Philadelphia Indemnity Insurance Company v. Danco Builders

Filing 105

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge William H. Orrick on 06/27/2017. (jmdS, COURT STAFF) (Filed on 6/27/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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PHILADELPHIA INDEMNITY
INSURANCE COMPANY,

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Plaintiff,

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v.

FINDINGS OF FACT AND
CONCLUSIONS OF LAW

DANCO BUILDERS, et al.,

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United States District Court
Northern District of California

Case No. 15-cv-03945-WHO

Defendants.

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I held a bench trial on June 5 and 6, 2017 on plaintiff Philadelphia Indemnity Insurance

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Company (“Philadelphia”)’s equitable subrogation claim against Dan Johnson Construction, Inc.

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dba Danco Builders (“DANCO”) arising out of a fire that occurred on the balcony of Apartment F

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at the Willow Creek Apartments, in Willow Creek, California, in December of 2013. Philadelphia

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asserted that DANCO, the general contractor that built the Willow Creek Apartments, negligently

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installed a highly flammable Green Deck material on the balconies of the apartments and that the

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Green Deck on the balcony of Apartment F caused the fire to spread, substantially increasing the

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property damage resulting from the fire. DANCO denies liability. Philadelphia, the insurer, paid

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approximately $664,000 for fire damage repair costs and lost rent following the fire. In this order

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I issue my findings of fact and conclusions of law, determining that Philadelphia is not entitled to

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equitable subrogation against DANCO.

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I.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

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A.

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On May 1, 2006, DANCO and Willow Creek Family Partnership executed a construction

Undisputed Facts

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contract for DANCO to act as general contractor for the construction of an apartment project near

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Willow Creek, California (the “Willow Creek Apartments”). UF 1, 7. The contract price of

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construction was around $3.6 million. UF 7, 45. The International Fire Code’s Wildland Urban

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Interface Code (“WUI”) was not adopted by Humboldt County at the time the Willow Creek

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Apartments were planned and constructed. UF 33.

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Eric Roberts dba Pacific West Architecture was hired as the architect for the Willow Creek

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project and drafted the architectural plans. UF 4-5. Per the plans, the apartment complex was to

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consist of four buildings, each with six units. UF 46. Each building was to have two second-story

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units, each with a deck around 100 square feet. UF 47. It was DANCO’s general standard

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practice to follow a project’s plans and specifications in completing a project. UF 8.

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The plans for the Willow Creek Apartments had a conflict in that they called for both
UltraGuard PVC and a two-inch lightweight concrete to be used for the second-story decks. UF

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United States District Court
Northern District of California

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12-13, 50. DANCO did not issue a written request for information to the architect or structural

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engineer to clear up this conflict, UF 27, and there is no evidence that DANCO and the structural

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engineer discussed what decking material to use for the second floor balconies. UF 10.

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On September 25, 2006, the Humboldt County Building Inspection Department approved

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using Procell PVC deck boards for the decking material on the second floor balconies at Willow

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Creek. UF 14. DANCO never sent UltraGuard PVC specifications or installation instructions to

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the building department for approval. UF 28. There is no evidence that DANCO submitted a

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written change order, signed by the owner, architect, or Department of Agriculture, regarding the

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material to use for second floor decking. UF 9, 31. The only change order signed by the architect

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in the DANCO job file related to additional fire sprinklers in the bathroom and no documents were

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removed from the DANCO job file prior to production in this litigation. UF 11.

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In building the Willow Creek Apartments, DANCO performed some work itself and

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subcontracted other work out. UF 3. In 2007, DANCO installed, or gave one of its subcontractors

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approval to install, polyethylene deck boards (“Green Deck”) on the second-floor balconies

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instead of the Procell PVC (approved by Humboldt County) or the UltraGuard PVC or light-

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weight concrete (specified in the plans). UF 15, 52. The manufacturer and origin of the Green

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Deck is unknown. UF 30. Green Deck was installed on all the second floor balconies at the

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Willow Creek Apartments. UF 29.
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On June 26, 2008, there was a fire on the second-floor balcony of Apartment F at the

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Willow Creek Apartments. UF 16, 55. The fire was caused by a lit cigarette, which caught fire to

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materials on the Green Deck and burned the vinyl siding of the balcony wall. UF 18-19, 53. It

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was first suppressed by a passerby with a water hose. UF 20. An alarm for the fire went off at

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approximately 11:10 p.m. and the fire department arrived about eight minutes after the alarm. UF

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17. The fire department quickly contained the fire and there were no injuries. UF 54. The fire

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caused $13,009.92 in damage, primarily to the vinyl siding, which DANCO repaired. UF 21.

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There was no significant damage to the Green Deck. UF 54.
A second fire occurred on the second-floor balcony of Apartment F on December 16, 2013.

