Monday, January 5, 2015

THE NINTH CIRCUIT FINDS CARRIER HAD DUTY TO DEFEND BASED ON POTENTIAL THAT EROSION TO LAND COULD HAVE OCCURRED DURING ITS POLICY PERIOD



THE NINTH CIRCUIT FINDS CARRIER HAD DUTY TO DEFEND BASED ON POTENTIAL THAT EROSION TO LAND COULD HAVE OCCURRED DURING ITS POLICY PERIOD




Posted on January 5, 2015 by Sheryl Barr



St. Paul Fire & Marine Ins. Co. v. Vadnais Corp.,2014 U.S. App. LEXIS 13084 (9th Cir. July 10, 2014)




In St. Paul, the Ninth Circuit reversed the ruling by the Eastern District of California that an exclusion for work performed by the insured applied to all “property damage” that potentially occurred during Steadfast Insurance Company’s (“Steadfast”) policy period because, in addition to potential damage to the pipeline at issue, soil erosion caused by the pipeline leak could have occurred during the policy period and was not excluded.  As such, the court held that Steadfast had a duty to defend and that St. Paul Fire & Marine Insurance Company (“St. Paul Fire”) was entitled to contribution for the defense costs it incurred on the insured’s behalf.




St. Paul was a construction defect suit arising out of a leak in a large pipeline owned by the Cawelo Water District (“Cawelo”) that had been constructed by the mutual insured of St. Paul Fire and Steadfast.  After the leak was discovered, Cawelo was sued and it tendered its defense to both of its insurers.  Both carriers accepted the defense, but Steadfast withdrew that defense shortly thereafter based on the position that the complaint only alleged damage to the pipeline during its policy period – damage which was subject to an exclusion in its policy for “work performed by the named insured.”  After the underlying case was settled St. Paul Fire sued Steadfast for contribution toward the insured’s defense costs, and the District Court granted Steadfast’s motion for summary judgment.  St. Paul Fire appealed.




On appeal the Ninth Circuit reversed the district court’s ruling.  In reaching its ruling, the court noted that allegations in the Complaint that the pipeline was defective and leaked during Steadfast’s policy period were sufficient to establish the potential that erosion – which was not subject to any exclusion in Steadfast’s policy – could also have occurred during that time period.  As such, there was a potential for coverage and Steadfast had a duty to defend the insured.