In Nazarian v. Colony Insurance Company, 2016 WL 471853 (Cal. App. February 8, 2016), the California Court of Appeals held that an insurer owed no duty to defend or indemnify its insured for an underlying suit arising out of the insured’s construction of claimants’ residence where the policy only covered the remodeling activities.
Richard Nazarian was sued by homeowners for breach of contract, breach of express and implied warranty, and negligence. Nazarian allegedly represented himself as an experienced general contractor and agreed to build their dream home in Pacific Palisades, California, within their $1.5 million budget. The homeowners alleged that Nazarian agreed to take full responsibility for the home’s construction and manage the project. Nazarian allegedly failed to complete the home’s construction and to properly supervise subcontractors, leaving the home otherwise defective.
Nazarian tendered the suit for defense and indemnification to its CGL carrier, Colony Insurance Company (Colony). By endorsement, the Colony policy limited coverage to “bodily injury” or “property damage” resulting from Nazarian’s business as a remodeling general contractor. A second endorsement precluded coverage for “bodily injury” or “property damage” included in the “products-completed operations hazard” and arising out of or resulting from “your work” on any “residential construction.”
Colony denied coverage, claiming the complaint alleged damages due to work arising out of residential construction and therefore fell outside the scope of coverage. Nazarian countered that he was simply remodeling the home and submitted a permit to support his contention that he’d been working on existing property. While the permit showed that the original driveway, a gate and a retaining wall remained, the permit confirmed that the original home, garage and pool had been demolished.
Nazarian brought suit against Colony for declaratory judgment, breach of contract and breach of the implied covenant of good faith and fair dealing, and Colony moved for summary judgment asserting that the underlying claim involved residential construction not covered under the Colony policy.
The court held that the Colony policy unambiguously covered remodeling work only and did not cover residential construction. Accordingly, since the underlying complaint alleged residential construction and not remodeling, there was no coverage under the Colony policy. The court rejected Nazarian’s characterization and tendered evidence suggesting that because parts of the property remained intact it was simply remodeling the property. The court found the facts established that Nazarian was building a new home and it “exceeded anything that could be considered remodeling.”
The court also rejected Nazarian’s argument that it should nonetheless be covered because his business was classified in the policy declarations as a contractor “in connection with construction.” The court found that accepting Nazarian’s argument would render the endorsements superfluous and ignored the policy’s unambiguous terms. Consequently, the court granted summary judgment in favor of Colony, finding that it owed no duty to defend or indemnify Nazarian, and further rejected his claim for breach of the implied covenant of good faith and fair dealing.
Tressler Comments
The case highlights a situation where a court will refuse to allow an insured to expand the scope of coverage beyond what is provided in the policy, enforcing unambiguous policy terms as written, including limitations on the risk insured.