Facts

Morrison Homes Inc., now known as Taylor Morrison Services Inc., was sued in an underlying lawsuit by several homeowners over alleged construction defects in homes it developed in Rancho Cordova. Among other things, the homeowners in the underlying lawsuit alleged that the plumbing systems in the homes were defective. Adams Plumbing Inc. installed the plumbing systems in the subject homes.

Morrison Homes tendered its defense in the underlying lawsuit to defendant First Specialty Insurance Corp. as an additional insured party under three commercial general liability policies issued by defendant to Adams.

Defendant First Specialty Insurance Corp. denied the tender on the ground that the homeowners' claims in the underlying lawsuit arose from Adams' "completed operations," and the policies issued to Adams provided additional insured coverage only for liability arising from Adams' "ongoing operations" pursuant to a CG 2010 03 97 additional insured endorsement.

Plaintiff Taylor Morrison of California LLC sued First Specialty Insurance for declaratory relief, breach of contract and insurance bad faith.

Plaintiff filed a motion for summary adjudication, seeking a determination that First Specialty Insurance had a duty to defend Morrison Homes Inc. in the underlying lawsuit. The court denied the motion, ruling that plaintiff had not met its burden to establish that there was a duty to defend because there was extrinsic evidence that implied that Morrison Homes's "objectively reasonable expectations were that ongoing operations coverage would not provide coverage after Adams Plumbing completed its work."

The court then bifurcated the declaratory relief cause of action and conducted a bench trial on the issue of defendant's duty to defend Morrison Homes in the underlying action under the ongoing operations CG 2010 03 97 endorsement.

PLAINTIFF'S CONTENTIONS:
Plaintiff contended that the plain meaning of the CG 2010 03 97 endorsement obligated defendant to provide a defense to plaintiff against any potential liability that might arise out of Adams' work on the subject homes regardless of when property damage actually occurs or when a claim for that damage is made, so long as Adams performed work during the policy period.

DEFENDANT'S CONTENTIONS:
Defendant contended that plaintiff is not the real party in interest as to the causes of action alleged in the lawsuit, and under the plain language of the CG 2010 03 97 endorsement, an additional insured is covered only for liability that arises while the named insured's work is still ongoing. Defendant claimed construction defect claims necessarily arise out of the named insured's completed operations because a developer's liability for construction defects cannot arise until the home is completed and turned over to the new owner in a defective condition. Defendant argued that extrinsic evidence showed that Morrison Homes understood that it needed completed-operations coverage to be covered for construction defect claims, and that Morrison Homes understood that an additional insured endorsement with the "ongoing operations" limitation would not provide completed-operations coverage. Defendant argued that because plaintiff had no new evidence on the reasonable expectations issue that the court found dispositive when denying plaintiff's motion for summary adjudication motion, the ruling at trial should be the same as the ruling on the motion.

The court granted a motion in limine at the beginning of trial prohibiting First Specialty Insurance from introducing any argument or evidence on the issue of whether plaintiff is the real party in interest.

Settlement Discussions

Plaintiff demanded that defendant provide a defense to plaintiff in the underlying lawsuit. Defendant refused and demanded a dismissal for a waiver of costs.

Result

The court entered its order following a bench trial on the declaratory relief cause of action. The court held that the plain meaning of the CG 2010 03 97 endorsement required defendant to defend Morrison Homes in the underlying lawsuit against any liability that might arise from Adams' work "regardless of when the property damage giving rise to that liability and regardless of when the claim for the damages was asserted against Morrison."

Other Information

Trial on the breach of contract and insurance bad faith causes of action is set for Aug. 10, 2015. FILING DATE: Aug. 30, 2013.