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UF 22. This fire was also caused by a lit cigarette. UF 25. The tenant in Apartment F negligently

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United States District Court
Northern District of California

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discarded a lit cigarette in an ashtray and dumped the ashtray into a paper bag that contained

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combustible debris on the deck. UF 25. The fire was first reported by a driver on Highway 96,

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approximately 400 yards away from the Willow Creek Apartments around 11:59 a.m. UF 26, 56.

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The fire department arrived at 12:07 p.m., eight minutes later. UF 56. Only 3-4% of the Green

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Deck burned through during the 2013 fire, concentrated in the northwest corner of the deck. UF

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57.
DANCO bid on and was awarded the contract to repair the damage from the 2013 fire. UF

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35. It made repairs of like kind and quality to the damaged portions of the building. UF 34.

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Plaintiff Philadelphia is a corporation authorized to conduct insurance business in California. UF

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38. It insured the Willow Creek Apartments at the time of the 2013 fire. UF 39. Philadelphia

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paid $581,500.00 for fire repair costs. UF 40. In addition to being the general contractor of the

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Willow Creek Apartments, DANCO was the property manager of the buildings at the time of the

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fire. UF 42. It calculated the lost rent and provided its lost rent figures to Philadelphia’s adjuster

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for consideration. UF 43-44. Philadelphia paid $82,552.49 for lost rent due to fire damage. UF

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41.

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B.

Additional Findings of Fact

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a. The 2013 fire burned for approximately 12-17 minutes before the fire department arrived. Trial

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Tr. Vol. I 225:22-25.
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b. The paper bag full of combustible materials was placed on top of a cardboard box that was

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sitting on top of the Green Deck. Trial Tr. Vol. 1 224:20-225:11 (Cuzzillo Testimony).

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c. The cardboard box was adjacent to or within a few inches of the North Wall of the balcony in

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the northwest corner of the deck. Trial Tr. Vol. 1 231:8-232:14 (Cuzzillo Testimony).

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d. The fire spread up the wall creating a u-pattern, penetrated the soffit ceiling above the North

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Wall, and went into the attic. Trial Tr. Vol. I 223:22-224:4. (Cuzzillo Testimony).

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United States District Court
Northern District of California

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e. Virtually all of the North Wall burned in the fire. Trial Exhibit 270.

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f. Fire spreads more easily on a vertical surface than a horizontal one because flame is buoyant

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and rises, heating the fuel ahead of it as it spreads on a vertical plane. Trial Tr. Vol. I 241:19-

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242:13. (Cuzzillo Testimony).

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g. The Green Deck was tested and found to have a Flame Spread Index of 150, which was a Class

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C fire rating. Trial Tr. Vol. II 306 :1-307:19 (Kelley Testimony); Trial Exhibit 237.

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h. There was minimal damage to the northern wall of Apartment C below Apartment F, indicating

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that the hole in the northwest corner of the deck formed late in the fire because, if flaming debris

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had fallen through the hole, it would have ignited the vinyl wall below or the wooden sewing table

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on the Apartment C balcony. Trial Tr. Vol. I 234:22-235:20 (Cuzzillo Testimony); Trial Exhibit

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264.

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i. The minimal damage to Apartment C also indicates that the hole may have been enlarged by the

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firefighters during the overhaul stage of the fire suppression activity, after the fire was contained.

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Trial Tr. Vol. 1 232:15-233:16 (Cuzzillo Testimony); Trial Exhibit 269.
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j. In addition to the large hole in the northwest corner of the deck, there was a “long slice” of

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damage to the deck directly next to the North Wall. Trial Tr. Vol. I 177:25-178:7 (Babrauskas

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Testimony). This damage was caused by burning melting vinyl siding and other building

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materials sliding down the wall and falling onto the deck. Trial Tr. Vol. I 178:3-7 (Babrauskas

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Testimony).

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k. The fire spread from the flaming cardboard box directly to the North Wall causing the wall to

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ignite. Trial Tr. Vol. I 223:14-25 (Cuzzillo Testimony).

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United States District Court
Northern District of California

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l. The large hole in the deck, like the “long slice,” was caused by the burning vinyl siding of the

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North Wall and other materials falling onto the deck. Trial Tr. Vol. I 243:5-11 (Cuzzillo

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Testimony).

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C.

