Safeco Insurance Company Of America v. Fireman's Fund Insurance Company
__Cal.App.4th.__ (March 14, 2007)
07 C.D.O.S. 2722

Where One Landslide Causes Property Damage Extending Over Successive Policy Periods, There Is Only One Occurrence Under A Homeowners Policy

The Second District Court of Appeal affirmed a trial court's grant of motion for summary judgment to a primary insurer, ruling there was a single occurrence where one landslide caused property damage extending over successive policy periods.

Fireman's Fund Insurance Company ("Fireman's Fund") issued to Harold Lancer a homeowners policy that provided liability coverage with a limit of $500,000 per occurrence. Lancer also obtained a personal umbrella policy with a limit of $5 million per occurrence from Safeco Insurance Company ("Safeco") that same year. The Safeco policy was renewed the following two years and the Fireman's Fund policy was renewed the following three years.

Lancer and next-door neighbors owned homes on top of a hill. During the first policy period for both policies, a portion of the uphill properties failed, causing a landslide that inundated the backyard of a downhill neighbor, the Rauches, with dirt and debris. Immediately after the landslide, the City of Los Angeles ordered Lancer to repair the slope and determined the Rauches' backyard was unusable. But the slope remained unrepaired and the backyard unusable for the next several years.

The Rauches sued Lancer and other uphill neighbors alleging nuisance, trespass, and negligence. Fireman's Fund defended Lancer. The Rauches sought general damages and injunctive relief to abate the nuisance. Lancer and another uphill neighbor filed cross complaints against each other for indemnity and comparative fault. They eventually settled the cross-complaints, agreeing to pay $1.1 million into a trust to repair the slope. Fireman's Fund paid $450,000 on behalf of Lancer toward the settlement. Fireman's Fund also paid $50,000 on behalf of Lancer to settle a separate action filed by another downhill neighbor for damages from the landslide.

After both payments, Fireman's Fund contended it had exhausted its policy limits of $500,000. Nevertheless, Fireman's Fund agreed to continue defending Lancer against the Rauches' lawsuit, subject to a reservation of rights to seek reimbursement of defense costs from Safeco. Fireman's Fund spent an additional $265,000 defending Lancer.

The Rauches' trial was conducted in two phases. In the first phase, the trial court heard evidence regarding the condition of the slope, declared it a nuisance, and ordered that it be abated. The court directed Lancer and the other uphill neighbors to implement a repair plan to be approved by the city and determined that the repairs would cost $3,795,448. In the second phase, the jury found for the Rauches on the nuisance and negligence causes of action. It awarded $75,500 in economic damages for loss of use and relocation expenses, and $12,500 in noneconomic damages for annoyance, discomfort, and inconvenience.

Safeco paid $1.54 million of the judgment on Lancer's behalf and filed a declaratory relief action against Fireman's Fund. Safeco alleged Fireman's Fund was solely obligated to indemnify for the judgment contending Fireman's Fund owed $500,000 in coverage for property damage and an additional $500,000 in coverage for personal injury during each of Fireman's Fund's four policy periods, for a total of $4 million. Fireman's Fund filed a cross-complaint against Safeco, requesting a declaration that it owed Lancer only $500,000 in indemnity it had already paid and sought the $265,000 in defense costs incurred after it had paid the $500,000 limit. The trial court granted Fireman's Fund's motion for summary judgment concluding there was a single occurrence resulting in $500,000 in coverage for the slope failure. Safeco appealed and the Second District Court of Appeal affirmed.

Safeco's appeal was based on two main arguments. First, Safeco contended a single event, such as a landslide, could result in two occurrences based on the two distinct definitions of an occurrence in the Fireman's Fund policy. The policy defined an "occurrence" as both an "[a]n accident, including continuous or repeated exposure to the same or similar harmful conditions which results, during the policy period, in 'bodily injury' or 'property damage,'" and also as "[a]n act or series of acts of the same or similar nature that occurs during the policy period and which results in 'personal injury.'" According to Safeco, this meant a single occurrence of property damage could simultaneously give rise to additional occurrences under the personal injury coverage. To further support this argument, Safeco noted the limit of liability provision in the Fireman's Fund policy referred only to "bodily injury" and "property damage," and not "personal injury."

The court disagreed. It held Safeco could not rely on a provision limiting an insurer's liability per occurrence to argue for higher policy limits. The court also explained the purpose of the two occurrence definitions was to determine the existence of coverage, and not the amount of coverage. Specifically, the definitions spoke to whether a particular event triggered property damage or personal injury coverage under the policy. For property damage coverage to be triggered, actual damage must occur during the policy period. In contrast, for personal injury coverage to be triggered, the wrongful act, and not the resulting injury, must occur during the policy period.

In determining the amount of coverage, the court focused on case law where an "occurrence" has generally been held to mean the underlying cause of the injury, regardless the number or nature of resulting injuries. If not viewed in this manner, an insurer's effort to limit its liability per occurrence would be substantially weakened. Thus, where one proximate, uninterrupted, and continuing cause results in injuries, there is a single occurrence. Applying these principals, the court held there was a single occurrence because all the injuries suffered by the downhill neighbors resulted from one uninterrupted cause: the landslide.

Safeco's second argument was that damage resulting from the landslide continued into Fireman's Fund's three subsequent policy periods and therefore constituted a separate occurrence under each of those policies. The court rejected this argument stating that continuation of damage during successive policy periods, by itself, does not create a series of indefinitely ongoing occurrences.

In regard to property damage coverage, the court explained that even if there were a loss of use of property that continued after the first policy period, that loss of use was still caused by the same precipitating act or event, i.e., the landslide. Although the underlying complaint alleged mud and debris continued to flow onto the Rauches' residence when it rained, which may have constituted a separate occurrence, the court found neither the stipulated facts nor evidence supported that allegation.

Regarding personal injury coverage, the court stated that if a wrongful entry or eviction occurred (the court did not decide this question), it was committed only during the first policy period. Within 24 hours after the landslide, the city declared the Rauches' backyard off limits. At most, this constituted one eviction. The court explained the Rauches were not continuously or repeatedly evicted, and therefore, there was only one occurrence.

Safeco countered by arguing that coverage for "personal injury" encompasses nuisances and that nuisances are continuing offenses. The court stated while this may be true under substantive nuisance law, the Fireman's Fund policy did not use the term "nuisance" or reference nuisance law. Accordingly, the proper issue was whether the facts of this case, and not nuisance per se, fit within the policies' personal injury coverage.

The court explained its holding was consistent with the reasonable expectations of the contracting parties. After the year of the landslide, Lancer paid approximately $1,600 per year in premium for the next three years. It would be unreasonable to expect those premiums would automatically entitle Lancer to an additional $500,000 per year, for a total of $2 million, based on conditions that remained static after the landslide.

Finally, the court recognized that, while liability policies that agree to pay "all sums" may entitle an insured to policy limits under successive policies for one occurrence, the Fireman's Fund policy did not agree to pay "all sums," but to pay only up to its policy limit.

This opinion is not final. A rehearing may be granted or other petition filed. Should either of these events take place, the opinion would be unavailable for use as authority in other cases.

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