Number of “occurrences” to determine policy limits in construction defect cases in California | Snell & Wilmer
Insurance policies generally have different policy limits depending on the number of “occurrences”. For example, the amount of money recoverable under an insurance policy may be $ 5 million per event with an aggregate limit of $ 20 million. Therefore, when determining policy limits, deductible liability, or contemplating a settlement in a construction defect case, parties must consider two issues. First, what constitutes an event in the context of a construction defect? Second, how do the courts determine the number of occurrences?
First, parties should be aware that what constitutes an event will generally be defined by applicable policy. In cases of construction defects, insurance policies generally define an event as “an accident, including continuous or repeated exposure to the same or similar adverse conditions” which results in property damage. See, for example, Safeco Ins. Co. of America v. Fireman’s Fund Ins. Co., 148 Cal.App. 4th 620, 631 (Cal.App. 2007); Tidwell Enterprises, Inc. v. Financial Pacific Ins. Co., Inc., 6 Cal.App. 5th 100, 107 (Cal.App. 2016). However, parties should consider the definition of an event in the specific policy applicable to their project to determine coverage.
Second, parties should be aware that courts usually determine the number of events under an insurance policy (and therefore policy limits) based on the causes of the damage, not the type or amount. For example, in Ins. Co. v. Liberty Surplus Ins. Co., faulty work by a subcontractor caused water intrusion in several areas of a casino. 2014 WL 12558121, at * 1 (CD Cal. April 9, 2014). The California court found that there had been two separate events: (1) improperly installed handrails and (2) faulty installation of window systems and sliding doors. Identifier. to 6. The court explained that if a single injury, such as a water intrusion, has multiple causes, there have been multiple occurrences under an insurance policy. Identifier. at 5. If, however, the large-scale water intrusion had been caused solely by the failure to apply the sealant, it likely would have been a one-time event. Identifier. to 6.
Likewise, in Liberty Mutual Fire Ins. Co. v Bosa Devel. California II, Inc., a developer and an insurance company were arguing over the number of incidents under an insurance policy after defects were discovered in a condominium project. 2020 WL 1864645, at * 1 (SD Cal. April 13, 2020). The promoter argued that there had been one event: his negligent supervision of several subcontractors. Identifier. to 6. The court disagreed and ruled that there had been three events: (1) the negligent installation of flat concrete, balconies and waterproofing, (2) a faulty plumbing installation and (3) the selection of unsuitable construction materials. Identifier. to 8. The court invalidated the proponent’s argument, explaining that if the negligent supervision of a general contractor constituted a single event, “there would never be more than one event during the same construction project. construction, regardless of the variety of damage ”. Identifier.
Therefore, parties involved in a construction defect case should pay close attention to the cause of the alleged damage. If all damage is from a single source or process, this may constitute a single event for the purposes of determining policy limits. Conversely, if there is a single type of damage caused by multiple failures, it may constitute more than one event and trigger higher policy limits. Consulting a competent insurance lawyer may be a suitable first step.