United States: The Insurance Company Of The State Of Pennsylvania v. American Safety Indemnity Company

In the Ins. Co. of the State of PA v. American Safety Indem. Co., 32 Cal.App.5th 898 (March 1, 2019), the Court of Appeal affirmed the entry of summary judgment in favor of the Insurance Company of the State of Pennsylvania ("ISOP") against American Safety Indemnity Company ("ASIC or defendant") in connection with an action based on Insurance Code Section 11580, for the collection of a default judgment entered against ASIC's insured, Camarillo Engineering, Inc. ("Camarillo"). The parties' dispute arose out of an underlying construction defect lawsuit filed against ISOP's named insured, New Millennium Homes, LLC and NM Homes One, Inc. (collectively "NMH"). An arbitration award in the amount of $1,176,633.22 was entered against NMH in connection with the construction defect claim. The claim was based on damage sustained by the underlying plaintiffs' home due to the improper compaction and grading of soil underlying the foundation of the home. The plaintiffs, in the underlying action, noticed damage sustained by their home in 2009. After the entry of an arbitration award, ISOP fully indemnified NMH for such award.

In conjunction with the construction defect claim, NMH filed a Complaint for Indemnity against Camarillo. A default judgment was entered against Camarillo in connection with such Complaint for Indemnity after the arbitration award in the amount of $1,532.973.87. Because ISOP had paid the underlying arbitration award against NMH, it was subrogated to the amount of such award and filed an action directly against Camarillo's insurer, ASIC, based on Insurance Code Section 11580. This code section provides that any judgment creditor may file a direct action against an insurer of the party that judgment was entered against in order to collect on such judgment, so long as it was based on bodily injury or property damage covered by the insured's policy. After ISOP filed its lawsuit based on Section 11580, the trial court entered summary judgment in favor of ISOP in the amount of the judgment paid on behalf of NMH in respect to the underlying arbitration award.

In opposition to ISOP's Motion for Summary Judgment, ASIC contended that the default judgment entered against its insured, Camarillo, was void pursuant to California Civil Code Section 580. In addition, ASIC contended that the judgment was not based on "property damage", but rather, was for economic loss due to the arbitrator measuring the damages awarded in the underlying arbitration based on diminution in value of the home. Lastly, ASIC argued that the judgment was not covered by its policy because ISOP failed to prove that damage "first" occurred during the ASIC policy period.

In affirming the trial court's entry of summary judgment in favor of ISOP, the Court of Appeal held that the default judgment secured against ASIC's insured, Camarillo, was sufficiently specific and complied with the requirement set forth in Section 580 that damages prayed for in the underlying Complaint for which a default judgment was secured, specifically state the amount of the damages in the body of the Complaint. Here, the Court of Appeal held that because the Complaint filed by NMH specifically incorporated the underlying arbitration claim would set forth a specific amount, the requirements of Section 580 were satisfied. In addition, the Court of Appeal held that the arbitrator's award of damages, based on diminution in value, simply constituted a measure of the property damage sustained by the home in the underlying arbitration claim.

Lastly, the Court of Appeal held that ISOP had satisfied its burden of establishing property damage "first" transpiring during the ASIC period by presenting evidence that plaintiffs first noticed damage sustained by their home during the ASIC policy period. The Court of Appeal noted that it was then incumbent upon ASIC to prove that such damage first transpired prior to the inception of its policy period. Because ASIC failed to submit evidence proving the damage took place prior to its policy period, ISOP satisfied its burden of proving that property damage first took place during the ASIC policy period.

Lastly, the Court of Appeal disregarded ASIC's argument that Camarillo failed to satisfy the SIR applicable to its policy. The Court of Appeal noted that the language of the policy required ASIC to request Camarillo to pay such SIR. Since ASIC did not request payment of the SIR, it could not rely on the argument that Camarillo failed to satisfy the SIR.

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