaintiff] had the contractual obligations, among others, to drill holes, set the reinforcing steel and supply and install the concrete associated therewith. There were several instances, for varying reasons, where the work was done incorrectly or did not meet Project specifications and standards, and was the subject of additional communication, time, expense and extra work for [the general contractor] and others.” Also in January 2003, in response to plaintiff’s form interrogatory, the general contractor stated: “[R]esponding party is aware of property damage that occurred as a result of [plaintiff’s] acts and omissions. For example, responding party is aware . . . of damage to an electrical transformer on the Project and damages to structures surrounding and adjacent to the Project caused by [plaintiff’s] means and methods of construction.”
Still seeking defense and indemnity from defendant in the litigation, plaintiff forwarded to defendant the general contractor’s responses to interrogatories and argued these responses showed the general contractor “was making . . . property damage” claims.
In August 2004, plaintiff and the general contractor reached a settlement whereby the general contractor agreed to, inter alia, pay the asphalt paver and resolve claims of certain other subcontractors and suppliers against plaintiff, and the parties released each other from any other claims regarding their subcontract agreement, the Marsh Street Garage Expansion, and the asphalt paver’s lawsuit. In the settlement agreement, a recital states: “In [the asphalt paver’s] action, [plaintiff] cross-complained against [the general contractor] and [the general contractor’s insurer] and [the general contractor] cross-complained against [plaintiff], including allegations that [plaintiff] was responsible for property damage caused by its failure to properly perform the Subcontract. This damage was caused by [plaintiff] drilling into an underground power line and using a vibro hammer near an existing structure.”
In January 2006, plaintiff filed a first amended complaint against defendant for breach of contract and breach of the covenant of good faith and fair dealing, alleging it bought from defendant an insurance policy providing “that [defendant] will pay those sums that [plaintiff] becomes legally obligated to pay as damages because of ‘property damage’ to which the insurance policy applies” and will defend plaintiff “from any ‘suit’ seeking such damages, even if the allegations of the suit are groundless, false or fraudulent.” “While performing work on a project known as the ‘Marsh Street Parking Garage Expansion,’ (‘Project’), one of [plaintiff’s] drilling machines allegedly hit and damaged an underground main power feed from an electrical transformer, causing property damage. Also while working on the Project the vibration from [plaintiff’s] work allegedly caused property damage to a building adjacent to the Project.” “As a result of the alleged property damage caused by [plaintiff], the general contractor on the project, . . . filed a lawsuit against [plaintiff] (the ‘Lawsuit’) seeking, among other things damages based on the alleged property damage caused by [plaintiff],” although the Lawsuit’s causes of action were “styled” otherwise. Plaintiff “promptly notified [defendant] of the Lawsuit and requested that [defendant] defend and indemnify [plaintiff] pursuant to the Policy. [Plaintiff] also notified [defendant] of extrinsic facts to show that the Lawsuit, regardless of how it was styled by [the general contractor’s] attorneys, was actually one for property damage at the Project . . . .” “[Defendant] denied coverage to [plaintiff] on the false grounds that the Lawsuit was based only on [plaintiff’s] alleged breach of contract, and that such breach of contract claim was excluded under the Policy.” “[A]t the time of denying coverage, [defendant] knew that [plaintiff’s] potential liability in the Lawsuit was based on the alleged property damage, and not simply breach of contract.” “[Plaintiff] was forced to defend the Lawsuit on its own” and “ultimately forced to settle the Lawsuit on its own.” Plaintiff sought compensatory and punitive damages from defendant.
At trial, plaintiff’s president, Salvador Altamirano, testified, inter alia, as follows: Plaintiff never paid any money directly to any property damage claimant. The actual property damage claimants, i.e., the adjoining building owner, the utility company, the parking garage and the sports facility, never sued plaintiff for that damage. At the time the general contractor filed its cross-complaint, it was withholding amounts including $17,000 for the electrical property damage and around $3,200 for the “vibration claim.” Plaintiff would not have settled its cross-complaint against the general contractor seeking $381,000 in extra costs if defendant had defended plaintiff in the litigation. The $381,000 request was actually “the net after paying the suppliers,” so plaintiff’s actual request was for over $400,000 for “extra costs.” Plaintiff did not tell the general contractor of the amount of any extra costs allegedly owed plaintiff until after the completion of the project. Plaintiff believed defendant was obligated to “pay for the legal costs involved in [its] cross-complaint against [the general contractor].” One reason plaintiff gave up its counterclaim as part of the settlement was that plaintiff was “told . . . that if [it] was going to recuperate [its] $429,000 [in extra costs], [plaintiff] was going to spend $300,000 in fighting the issue.”
