Can an intentional act really result in an accident?

CONSTRUCTION CORNER

Here's one to check off your bucket list of ponderables: If you engage in an intentional act that results in an unintended accident, is it an really an accident?

In Navigators Specialty Insurance Company v. Moorefield Construction, Inc., 6 Cal. App. 5th 1258 (2016), the 4th District Court of Appeal, which isn't shy about tackling the big questions of our time, put this one to bed.

The Case

In 2003, general contractor Moorefield Construction, Inc. entered into a construction contract with developer D.B.O. Development No. 28 for the construction of a Best Buy store in Visalia, California. The construction was completed, apparently without a hitch, and the store opened later that year.

But like all riveting stories, and court cases, all was not as it appeared. As early as the grand opening of the store and through 2009, Best Buy noticed that the carpet tiles were not sticking to the floor, that the edges of the carpet tiles were curling, that moisture and adhesive was oozing through the carpet tile edges, and that there was staining along the edges of the carpet tiles. Oh, and there were odors. Not pleasant.

In 2009, Best Buy notified the building owner JSL Properties, LLC that it would be replacing the carpet tiles and withholding rent under its lease. Best Buy completed the flooring repairs later that year and withheld $377,404 from rent.

In 2010, JSL filed suit against Moorefield and DBO to recover the rental amounts withheld by Best Buy. DBO, not at all surprisingly, in turn filed a cross-complaint against Moorefield and others asserting various causes of action including equitable indemnity.

Upon being sued, Moorefield tendered JSL's complaint and DBO's cross-complaint to its commercial general liability insurer, Navigators Specialty Insurance Company, which accepted tender under a reservation of rights, which will become important later.

During the course of litigation it was discovered that prior to installing the carpet tiles Moorefield ran two series of moisture tests on the underlying concrete slab. Under the terms of the construction contract, the slab on grade's maximum moisture content was not to exceed five pounds per 1,000 square feet. Both moisture tests, as it turns out, revealed that the moisture content exceeded the contract limit. However, rather than wait for the moisture content to fall, and to avoid a potential delay in the store opening (haste makes waste, comes to mind), Moorefield directed its flooring subcontractor to install the carpet tiles.

In 2013, the parties settled for $1.3 million with Navigators, on behalf of Moorefield, contributing its policy limit of $1 million. How a $337,404 claim turned into a $1.3 million settlement, I don't know. But more importantly, Navigators thereafter filed suit against its insured, Moorefield, seeking an order from the court that it had no duty to defend or indemnify Moorefield under its commercial general liability policy.

Specifically, Navigators argued that because its policy only covered bodily injury or property damaged caused by an "occurrence" which was in turn defined in the policy as "an accident, including continuous or repeated exposure to the substantially the same general harmful conditions," that there was no coverage, because Moorefield deliberately directed its flooring subcontractor to install the carpet tiles despite the higher than contractually permitted maximum moisture content, thus there was no "accident," and by extension, no "occurrence."

Following a six-day bench trial the trial court found in favor of Navigators. Moorefield appealed.

The Court of Appeal

On appeal, the Court of Appeal affirmed and reversed in part.

While Navigator's policy did not define what constitutes an "accident," explained the Court of Appeal, California case law does. "In the context of liability insurance," held the court, "an accident is 'an unexpected, unforeseen, or undesigned happening or consequence from either a known or unknown clause.'" and "[t]his common law construction of the term 'accident' becomes a part of the policy" (citing Delgado v. Interinsurance Exchange of Automobile Club of Southern California, 47 Cal. 4th 302, 308 (2009).

Further, explained the Court of Appeals "[u]nder California law, the word 'accident' in the coverage clause of a liability policy refers to the conduct of the insured for which liability is sought to be imposed on the insured," however, "[w]here the insured intended all of the acts that resulted in the victim's injury, the event may not be deemed an 'accident' merely because the insured did not intend to cause the injury" (citing Delgado, 47 Cal. 4th at 311; Fire Ins. Exchange v. Superior Court, 181 Cal. App. 4th 388, 392 (2010).

And, here, held the court, Moorefield knew the vapor emission test results exceeded the specifications, yet directed its subcontractor to install the carpeting tiles anyway. Moreover, explained the court, the testimony of Moorefield's president and project manager that there was little to no risk installing the carpet tiles was irrelevant since "[a]n insured's mistake of fact or law does not transform and intentional act into an accident."

The Building Industry Legal Defense Foundation filed an amicus curiae brief in support of Moorefield arguing that construction defects should always be deemed an "occurrence" under a commercial general liability policy, even when a contactor intentionally performs work with knowledge that its work could lead to harm, since the harm itself is fortuitous and unintended and therefore an "accident."

In response, the Court of Appeal emphasized that it was not deciding whether all construction defects are "occurrences" under a commercial general liability policy, but rather, only whether Moorefield's conduct constituted an accident under the policy at issue. And here, concluded the court, Moorefield's conduct was not an accident because it was a deliberate decision made with knowledge that the test results exceeded specifications.

Conclusion

For contractors, Moorefield is a warning that where an insured engages in a deliberate act with knowledge that a particular harm is likely to occur, no coverage will likely be found, unless, of course, since we're dealing here with contracts, a contrary intent is clear from the language of the insurance policy. But like the Socratic method employed your favorite, or not so favorite, law school professor, answers to questions often beget other questions. Such as when is an act deliberate? When is a harm foreseeable? And other such intriguing questions. Which is why that bucket list of ponderables, at least for us lawyers, never seems to end.