Conclusions of Law

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a. There are eight elements to proving equitable subrogation: “(1) the insured suffered a loss for

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which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or

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because the defendant is legally responsible to the insured for the loss caused by the wrongdoer;

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(2) the claimed loss was one for which the insurer was not primarily liable; (3) the insurer has

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compensated the insured in whole or in part for the same loss for which the defendant is primarily

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liable; (4) the insurer has paid the claim of its insured to protect its own interest and not as a

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volunteer; (5) the insured has an existing, assignable cause of action against the defendant which

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the insured could have asserted for its own benefit had it not been compensated for its loss by the

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insurer; (6) the insurer has suffered damages caused by the act or omission upon which the

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liability of the defendant depends; (7) justice requires that the loss be entirely shifted from the

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insurer to the defendant, whose equitable position is inferior to that of the insurer; and (8) the

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insurer’s damages are in a liquidated sum, generally the amount paid to the insured.” Valley Crest

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Landscape Development, Inc. v. Mission Pools of Escondido, Inc., 238 Cal.App.4th 468, 483 n.3

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(2015), quoting Interstate Fire & Casualty Ins. Co. v. Cleveland Wrecking Co., 182 Cal.App.4th
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b. “The elements of a cause of action for negligence are well established. They are (a) a legal

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duty to use due care; (b) a breach of that legal duty; and (c) the breach as the proximate or legal

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cause of the resulting injury.” Ladd v. Cnty. of San Mateo, 12 Cal.4th 913, 917 (1996) (emphasis

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in original) (internal quotation marks and alterations omitted).

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c. Because the WUI standards were not codified at the relevant time, they were not part of the

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applicable standard of care of a general contractor for the construction of the Willow Creek
Apartments. UF 33; Trial Tr. Vol. I 84:24-85:6 (Hughes Testimony); Trial Tr. Vol. II 315:11-21

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United States District Court
Northern District of California

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(Kelley Testimony); Trial Tr. Vol. II 355:1-8 (Cardle Testimony).

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d. The design criteria of the Plans did not make reference to the WUI model code or its standards.

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Thus, WUI did not apply to the Apartment project. Trial Tr. Vol. II 355:1-23 (Cardle Testimony)

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e. The Willow Creek Apartments were a Type V non-rated construction project. Type V offers

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the most flexibility in material selection. The buildings were separated from each other, and thus

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fire resistive construction requirements, such as one hour construction, were not required. Trial

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Tr. Vol. II 250:14-354:24 (Cardle Testimony).

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f. The North Wall of the Apartment F deck was “bad news from a fire safety point of view”

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because it was made of three combustible components, vinyl siding, moisture barrier, and oriented

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strand board. Trial Tr. Vol. I 175:1-176:5 (Babrauskas Testimony). Philadelphia did not bring a

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claim based on the installation of the vinyl siding.

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g. The tenant in Apartment F saw the 2013 fire, but did not try to extinguish it, and did not call

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the authorities. Pelton Depo II 12:18-25; Trial Tr. Vol. I 132:11-17 (Babrauskas Testimony).

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h. The Green Deck was not a substantial factor in the spread of the fire. It did not increase the

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fire damage because the fire spread directly from the cardboard box to the combustible vinyl

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siding. In this regard, the burning-brand test introduced by videotape through Dr. Babrauskas was

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unconvincing because it did not attempt to mimic the conditions on the day of the fire. As Dr.

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Cuzzillo highlighted, the cardboard box at issue in this fire had a much lower mass than the

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burning-brand and so would not be able to heat the Green Deck as much as the burning-brand did

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in the video. Trial Tr. Vol. I 247:11-23 (Cuzzillo Testimony). Further, as Dr. Cuzzillo noted, the

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test used a simulated 12 mile-an-hour wind which increased the horizontal flame spread. Id.

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245:23-247:9. This wind did not reflect the conditions of the fire in this case because, with only

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one open wall, it was not possible to have a steady wind across the deck of Apartment F. Id. Dr.

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United States District Court
Northern District of California

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Cuzzillo’s testimony and opinion regarding the spread of the fire was more persuasive in light of

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the evidence.

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i. The primary causes for the spread of the fire were the highly combustible vinyl siding of the

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North Wall and the failure of the Apartment F tenant to prevent or control the fire.

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j. Because the Green Deck did not cause the fire damage, DANCO’s installation of the Green

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Deck was not the proximate cause of Philadelphia’s injury. That DANCO failed to send a written

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request for information to the architect or structural engineer, to obtain approval for the Green

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Deck from the County, or to submit change orders as required by the contract, is immaterial

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because of the lack of causation. Philadelphia cannot make out a claim for negligence against

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DANCO.

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k. Because Philadelphia cannot make out a claim for negligence and cannot demonstrate that

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DANCO’s installation of the Green Deck caused its damages, it has failed to meet elements (1),

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(6) and (7) of its equitable subrogation claim.

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l. Philadelphia is not entitled to equitable subrogation.
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CONCLUSION

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In light of the findings of fact and conclusions of law, I find in favor of defendant DANCO

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and against plaintiff Philadelphia, and will enter judgment accordingly.

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IT IS SO ORDERED.
Dated: June 27, 2017

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William H. Orrick
United States District Judge

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United States District Court
Northern District of California

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