Defendant moved for nonsuit, drawing the court’s attention, inter alia, to the breach of contract exclusion endorsement. The court took the motion under submission, then denied it following the jury verdict.
The jury’s general verdict awarded plaintiff damages of $462,000. Based on the evidence before the jury, and plaintiff’s argument to the jury, the great bulk of these damages was based on plaintiff’s claim against the general contractor for extra costs under the subcontract ($381,000), and attorney fees incurred in defending the general contractor’s lawsuit ($61,000). In addition, plaintiff had asked the jury to award $30,000 to prosecute the complaint against defendant, but the jury apparently awarded only $20,000 for that effort.
Defendant moved for judgment notwithstanding the verdict (JNOV), arguing, inter alia, it was “entitled to judgment in its favor based upon the plain meaning of the contractual terms”; the interpretation of the contract was a “question of law to be determined by the court and not the jury”; and “[a]ny suit by [the general contractor] involved [plaintiff’s] contractual obligations to [the general contractor].” In its written opposition to the JNOV motion, plaintiff argued, inter alia, there were “two relevant coverage provisions of the policy: (1) the insuring clause that requires [defendant] to defend all claims for damage ‘because of’ property damage; and (2) the exception to the policy exclusion for contractual liability — which provides that coverage is provided for liability ‘assumed in a contract that is an insured contract’ or ‘that the insured would have in the absence of the contract . . . .’”
Defendant also moved for a new trial, arguing, inter alia, that an irregularity in the proceedings occurred when “the court submitted the entire undifferentiated controversy to the jury, including the question of interpretation of the contract which, under all authority, is a question of law for the court.” In its written opposition to defendant’s new trial motion, plaintiff argued, inter alia, defendant erroneously characterized the interpretation of a contract as a question of law and, furthermore, “the issues involving coverage did not require a legal ‘interpretation’ of the insurance contract.”
At the hearing on defendant’s JNOV and new trial motions, the court expressed a concern about the “propriety” of submitting to the jury contract interpretation issues which were questions of law. Ultimately the court denied defendant’s motions, finding “even if there was error, there was not a miscarriage of justice.” The court explained: “[E]ven if the issue of the duty to defend was, as moving party contends, strictly a legal issue, the failure of the Court to decide that issue before submission to the jury would not be a basis for granting either motion under the applicable law as it relates to why the duty to defend arises. Although the Court did not announce, prior to the submission of the matter to the jury, that as a matter of law there was a duty to defend, it is clear to the Court that duty existed in this case. This would be the result whether or not the extrinsic facts are considered. The court has also considered all other grounds advanced in connection with both motions, and the motions are denied on all grounds.” The court entered judgment on the jury’s verdict plus interest and costs.
DISCUSSION
The Breach of Contract Exclusion Endorsement Excluded Coverage Under the Insurance Policy for the General Contractor’s Claims Against Plaintiff
Defendant correctly contends the interpretation of the insurance policy was a question of law that should not have gone to the jury. “It is well established that it is ‘“solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence.”’” (Silva & Hill Constr. Co. v. Employers Mut. Liab. Ins. Co. (1971) 19 Cal.App.3d 914, 921; Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) Here, because the parties introduced no extrinsic evidence at trial to aid in interpreting the policy, we interpret it de novo.
Although plaintiff claims to have introduced “considerable ‘extrinsic evidence’ . . . for the purpose of showing that [the general contractor] had sued [plaintiff] for damages because of property damage,” plaintiff does not contend extrinsic evidence was offered to aid in interpreting the insurance policy nor do we discern any such evidence in the record.
“While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) “To yield their meaning, the provisions of a policy must be considered in their full context. [Citations.] Where it is clear, the language must be read accordingly. [Citations.] Where it is not, it must be read in conformity with what the insurer believed the insured understood thereby at the time of formation [citations] and, if it remains problematic, in the sense that satisfies the insured’s objectively reasonable expectations . . . .” (Buss v. Superior Court (1997) 16 Cal.4th 35, 45.) In addition, the language must be read in its “‘“ordinary and popular sense,” unless “used by the parties in a technical sense or a special meaning is given to them by usage.”’” (Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.) “A policy provision is ambiguous only if it is susceptible to two or more reasonable constructions despite the plain meaning of its terms within the context of the policy as a whole.” (Ibid.) “Courts will not strain to create an ambiguity where none exists.” (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at pp. 18-19.)
