Circuit Says: Exclusion Precluded Coverage of Vineyard Owner’s Claims against Insureds

The U.S. Court of Appeals for the Ninth Circuit has affirmed a decision by the U.S. District Court for the Northern District of California that an insurer was not obligated to defend its insureds in an action brought by a vineyard owner against them.

The Case

The owner of a vineyard sued Jack Neal & Sons, Inc., and Jack Neal (together, “JNS”), alleging that JNS’s improper development and management of his vineyard had caused property damage.

The district court ruled that Unigard Insurance Company did not owe a duty to defend JNS in the vineyard owner’s lawsuit. The vineyard owner appealed to the Ninth Circuit.

The Ninth Circuit’s Decision

The circuit court affirmed.

In its decision, the Ninth Circuit agreed with the district court that coverage of the vineyard owner’s claims was precluded by Exclusion J(5) of Unigard’s insurance policy, which stated that Unigard’s policy did not cover “property damage” to “[t]hat particular part of real property on which you … are performing operations, if the ‘property damage’ arises out of those operations.”

According to the Ninth Circuit, the district court had properly construed the phrase “that particular part of real property” to cover the vineyard owner’s entire vineyard, which JNS had been hired to develop and manage.

Moreover, the circuit court continued, the district court had properly concluded that the phrase “are performing operations” did not exclude only property damage that developed simultaneously as the work was being performed, but also property damage that clearly flowed from the insured’s work on the property.

The Ninth Circuit concluded that all of the property damage alleged by the vineyard owner in his lawsuit arose out of JNS’s operations. Therefore, Exclusion J(5) relieved Unigard of its duty to defend JNS.

The case is Arroyo v. Unigard Ins. Co., No. 14-16878 (9th Cir. Oct. 20, 2016).