• Commercial General Liability Insurer Had No Duty to Defend or Indemnify Commercial Landlord on Lessee's Economic Loss Claims
  • May 21, 2007
  • Law Firm: Gordon & Rees LLP - San Francisco Office
  • Golden Eagle Insurance Corp. v. Cen-Fed, Ltd. (2007)
    __Cal.App. 4th __ (March 21, 2007) 07 C.D.O.S. 3005


    The California Court of Appeal, Second District, affirmed a trial court Judgment finding insurer Golden Eagle had no duty to defend or indemnify its insured Cen-Fed in an action brought by lessee Washington Mutual Bank ("WMB") against the insured lessor Cen-Fed. The Court reversed its ruling that the insurer was liable for costs and attorney's fees awarded against the insured.


    Cen-Fed leased property to WMB in a commercial building. WMB sued Cen-Fed for breach of the lease and declaratory relief alleging that Cen-Fed had failed to maintain and repair the leased premises in accordance with the terms of the lease. Golden Eagle insured Cen-Fed with general liability and commercial general liability coverage policies. Cen-Fed tendered the claim to Golden Eagle, who undertook the defense of Cen-Fed under a complete reservation of rights. During the underlying action, Golden Eagle filed suit against Cen-Fed seeking a declaratory judgment that it had no duty to indemnify Cen-Fed for damages in connection with the underlying lawsuit, that it had no duty to defend the underlying action and that it had no obligation to indemnify Cen-Fed for contractual attorney's fees that might be awarded to WMB in the underlying action. In the underlying suit, the jury found in favor of WMB finding a diminution in the value of its leasehold, but awarded zero damages for the claims of damages. However, as part of the judgment, WMB, as the prevailing party, was awarded costs of suit including attorney's fees pursuant to the lease.


    In this action, the trial court concluded that Golden Eagle had no duty to indemnify because the damages awarded to WMB were not due to "property damage" or to an "occurrence" and the "owned property" exclusion precludes liability for indemnification. The court also found that the "liability assumed in a contract" exclusion applied to the "personal injury" coverage to eliminate any indemnity obligation. The court also held that even though Golden Eagle had no duty to defend Cen-Fed in the underlying action, it was nonetheless liable for paying the costs of suit, including attorney's fees, awarded to WMB because Golden Eagle in fact defended the underlying action and the policies obligate it to pay any cost award against its insured, regardless of the court's determination that no duty to defend the underlying action was ever owed.


    Cen-Fed appealed this judgment contending that WMBs' damages occurred because of "property damage" caused by an "occurrence", and that the personal injury exclusion for liability assumed in contract does not apply. Golden Eagle cross-appealed disputing each of Cen-Fed's arguments, and that the court erred in imposing the requirement that it pay the costs including attorney's fees awarded to WMB.

    The Court of Appeal upheld the trial court's decision that Golden Eagle had no duty to indemnify Cen-Fed because WMB's allegations against Cen-Fed did not claim "property damage" or physical injury to tangible property. Instead, the entire claim rested on Cen-Fed's alleged breach of lease and the resulting economic damages as evidenced by the jury's finding of diminution in the value of the lease. Additionally, the court held that the acts of Cen-Fed which led to its failure to fulfill the lease were not the result of a fortuitous accident and thus could not have resulted in an "occurrence". The court also upheld the trial court's finding that there was no "personal injury" coverage for wrongful eviction/entry into/invasion because it only applies to "persons" occupying the premises and not "persons and/or organizations." Because the lessee was WMB, which is a corporation and not a person, by its very terms the premises-based offense is not applicable to Cen-Fed's corporate lessee.


    The court of appeal reversed the trial court's finding that because Golden Eagle had defended Cen-Fed that it had an obligation to pay those costs of suit despite its finding that there was no coverage under the policies and no duty to defend. The policies provided that the insurer must pay "with respect to…any 'suit' against an insured we defend, all costs taxed against the insured in the 'suit'." The policies define the word "suit" as "a civil proceeding in which damages because of 'bodily injury,' 'property damage,' 'personal injury,' or 'advertising injury' to which this insurance applies are alleged." The court of appeal held that the trial court was incorrect because WMB's pleadings in the underlying action did not raise a potential for coverage and no claims were asserted at any time except those for breach of lease and the resulting contract damages. Because Golden Eagle never had any duty as a matter of law to indemnify Cen-Fed for the claims by WMB, it likewise never had any duty to defend the action.

    This opinion is not final. It may be withdrawn from publication, modified on rehearing or the California Supreme Court may grant review. Should any of these events take place, the opinion would be unavailable for use as authority in other cases.