(Question of Fact Regarding When Property Damage Occurred Required Reversal of Judgment in Favor of Insurer)

(April 2021) - In Guastello v. AIG Specialty Ins. Co., 61 Cal. App. 5th 97 (February 19, 2021), the California Fourth District Court of Appeal reversed the trial court's entry of summary judgment entered in favor of AIG Specialty Insurance Company ("AIG"). The parties' dispute arose out of a direct action filed by Thomas Guastello against AIG to collect on an underlying default judgment in the amount of $701,133.17 secured against AIG's insured, C.W. Poss, Inc. ("Poss") for defective construction of a retaining wall. The retaining wall collapsed in 2010 and damaged Guastello's property. Poss constructed the wall in October 2003. AIG insured Poss under two policies issued for the period of February 1, 2003 to December 3, 2004.

The trial court entered summary judgment in favor of AIG, finding that the damage sustained by Guastello's property took place in 2010 when the wall collapsed. Guastello had argued in opposition to the motion that the damage sustained by his property was continuous and progressive and first began to occur immediately after construction of the retaining wall had been completed. Guastello relied on expert testimony in support of his opposition to AIG's motion with respect to when his property first began to sustain damage.

The Court of Appeal reversed the trial court's entry of summary judgment in favor of AIG and found that there was a material issue of fact relative to when Guastello's property first began to sustain damage. The Court of Appeal reasoned as follows:

"t is well established that the time of the relevant 'occurrence' or 'accident' is not when the wrongful act was committed but when the complaining party was actually damaged." (Whittaker Corp. v. Allianz Underwriters, Inc.  (1992) 11 Cal.App.4th 1236, 1241 [14 Cal. Rptr. 2d 659].) It is also a "settled rule ... when continuous or progressively deteriorating damage or injury first manifests itself" the insurer "remains obligated to indemnify the insured for the entirety of the ensuing damage or injury." (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 686 [42 Cal. Rptr. 2d 324,-913 P.2d 8781.)

Here, Guastello included Fennell's declaration in response to AIG's motion for summary judgment. Fennell opined Poss negligently built the retaining wall (a latent construction defect), which caused "continuous and progressive destabilization and damage" to Guastello's residential lot and perimeter wall "beginning before the end of November 2004." Conversely, AIG argues Guastello did not suffer any property damage (the occurrence did not take place) until the retaining wall collapsed in 2010, about seven years after the expiration of its insurance policy with Poss (Dec. 2004). 

In short, the timing of the alleged "occurrence" (the alleged damage to Guastello's property) within the meaning of Poss's general liability insurance policies is plainly a disputed issue of material fact. (See Rest., Liability Insurance, § 33.) Thus, we reverse the trial court's ruling granting AIG's motion for summary judgment.

The Court of Appeal also noted in a footnote that Guastello is entitled to maintain a cause of action for bad faith against AIG based on his status as an express third-party beneficiary under the AIG policies.

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