Ameron International Corporation v. American Home Assurance Company et al

Filing 27

MINUTES OF Motion Hearing held before Judge Christina A. Snyder: The Court hereby GRANTS Plaintiff's Motion for Partial Summary Judgment 16 . Court Reporter: Laura Elias. (gk)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

Present: The Honorable

Date

June 6, 2011

CHRISTINA A. SNYDER

CATHERINE JEANG
Deputy Clerk

LAURA ELIAS
Court Reporter / Recorder

N/A
Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Charles Siegal
Leo Goldbard

David McMahon
Peter Felsenfeld

Proceedings:

I.

PLAINTIFF’S MOTION FOR PARTIAL SUMMARY
JUDGMENT (filed 04/14/11)

INTRODUCTION

On January 27, 2011, plaintiff Ameron International Corporation filed the instant
action against defendant American Home Assurance Company in the Los Angeles
County Superior Court alleging claims for declaratory relief and breach of contract.
Plaintiff seeks a determination that defendant’s insurance policies provide defense
coverage for an action pending against plaintiff in Hawaii. On February 23, 2011,
defendant removed the action to this Court on the basis of diversity jurisdiction.
On April 14, 2011, plaintiff filed the instant motion for partial summary judgment.
On May 16, 2011, defendant filed an opposition to plaintiff’s motion. Plaintiff replied on
May 23, 2011. After carefully considering the arguments set forth by both parties, the
Court finds and concludes as follows.
II.

BACKGROUND

On June 1, 2004 and June 1, 2005, defendant issued commercial general liability
insurance policies, numbers GL 360-23-12 and GL 643-17-25, respectively (“the
policies”), to plaintiff. Defendant’s Statement of Uncontroverted Facts (“DSUF”) ¶¶ 2–3.
The policies provide that defendant will “pay those sums that the insured becomes legally
obligated to pay as damages because of ‘bodily injury or property damage,’” including
loss of use of property, that is “caused by an ‘occurrence’ that takes place in the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

‘coverage territory.’” DSUF ¶ 4. The policies further provide that defendant has the
right and duty to defend plaintiff against “any suit seeking those damages.” DSUF ¶ 4.
“Occurrence” is defined in the policies as “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” DSUF ¶ 5. The
term “accident” is not defined in the policies. “Property damage” is defined as
“[p]hysical injury to tangible property, including all resulting loss of use of that
property,” or “[l]oss of use of tangible property that is not physically insured,” deemed to
have occurred at the time of the “occurrence” that caused it. DSUF ¶ 6. The policies
define “coverage territory” for present purposes as the United States. DSUF ¶ 7. The
policies provide coverage for “property damage” or “bodily injury” occurring from June
1, 2004 to June 1, 2006. DSUF ¶ 8.
The policies do not explicitly specify a place of performance. DSUF ¶ 9. Plaintiff,
a company headquartered and with its principal place of business in California, purchased
the policies through the Los Angeles, California office of Aon Risk Services. Plaintiff’s
Statement of Uncontroverted Facts (“PSUF”) ¶ 10. Defendant has its principal place of
business in New York. DSUF ¶ 10. The policies include one amendatory endorsement,
which was accepted in California and applies to the policy as a whole. PSUF ¶ 14. All
required premiums have been paid with respect to the policies, and all conditions and
covenants required to be performed by plaintiff under the policies have been performed.
PSUF ¶¶ 16–17.
On April 13, 2010, Brown’s Trucking, Inc. (“Brown”) filed a complaint (“the
Brown Complaint”) against plaintiff in Hawaii state court in the matter of Brown’s
Trucking, Inc. v. Ameron Int’l Corp., et al., CV 10-1-0245 (“the Brown action”). DSUF
¶ 18. The Brown Complaint alleges that Brown was hired as the general contractor on
the State of Hawaii Department of Transportation project described as “Kamehameha V
Highway Emergency Replacement of Kawaikapu Bridge, District of Molokai, Island of
Molokai, Federal Aid Project No. ER-12(4)” (the “Project”). DSUF ¶ 19. The Brown
Complaint further alleges that Brown contracted with plaintiff to supply concrete for the
Project, including concrete for the construction of drilled shafts. DSUF ¶ 20. The Brown
Complaint alleges that the concrete provided by plaintiff was substandard and resulted in
the failure of drill shafts, causing delays and the filing of a lawsuit against Brown by the
subcontractor responsible for installing the damaged drilled shafts. PSUF ¶ 21. Based on
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

