Insurance Law
“All-Risks” Policy
Exclusions
Nonaccidental Faulty Workmanship
Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing
California Law
In 2021, while a building owned by appellant 11640 Woodbridge Condominium Homeowners’ Association (HOA) was being reroofed, two rainstorms penetrated the partially constructed roof and caused extensive interior damage. The HOA made a claim under its condominium policy, which was underwritten by respondent Farmers Insurance Exchange (Farmers). Farmers denied the claim, concluding that the HOA’s losses resulted from nonaccidental faulty workmanship, which the policy did not cover. The HOA then brought the present action, alleging breach of contract and breach of the implied covenant of good faith and fair dealing against Farmers. Farmers moved for summary judgment, and the trial court granted the motion, concluding there was no coverage under the condominium policy as a matter of law. We reverse. As we discuss, the condominium policy was an “all-risks” policy, which covered all damage to the HOA’s property unless specifically excluded. There are triable issues of material fact as to whether the exclusions relied on by Farmers—the water damage exclusion and the faulty workmanship exclusion—preclude coverage in the present case. We thus reverse the summary judgment.
(…)
— “Covered Causes of Loss” are “Risks of Direct Physical Loss” unless the loss is “excluded in Section B” or “limited in Paragraph A.4.” (Italics added.)
The policy also contained two coverage exclusions that are relevant to our analysis:
—Water damage exclusion: Farmers will not pay for loss or damage caused directly or indirectly by “water,” “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” However, Farmers will pay for “water damage to the interior of any building or structure caused by or resulting from rain, . . . whether driven by wind or not, if . . . the building or structure first sustains damages by a Covered Cause of Loss to its roof or walls through which the rain . . . enters.”
—Faulty workmanship exclusion: Farmers will not pay for loss or damage “caused by or resulting from” specified exclusions, including, among others, “faulty, inadequate or defective . . . planning, zoning, development, surveying, siting . . . and workmanship, repair, construction or renovation.” (Italics added.) However, “if an excluded cause of loss . . . results in a Covered Cause of Loss,” Farmers “will pay for the loss or damage caused by that Covered Cause of Loss.”
(…) Consistent with Dewsnup, Victory Peach, and Wellsville Manor, we conclude that there are triable issues of fact as to whether the water exclusion applied in the present case. As an initial matter, we reject Farmers’s contention that the property was without a “roof” when it suffered rain damage in October 2021. The policy does not define “roof,” and we agree with the cited cases that a common sense meaning of “roof” includes a covering over a building that provides structural integrity and protection from the elements. We note in this regard that because no roof is permanent, all roofs must be periodically replaced. Replacing a roof requires removing worn outer layers and replacing them with new materials, thus leaving a structure not fully protected from the elements for a least a short time. Yet, nothing in the relevant condominium policy informed an insured that it would be without coverage for rain damage during periodic reroofing. To the contrary, the policy defines “covered property” to include “additions under construction, alterations and repairs to the building or structure,” unless covered by other insurance. In view of this language, we conclude that a roof under repair remains a “roof” within the meaning of the policy. In the present case, therefore, the property was never without a “roof” because Bardales removed just some of the roof’s outer layers, leaving the lower layers intact. Specifically, at the time of the first rainstorm, Bardales had removed much of the roof’s top layers, but other layers, including the plywood sheathing and insulation, remained. By the time of the second rainstorm, Bardales had replaced about 80 percent of the insulation and plywood, added a layer of “base paper” and “base felt,” hot-mopped and tarred much of the roof, and covered the entire roof with tarps. Like the courts in Dewsnup, Victory Peach, and Wellsville Manor, we conclude that the remaining layers of roof, even without the roof membrane, were sufficient to constitute a “roof” within the meaning of the policy.
Having concluded that the property had a “roof” at all points during the repairs, we must consider whether rain entered the property through “damage” to the roof caused by a “Covered Cause of Loss.”
(…) The policy does not purport to exclude losses that result from workmanship generally, but only from such “workmanship, repair [or] construction” that is “faulty, inadequate or defective.” Under the maxim expression unius est exclusio alterius, “the fact that [a] contract expressly so provides tends to negate any inference that the parties also intended another consequence to flow from the same event.” (Stephenson v. Drever (1997) 16 Cal.4th 1167, 1175; G & W Warren’s, Inc. v. Dabney (2017) 11 Cal.App.5th 565, 576.) Accordingly, the exclusion for damages caused by negligent workmanship suggests that the policy does not exclude damages caused by workmanship that was not negligent. We therefore conclude that rain damage resulting from roof repairs are covered unless expressly excluded by another provision of the policy, such as the faulty workmanship exclusion. We turn now to that question.
The parties disagree about the proper characterization of Bardales’s alleged negligence: The HOA asserts Bardales’s alleged negligence was “faulty workmanship,” while Farmers characterizes it as defecting “planning.” We need not decide whether the alleged negligence constitutes faulty “workmanship” or faulty “planning” because both are excluded under the policy if they are direct causes of loss. (Fn. 7).
We conclude, in line with other cases that have declined to follow Allstate, that “workmanship” unambiguously refers both to the way a contractor creates a finished product and the finished product itself. (See, e.g., Fourth Street Place, LLC v. Travelers Indem. Co., supra, 270 P.3d at p. 1242 [“the plain and ordinary meaning of the term ‘workmanship’ encompasses the quality of the process utilized to achieve the finished product and the quality of the finished product itself” (italics added)]; Wider v. Heritage Maintenance, Inc. (2007) 14 Misc.3d 963, 975 [827 N.Y.S.2d 837] [“An ordinary business-person applying for a commercial property insurance policy and reading the language of this exclusion would understand that, depending on the type of work done, the faulty workmanship exclusion could apply to the process of doing the work or the finished product”]; Schultz v. Erie Ins. Group (Ind. Ct. App. 2001) 754 N.E.2d 971, 976 [“while the term ‘faulty workmanship’ allows at least two definitions, we see no reason why it must mean either a ‘flawed product’ or a ‘flawed process.’ ”Since ‘workmanship’ denotes both ‘process’ and ‘product,’ an insurer could just as likely have both perils in mind when it drafts a policy’s list of exclusions”].)
However, although we do not adopt Allstate’s reasoning, we nonetheless conclude that the faulty workmanship exclusion does not unambiguously exclude coverage in this case. To establish the absence of coverage, Farmers had to demonstrate that there were no triable issues regarding the cause of the damage to the HOA’s property—or stated, differently, that the undisputed evidence established that the damage to the HOA’s property was “caused by or resulted” from Bardales’s negligence. But there was evidence that roof damage was caused not only by Bardales’s alleged negligence, but also by wind and rain. Specifically, Bardales testified that rain damaged the exposed plywood and insulation layers on October 4, and wind blew off tarps Bardales placed over the partially constructed roof on October 25. Farmers did not establish that the damage to the plywood, insulation, and tarps—that is, to the “roof”—did not contribute, at least in part, to the interior water damage. Moreover, as the HOA notes, Farmers introduced no evidence that the roof repairs could have been done in a way that would have fully protected the property in the event of a rainstorm. That is, while Farmers’s evidence suggested that Bardales failed to follow industry standards by removing nearly the entire roof membrane at once, it did not establish that compliance with industry standards would have avoided rain damage entirely—and thus that the damage resulted entirely from Bardales’s alleged negligence.
(…) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. ‘A covenant of good faith and fair dealing is implied in every insurance contract. [Citations.] The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071–1072, italics omitted.)
(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)
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