In Construction Defect Coverage Case, California Appeals Court Decides That Flooring Failure Was Not an Occurrence

An appellate court in California, affirming a trial court’s decision, has ruled that an insurer had no duty to indemnify its insured, a licensed general contractor, in a construction defect case where the contractor’s action that led to the defect had been deliberate.

The Case

D.B.O. Development No. 28 entered into a construction contract with Moorefield Construction, Inc., for Moorfield to be the general contractor for the construction of a shopping center in Visalia, California.

Several years after the construction was completed, the owner of a building in the center, JSL Properties, LLC, sued Moorefield and DBO for breach of the construction contract and negligence based on claims that the flooring had failed. DBO filed a cross-complaint against Moorefield and various subcontractors for indemnity.

The insurance company that had issued commercial general liability insurance policies to Moorefield accepted its tender of defense, subject to a reservation of rights.

After JSL’s lawsuit was settled, the insurer filed a lawsuit seeking a declaration that it had no duty under its policies to defend or indemnify Moorefield. The insurer contended that the flooring failure was not a covered occurrence under its policies because it was not the result of an accident.

Following a bench trial, the trial court found there was no covered occurrence under the policies because Moorefield had directed the flooring subcontractor to install the flooring despite Moorefield’s knowledge that moisture vapor emission from the concrete slab exceeded specifications.

Moorefield appealed.

The Appellate Court’s Decision

The appellate court affirmed.

In its decision, the appellate court explained that the policies defined “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” It added that, under applicable California law, an accident did not occur when the insured performed “a deliberate act” unless some “additional, unexpected, independent, and unforeseen happening” occurred that produced the damage.

Here, the appellate court continued, the most likely cause of the flooring failure was moisture vapor emitted from the concrete slab. The appellate court then ruled that Moorefield’s conduct was not an accident because it was “a deliberate decision made with knowledge that the moisture vapor emission rate from the concrete slab exceeded specifications.” The flooring failure, the appellate court declared, had not been produced by an additional, unexpected, independent, and unforeseen happening and, therefore, was not an occurrence under the policies that had been issued to Moorfield.

Accordingly, it concluded, the insurer had no duty to indemnify Moorefield.

The case is Navigators Specialty Ins. Co. v. Moorefield Construction, Inc., No. G050759 (Cal. Ct. App. Dec. 27, 2016).