those facts, the Brown Complaint alleges causes of action against plaintiff for (1) breach
of contract, (2) quantum meruit, (3) negligence, (4) negligent interference with contract,
(5) equitable indemnity, and (6) contribution. DSUF ¶ 22.
By letter dated April 30, 2010, plaintiff tendered the Brown action to defendant for
coverage and a defense. DSUF ¶ 23. On November 15, 2010, Chartis Claims, Inc.
(“Chartis”), the claims administrator for defendant, informed plaintiff by letter that “there
is no coverage under the policies for the claims presented” based on the allegations in the
Brown Complaint. DSUF ¶ 24. The letter stated that Brown’s claims did not allege an
“occurrence” as defined in the policies because “Hawaii courts have consistently held
that commercial general liability coverage is not available for contract and contract-based
tort claims under Hawaii law.” Declaration of Charles D. Siegal (“Siegal Decl.”), Exh. C.
at 77. Plaintiff requested additional explanation of defendant’s denial of coverage by
letter on November 19, 2010, to which Chartis responded on December 10, 2010. DSUF
¶¶ 26–27. Defendant continues to refuse to provide plaintiff with coverage and a defense
to the Brown action. DSUF ¶ 28.
Plaintiff seeks a declaration that defendant owes it a duty to defend the Brown
action and to reimburse it for the cost of defending the lawsuit thus far. Mot. at 1.
III.

LEGAL STANDARD

Summary judgment is appropriate where “there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). The moving party has the initial burden of identifying relevant portions of the
record that demonstrate the absence of a fact or facts necessary for one or more essential
elements of each cause of action upon which the moving party seeks judgment. See
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the moving party meets its initial burden, the opposing party must then set out
specific facts showing a genuine issue for trial in order to defeat the motion. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); see also Fed. R. Civ. P. 56(c), (e). The
nonmoving party must not simply rely on the pleadings and must do more than make
“conclusory allegations [in] an affidavit.” Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871,
888 (1990); see also Celotex, 477 U.S. at 324. Summary judgment must be granted for
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

the moving party if the nonmoving party “fails to make a showing sufficient to establish
the existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.” Id. at 322; see also Abromson v. Am. Pac. Corp., 114
F.3d 898, 902 (9th Cir. 1997).
In light of the facts presented by the nonmoving party, along with any undisputed
facts, the Court must decide whether the moving party is entitled to judgment as a matter
of law. See T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 631 &
n.3 (9th Cir. 1987). When deciding a motion for summary judgment, “the inferences to
be drawn from the underlying facts . . . must be viewed in the light most favorable to the
party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986) (citation omitted); Valley Nat’l Bank of Ariz. v. A.E. Rouse & Co., 121
F.3d 1332, 1335 (9th Cir. 1997). Summary judgment for the moving party is proper
when a rational trier of fact would not be able to find for the nonmoving party on the
claims at issue. See Matsushita, 475 U.S. at 587.
IV.

DISCUSSION
A.

Choice of Law

At the outset, the parties dispute whether California or Hawaii law controls the
present dispute. See Mot. at 11–17; Opp’n at 1–9; Reply at 1–11. This inquiry is
significant because, as discussed in more detail below, the allegations in the Brown
Complaint trigger defendant’s duty to defend the Brown action under California law, but
may not under Hawaii law.
Because this lawsuit has been brought in California, the Court must apply
California choice of law principles in determining the appropriate substantive law to
apply to this dispute. See Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622
F.3d 996, 1002 (9th Cir. 2010) (“A federal court sitting in diversity applies the forum
state’s choice of law rules.”). In contract cases, California has two different choice of
law tests: California Civil Code section 1646, which governs the interpretation of
contracts, and the “governmental interest” test. The parties disagree as to which choice
of law rule the Court should apply. Plaintiff argues that the policies fall within the scope
of California Civil Code section 1646, because the question of whether the allegations in
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

