Jared De Jong and Scott S. Thomas | Payne & Fears
In a decision that further muddies the already murky waters of “occurrence” jurisprudence, the California Court of Appeal has ruled that a general liability policy does not cover a homeowner who mistakenly grades the wrong piece of land because the act of grading land is not “accidental.”
In Ghukasian v. Aegis Security Insurance Company, ___ Cal. App. 5th ___, 2022 WL 1421511 (2022), a homeowner instructed her contractor to clear and level a piece of land that the homeowner believed was part of her property. Unfortunately, the land was owned by a neighbor, who sued the homeowner and the contractor for trespass and negligence. The homeowner tendered to her insurer, Aegis. The homeowner’s policy contained a standard insuring agreement creating coverage for property damage caused by an “occurrence,” defined by the policy as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The insurer denied coverage, arguing that intentionally grading land is not an accident. Coverage litigation ensued.
The trial court granted summary judgment in the insurer’s favor. On appeal, the homeowner argued that the California Supreme Court’s most recent “occurrence” decision, Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., 5 Cal. 5th 216 (2018), overruled two prior decisions holding there is no coverage for intentionally – but mistakenly – encroaching on land because such conduct is not an “accident.” Ledesma involved claims of negligent hiring and retention against an employer. After surveying the history of occurrence law, the Supreme Court in Ledesma concluded that an employer’s negligence in hiring an employee is accidental, even if the employee commits an intentional tort. In Ghukasian, the Court of Appeal rejected the homeowner’s reliance on Ledesma. The appellate court explained that Ledesma did not change California occurrence law or overrule prior cases. The court noted that unlike Ledesma, where the employer was one step removed from the non-accidental conduct, the homeowner here committed the deliberate act herself. In addition, the court explained that coverage does not exist simply because the neighbor sued for negligence, since coverage is determined by analyzing the factual allegations, not the labels attached to causes of action.
The takeaway: Ghukasian is troubling case. It shows that Ledesma, which policyholders assumed would clarify and correct earlier decisions, might not be as far reaching or helpful as anticipated. Ghukasian also shows that some courts will accept aggressive “no-occurrence” arguments by insurers. Ghukasian offers a cautionary tale: Many acts that result in unintended damage, such as hiring an employee or grading land, can be characterized as deliberate and, according to Ghukasian, not covered by liability insurance. Moving forward, we expect to see more denials and disputes on the occurrence issue, particularly in industries like construction, where policyholders do not “accidentally” build things.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.