• Tidwell Enterprises, Inc. v. Financial Pacific Ins. Co., Inc. (3rd Dist. Ct. App. 2016) ---Cal. App. 4th ---, 2016 DJDAR 11743
  • March 24, 2017
  • Law Firm: McCormick Barstow Sheppard Wayte Carruth LLP - Fresno Office
  • Tidwell Enterprises, Inc. was involved in the installation of a fireplace during the construction of a new home. The construction contract called for the fabrication and installation of a custom "termination top" designed by the project architect. Tidwell was insured by Financial Pacific at the time of construction. Twenty months afterthe last Financial Pacific policy expired, the home was damaged by fire. The owner, Fox, was insured by State Farm at the time of the fire. State Farm's attorney sent a letter to Tidwell notifying it that the fire may have been caused by negligent manufacture, design or installation of the fireplace. Tidwell forwarded this letter to Financial Pacific which agreed to investigate under a reservation of rights. A report from State Farm's fire investigator concluded that an unlisted shroud located at the top of the chimney chase prevented the fireplace from drafting properly, which in turn caused the fireplace to overheat resulting in the ignition of the surrounding wood framing members at the sides, top and bottom of the fireplace. State Farm sued Tidwell alleging negligence in the installation of the fireplace. Financial Pacific retained its own inspector who concluded that the termination top installed by Tidwell at the direction of the general contractor posed a fire risk by restricting the air flow in the chimney.

    Financial Pacific subsequently denied Tidwell's tender of defense of the State Farm action on the ground that there was no potential for coverage since the property damage resulting from the fire occurred long after its policy had expired. Tidwell's attorney responded arguing that the continuous burning of fires in the fireplace led to continuous and progressive damage with each fire running too hot and that such damage fell squarely within the policy's definition of occurrence. Financial Pacific continued to refuse to defend, arguing that the only property damage being alleged was that caused by the fire. Tidwell's attorney then sent Financial Pacific a report prepared by a retained expert who concluded that the successive fires over the course of six years (during five of which Tidwell was insured by Financial Pacific) "each caused damage to the chimney system and lowered the point of combustion which eventually resulted in the main fire damage to the Fox home." Financial Pacific reaffirmed its denial and Tidwell filed suit for declaratory relief, breach of contract and bad faith. Tidwell alleged that the many fires set in the fireplace during the coverage of the Financial Pacific policy periods "actually caused 'physical injury to tangible property'...by causing...a chemical decomposition of wood in framing proximate to the fireplace, in a process known as pyrolysis."Financial Pacific moved for summary judgment which motion was granted because the damage for which recovery was sought was caused by a fire which occurred long after the Financial Pacific policies had expired. Tidwell appealed.


    In reversing the trial court's judgment, the appellate court noted that, the under the terms of the Financial Pacific policy, the insurer was obligated to pay sums Tidwell became legally obligated to pay as damages "because of 'property damage' caused by an 'occurrence' if the 'property damage' occurred during the policy period." Based on the allegations and known facts, Tidwell might have negligently installed the chimney allowing the restriction of air flow and the subsequent excessive heat in the chimney whenever a fire was burned in the fireplace. This, through the process of pyrolysis, "might have altered the chemical composition of the wood framing the chimney chase, thereby reducing the temperature at which it would ignite, until eventually, ... the wood framing the chimney chase did ignite, which in turn resulted in the fire that damaged Fox's house, for which State Farm was obligated to indemnify Fox as Fox's insurer." Therefore, there existed a potential that physical injury to the wood framing, in the form of change to its chemical composition, during one or more of the Financial Pacific policy periods, may have caused Tidwell to have a legal obligation to pay damages for the fire that resulted, at least in part, from the damaged wood. Furthermore, this scenario was not mere speculation on Tidwell's part but instead consisted of the opinions of Tidwell's experts. Since Financial Pacific failed to eliminate the potential for coverage, the summary judgment was reversed.


    The court's opinion in this case sets forth an exception to the general, well-settled rule that the underlying case must seek recovery of property damage occurring during the policy period. Here, the property damage for which recovery was sought was the damage resulting from a fire which occurred outside the policy period. The exception the court applied involved a situation in which the property damage for which recovery was sought, although itself occurring outside the policy period, was potentially "because of" property damage which did occur during the policy period. This conclusion was based on the insuring agreement which provided that the insurer would pay sums the insured became legally obligated to pay because of property damage caused by an occurrence if the property damage occurred during the policy period. The court read this to require only that the insured be potentially obligated on a loss caused by property damage during the policy period as opposed to requiring that the property damage for which recovery is sought occur during the policy period. Thus, unlike established California case law, the court found that a cause of damage can create a potential for covered damage as long as the cause itself constitutes physical injury to tangible property during the policy period. As such, a mere determination that no damage is claimed that occurred during the policy period may not be enough to deny coverage. It must also be determined that the damage for which recovery is sought was not "because of" property damage that did occur during the policy period.