[00:00:01] Speaker 04:
I apologize.

[00:00:01] Speaker 04:
Thank you, Judge Mendoza.

[00:00:03] Speaker 04:
I didn't mean to jump ahead.

[00:00:05] Speaker 04:
No need to apologize.

[00:00:06] Speaker 04:
Habit of the profession.

[00:00:07] Speaker 04:
No need.

[00:00:08] Speaker 04:
Good morning, distinguished judges.

[00:00:09] Speaker 04:
May it please the court.

[00:00:10] Speaker 04:
I am Jerome Bowen of Bowen Law Offices in Las Vegas, Nevada.

[00:00:15] Speaker 04:
I'm really pleased to be here.

[00:00:16] Speaker 04:
Thank you for having me on behalf of the appellants.

[00:00:19] Speaker 04:
This case comes, I'd like to reserve five minutes if I could on rebuttal.

[00:00:23] Speaker 04:
Very well.

[00:00:23] Speaker 04:
Keep track of your time.

[00:00:24] Speaker 04:
OK, thank you.

[00:00:26] Speaker 04:
This case comes down, essentially, I'm trying to pare it down to two primary issues.

[00:00:30] Speaker 04:
First, the applicability of any business risk exclusions to eliminate coverage.

[00:00:36] Speaker 04:
And is there an occurrence under the policy sufficient to trigger coverage?

[00:00:41] Speaker 04:
The answer to number one.

[00:00:42] Speaker 01:
The first one is logically prior.

[00:00:43] Speaker 01:
I mean, the second one is logically prior, so maybe we should start there.

[00:00:46] Speaker 04:
on the occurrence.

[00:00:48] Speaker 04:
Yes.

[00:00:48] Speaker 04:
OK.

[00:00:49] Speaker 04:
I'd like to start there.

[00:00:50] Speaker 04:
And I think what we need to talk about here is, in my detailed complaint, I have to kindly disagree with the honorable Judge Mayhem.

[00:01:02] Speaker 04:
But my detailed second amended complaint, I detailed very specifically.

[00:01:06] Speaker 04:
In fact, I cited case law that is very applicable to this issue, specifically the cases of Vandenberg versus Superior Court.

[00:01:16] Speaker 04:
and EADS versus Marks.

[00:01:18] Speaker 04:
Now, those are all, while those are not controlling law, those are all both Supreme Court of California cases.

[00:01:23] Speaker 04:
And the Ninth Circuit Court of... That's your why?

[00:01:27] Speaker 04:
About what?

[00:01:28] Speaker 04:
They're about CGL policies and whether or not a contract merely arguing that you have a contract, whether or not that disallows coverage for purposes of an occurrence when you have this type of a CGL policy.

[00:01:46] Speaker 04:
And both the Vandenberg and the EDS cases provide important analysis in holding the applicability of these issues.

[00:01:55] Speaker 04:
Specifically, a cause of action may arise out of a negligent manner in which a contractual duties are performed or out of a failure to perform such duties.

[00:02:04] Speaker 04:
Those are our facts here.

[00:02:06] Speaker 04:
We have a contract.

[00:02:08] Speaker 04:
But as the Vandenberg court said, even where a cause of action

[00:02:13] Speaker 04:
arises from a breach of contract duty, if it's growing out of the contract, that those duties, it is delecto.

[00:02:22] Speaker 04:
In other words, notwithstanding, it involves a breach of contract.

[00:02:25] Speaker 04:
In other words, a tort may grow out of or be a coincident with a contract.

[00:02:31] Speaker 01:
And the existence of a contractual relationship does not- Here, for example, though, at least a large part of the allegations were that things that were supposed to be painted weren't painted.

[00:02:41] Speaker 01:
I mean, they just weren't painted.

[00:02:43] Speaker 01:
And other things, there was supposed to be a maintenance contract, and nobody ever came.

[00:02:51] Speaker 01:
So those things aren't negligence, right?

[00:02:53] Speaker 01:
They're simply not fulfilling the contract.

[00:02:56] Speaker 04:
Well, and thank you, Judge Berzon.

[00:03:00] Speaker 04:
Well, I would say they're both.

