Morrison Law Journal


The Morrison Law Journal February 2021 Volume XVI, Edition 2 When It May Not Be All Over: Court Of Appeal Rules That Triable Issue Of Fact Existed As To Whether A Retaining Wall Collapse – Which Occurred in 2010 – Occurred As A Result Of A Progressive Loss That Commenced Years Earlier By: Edward F. Morrison, Jr., Esq. Larry A. Schwartz, Esq.
In California, contractor general liability insurance policies are typically issued on an occurrence basis. An issue that often arises with contractor general liability insurance policies is whether a sudden failure (such as of a retaining wall) occurred as a result of "continuous and progressive damage" that took place starting years before the failure – thereby potentially triggering insurance coverage on the general liability insurance policies which insured the contractor years before the failure. In a case that highlights the complexities of this issue, in Guastello v. AIG Specialty Insurance Company (2021) Westlaw 650878 ("Guastello case"), the California Court of Appeal, Fourth District, ruled that a contractor general liability insurance policy, which insured a contractor in 2003 to 2004, could owe a defense and indemnity under the policy for the collapse of a retaining wall which took place in 2010. The facts of the Guastello case are common enough. From 2003 to 2004, subcontractor C.W. Poss, Inc. ("Poss") built retaining walls in the Pointe Monarch Housing Development in Dana Point, California. Poss performed all of the related excavation, ground and grading work. At that time, it was insured under a general liability insurance policy issued by AIG Specialty Insurance Company ("AIG"). In 2006, Thomas Guastello ("Guastello") purchased a home in the Pointe Monarch Development. In January 2010, a retaining wall close to Guastello's lot suffered a "massive failure" that caused a "major soil collapse" and further caused the "perimeter wall on [Guastello's] backyard to crack and separate." In 2013, Guastello sued Poss, among others, claiming that Poss had negligently designed and constructed the failed retaining wall. Guastello alleged various damages including diminution in value of his home. AIG, the insurer for Poss in 2003 to 2004, disclaimed any duty to defend or indemnify Poss asserting that the loss occurred long after the policy expired. In 2015, Guastello successfully obtained a default judgment against Poss. The trial court entered a default judgment of $701,133.17 in favor of Guastello, and against Poss (which is now insolvent). In 2017, Guastello filed a lawsuit against AIG alleging Causes of Action for Enforcement of the Default Judgment, Breach of the Covenant of Good Faith and Fair Dealing and Declaratory Relief. AIG in turn filed a Motion for Summary Judgment arguing that Guastello did not experience property damage until well past the expiration of the AIG 1 policy. The trial court agreed with AIG and granted AIG's motion as to all Causes of Action in Guastello's Complaint on the basis that they were predicated on AIG's alleged wrongful refusal to satisfy the Judgment against Poss. Guastello appealed arguing that there is a triable issue of material fact as to whether the property damage in 2010 was part of a continuous loss dating back to the coverage period (2003-2004) under the Poss general liability insurance policy issued by AIG. The Court of Appeal agreed with Guastello and reversed. The Court of Appeal noted that, "[i]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," citing to Whittaker Corp. v. Allianz Underwriters, Inc. (1992) 11 Cal.App.4ᵗʰ 1236, 1241. Citing to a Declaration submitted on behalf of Guastello that the property damage which had occurred resulted from a continuing or progressive loss over time, the Court of Appeal further ruled that there was a triable issue of fact as to whether the loss in 2010 arose from damage which commenced years earlier. The Guastello case is important in that it highlights the complexity of issues where there is a sudden failure (such as the collapse of a retaining wall). Contractors and insurers arguing a loss took place only at or near the time of the failure should consider obtaining evidence to demonstrate that the loss was only sudden in nature. About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at morrisonlawgroup.com. Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a coll ague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504. Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter. 2

In California, contractor general liability insurance policies are typically issued on
an occurrence basis. An issue that often arises with contractor general liability insurance
policies is whether a sudden failure (such as of a retaining wall) occurred as a result of
"continuous and progressive damage" that took place starting years before the failure – thereby
potentially triggering insurance coverage on the general liability insurance policies
which insured the contractor years before the failure.

In a case that highlights the complexities of this issue, in Guastello v. AIG Specialty
Insurance Company (2021) Westlaw 650878 ("Guastello case"), the California Court of Appeal, Fourth
District, ruled that a contractor general liability insurance policy, which insured a contractor in
2003 to 2004, could owe a defense and indemnity under the policy for the collapse of a retaining
wall which took place in 2010. The facts of the Guastello case are common enough. From 2003 to
2004, subcontractor C.W. Poss, Inc. ("Poss") built retaining walls in the Pointe Monarch Housing
Development in Dana Point, California. Poss performed all of the related excavation, ground and
grading work. At that time, it was insured under a general liability insurance policy issued by
AIG Specialty Insurance
Company ("AIG").

In 2006, Thomas Guastello ("Guastello") purchased a home in the Pointe Monarch Development. In
January 2010, a retaining wall close to Guastello's lot suffered a "massive failure" that caused
a "major soil collapse" and further caused the "perimeter wall on [Guastello's] backyard
to crack and separate."

In 2013, Guastello sued Poss, among others, claiming that Poss had negligently designed and
constructed the failed retaining wall. Guastello alleged various damages including
diminution in value of his home. AIG, the insurer for Poss in 2003 to 2004, disclaimed any duty
to defend or indemnify Poss asserting that the loss occurred long after the policy expired. In
2015, Guastello successfully obtained a default judgment against Poss. The trial court entered a
default judgment of $701,133.17 in favor of Guastello, and against Poss (which is now insolvent).

In 2017, Guastello filed a lawsuit against AIG alleging Causes of Action for
Enforcement of the Default Judgment, Breach of the Covenant of Good Faith and Fair Dealing and
Declaratory Relief. AIG in turn filed a Motion for Summary Judgment arguing that Guastello did not
experience property damage until well past the expiration of the AIG

policy. The trial court agreed with AIG and granted AIG's motion as to all Causes of Action in
Guastello's Complaint on the basis that they were predicated on AIG's alleged wrongful refusal to
satisfy the Judgment against Poss.

Guastello appealed arguing that there is a triable issue of material fact as to whether the
property damage in 2010 was part of a continuous loss dating back to the coverage period
(2003-2004) under the Poss general liability insurance policy issued by AIG. The Court of Appeal
agreed with Guastello and reversed. The Court of Appeal noted that, "[i]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," citing to Whittaker Corp. v. Allianz
Underwriters, Inc. (1992) 11 Cal.App.4ᵗʰ 1236, 1241. Citing to a Declaration submitted on
behalf of Guastello that the property damage which had occurred resulted from a continuing
or progressive loss over time, the Court of Appeal further ruled that there was a triable issue of
fact as to whether the loss in 2010 arose from damage which commenced years earlier.

The Guastello case is important in that it highlights the complexity of issues where there is a
sudden failure (such as the collapse of a retaining wall). Contractors and insurers arguing a loss
took place only at or near the time of the failure should consider obtaining evidence to
demonstrate that the loss was only sudden in nature.

About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of
Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at
morrisonlawgroup.com.

Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and
colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the
distribution list, or wishes to have a coll ague added, please contact
Jim Van Dusen at The Morrison Law Group at 213 356-5504.

Disclaimer Note: The legal article presented above is intended to provide general
information which may be of interest or use to clients and colleagues of The Morrison Law
Group and should not be construed as legal advice on any matter.