In a recent ruling, the Ninth Circuit affirmed a lower court’s ruling that Capitol Insurance Company must shoulder alone an apartment complex’s $1.9 million dollar settlement with a tenant who developed a disease from pigeon-dropping dust in the complex. The court had determined that the property manager’s insurer need not share in any of the cost as they had a legitimate carveout in its policy.
The original underlying lawsuit that led to this dispute over who shall shoulder the burden of the costs was Deanna Dailey v. Lee Jerry/Betty ’98 Fam RV TR, et al., No. CVCS 11-1339. In Dailey, Deanna Dailey sued both the owner and the property management company of the Pagoda Garden Apartments, where she had lived for ten years. The owner of Pagoda Garden was a trust named Lee Jerry/Betty. The property management company was Sierra Pacific Management Company, Inc. (“Sierra Pacific”). The original complaint alleged that while Dailey lived in the Pagoda Garden she had developed a severe pulmonary illness commonly called Pigeon Breeder’s Disease. Dailey was not a pigeon breeder but during the ten years she lived in the complex she had unwittingly breathed in the fine dust of pigeon feathers and droppings that were carried into her unit through the building’s ventilation system.
Dailey had alleged that the Lees and Sierra Pacific had failed to adequately secure the HVAC system in order to keep the pigeons away. Both parties turned to their insurance companies for defense and indemnification. Those insurance companies are the original parties in this case. Atain insured Sierra Pacific (the management company), and California Capitol insured the Lees. Atain declined the tender each time, citing a policy provision that ostensibly precluded coverage, but tendered the defense to California Capital.
California Capital eventually paid the $1.9 million to settle the Dailey lawsuit. Atain did not contribute to the defense or the settlement. The insurance companies dispute whether Atain had a duty to defend and indemnify Sierra Pacific in Dailey. In the lawsuit, the insurance companies ask the Court to determine whether Atain was required to contribute. California Capital sought a declaratory judgement that its coverage of the Lees was limited to $1 million, and because they had already spent more than $1 million to settle and defend the Dailey lawsuit, California Capital sought $900,000 in reimbursement from the Lees.
All issues then led back to whether or not Atain would have had a duty to defend and indemnify Sierra Pacific. Subsequently, all three parties filed motions for summary judgement. The lower court ruled in favor of the Lees based on California interpretation of coverage rights, as well as in favor of Atain and their Professional Service Exclusions.