[00:03:03] Speaker 04:
I would say they could be either because they clearly had duties and they clearly implemented, you have a combination of things.

[00:03:10] Speaker 01:
Nobody has a duty to paint somebody else's house unless you have a contract, right?

[00:03:15] Speaker 01:
So if you do it badly, I see your point, but if you don't do it,

[00:03:19] Speaker 01:
That doesn't appear to be negligence, you just didn't do it.

[00:03:22] Speaker 04:
So there's mixtures here, according to the expert, and I cited that in my Second Amendment complaint, specifically the expert report, which is key.

[00:03:31] Speaker 04:
There's both.

[00:03:32] Speaker 04:
They did do painting, and they did it incorrectly, and then they didn't do painting on some areas.

[00:03:38] Speaker 04:
So you have a combination, likewise, with the wrought iron.

[00:03:41] Speaker 04:
So three issues, you have painting, wrought iron, and the stucco.

[00:03:45] Speaker 04:
With respect to the wrought iron, some of the wrought iron they worked on, and they did an incomplete job, so they were negligent, and it continued to rust and fall apart, and then they negligently.

[00:03:56] Speaker 05:
Well, but see, I'm glad you said it that way, because that was one of the things that I was trying to get at.

[00:04:02] Speaker 05:
When was these issues at play?

[00:04:08] Speaker 05:
In other words, you allege that there was damage in fungal growth and cracking, but according to the complaint, the fungal growth and cracking was already there.

[00:04:19] Speaker 05:
So is that true?

[00:04:21] Speaker 04:
Some of it, and then it worsened, and some new stuff grew, according to the experts.

[00:04:28] Speaker 05:
So how are we supposed to determine from reading of complaint whether or not the exclusions or whether or not this was actually an issue that could be part of the damages?

[00:04:42] Speaker 04:
Well, you look at the expert report.

[00:04:44] Speaker 04:
The expert report that I put in the complaint

[00:04:46] Speaker 04:
specifically went through every single 122 units, buildings.

[00:04:52] Speaker 04:
went through each one.

[00:04:54] Speaker 04:
And I laid that out in the complaint, what he found, and what he specifically stated, which is key, is that there wasn't damage to the work that was performed by UCI.

[00:05:06] Speaker 04:
There was damage to another person's property.

[00:05:09] Speaker 04:
And that's the key.

[00:05:10] Speaker 04:
As soon as there's damage to another person's property from the insured's actions,

[00:05:17] Speaker 04:
Coverage is triggered.

[00:05:19] Speaker 04:
You have an occurrence.

[00:05:20] Speaker 02:
Well, you have to have an accident.

[00:05:23] Speaker 02:
Correct.

[00:05:24] Speaker 02:
You said occurrence, but occurrence is defined as an accident.

[00:05:29] Speaker 02:
An accident has been defined by the Nevada Supreme Court.

[00:05:36] Speaker 02:
How is it that if you have the circumstances we have here, I'll deal with just the wrought iron because the wood is comparable.

[00:05:47] Speaker 02:
The wrought iron was rusting.

[00:05:51] Speaker 02:
They were supposed to clean off the rust and paint it.

[00:05:55] Speaker 02:
there was an expectation that there had to be, there was a separate yearly maintenance contract that was to go back, I guess, and find out if rust was continuing or more rust was there.

[00:06:09] Speaker 02:
How is the fact that some of it continued to rust or new rust occurred?

[00:06:16] Speaker 02:
How is that an accident as opposed to a breach of the maintenance contract, which clearly they breached.

[00:06:26] Speaker 02:
The arbitrator found they never did.

[00:06:29] Speaker 02:
They never did anything under the maintenance contract.

[00:06:32] Speaker 02:
They completely abandoned that contract.

[00:06:36] Speaker 02:
How is that an accident?

[00:06:37] Speaker 02:
Isn't that exactly what was expected was going to happen and that's why they had a yearly maintenance contract?

[00:06:44] Speaker 04:
Well, the case law, and thank you, Judge Bolton, the case law, and that's a great question.

[00:06:48] Speaker 04:
The case law indicates that you look at that from the standpoint of the insured.

[00:06:54] Speaker 04:
So that inquiry must come from the standpoint of the insured.

