Webcor-Obayashi Joint Venture v. Zurich American Insurance Company

Background

Webcor-Obayashi Joint Venture (WOJV) contracted with the Transbay Joint Powers Authority to serve as the general contractor for construction of the Salesforce Transit Center. WOJV purchased builder’s risk insurance from Zurich American Insurance Company. The policy covered direct physical loss or damage to covered project property during the policy term, which ran from March 28, 2011, through July 16, 2018. The policy excluded certain costs of correcting faulty or defective workmanship, supplies, or materials.

Workers discovered fractures in two Fremont Street steel girders on September 25 and 26, 2018, and the Transit Center was closed. WOJV sought reimbursement for investigating the damage, installing temporary supports, and making permanent repairs. Expert reports described the cracks as developing through stages beginning in 2015 and continuing into 2018. One report concluded that the fractures necessarily occurred between February and April 2018; another concluded they occurred no later than June 2018. Zurich denied coverage, asserting that the damage did not become apparent until after the policy ended and that the faulty-workmanship exclusion also barred coverage.

Motion and arguments

WOJV moved for partial summary judgment. Among other arguments, it asserted that the California Supreme Court’s “manifestation of loss” rule from Prudential-LMI Commercial Insurance v. Superior Court applies only to progressive property damage occurring over multiple policy periods involving successive insurers. Zurich argued that the rule applies to all first-party property claims, including sudden damage.

Court’s analysis

Judge Illston explained that Prudential-LMI addressed progressive property damage occurring over multiple insurance periods and allocated responsibility to the insurer covering the property when the damage manifested. The court distinguished that rule from the related “inception of loss” rule, which concerns when an insurance policy’s limitations period begins and can apply to sudden or progressive loss.

The court held that the manifestation rule is limited to first-party progressive property-loss cases involving multiple policy periods. Zurich had not identified authority applying that rule where the loss occurred during a single policy period but manifested after that policy expired, with no later policy covering the risk.

The court noted that the parties disputed whether the girder damage resulted from progressive deterioration or sudden, separate events. But Zurich’s own opposition stated that the damage began in September 2015 and had occurred by mid-2018, within Zurich’s policy period. Therefore, Zurich could not invoke Prudential-LMI as a basis to deny liability.

Disposition

The court granted WOJV’s motion for partial summary judgment in part and held that Zurich could not rely on Prudential-LMI to deny coverage. The court expressly did not resolve whether the policy provided coverage on other grounds, whether the faulty-workmanship exclusion applied, or whether the lawsuit was time-barred. The court stated that WOJV could renew its remaining coverage arguments in anticipated cross-motions for summary judgment.