the Brown Complaint constitute an “occurrence” within the meaning of the policies is one
of contract interpretation. Mot. at 12–14; Reply at 2–3 (citing Frontier Oil Corp. v. RLI
Ins. Co., 153 Cal. App. 4th 1436, 1459–60 (2007)). Defendant counters that determining
whether plaintiff is entitled to a defense in the Brown action involves the applicability
and enforceability of an express contractual promise, rather than an interpretation of the
policies. Opp’n at 1–2. Therefore, defendant maintains that California’s common law
governmental interest analysis applies. Id. The Court need not decide this dispute
because under either section 1646 or the governmental interest analysis, California law
governs.1
1.

California Civil Code Section 1646

California Civil Code section 1646 provides a choice of law rule regarding the
interpretation of contracts. That statute provides: “A contract is to be interpreted
according to the law and usage of the place where it is to be performed; or, if it does not
indicate a place of performance, according to the law and usage of the place where it is
made.” Cal. Civ. Code § 1646. The California Court of Appeal has determined that “[a]
contract ‘indicates a place of performance’ within the meaning of section 1646 if the

1

Section 1646 determines the law governing the interpretation of a contract,
irrespective of the application of the governmental interest analysis to other choice of law
issues. See Frontier Oil, 153 Cal. App. 4th at 1459–60. As such, section 1646 governs
when courts interpret the meaning of provisions of an insurance contract, rather than
impose a rule of law on the parties for public policy reasons. See id. at 1464–65 (holding
that it was questionable whether the fundamental principles governing whether a duty to
defend arises under California law “reflected the court’s interpretation of policy
provisions, as distinguished from a rule of law imposed on the parties for public policy
reasons regardless of their intentions upon entering into the insurance contract.”). It is
unclear whether those courts that have decided whether allegations of substandard or
defective performance constitute an “occurrence” as defined in a commercial general
liability policy, have interpreted the meaning of the term in a particular policy or made a
public policy choice. See generally Anthem Elecs., Inc. v. Pac. Emp’rs Ins. Co., 302 F.3d
1049, 1056 (9th Cir. 2002); Group Builders, Inc. v. Admiral Ins. Co., 123 Hawaii 142,
148–49, 231 P.3d 67, 73–74 (2010).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

contract expressly specifies a place of performance or if the intended place of
performance can be gleaned from the nature of the contract and its surrounding
circumstances.” Frontier Oil, 153 Cal. App. 4th at 1443. Here, the policies do not
explicitly specify a place of performance. Thus, the question is whether a place of
performance can “be gleaned from the nature of the contract and the surrounding
circumstances.” Id.
The California Court of Appeal’s decision in Frontier Oil, upon which both parties
rely, is instructive. In that case, insureds brought an action against their liability insurer
seeking a declaration that the insurer was obligated to defend them in personal injury
actions arising out of the operation of an oil and gas production facility in Beverly Hills,
California. Frontier Oil, 153 Cal. App. 4th at 1442. The California Court of Appeal
applied section 1446 to determine the appropriate choice of law for the interpretation of
the insureds’ policy. Id. at 1448–1462. The court held that the policy indicated that the
insurer would perform its defense obligations under the policy in California, because the
policy “specifically refers to claims arising from oil and gas operations at ‘Drill-Site # 1'
in Beverly Hills, California.” Id. at 1461. In addition, three endorsements to the policy
indicated that the parties understood the policy to provide coverage for the insureds’
operation in Beverly Hills, California. Id. Accordingly, the court concluded that
California was the intended place of performance of the contract, and section 1646
required the application of California law. Id. at 1462.
Unlike the policy at issue in Frontier Oil, the policies in this case do not expressly
provide coverage for a fixed location in Hawaii or any other state. Instead, the policies
provide coverage for all property damage caused by an occurrence taking place anywhere
in the United States and elsewhere. DSUF ¶ 7. Nor do any endorsements to the policies
indicate that the parties contemplated that Hawaii would be the place of performance for
the policies. In fact, the only state-specific endorsements to the policies relate to
California. DSUF ¶ 14.
Instead, defendant argues that the policy formation documents suggest that the
parties intended that any defense for potentially covered Hawaii lawsuits would be
provided in Hawaii. Opp’n at 3–4. In support of its argument, defendant points to a
coverage proposal accepted by plaintiff underlying the 2004-2004 policy (“2004
proposal”), naming four locations in Hawaii among a list of 58 locations where plaintiff
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

