Clarendon America Insurance v. North American Capacity Insurance

Opinion

KING, J.

I. INTRODUCTION

Eagle Ranch Residential, LLC, doing business as Tanamera Homes and Resort Communities, LLC (Tanamera), constructed a residential development in Victorville known as Shenandoah at Eagle Ranch (Eagle Ranch). Clarendon America Insurance Company (Clarendon) and North American Capacity Insurance Company (NAC), the parties to the present action, insured Tanamera under separate and consecutive general commercial liability policies.

In the present action, Clarendon sued NAC for declaratory relief, equitable contribution, and partial equitable indemnity, seeking a proportionate or equitable share of sums Clarendon expended to defend Tanamera in a construction defect action brought by the owners of 43 Eagle Ranch homes (the Bradley action).

1

NAC moved for summary judgment on the ground its duty to defend Tanamera in the Bradley action never arose because Tanamera never paid a $25,000 “per claim” self-insured retention (SIR) for

each home

involved in the Bradley action and completed after November 30, 2002, the effective date of the NAC policy.

[560]

Only eight of the 43 homes involved in the Bradley action were completed after November 30, 2002. Thus, NAC argued it had no duty to defend Tanamera unless and until Tanamera expended $200,000 (eight times $25,000) of its own funds in settlements, judgments, or “Claims Expense[s].” Clarendon maintained that the $25,000 SIR in the NAC policy applied only one time to the Bradley action as a whole, not to each of the eight allegedly defective homes covered by the NAC policy. The trial court granted NAC’s motion, and Clarendon appeals from the ensuing judgment entered in favor of NAC.

We reverse. For the reasons we explain, NAC did not meet its burden of showing there was no potential for coverage under the terms of its policy, or no duty to defend Tanamera in the Bradley action, as a matter of law. NAC relied solely on the terms of its $25,000 SIR endorsement to support its motion, but in view of other terms of the NAC policy and the apparent circumstances at the time the policy was issued, as revealed by the evidence on the motion, Tanamera may have had an objectively reasonable expectation, at the time the policy was issued, that the $25,000 SIR would apply only once to the Bradley action as a whole, rather than to each of the eight homes constructed after November 30, 2002. NAC failed to show that Tanamera had no such reasonable expectation, as a matter of law, and all of the papers submitted on the motion leave this possibility open. Accordingly, NAC’s motion was erroneously granted.