Defense Duty Extends To Calderon Act Process In Construction Defect Litigation
Clarendon America Insurance Company v. StarNet Insurance Company, No. G042353 (July 27), is a case of first impression from Division Three of the Fourth Appellate District affirming a trial court judgment that the CGL policy defense duty extends to proceedings under the Calderon Act, Civil Code Section 1375 et seq. The Court specifically held that the process mandated by the Calderon Act in construction defect litigation is “a civil proceeding in which damages…to which this insurance applies are alleged” within the meaning of the standard-form CGL definition. Although the Calderon Act procedure occurs before a complaint is filed and itself does not result in a judgment or court-ordered payment of money, the Court nonetheless found that its process is an “integral part” of construction defect litigation initiated by a common interest development association and therefore should be encompassed within the defense duty.
In the case, Clarendon argued that the Calderon Process does fall within the standard CGL definition. StarNet argued to the contrary. The Court of Appeal, resolving the case in Clarendon’s favor, distinguished Foster-Gardner, Inc. v. National Union Fire Insurance Company (1998) 18 Cal. 4th 857, 887, where the Supreme Court took a bright-line approach founded on the notion that a “suit” is “a court proceeding initiated by the filing of a complaint.” Thus, the insurer there had no duty to defend an administrative proceeding before the Department of Toxic Substances Control. The claim here, however, was based on a post-1986 insurance policy form in which the term “suit” was defined to include “a civil proceeding” in which covered damages are asserted. In 1988, the term “suit” was further expanded to cover alternative dispute resolution procedures. Therefore, the Court went on, the term “suit” now means something more, in standard CGL parlance, than a proceeding initiated by the filing of a complaint. Applying the “literal meaning” approach to policy interpretation used by the Supreme Court in Foster-Gardner, the appellate court went on, the Calderon Process is a “civil proceeding” within the meaning of the current standard-form CGL policy’s intended reach. The StarNet policies’ language supported this understanding. They used the term “alleged” damages in referring to civil proceedings; they used the word “claimed” when referring to arbitration and alternative dispute resolution. Therefore, the fact that damages aren’t actually obtained in the Calderon Process makes no difference. The Calderon Process is still part of a civil proceeding process that includes from the beginning an assertion of damages.
July 27, 2010
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