did business. See Declaration of Doris Johnson (“Johnson Decl.”), Exh. A at 10–13.
Defendant contends that the 2004 proposal suggests that the parties contemplated that
plaintiff had operations in Hawaii, and thus, when it was sued in Hawaii over a claim
arising out of those operations, if the claim was potentially covered, any defense would
be furnished in Hawaii. Opp’n at 4. The 2004 proposal, however, hardly supports
defendant’s contention that the parties intended Hawaii as the place of performance of the
contract. In fact, the 2004 proposal lists, in addition to the four Hawaii locations,
fourteen California locations, as well as locations in a variety of other states. Johnson
Decl., Exh. A at 10–13. Moreover, defendant’s argument that the parties indicated as the
place of performance any location where there is evidence it could conceivably be
performed goes too far. Not only is defendant’s position contrary to the plain language of
the statute, which provides “the place where it is to be performed,” not places, it would
mean that there would be almost no situtation in which a contract does not indicate a
place of performance. Thus, the Court finds that the language of the policies and the
endorsements and proposals underlying the policies indicate that no “intended place of
performance can be gleaned from the nature of the contract and its surrounding
circumstances.” 153 Cal. App. 4th at 1443.
Because the policies do not indicate any particular place of performance, section
1446 requires that the Court apply the law of the state in which the policies were made.
A contract is made in the state in which “the last act necessary to the contract, the
acceptance, was performed.” Ury v. Jewelers Acceptance Corp., 227 Cal. App. 2d 11, 16
(1964). Here, although the policies were issued by defendant, a New York corporation,
they were delivered to and accepted by plaintiff in California. See Johnson Decl. ¶¶
3–10. Therefore, the contract was made in California. Accordingly, under California
Civil Code section 1646, the law of California governs the interpretation of the policies.
2.

Governmental Interest Analysis

Pursuant to California common law, courts resolve conflicts of laws using a multistep “governmental interest” analysis. Offshore Rental Co. v. Continental Oil Co., 22
Cal. 3d 157, 161 (1978). The first step of the analysis is to determine whether there is a
material difference between two applicable choices of law. Wa. Mut. Bank, FA v.
Superior Court, 24 Cal. 4th 906, 919–20 (2001). If there is no material difference, there
is no choice of law problem, and the court may apply California law. Id. at 920. If,
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

however, the court finds that there is a material difference in the laws, it must proceed to
the second step of the analysis and determine what interest, if any, each state has in
having its own law applied. Id. Where only one of the two states related to a case has a
legitimate interest in the application of its law, there is no true conflict and the court
should apply the law of the interested state. Offshore, 22 Cal. 3d at 163. If both states
have a legitimate interest in the application of its law, such that a true conflict exists, the
court employs an “comparative impairment” analysis “to determine which state's interest
would be more impaired if its policy were subordinated to the policy of the other state.”
Denham v. Farmers Ins. Co., 213 Cal. App. 3d 1061, 1066 (1989). In undertaking the
comparative impairment analysis, the court “must determine ‘the relative commitment of
the respective states to the laws involved’ and consider ‘the history and current status of
the states' laws’” and “the function and purpose of those laws.” Wa. Mut. Bank, 24 Cal.
4th at 920 (quoting Offshore, 22 Cal. 3d at 166). The court should also “consider[] each
jurisdiction's relevant contacts with the parties, property and the incident involved in
order to compare the genuine interest of each jurisdiction in having its laws applied.”
Sierra–Bay Fed. Land Bank Ass'n v. Superior Court, 227 Cal. App. 3d 318, 331 (1991).
i.

