CALIFORNIA COURT OF APPEAL ISSUES IMPORTANT RULING REGARDING INTERPRETATION OF INSURANCE POLICY EXCLUSIONS

On November 18, 2005, the Court of Appeal issued a published opinion in Davis v. Farmers Insurance Group, D044724. Plaintiffs sold their home, which they had built, and were sued by the buyers for negligent construction and failure to disclose property defects. Plaintiffs sought coverage and a defense to the lawsuit under their homeowners policy. The policy excluded coverage for bodily injury or property damage arising out of the sale or transfer of real property, including known or unknown property defects. The policy listed examples illustrative of the exclusion, such as “known or unknown property or structural defects.” The insureds argued the exclusion did not apply because the alleged property damage did not arise out of the sale of the property, but instead arose out of the negligent construction. The court, however, rejected the insureds' position, noting the insureds' interpretation focused solely on the “aris[ing] out of sale” language, and ignored the examples contained in the exclusion specifying the excluded defects. The court held that even though the property damage did not literally “arise out of” the sale of the property, the exclusion read as a whole and in light of the illustrative examples, clearly and unambiguously barred coverage for a construction defect claim filed by the buyer of the property.

Horvitz & Levy LLP represented on appeal Fire Insurance Exchange, erroneously sued as Farmers Insurance Group.

Click here to read the full text of the Davis opinion.

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