As discussed above, the insurance policy here contained two separate provisions excluding coverage for contractual claims: (1) the endorsement which contained no exceptions, and (2) the exclusion in the CGL form which was subject to two exceptions (including one for defined “insured contracts”).
Defendant contends the breach of contract exclusion endorsement supersedes the CGL form’s contractual liability exclusion and its exceptions. Defendant further asserts the general contractor’s claims were “limited to contractual defaults” of plaintiff and were therefore excluded from coverage under the insurance policy.
Plaintiff counters with several arguments, first contending defendant waived the issue by inadequately addressing it in the opening brief. Not so. Defendant adequately briefed us on the breach of contract exclusion endorsement. Because defendant does not rely on the CGL form’s contractual liability exclusion, no extended discussion of that provision was necessary.
Plaintiff next asserts the endorsement “applies only to the ‘products/completed operations liability coverage form,’ which is coverage for ‘completed products’ or ‘completed operations.’” Plaintiff reads the completed operations coverage as a subpart of the general liability coverage, and argues the endorsement applies only to that subpart. Contrary to plaintiff’s averment, the endorsement lists the coverages to which it applies. The first item in the list is the “commercial general liability coverage part.” The second item in the list is the “products/completed operations liability coverage form.”
That the description of coverages to which the endorsement applies is a list, and not the designation of a limited portion of a larger coverage, becomes apparent when the form and structure of other policy endorsements are examined. For example, an endorsement titled “liability deductible endorsement,” similarly states it “modifies insurance provided under the following:
“LIQUOR LIABILITY COVERAGE PART
“COMMERCIAL GENERAL LIABILITY COVERAGE PART
“PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART
“OWNERS AND CONTRACTORS PROTECTIVE LIABILITY COVERAGE PART”
Plaintiff’s interpretation of the policy, as applied to this endorsement, would result in the “owners and contractors protective liability coverage part” being the only coverage affected by the endorsement, despite the fact no such coverage is described anywhere in the policy. Thus, plaintiff’s theory would be that “owners and contractors protective liability coverage” is a limited subpart of the “products/completed operations liability coverage,” which in turn is a limited subpart of “commercial general liability coverage,” and which, finally, is a limited subpart of the “liquor liability coverage.” In other words, we would search through the “liquor liability coverage part,” if it existed, in a vain effort to find the broader “commercial general liability coverage” within the “liquor liability coverage,” and then, while still within the “commercial general liability coverage” of the “liquor liability coverage,” we would search for the “products/completed operations coverage,” and when that was found, we would continue to look for the “owners and contractors protective liability coverage.” Reduced to this absurdity, plaintiff’s argument is seen to be inconsistent with the overall structure of the policy. The absurd is avoided only by reading the insurance coverages to which the endorsements apply as a list of the affected coverages, not as a series of modifiers of other coverages.
The policy does contain an “additional insured — owners, lessees or contractors” endorsement adding “E.L. Yeager Construction Co., Inc.” as an additional insured under the policy.
Thus, the “breach of contract exclusion” endorsement applies to both the “commercial general liability coverage part” and the “products/completed operations liability coverage form.” Plaintiff acknowledges “this case involves the ‘Commercial General Liability Coverage Form’ of [the insurance] policy because [plaintiff] caused the property damage at the early stage of construction of the Project.”
We note, however, the policy does not contain a form titled “products/completed operations liability coverage.” Whether the insurance provided coverage for products or completed operations is irrelevant, however, because the only property damage at issue in this case occurred before plaintiff’s operations were completed.
Plaintiff further posits that “even if the [endorsement] applied, it could not override the ‘exceptions’ to the contractual liability exclusion (otherwise, the exclusions would be contradictory and therefore ambiguous, which would require that the policy be interpreted in favor of coverage).” But endorsements generally do override the standard form portion of an insurance policy. “‘[I]f there is a conflict in meaning between an endorsement and the body of the policy, the endorsement controls.’” (Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 50, fn. 4; Donahue Constr. Co. v. Transport Indem. Co. (1970) 7 Cal.App.3d 291, 299; see also Civ. Code § 1651 [written parts of contract control printed parts, and purely original parts control those copied from a form].)