Material Difference

Here, defendant’s policies cover claims for liability for “bodily injury or property
damage” caused by an “occurrence.” This case centers on whether plaintiff’s provision
of substandard concrete for the Project, which caused “property damage” in the form of
loss of use of the drilled shafts and the bridge, qualifies as an “occurrence” as defined by
the policies. There is a material difference of law between California and Hawaii on the
question of what constitutes an “occurrence” under a commercial general liability policy.
Based on the rejection of the “wooden distinction” between contract and tort-based
claims, courts applying California law have concluded that the unintentional supplying of
defective products constitutes an “occurrence” within the meaning of commercial general
liability policies. See Anthem Elecs., Inc. v. Pac. Emp’rs Ins. Co., 302 F.3d 1049, 1056
(9th Cir. 2002). In Anthem Electronics, the insured agreed to supply a third party with
circuit boards to be incorporated into scanners that the third party sold. Id. at 1052. After
some of the scanners malfunctioned, it was discovered that the circuit boards supplied by
the insured had latent defects due to manufacturing flaws. Id. The third party filed suit
against the insured in California state court alleging causes of action for breach of
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

contract and negligence, seeking to recoup sums it expended relating to the loss of use of
the scanners. Id. The insured tendered the complaint to its insurers and requested
defense of the suit. Id. at 1052–53. The insurers refused, arguing that the losses alleged
in the third party’s complaint were not covered under the insurance policies. Id. at 1053.
Applying California law, the Ninth Circuit held that the complaint raised a possibility of
coverage and therefore triggered the insurers’ duty to defend because the unexpected
failure of the circuit boards, even if the result of the insured’s negligence, raised the
possibility of an “occurrence” within the meaning of the policies. Id. at 1055–56. In so
holding, the court stated:
[The insurers] argue against an occurrence where, as here, a supplier simply
breaches a contract and supplies defective goods. But this argument seeks to
revive a wooden distinction recently rejected by the California Supreme
Court between contractual claims and insurance claims. See Vandenberg v.
Superior Court, 21 Cal. 4th 815, 840, 88 Cal. Rptr.2d 366, 982 P.2d 229
(1999) (holding that courts must focus on the nature of the risk and the
injury, in light of policy provisions, to determine coverage-not on whether
the insured breached a contract). So long as [the insured] can show that the
circuit boards failed unexpectedly and caused covered property damage, it is
well on its way to a prima facie case even though a breach of contract may
be involved.
Id. at 256.
Hawaii law, by contrast, “has not rejected the distinction between contract and tortbased claims.” Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 951
(9th Cir. 2004). Thus, “breach of contract claims based on allegations of shoddy
performance” and “tort-based claims, derivative of these breach of contract claims” are
not a covered “occurrence” within the meaning of commercial general liability policies
under Hawaii law. Group Builders, Inc. v. Admiral Ins. Co., 123 Hawaii 142, 148–49,
231 P.3d 67, 73–74 (2010). In Group Builders, the insured subcontracted with a hotel
chain to install building insulation and framing on a hotel tower. Id. at 143. Shortly after
construction on the tower was completed, mold growth was discovered in the guest
rooms and certain rooms were closed for a period of time for remediation. Id. at 144.
The hotel chain filed suit against the insured for construction defects and closure of the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

tower, alleging claims for, inter alia, breach of contract and negligence. Id. After
receiving notice of the lawsuit, the insurer refused to defend or indemnify the insured for
the claims asserted in the hotel chain’s lawsuit. Id. The Hawaii Intermediate Court of
Appeals held that the allegations of faulty construction work, giving rise to a breach of
contract claim, did not constitute an “occurrence” under the commercial general liability
policy. Id. at 148. Additionally, the court concluded that tort-based claims, derivative of
breach of contract claims, are also not covered under the policy. Id. at 148–49; see also
Burlington Insurance, 383 F.3d at 948 (under Hawaii law, claim for negligent breach of
contract based on allegations of improper design and construction of residence do not
constitute an “occurrence” within coverage of commercial general liability policy).2
Therefore, there is a material difference of law between California and Hawaii with
respect to what constitutes an “occurrence” under commercial general liability policies.
ii.

