Ninth Circuit Ratifies Burlington's Mistake

Burlington Insurance Company wins again.  The Ninth Circuit of Appeals issued an unpublished decision a few months ago entitled Burlington Insurance v. Steve's Ag Services, which appears to perpetuate some of the logic flaws in the original Burlington decision.  Although the court refused to explain the underlying facts (instead simply stating "the parties are familiar with the facts . . . ."), the case stems from an administrative proceeding arising out of AG Service's logging without proper permits.  A second claim for indemnification was also filed against AG Service by the landowner.

The court noted that the damages sought in the administrative proceeding were for the "value of the timber taken."  The CGL policy had  an exclusion for property damage to any "particular part of any property that must be restored because 'your work' was incorrect performed on it."  Thus there was no duty to indemnify or duty to defend.

Further, the court concluded there was no obligation to indemnify the landowner because an occurrence is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."  Repeating the earlier Burlington logic and citing a Hawaii Supreme Court case, the court stated a "breach of contract claim precludes accidental conduct." 

This analysis is plainly wrong.  One could easily breach a contract through accidental conduct.  For example, one could show up to a construction site on the wrong date, order the wrong supplies, etc.  These "accidental" acts meet the policy definition of an "occurrence" regardless of whether they breach a contract or not.  What the court's holding really stands for is the proposition that a CGL policy will never have to cover a breach of contract claim -- language not contained in the policy and clearly contrary to the parties' intent.

The Ninth Circuit's citation to Hawaiian Holiday Macadamia Nut Co. v. Indus Indem. Co., 76 Hawaii 166, 872 P.2d 230, 233 (1994) also materially misstates the holding in that case.  The Macadamina Nut Co. decision held that "[t]he question of what is an 'accident' must be determined by addressing the question from the viewpoint of the insured."  The facts, in that case, stated that there was a breach of contract "based on intentional acts performed by Hawaiian Holiday to defraud" the plaintiffs."  Thus the Hawai`i Supreme Court actually analyzed the underlying acts and determined if there was an accident.  The allegations of a "breach of contract" was immaterial.  It was the "intentional" allegation that was relevant.