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San Diego Housing Commission v. Industrial Indemnity Co.1/28/2002
CERTIFIED FOR PARTIAL PUBLICATION
This case requires us to determine the rights of a judgment creditor of an insured, in an action against an insurer seeking insurance policy proceeds under Insurance Code section 11580, subdivision (b)(2), to recover under the liability insurance policy's supplementary payments provision (SPP). In this type of action, the judgment creditor is entitled to recover against the insurer "on the policy and subject to its terms and limitations," pursuant to a judgment the creditor had earlier obtained against the insured. We will conclude that the SPP dealing with costs and interest, referring to "all costs taxed against the insured in any suit defended by the Company and all interest on the entire amount of any judgment therein," should be construed as creating defense rights for the insured that are not enforceable by the judgment creditor of the insured, based on contract principles of third party beneficiary law as applied in the section 11580, subdivision (b)(2) context. (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 943-944 (Murphy).)
This is the second appeal arising from the dispute between plaintiff and respondent San Diego Housing Commission and San Diego Housing Authority (collectively, Housing; respectively, the Commission and the Authority) and the insurer of the general contractor who built a housing project for Housing, Industrial Indemnity Company (IIC). In 1983 through 1984, John B. Reed Construction Co. (JBR or the insured) was the general contractor for a low income housing project, Calle Primera (the project), built for the Commission on land owned by the Authority. The current dispute concerns financial responsibility for an underlying default judgment for damages for construction defects that Housing obtained against JBR, whom IIC insured under a liability policy. (Housing Authority of the City of San Diego & San Diego Housing Commission v. John B. Reed Construction Co. (Super. Ct. San Diego County, 1992, No. 651235) (the underlying action).)
This follow-up lawsuit was originally tried in 1996, on Housing's claims of entitlement to insurance coverage by IIC of all or a portion of the default judgment in the underlying action. Housing obtained judgment against IIC of over $1 million damages on several theories. IIC appealed, and this court filed its opinion December 10, 1998, reversing the trial court judgment and remanding for retrial on the claims under section 11580, subdivision (b)(2) (Housing as a third party beneficiary of the JBR insurance policy). (San Diego Housing Commission v. Industrial Indemnity Company (1998) 68 Cal.App.4th 526, D027060 [part. pub.] (SDHC), referred to here as the prior opinion.) Upon remand, jury trial was held in October 1999 and resulted in special verdicts and judgment in Housing's favor in the amount of $957,212.25 damages, as well as an award of costs of suit.
IIC now appeals the judgment after retrial, chiefly contending the damages award is unsupported on the section 11580, subdivision (b)(2) theory regarding a particular portion of the policy, the SPP. Further, IIC contends the trial judge erroneously allowed certain evidence to be admitted with respect to Housing's claim that IIC had a duty to defend its insured, JBR, objecting that such evidence was actually impermissible evidence of bad faith claims handling practices (contrary to the holding of our prior opinion).
In addition, Housing has cross-appealed the judgment on the basis that the trial court erroneously ruled there was no liability coverage for any occurrence of property damage within the 1982-1983 policy period, arising out of plumbing defects (corrosion) at the project. We find the cross-appea
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