The States’ Interests and Comparative Impairment

Having found that there is a material difference in the laws of California and
Hawaii, the Court must determine what interest, if any, each state has in having its own
law applied. Wa. Mut. Bank, 24 Cal. 4th at 919–20. If both Hawaii and California have
a legitimate interest in the application of its law, the Court must undertake the
comparative impairment analysis. Id. at 920.
California’s interests are twofold. First, because plaintiff, the insured, is a
California resident, California has an interest in protecting it from the unfair practices of

2

Recently, the Legislature of the State of Hawaii passed HB 924. Pl.’s Request for
Continuation, Exh. A. That statute provides, in relevant part: “For purposes of a liability
insurance policy that covers occurrences of damages or injury during the policy period
and that insures a construction professional for liability arising from construction-related
work, the meaning of the term ‘occurrence’ shall be construed in accordance with the law
as it existed at the time that the insurance policy was issued.” Id. at 6–7. Plaintiff argues
that if HB 924 goes into effect, it will effectively overrule retrospectively Group
Builders. See Pl.’s Request for Continuation at 1–2. In light of the Court’s ruling herein,
it declines to address this issue.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

insurers. See Denham v. Farmers Ins. Co., 213 Cal. App. 3d 1061, 1066 (1989)
(“California therefore has an interest in protecting [its residents] from the unfair practices
of insurers.”); Zimmerman v. Allstate Ins. Co., 179 Cal. App. 3d 840, 846 (1986)
(“California has demonstrated an interest in . . . affording redress to California residents
damaged by unfair practices of insurers”). Second, because the policies were formed in
California, the State has an interest in applying its law to interpretation of the policies.
See Robert McMullan & Son, Inc. v. U.S. Fid. & Guar. Co., 103 Cal. App. 3d 198, 205
(1980) (“Since the contract was made between a California resident and a corporation
doing business in California, California has an interest in seeing that such contract is
enforced according to the law where it was made.”); Jones v. St. Paul Travelers, 496 F.
Supp. 2d 1079, 1084 (N.D. Cal. 2007) (“California has a strong interest in applying its
laws because California has an interest in . . . regulating the conduct of insurers operating
within the state.”).
Although this action is an insurance coverage dispute involving policies formed in
California before any of the underlying events occurred, Hawaii, as the site of the
underlying loss and the Brown action, has a sufficient interest in the outcome of this
litigation to satisfy the “legitimate interest” standard. See, e.g., Costco Wholesale Corp.
v. Liberty Mut. Ins. Co., 472 F. Supp. 2d 1183, 1201 (S.D. Cal. 2007) (“As the site of the
underlying loss and [third party] litigation, Pennsylvania has a sufficient interest in the
outcome of the case to satisfy [the ‘legitimate interest’] element of the choice-of-law
test.”). Nevertheless, Hawaii’s interest in the dispute is attenuated, and it would be
substantially unimpaired by the application of California law. Defendant asserts that
because the underlying incidents occurred in Hawaii, that state has an interest in applying
its law to this dispute. Opp’n at 5. Hawaii’s interpretation of an “occurrence” within the
meaning of a commercial general liability policy is intended to protect the expectation of
the insurer, but defendant is a New York company. Thus, no Hawaii insurance company
is impaired by the application of California law in this case. See Jones, 496 F. Supp. 2d
at 1084 (holding that California would be impaired by application of Georgia law where,
in part, the insurer was not a Georgia company).3

3

Defendant also argues that the rule adopted in Hawaii, as set forth in Group
Builders, is the better public policy. Opp’n at 7–9. Defendant’s argument misconstrues
the comparative interest analysis. Contrary to defendant’s suggestion, the comparative
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

