Insights
Publications

Newly-Published Regional Steel Case Raises More Questions Than It Answers

6/19/2014 Blog

In May, California’s Second Appellate District affirmed a summary ruling that a Commercial General Liability insurer did not have a duty to defend a subcontractor who supplied faulty “seismic tie hooks” that were encased in concrete shear walls.  The case is Regional Steel Corporation v. Liberty Surplus Insurance Corporation, Cal. Ct. App. 2d Dist. B245961, and the court has just granted Liberty’s request to certify the case for publication.

The Second Appellate District declined to follow the “incorporation doctrine,” adopted by the First Appellate District in cases such as Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., 45 Cal.App.4th 1 (1st Dist. 1996), Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal.App.4th 847 (2000).  At issue in Armstrong was the cost of removing asbestos-containing building materials, which had been installed in larger structures.  At issue in Shade Foods was a supply of ground almonds that was contaminated with wood chips, but had been incorporated into “nut clusters” for breakfast cereal.  In both cases, the First Appellate District held that the mere incorporation of these faulty products or material into third-party property constituted covered “property damage.”

The Regional Steel court, however, relied instead on the Third Appellate District’s opinion in F&H Construction v. ITT Hartford Ins. Co., 118 Cal.App.4th 364 (2004).  In F & H Construction, the insured contractor had supplied defective steel pile caps that were welded onto driven piling, and needed to be replaced.  The F & H Construction court ruled that the incorporation of a defective component or product into a larger structure does not constitute property damage unless and until the defective component causes some kind physical injury to another component of the system.

The interesting thing here is the way that the Regional Steel court attempted to distinguish Armstrong and Shade Foods.  The court tried to draw a distinction between the materials at issue in those cases – asbestos and wood chips – on the theory that they were inherently “hazardous” and therefore their incorporation into a larger whole necessarily “contaminated” the finished product.  The court reasoned that this was different from a defective workmanship, which does not “damage” the rest of the project.

The distinction might be easy to articulate, but it seems difficult to apply in practice.  Where defective workmanship affects public safety, doesn’t it necessarily “contaminate” (i.e., damage) third party property?  Indeed, the very purpose of the “seismic tie hooks” at issue in the Regional Steel case were to ensure the stability of concrete walls in the event of an earthquake.  If the faulty tie hooks made the structure unsafe in an earthquake, how is this different from asbestos, which makes a building unsafe in the event that the material comes loose from its casing and is inhaled?  In practice, the Regional Steel case raises as many questions as it answers.

Firm Highlights

Publication

Fire Preparedness for Vineyards and Wineries

Winter, spring, summer, fire season, and fall – as Californians, we have all become accustomed to a fifth season – fire season. Even worse, fire season was once confined to just a few months...

Read More
Publication

Nonprofit Basics: Insurance Coverage for the New Nonprofit

Welcome to EO Radio Show – Your Nonprofit Legal Resource . Risk management for a nonprofit starts with good governance, effective management and appropriate policies for employment practices, conflicts of interest and financial management...

Read More
Publication

More Stringent California Claim Law Could Benefit Policyholders

To combat a perceived litigation tactic by plaintiffs counsel of using settlement demands within policy limits to set up insurers for bad faith, insurance company associations lobbied for statutory clarification to avoid uncertainty around...

Read More
Event

The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions

Join Carly Alameda and Amy Briggs for the ACC Bay Area Chapter program "The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions."  Corporate counsel are often tasked with negotiating, finalizing, and managing...

Read More
Publication

Office-to-Housing Conversion: Legislation – California’s Next Frontier

In an effort to spur the conversion of office-to-housing as one way to revitalize California’s struggling urban downtown areas, Assemblyman (and former San Francisco Supervisor) Matt Haney has introduced AB 1532, dubbed the “Office...

Read More
News

Farella Braun + Martel Earns 2023 U.S. News – Best Lawyers® "Best Law Firms" Rankings

Read More
News

Farella Braun + Martel Recognized in Benchmark Litigation 2023

Farella Braun + Martel continues to be ranked among the top litigation firms in California in the  Benchmark Litigation  2023 guide. Farella was ranked “Highly Recommended” for Dispute Resolution in California and earned a...

Read More
Publication

A Promise To Pay Is Just That: Two Courts Reject Insurers’ Bids To Escape Their Coverage Obligations by Complaining About Third Party Recoveries or Reductions in Liabilities

An insurer in Washington could not eliminate its coverage obligation based on its insured’s recovery from a third party.  T-Mobile USA, Inc. v. Steadfast Ins. Co., et al ., No. 82704-9-I, 2022 WL 17246715...

Read More
Event

The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions

Join Carly Alameda and Amy Briggs in the discussion on "The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions" to the ACC Bay Area Chapter. Corporate counsel are often tasked with negotiating...

Read More
Publication

San Francisco’s Downtown: What Does the Future Hold?

Farella's CJ Higley with guest speakers, Marc Babsin with Emerald Fund, Jim Hakes with Handel Architects, Sujata Srivastava with SPUR, and Anne Taupier with San Francisco Office of Economic and Workforce Development, discuss "San...

Read More