August 2, 2010
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On July 29, 2010, a California Court of Appeal held for the first time that the Calderon Process triggers the duty to defend in a commercial general liability insurance policy. In the case of Clarendon America Insurance Company v. StarNet Insurance Company, ___ Cal.App.4th ___, 2010 DJDAR 11645, the Fourth Appellate District of the California Courts of Appeal held that "the provision in a commercial general liability (CGL) insurance policy requiring the insurer to 'defend the insured against any "suit" seeking damages' to which the insurance applies includes the duty to defend the insured in proceedings under the Calderon Act, Civil Code section 1375 et seq."
The Court's decision focused on the definition of "suit" in the insuring agreement. The insuring agreement in the StarNet CGL policy at issue had all three definitions of "suit" that have been contained in the ISO standard CGL insurance form since 1986. Those three definitions of a suit included one that read: "'Suit' means a civil proceeding in which damages because of 'bodily injury[,'] 'property damage' or 'personal and advertising injury' to which this insurance applies are alleged." The Court of Appeal agreed with the trial court: "the Calderon Process is a civil proceeding in which damages are alleged and therefore falls within the StarNet CGL policies' definition of 'suit.'"
This decision is good news for developers and contractors who work on residential projects with a homeowner association, referred to as a "common interest development association" in the Civil Code. The Calderon Process does not apply to construction of individual custom homes that are not part of a common interest development, or to projects with less than 20 units. The Calderon Process requires the HOA to give notice to a developer or general contractor regarding any construction or design defects before the HOA files its complaint. It has a process for attempting to resolve the dispute before a lawsuit is filed. In practice, the Calderon Process is rarely successful. However, it can involve significant defense costs for a developer, contractor or subcontractor complying with the Process. These defense costs are now covered by CGL policies using the definition of "suit" in the ISO standard CGL insurance form.
David H. Waters advises owners, general contractors, and subcontractors and represents them in construction litigation. Mr. Waters further specializes in advising insurers and policyholders on their rights and obligations under insurance policies for all types of lawsuits. Mr. Waters can be reached at 510-835-6725 or dwaters@burnhambrown.com. James F. Blake specializes in construction litigation and professional liability. He represents subcontractors, contractors, developers and design professionals in construction defect litigation. James F. Blake can be reached at 510-835-6827 or jblake@burnhambrown.com.