Defendant argues that the Court of Appeal’s decision in Stonewall Surplus Lines
Ins. Co. v. Johnson Controls, Inc., 14 Cal. App. 4th 637 (1993) requires application of
Hawaii law because the underlying claimed liability arose from conduct in Hawaii.
Opp’n at 5–7. In Stonewall, a Wisconsin based battery manufacturer argued that
Wisconsin law applied in a personal injury action brought by a plaintiff injured in
California due to an exploding car battery manufactured in California. Id. at 640. In
measuring the states’ interests, the court held that “[w]here a multiple risk policy insures
against risks located in several states, it is likely that the courts will view the transaction
as if it involved separate policies, each insuring an individual risk, and apply the law of
the state of principal location of the particular risk involved.” Id. at 646–47 (quoting
Restatement (Second) of Conflict of Laws § 193, comment f). Significantly, the policy at
issue in Stonewall contained individual amendatory endorsements for eleven different
states. Id. at 647–48. Consequently, the court determined that at the time the policies
were issued both the insurer and the insured “carefully considered the complexity of the
corporation’s activities,” and “would reasonably expect . . . that the corporation’s liability
to a third party might be governed” by the state where the cause of liability occurred. Id.
at 648. Based on its analysis, the court determined that “in reality” the Wisconsin
corporation “obtained separate policies which insure separate risks located in any number
of states where the corporation does business.” Id. In reaching its conclusion, however,
the court cautioned that the multiple risk approach is not appropriate in all cases where an
insured’s activities expose it to liability in a variety of states, and that in many
circumstances the policy makes clear that the parties do not expect the insured’s rights to
be controlled by the location of the insured event. Id. at 468 n.7 (citing Restatement
(Second) of Conflict of Laws § 193, comment b).
Despite the fact that the policies issued by defendant indisputably cover risks in
multiple states, here, the record does not reflect that the parties viewed the policies as
separate policies covering separate risks in a multitude of states. Although the 2004
proposal lists Hawaii among the locations where plaintiff has operations, unlike

interest analysis “does not involve the court in ‘weighing’ the conflicting governmental
interests in the sense of determining which conflicting law manifest(s) the 'better’ or the
'worthier' social policy on the specific issue.” Offshore, 22 Cal. 3d at 165 (citation
omitted).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

Stonewall, the only amendatory endorsement the policies include was accepted in
California and applies to the policy as a whole, and there is no evidence that while
negotiating the terms of the policies the parties considered the complexity of plaintiff’s
activities to the same extent as in Stonewall. See Jones 496 F. Supp. 2d at 1084–85
(distinguishing Stonewall on similar grounds); Costco, 472 F. Supp. 2d at 1206 (holding
Stonewall inapplicable because, among other reasons, policy only contained one state
amendatory endorsement); see also Columbia Cas. Co. v. Gordon Trucking, Inc., 758 F.
Supp. 2d 909, 921–22 (N.D. Cal. 2010) (even though accident giving rise to underlying
liability occurred in California, Stonewall did not mandate application of California law
where insurance policy was delivered to Washington brokerage firm, bore stamp required
by Washington law, incorporated underlying policy that contained Washington coverage
forms, and insured Washington corporation). Accordingly, there is no basis for the Court
to conclude that the parties reasonably expected the policies to be governed by Hawaii
law, as the place of the insured risk at issue.
Furthermore, in Stonewall, the court made an explicit finding that the California
rule at issue was intended to protect California residents from tortfeasors and, therefore,
California’s specific interest as the place of the insured risk would be impaired by the
failure to apply its law. 14 Cal. App. 4th at 69. No comparable finding can be made in
this case. The public policy underlying Hawaii’s rule that contract-based construction
defect claims do not constitute an “occurrence” under commercial general liability
policies is that a contrary rule converts the policy into a professional liability
performance bond.4 See Group Builders, 231 P.3d at 72. Thus, this rule is intended to

4

To the extent this rule is justified by Hawaii’s desire to not incentivize “willful
and wanton breach[es] of contract,” defendant has not presented any evidence that such
an interest is implicated in this case. See WDC Venture v. Hartford Acc. & Indem. Co.,
938 F. Supp. 671, 678 (D. Haw. 1996) (“to allow [policy] coverage for willful and
wanton breach of contract claims would render the contract meaningless. A breach of
contract is an uninsurable activity, as to hold otherwise would invite such misbehavior.”).
The Brown Complaint does not specifically allege, and defendant has not presented any
evidence that plaintiff’s conduct giving raise to the Brown action was “willful and
wanton” or intentional.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

protect the expectation of insurers. Because no Hawaiian insurer is involved in this
dispute, Hawaii’s interest will not be impaired by the application of California law.
Accordingly, the Court finds that applying California law to this action will not
substantially impair Hawaii’s interests.
iii.

Summary

In sum, the ‘governmental interest’ analysis requires the application of California
law. Although there is a material difference between California and Hawaii law on what
constitutes an “occurrence” under commercial general liability policies, and each state
has a legitimate interest in having its own law applied, the application of California law
will not substantially impair Hawaii’s interests.
B.