Plaintiff does not contend the endorsement was not conspicuous, plain and clear. (See Crosky et al., Cal. Practice Guide: Insurance Litigation, (The Rutter Group 2007) § 4:278, p. 4-33.)
Finally, plaintiff contends “to apply the [endorsement] to bar this claim would completely negate the insured’s reasonable expectations,” arguing it did not expect “that, by entering into a subcontract with the general contractor containing an indemnity provision, [plaintiff] would lose coverage for tort-based liability . . . assumed under the subcontract.” But an “insured’s objectively reasonable expectations” are used to interpret a policy only if the contract’s language is unclear. (Buss v. Superior Court, supra, 16 Cal.4th at p. 45.) Here, the breach of contract exclusion endorsement’s language is clear and unambiguous. Furthermore, the insurance policy did insure plaintiff against tort liability for property damage; only contractual liability for such damage was excluded. (In other words, plaintiff did not lose any coverage by entering into the subcontract; rather, under the subcontract, plaintiff incurred contractual liability which was never covered under the insurance policy.) Plaintiff also argues the endorsement “does not reference or supersede the standard contractual liability exclusion,” and thus “there could be no expectation that coverage would be limited.” This argument lacks merit. The endorsement clearly stated it changed the policy (which included the contractual liability exclusion in the CGL form).
We conclude the breach of contract exclusion endorsement excluded coverage of contractual claims under the insurance policy. The language of the endorsement is clear. “This insurance does not apply to claims for breach of contract, . . . whether ‘bodily injury’, ‘property damage’, ‘advertising injury’, ‘personal injury’ or an ‘occurrence’ is alleged. [¶] . . . [¶] Furthermore, no obligation to defend will arise or be provided by [defendant] for such excluded claims.”
But we must still determine whether defendant breached the insurance policy by failing to defend plaintiff against the general contractor’s cross-complaint. To answer this question we examine whether the factual allegations of the general contractor’s cross-complaint and the extrinsic evidence available to defendant revealed the potential that any claim of the general contractor was covered by the insurance policy (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 19), i.e., whether any potential non-contractual claim for property damage existed.
We turn first to the general contractor’s cross-complaint. The lone reference to “property damage” appears in the breach of contract cause of action, where the general contractor contends that as a result of plaintiff’s “acts of breach,” the general contractor was damaged “in extra charges for property damages.” (Italics added.) Thus, the general contractor claimed to have suffered extra charges for property damage as a result of plaintiff’s breach of the subcontract, i.e., a contractual claim. In the absence of the breach of contract exclusion endorsement, this allegation would have triggered a duty to defend, but under the plain language of the endorsement, defendant had no such duty.
As extrinsic evidence of potentially covered claims, plaintiff relies on the general contractor’s responses to interrogatories and correspondence concerning property damage, as well as on the settlement agreement. But the general contractor’s pertinent interrogatory responses couch its property damage complaints in terms of plaintiff’s breach of contractual obligations. Likewise, the settlement agreement recites plaintiff “was responsible for property damage caused by its failure to properly perform the Subcontract” and never states or suggests the general contractor itself suffered property damage caused by plaintiff. Finally, the only references to property damage in the general contractor’s letters to plaintiff (included in the record) concern the August and December 2001 vibratory hammer and electrical transformer events. Plaintiff’s only liability to the general contractor for those events was contractual, founded on plaintiff’s obligation under the subcontract to indemnify the general contract against third party tort claims, since the general contractor itself suffered no property damage from those events. We conclude defendant had no duty under the insurance policy to defend plaintiff against the general contractor’s cross-complaint.
Assuming the jury awarded plaintiff any bad faith damages, a “‘“breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself” and it has been held that “[b]ad faith implies unfair dealing rather than mistaken judgment.”’” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.) Because we conclude defendant did not breach any contractual duty under the policy, we correspondingly determine defendant’s refusal to defend was not unreasonable and was not made in bad faith.
DISPOSITION
The judgment is reversed and remanded with directions to enter judgment for defendant. Defendant shall recover its costs on appeal.
WE CONCUR: O’LEARY, ACTING P. J., MOORE, J.