Reliance Insurance Company v. Aetna Casualty and Surety Company
Published: Aug. 15, 1998 | Result Date: Jun. 4, 1998 | Filing Date: Jan. 1, 1900 |Case number: C9320561RMW Bench Verdict – $329,476
Judge
Court
USDC Northern
Attorneys
Plaintiff
Defendant
Experts
Plaintiff
Henry Haxo
(technical)
Defendant
David Heryet
(technical)
Facts
The San Juan Group, a California limited partnership, composed of FNS Mortgage Service Corp. and PGG Real Estate Investors, the developer, owned a development project called the Park City Apartments located in Sacramento. The San Juan Group had contracted with Pacific General Group (PGG) on April 9, 1985, to be the general contractor at the Park City Apartments. PGG subcontracted with Pacific Plumbing and Heating Corporation (PPHC) on May 9 to install the plumbing system at the project. From June 1985 to approximately February 1986, PPHC installed ABS drain, waste and vent pipe in the project's plumbing system. The pipe was supplied by P.E. O'Hair and manufactured by Centaur Manufacturing Company Inc. PPHC filed a notice of completion dated February 12. The notice of completion for the entire project was dated October 8. The Centaur ABS pipe installed by PPHC began to deteriorate immediately upon installation and continued to deteriorate. On April 30, 1990, FNS Mortgage Service Corp., PGG Real Estate Investors and the San Juan Group filed a complaint against PGG and PPHC. The underlying complaint alleged that the cracking in the ABS pipes caused leaks at the project, and that the leaks caused property damage to the Park City project. The complaint set forth breach of contract and breach of warranty claims, as well as tort claims for strict liability and negligence. The complaint alleged that the cracked pipes caused or potentially would cause "damage to the Project, personal property and fixtures therein, and to the real and personal property of others, and diminishing the value of the Project as a whole." The plaintiffs in the underlying action stated that they discovered that the pipes were defective in 1989. However, PPHC apparently began repairing leaks at its own expense as early as May 1986 and continued to do so through September 1990. PPHC work orders verified service calls in the fall of 1986 and the former president of PPHC testified that he knew as early as May or April 1986 that there were problems with the ABS pipes because of the number of call-backs and problems with the ABS pipes at other sites. This underlying action settled in early 1994 for $2,405,000. The settlement was confirmed by an agreement dated May 11, 1994. This settlement figure was based on the cost of removal and replacement of the defective pipe, the amount of lost rents, and the amount of attorney fees incurred by the plaintiffs in the underlying action. The plaintiffs in the underlying action based their claim for attorney fees on contractual provisions contained in PGG's contract and PPHC's subcontract. Reliance Insurance Company, on behalf of PGG, contributed $850,000 toward settlement. Royal Insurance Company, on behalf of PPHC contributed $490,000. Reliance, who had defended its insured (PGG) in the underlying action, paid $464,725.08 in defense expenses. Royal, who had defended its insured (PPHC), paid $349,135.17 in defense expenses. FNS Mortgage Service Corporation had obtained two general liability policies from defendant Aetna Casualty & Surety Company covering the policy periods of Nov. 8, 1984, to Nov. 8, 1985, and Nov. 8, 1985, to Nov. 8, 1986. Said policies included contractors and subcontractors as insureds. On June 12, 1990, June 6, 1991, and May 13, 1993, PGG tendered its defense and indemnity to Aetna. Aetna rejected PGG's tenders. PPHC tendered its defense and indemnity in the underlying action to Aetna on July 9, 1990, and Feb. 24, 1993. Aetna also rejected those tenders. On June 30, PGG, PPHC and the San Juan Group filed a complaint for declaratory relief against Aetna in Santa Clara County Superior Court. Thereafter, Aetna removed the action to federal court based on diversity jurisdiction. On Aug. 13, Aetna filed a third party complaint for declaratory relief naming PGG's insurance carrier, Reliance, and PPHC's insurance carrier, Royal, as defendants. *** (FOR CONTINUATION OF FACTS)
Settlement Discussions
In pre-trial mediations, Reliance demanded settlement in excess of $1 million for reimbursement of defense and indemnity payments. Prior to commencement of the trial, Aetna offered to settle for $300,000. Reliance's last settlement demand was $480,000.
Result
*** (CONTINUATION OF FACTS) Following settlement of the underlying action in early 1994, this action was substantially revamped and the parties were changed so that Reliance, individually and as assignee of Royal, became the sole plaintiff and filed an amended complaint for subrogation and contribution seeking, from Aetna, reimbursement of the defense and indemnity monies paid by both Reliance and Royal on behalf of its insureds.
Other Information
The verdict was reached approximately five years after the case was filed.
Length
14 days (bench trial)
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