Application of California Law to the Policies

Having found that both California Civil Code section 1646 and the “governmental
interest” analysis require the application of California law to the present dispute, the
remaining question is whether defendant owes plaintiff a duty to defend the Brown
action. Under California law, the duty to defend is broader than the duty to indemnify,
and “is so broad that as long as the complaint contains language creating the potential of
liability under an insurance policy, the insurer must defend an action against its insured. .
. .” CNA Cas. of Cal. v. Seaboard Sur. Co., 176 Cal. App. 3d 598, 606 (1986) (emphasis
added); see also Buss v. Superior Court, 16 Cal. 4th 35, 46 (1997) (“Obviously, the
insurer’s duty to defend is broader than its duty to indemnify[:] . . . [i]t extends beyond
claims that are actually covered to those that are merely potentially so.”). “The
determination whether the insurer owes a duty to defend is usually made in the first
instance by comparing the allegations of the complaint with the terms of the policy.”
Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993). The insurer is
relieved of its duty to defend only if the complaint “can by no conceivable theory raise a
single issue which could bring it within the policy coverage.” Gray v. Zurich Ins. Co., 65
Cal. 2d 263, 276 n.15 (1966). However, facts extrinsic to the complaint may give rise to
a duty to defend “when they reveal a possibility that the claim may be covered by the
policy.” Montrose Chem. Corp. v. Superior Court, 6 Cal. 4th 287, 295 (1993). If the
allegations in the complaint and the extrinsic facts known to the insurer demonstrate no
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Date

June 6, 2011

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

potential for coverage, the insurer may deny the defense. Gunderson v. Fire Ins. Exch.,
37 Cal. App. 4th 1106, 1113–14 (1995). If, at the time of tender, the insured possesses
extrinsic evidence suggesting that the insurer has a duty to defend, it is the insured’s
obligation to bring to the insurer’s attention that evidence. Id. at 1117–18.
Here, the allegations in the Brown Complaint raise the potential for coverage under
the policies, thereby triggering defendant’s duty to defend. The policies provide
coverage for liability arising from “bodily injury or property damage,” including loss of
use of property, caused by an “occurrence” that takes place in the “coverage territory.”
Under California law, Brown’s allegation that the concrete supplied by plaintiff was
substandard constitutes an “occurrence” under the policies. As discussed supra, under
California law, the unintentional supplying of defective products constitutes an
“occurrence” within the meaning of commercial general liability policies. See Anthem
Electronics, 302 F.3d at 1056. While the Brown Complaint does not specifically allege
that plaintiff supplied the faulty concrete unintentionally, neither does it allege that it did
so intentionally. Accordingly, the complaint raises the possibility that plaintiff
unintentionally supplied the defective concrete causing the damage.
In addition, Brown’s allegations raise the possibility that plaintiff’s conduct caused
“property damage” within the meaning of the policies. The Brown Complaint alleges
that plaintiff’s supplying of defective concrete caused the drill shafts to fail, resulting in
project delays, and Brown seeks consequential damages. PSUF ¶¶ 21–22. These
allegations assert “property damages” in the form of loss of use of property. See Anthem
Electronics, 302 F.3d at 1058 (allegations in underlying complaint that defective circuit
boards failed after they were installed in scanners, causing customers loss of use of the
scanners, sufficiently asserted “loss of use” property damage within meaning of
California commercial general liability policies). Finally, the allegations in the Brown
Complaint that plaintiff supplied the defective concrete in Hawaii for drill shafts
constructed in 2005, unquestionably raise the possibility that plaintiff’s conduct occurred
in the “coverage territory” during the period covered by the policies.
Accordingly, the Court concludes that the allegations in the Brown Complaint
create the potential of liability under the policies, thereby triggering defendant’s duty to
defend plaintiff in the Brown action. See Seabord Sur. Co., 176 Cal. App. 3d at 606.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-1601 CAS (AGRx)

Title

AMERON INTERNATIONAL CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY; ET AL.

V.

Date

June 6, 2011

CONCLUSION

In accordance with the foregoing, the Court hereby GRANTS plaintiff’s motion for
partial summary judgment.
IT IS SO ORDERED.
00
Initials of Preparer

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:

09

CMJ

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