United National Insurance Company v. Elite Ready-Mix, LLC

Background

United issued Elite a commercial excess general liability policy. The policy followed the coverage provided by an underlying policy issued by Executive Risk Indemnity. The dispute arose from concrete that Elite supplied to Flatiron West, Inc. for a California highway construction project involving the Elmhurst bridge.

The concrete was required to reach a minimum strength within 10% of 6,000 pounds per square inch, but testing showed that it failed to meet the required strength and had an abnormal pore structure. Flatiron alleged that the concrete damaged the bridge structure and sought more than $21 million. Flatiron and Elite settled that underlying case for $10.9 million, and United paid $5 million toward the settlement while reserving its rights, including the right to seek reimbursement.

United sued for a declaration that it had no duty to indemnify Elite and for reimbursement of its settlement payment. Elite asserted counterclaims for breach of contract, breach of the implied promise of good faith and fair dealing, bad faith, and declaratory relief. Both parties moved for summary judgment, which asks whether the undisputed facts require judgment under the law without a trial.

Court’s Analysis

The court first held that United satisfied the three requirements identified in Blue Ridge Insurance Co. v. Jacobsen for seeking reimbursement after paying a settlement on an insured’s behalf: United timely and expressly reserved its rights, notified Elite that it intended to contribute to the settlement, and gave Elite notice of the settlement decision. The court therefore ruled that United could seek reimbursement of the sums it paid for the settlement.

The court then examined whether the United Policy covered the claimed losses. The policy followed the underlying policy, which defined property damage as physical injury to tangible property. Under California law, the incorporation of a defective component into a larger structure generally does not constitute property damage unless the component physically injures other property. The failure of a defective product to perform as intended, reduced value, and the cost of repairing the defective product itself do not establish property damage.

The court found that Flatiron’s underlying complaint did not adequately describe physical damage to the bridge frames or explain how Elite’s concrete caused such damage. The court also found that Elite’s other evidence did not establish actual physical damage. Flatiron’s interrogatory response was conclusory, United’s letter merely repeated Flatiron’s allegations, and Elite’s expert evidence described a possibility of corrosion beginning years later rather than proving that the concrete had caused existing physical damage. The photographs did not establish that the concrete caused the rusting, and the court found that the cited hazardous-material cases did not apply because this case did not involve an inherently dangerous substance threatening human health.

Because Elite failed to show covered property damage, the court concluded that United had no duty to indemnify Elite for the Flatiron claims. The court did not decide whether policy exclusions independently barred coverage because it resolved the case under the policy’s coverage provisions.

Counterclaims and Disposition

The court denied Elite’s motion for summary judgment on its declaratory-relief counterclaim. It granted United’s motion for summary judgment on Elite’s Amended Counterclaim, reasoning that without coverage Elite could not show that United breached the insurance contract, violated the implied promise of good faith and fair dealing, or acted in bad faith. The court also granted United’s motion for summary judgment on its claims and denied Elite’s motion for summary judgment. The court took judicial notice of two state-court records and struck United’s separate evidentiary objections because they were not included in the required briefing.