[00:06:57] Speaker 04:
And from all the indications of the evidence that was presented at the arbitration was, the insured did not expect that.

[00:07:05] Speaker 04:
The insured expected that when they worked on the

[00:07:10] Speaker 04:
and they were working on the rust and the corrosion and cleaning it, that it would not continue that way.

[00:07:20] Speaker 04:
And then they would paint over it, and it would be fine.

[00:07:22] Speaker 04:
There was nothing wrong with the paint.

[00:07:24] Speaker 04:
The paint wasn't incorrect.

[00:07:25] Speaker 04:
Their product wasn't incorrect.

[00:07:27] Speaker 04:
It's that they caused damage to another person's property.

[00:07:32] Speaker 04:
And under these salient cases, which are in my second amended complaint, a sign of...

[00:07:39] Speaker 01:
Not doing what they promised to do.

[00:07:42] Speaker 04:
Yes, not doing what they promised to do.

[00:07:44] Speaker 04:
Correct.

[00:07:45] Speaker 01:
But why isn't that just a breach of contract?

[00:07:47] Speaker 04:
Because under Vandenberg, it says that you don't just make that inquiry.

[00:07:51] Speaker 04:
You look at the nature.

[00:07:53] Speaker 01:
Well, you can do it badly again.

[00:07:55] Speaker 01:
Or if you say, I'm going to paint this, and then you use some terrible paint, and it doesn't do anything.

[00:08:07] Speaker 01:
That's one thing.

[00:08:08] Speaker 01:
I don't know if that's an accident, but it's maybe something more than a breach of contract and negligence.

[00:08:17] Speaker 01:
If you don't do the work, but you're saying that some of the work they did do.

[00:08:30] Speaker 01:
I said to start with occurrence, but if we were to get by that, we have these very—I can't read these insurance agreements at all.

[00:08:41] Speaker 01:
They're completely opaque, but I know that you—

[00:08:46] Speaker 01:
There are at least two of these exceptions there at issue, right?

[00:08:52] Speaker 01:
Right.

[00:08:52] Speaker 01:
Do you want to address those?

[00:08:54] Speaker 04:
And I think, Judge Berzon, you're all right.

[00:08:56] Speaker 04:
You're all kind of getting to where we are, and that it's a mixture.

[00:09:01] Speaker 04:
It's a mixture of doing things and not doing things, and on the three areas with wood,

[00:09:07] Speaker 04:
with wrought iron and with the stucco?

[00:09:09] Speaker 01:
Well, with the stucco.

[00:09:10] Speaker 01:
The stucco seems like, honestly, I guess in some ways the one you care most about and the hardest from your point of view.

[00:09:16] Speaker 01:
Because what went wrong with the stucco was the stucco, not something else.

[00:09:25] Speaker 01:
Right?

[00:09:25] Speaker 01:
In other words, with regard to the paint and with regard to the wrought iron, what went wrong was not the work itself, but

[00:09:34] Speaker 01:
how it affected the metal and the wood.

[00:09:38] Speaker 01:
But with the stucco, what went wrong with the stucco?

[00:09:42] Speaker 04:
What went wrong with the stucco, according to the expert and the arbitrator, his decision relied upon this expert and his photographs, which are included in this Second Amendment counterclaim.

[00:09:54] Speaker 04:
What went wrong was, is that they didn't limit their work

[00:09:58] Speaker 04:
They spread their work and damaged undamaged stucco.

[00:10:04] Speaker 04:
So where the stucco was damaged, they didn't just limit their work to that.

[00:10:09] Speaker 04:
They went over and damaged previously undamaged stucco.

[00:10:14] Speaker 02:
When you say damaged, didn't they just make it look bad because they didn't basically blend it in?

[00:10:22] Speaker 02:
Well, that's part of the property damage.

[00:10:24] Speaker 02:
Part of the property damage is... But how is that an accident?

[00:10:30] Speaker 04:
Well, it is an accident because they didn't intend to do that.

[00:10:33] Speaker 04:
You can't say they didn't intend, it wasn't intentional to enter the property.

[00:10:37] Speaker 04:
Why isn't it just poor workmanship?

