Coverage Under Occurence Policy Even Though Claimant Not Yet Formed At Time Of Incident

A California Appellate court has issued an interesting opinion helpful to insureds involving the tender of claims under occurrence policies of insurance. A condominium association sued a developer in a construction defect lawsuit.  The dispute arose in connection with a condominium project which, as early as 1990, showed evidence of defective construction.  From August 1991 through June 1992, the developer was insured under a commercial general liability (“CGL”) policy issued by Standard Fire Insurance Company (“Standard”) which covered liability for property damage occurring “during the policy period.”

At the time of the incident, however, the Association had not yet been formed. That did not occur until August 1993, when the Association was formed to manage the common areas of the property.  The developer tendered defense of the construction defect action to Standard, which agreed to defend under a reservation of rights.  The Association argued that at least some of the property damage occurred during the policy period and the fact that the Association itself did not exist during the policy period, or own any of the damaged property during the policy period, did not mean that the property damage was not covered. 

          The trial court granted summary judgment in favor of the insurer but the Court of Appeal reversed and ruled that under an occurrence-based liability policy, the key issue is not when the third-party claimant was damaged, but rather, when the property now owned by the claimant was damaged.  Because there was evidence that the condominium project itself suffered actual property damage while Standard’s policy was in effect, the court found that Standard had a duty to defend in the construction defect action.  Standard Fire Ins. Co. v. Spectrum Community Ass., 141 Cal. App. 4th 1117 (Cal. App. 4 Dist.).

Leily Schoenhaus