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.