THE STANDARD FIRE INSURANCE COMPANY v. THE SPECTRUM COMMUNITY ASSOCIATION

Filed 7/31/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Stephen J. Sundvold, Judge. Reversed and remanded.

Kabateck Brown Kellner, Brian S. Kabateck, Richard L. Kellner; Robertson & Vick, Alex Robertson IV and Kevin Davis for Defendant and Appellant.

Morison-Knox Holden & Prough, William C. Morison-Knox, Marc J. Derewetzky, Robert C. Christensen and Laurence S. Near for Plaintiff and Respondent.

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Statutory law permits a condominium homeowners association to bring a construction defect action with respect to damages to the condominium complex. (Civ. Code, § 1368.3; see also former Code Civ. Proc., § 383, repealed by stats. 2004, ch. 754, § 7, p. 4473.) When an action is filed, can an insurer under an occurrence-based commercial general liability policy avoid providing a defense to the insured condominium complex developer by the simple device of claiming that the homeowners association could not have been damaged during the policy period because the homeowners association did not then exist? We think not. This would deprive the developer of the bargained-for insurance coverage and transform the occurrence-based policy into a claims made policy. Moreover, it would likely mean that there would rarely ever be insurance coverage available with respect to the condominium construction defect litigation permitted by statute. No dice.

In the case before us, an insurance company brought a declaratory relief action seeking a determination that it had no duty to defend developers who were sued in a massive construction defect lawsuit pertaining to a condominium complex. The trial court granted summary judgment in favor of the insurance company. The homeowners association for the condominium complex claims error. It asserts that at least some of the property damage occurred during the policy period and the fact that the homeowners association itself did not yet 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 under the insurance policy. We agree.

We reject the insurance company's argument that there can be no coverage under the occurrence-based commercial general liability policy just because the homeowners association did not exist, or own any of the damaged property, during the policy period. The critical question is when the property damage occurred, not when the homeowners association came into existence. We reverse and remand.

I

FACTS

The owners and occupants of the Spectrum Condominiums (Project) filed 67 separate construction defect lawsuits against the developers of the Project. They sought damages for, inter alia, bodily injury caused by mold infiltration, diminution in the value of their condominium units, and loss of use of those units.

Their homeowners association, known as The Spectrum Community Association (Association), also filed suit. It named as defendants Bristol House Partnership, Ltd., the prior owner and the developer of the Project, Urban Ventures Corporation and Bluestar Realty Ventures, Inc., the general partners of Bristol House Partnership, Ltd. , Mercantile Builders, Inc., alleged to the be general contractor for the Project, and a number of other parties.

The Association's third amended complaint pleaded causes of action for strict liability, negligence, breach of implied warranty, negligent misrepresentation, breach of fiduciary duty, fraud and deceit, breach of contract, abatement of nuisance, and unfair competition. The third amended complaint contained a very extensive list of alleged design and construction defects affecting the Project. The Association sought damages for, inter alia, â€