Citations
- 137 Cal. App. 4th 557
Full opinion text
Opinion
WOODS, J.—
INTRODUCTION
Oak Park Calabasas Condominium Association (Oak Park) appeals from an adverse judgment in favor of State Farm Fire and Casualty Company (State Farm) following a court trial in which the court determined that State Farm’s policy of insurance with Oak Park offered no potential for coverage in the underlying action, leading the court to conclude State Farm did not breach its duties to defend or to indemnify Oak Park. For the reasons hereafter stated we affirm.
FACTUAL AND PROCEDURAL SYNOPSIS
Underlying litigation with ECC.
In January of 1994 the Northridge earthquake occurred. Oak Park structures suffered considerable damage. As a result, Oak Park made agreements with a construction company by the name of ECC to repair the damaged structures. Following several contractual modifications, Oak Park refused to pay the remaining amounts due under the contract. ECC recorded a mechanic’s lien on the Oak Park complex on June 1, 1995. In July 1995 ECC filed an action against Oak Park and the owners of the condominiums containing causes of action for breach of written contract, foreclosure of mechanic’s lien, reasonable value of services rendered, failure to release retention proceeds in violation of Civil Code section 3260 and fraud.
Cross-complaints were filed in October 1995 by several condominium owners who had been sued in ECC’s action. For brevity, these cross-complaints are referred to as the Reinglass cross-complaints. In the same month another owner filed a cross-complaint against Oak Park which we refer to herein as the Brenner cross-complaint. Reinglass and Brenner alleged that Oak Park had been negligent in its handling of ECC’s claims and had breached a number of duties to the owners.
Oak Park’s tender of defense to State Farm.
Following service of the ECC complaint, Oak Park tendered the defense of all named defendants to State Farm, which State Farm acknowledged in its letter to Oak Park dated August 1, 1995.
Shortly thereafter State Farm responded to Oak Park’s tender letter by raising a number of directors’ and officers’ liability coverage (D & O) questions, namely, whether: the loss was due to wrongful acts solely related to management responsibilities; the loss involved criminal or fraudulent conduct; the loss involved excluded damages of bodily injury; property damage and personal and advertising injury; the loss involved Oak Park getting a profit; the homeowners were insureds; and whether the loss arose out of a contract.
State Farm’s response letter indicated it would take longer to decide whether or not it would provide a defense than the time for Oak Park to respond to the lawsuit and further advised Oak Park and the owner defendants to take any action they deemed necessary to defend the litigation and if State Farm’s investigation revealed it owed a duty to defend it would reimburse the costs of defense.
State Farm’s refusal to defend on the ECC complaint but acceptance of defense on the cross-complaints.
In its denial of defense to the ECC litigation to Oak Park and its owners, State Farm explained in a letter dated November 7, 1995, that “this case is not the type of claim that would be covered through State Farm. Thus, we will not be able to assist in the defense of the action." State Farm further explained that “Our Liability coverage is only for tort liability. We do not insure for a contractual obligation of the type set forth in this lawsuit.” However, State Farm did ultimately accept the defense of Oak Park and its board of directors in the Reinglass and Brenner cross-complaints under the D & O coverage.
Judgment for ECC against Oak Park in the underlying litigation.
In 2002, the matter was tried before a jury, but before the trial the claims against the individual condominium owners were resolved by summary judgment and the claims dismissed. The decision of the trial court was affirmed by the Court of Appeal in an unpublished opinion. The dismissal of the condominium owners resolved the Brenner and Reinglass cross-complaints against Oak Park.
The judgment incorporates the jury’s special verdict on each issue presented to it and indicates that ECC was entitled to judgment against Oak Park for breach of contract, for failure to release retention proceeds and fraud. Damages were awarded to ECC on the breach of contract claim for $4,132,434, on the failure to release retention proceeds claim for $1,547,120, on the fraud claim for $1,170,519 and punitive damages in the sum of $268,000. The court awarded ECC attorney’s fees of $268,000 and costs of $250,194.14.
The court conditionally granted Oak Park’s motion for new trial on the condition that ECC consent to reduce the judgment to $7,154,544.70 to which ECC agreed and judgment was entered accordingly.
Synopsis of trial court proceedings by Oak Park against State Farm.
In March of 2003, Oak Park filed its complaint against State Farm. By stipulation the parties agreed that the action be tried in phases, with the first phase being a bench trial on the coverage issue. The first phase of the trial occurred on September 8, 2004, and the court took the matter under submission and issued its ruling on November 8, 2004, concluding that State Farm’s policy defined “wrongful acts” to include only negligent breaches of duty—not breaches of contractual duties, thus determining the policy did not provide for any potential coverage for the ECC action and accordingly entered judgment for State Farm on November 30, 2004. Notice of entry of judgment was served on November 30, 2004.
Oak Park filed a timely notice of appeal on January 19, 2005.
DISCUSSION
Standard of Review
Phase one of the trial in this case was based on stipulated facts. Absent a factual dispute as to the meaning of policy language, the interpretation, construction and application of an insurance contract is strictly an issue of law. Here, the trial court made a determination that no coverage existed based on its construction of the State Farm insurance policy in question. Specifically, the question here turned on the meaning of the term “wrongful acts” in the insurance policy and the trial court determined wrongful acts meant only negligent conduct, not a breach of duty imposed by the contract. Thus, the only issues presented for review are purely questions of law and the settled rule is that questions of law are subject to independent review by this court. (Crocker National Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888 [264 Cal.Rptr. 139, 782 P.2d 278].)
State Farm’s policies of insurance with Oak Park.
The insuring language pertinent to the issues in this appeal provide as follows:
“SECTION L—
“BUSINESS LIABILITY [<[[] We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury, property damage, personal injury or advertising injury to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments. This insurance applies only:
“1. To bodily injury or property damage caused by an occurrence which takes place in the coverage territory during the policy period;
“2. To personal injury caused by an occurrence committed in the coverage territory during the policy period. The occurrence must arise out of the conduct of your business, excluding advertising, publishing, broadcasting or telecasting done by or to you;
“3 To advertising injury caused by an occurrence committed in the coverage territory during the policy period. The occurrence must be committed in the course of advertising goods, products or services.”
Also included in the policies was optional coverage entitled “OPTION DO.” The pertinent portion of that insuring agreement provides:
“OPTION DO—
“Directors and Officers Liability
“1. We will pay those sums that the insured becomes legally obligated to pay as damages because of wrongful acts committed by an insured solely in the conduct of their management responsibilities for the Condominium/Association. [