Tred R. Eyerly | Insurance Law Hawaii | January 11, 2017
The California Court of Appeal overturned the trial court’s issuance of summary judgment based upon the possibility of continuing property damage during the insurer’s policy period. Tidwell Enters. v. Fin. Pac. Ins. Co., 2016 Cal. App. LEXIS 1038 (Cal. Ct. App. Nov. 29, 2016).
Financial Pacific insured Greg Tidwell, Tidwell Enterprises, Inc. and Tidwell Enterprises Fireplace Division (Tidwell) under CGL policies issued between March 2003 and March 2010. In 2006 or 2007, Tidwell installed a fireplace in a home. On November 11, 2011, 20 months after the end of the last policy period of Financial Pacific’s coverage, the home owned by Kendall Fox, was damaged by fire. Fox was insured by State Farm. State Farm’s attorney advised Tidwell of the fire, and Tidwell forwarded the information to Financial Pacific.
State Farm hired an investigator who reported that the fire was caused by the installation of an “unlisted shroud at the top of the chimney chase”. This prevented the fireplace from drafting properly, resulting in overheating of the fireplace and heat transfer to the surround wood framing members. This resulted in the ignition of the framing members at the sides, top and bottom of the fireplace. State Farm sent the report to Financial Pacific.
State Farm then sued Tidwell under its subrogated claim for negligence. Tidwell tendered the complaint to Financial Pacific, who denied the tender, claiming the fire occurred on November 11, 2011, long after Financial Pacific’s policies had expired. Tidwell’s attorney wrote back asserting that based on the allegations and expert reports, Financial Pacific could not conclude that there was no continuous and progressive property damage occurring during the policy period. There could have been occurrences of property damage long before the fire manifested itself on the date provided in the complaint.
When Financial Pacific still refused to defend, Tidwell sued for declaratory relief, breach of contract, and tortious breach of contract. The trial court granted summary judgment to Financial Pacific because its policy lapsed on March 1, 2010, long before the fire on November 11, 2011.
The Court of Appeal reversed. There was a possibility that damages occurred because of earlier physical injury to the house for which Tidwell was responsible, and thus there was a possibility that the damages State Farm sought fell within the coverage provided by the terms of Financial Pacific’s policies. Therefore, Financial Pacific owed Tidwell a duty to defend.
Under the policy language, Financial Pacific would be liable for any sums Tidwell became legally obligated to pay as damages because of physical injury to tangible property that: (1) occurred during a policy period; and (2) was caused by continuous or repeated exposure to substantially the same general harmful conditions.
Consequently, there was a possibility of coverage based on the allegations of State Farm’s complaint and the facts known to Financial Pacific. There was reason to believe Tidwell might have negligently installed a custom top on the chimney that restricted the flow of air in the chimney. This might have resulted in excess heat in the chimney every time a fire was burned in the fireplace from the time the house was built. The fires may have altered the chemical composition of the wood framing the chimney chase, thereby reducing the temperature at which it would ignite, until eventually, on November 11, 2011, the wood framing the chimney chase did ignite, which resulted in the fire that damaged the Fox’s house.
Therefore, the judgment in favor of Financial Pacific was reversed and the case remanded with instructions to vacate the order granting summary judgment and to enter a new order denying summary judgment.