Using arguments advanced in an amicus brief authored on behalf of the Association of California Insurance Companies by Insurance Practice Group attorneys David Capell and Leslie Crary, also a member of the Appellate Practice Group, the California Court of Appeal for the Second Appellate District interpreted a "products-completed operations" exclusion in favor of the insurer, reversing a $12 million judgment.
On January 12, The Recorder covered the Baker decision and quoted David Capell, who leads Gordon & Rees's Insurance Practice Group:
"I think the court got it right in terms of working through the rules of interpretation that the California Supreme Court has explained for insurance policies." The trial court, David explained, did not understand that the policy language in Baker was "materially different" from the language of the policy in Insurance Co. of North America v. Electronic Purification Co., 67 Cal. 2d 679 (1967), on which the trial court had relied.
National Interstate's insured, Four Winds, sold a school bus and, months later, inspected and repaired the bus for a fee. The bus was later involved in a collision during which bolts securing the driver's seat failed. The driver's widower and two surviving children sued Four Winds. Relying on an IS0-form "products-completed operations" exclusion, National Interstate denied coverage and later rejected a settlement demand within the policy's $1 million limits. The driver's heirs obtained a $12 million judgment against Four Winds and sued National Interstate, pursuant to an assignment of rights, for breach of contract and bad faith.
The trial court denied National Interstate's motion for summary judgment and held the "products-completed operations" exclusion did not apply to maintenance and inspection services unrelated to a product. The jury later found that Four Winds' inspection and repair work was independent of its sale of the bus, resulting in a $12 million judgment against National Interstate. The Court of Appeal reversed the trial court, holding, as Gordon & Rees had argued, that because the definition of "products-completed operations hazard" was stated in the disjunctive to apply to "your products" or "your work," each of which was separately defined, the exclusion applied to injury and damage arising out of work by the insured whether or not that work was related to the insured's products.
The Baker decision is an important victory for insurers. In the over 40 years since the California Supreme Court decided Electronic Purification, countless policies have been issued with the now-standard ISO definition of "products-completed operations hazard" that was before the court in Baker. The "products-completed operations" hazard is a key policy definition that impacts not only the exclusion at issue in Baker but other policy exclusions as well as the operation of aggregate policy limits.
Please click here to read the complete article.
Please click here to read Gordon & Rees's analysis of the decision.