[00:10:39] Speaker 04:
Well, it is poor workmanship, but the issue is that the poor workmanship damaged the property of another.

[00:10:47] Speaker 04:
That's the inquiry.

[00:10:48] Speaker 01:
This policy is about largely working on property of another, so the fact that it's injuring property of another can't be the whole answer.

[00:11:00] Speaker 04:
But if you injure the property of another, then the reason why you have these business risk exclusions

[00:11:05] Speaker 04:
is to not, you cover property damage.

[00:11:09] Speaker 04:
And the business risk exclusions only cover bad workmanship.

[00:11:14] Speaker 04:
They don't exclude that.

[00:11:15] Speaker 04:
They're not to exclude damage to another person's property, as in all this case law that I've set forth, including my Second Amendment complaint.

[00:11:24] Speaker 04:
And so you look at that, and you look, once they damaged another person's property, it's irrelevant whether it's brought in contract

[00:11:34] Speaker 04:
whether it's brought in tort or whether it's a combination of them.

[00:11:38] Speaker 04:
You look to the nature, you look to the type of damage, and once that occurrence happened, that's an occurrence.

[00:11:45] Speaker 04:
That's an occurrence.

[00:11:46] Speaker 04:
That's like the egg before the chicken.

[00:11:48] Speaker 02:
Could I ask a question about another aspect?

[00:11:51] Speaker 02:
Yes.

[00:11:52] Speaker 02:
Are you still urging your waiver argument that the payment of the costs was a waiver?

[00:11:58] Speaker 04:
No.

[00:11:59] Speaker 02:
Okay.

[00:12:00] Speaker 04:
Thank you.

[00:12:00] Speaker 04:
Thank you, Judge Bolton.

[00:12:01] Speaker 04:
I'm not focused on that.

[00:12:02] Speaker 04:
Counsel, you have three minutes.

[00:12:02] Speaker 02:
Not focused.

[00:12:03] Speaker 02:
You're not maintaining that there was a waiver anymore.

[00:12:07] Speaker 05:
That's correct.

[00:12:08] Speaker 02:
Okay.

[00:12:08] Speaker 02:
Thank you.

[00:12:09] Speaker 05:
You have a little less than three minutes.

[00:12:11] Speaker 05:
Do you want to save any time?

[00:12:13] Speaker 05:
Yes, I'll save the remaining time.

[00:12:15] Speaker 04:
Thank you so much.

[00:12:29] Speaker 03:
May it please the court.

[00:12:30] Speaker 03:
Good morning, your honors.

[00:12:31] Speaker 03:
Douglas Coladello, appearing on behalf of the insurer appellee in this matter.

[00:12:37] Speaker 03:
The questions from the panel this morning seem to me to indicate some

[00:12:44] Speaker 01:
troubling, trying to figure out how this might be an occurrence based on the allegations in the complaint and the damages to which— Well, it seems that if we're running off the arbitrator's complaint and the opinion in the complaint in this case, that some of what happened here was due to work that wasn't done.

[00:13:07] Speaker 01:
But some of what happened here was due to work that was badly done and that ended up

[00:13:15] Speaker 01:
affecting not only the work itself, but underlying the wood and the metal in ways that, I don't know, why isn't that an accident?

[00:13:26] Speaker 01:
It wasn't intended and it isn't the work itself.

[00:13:29] Speaker 01:
It's not talking, they're not saying that you want, the problem is that you put it on bad paint, that isn't the problem.

[00:13:37] Speaker 03:
So let's back up to the genesis for the complaint, which arises out of the arbitration award, and the arbitrator's findings to get to the damages that were awarded for which UCI... That's breach of contract.

[00:13:51] Speaker 01:
That's true.

[00:13:52] Speaker 03:
Right.

[00:13:52] Speaker 03:
And the arbitrator found that there was a breach of a service contract and failure to maintain and monitor the work that had been done.

[00:14:02] Speaker 03:
And that's where the award... Part.

[00:14:05] Speaker 01:
He said in part, but he also said that there was poor work.

[00:14:12] Speaker 03:
To the extent that there is matter beyond just a servicing contract,

[00:14:21] Speaker 03:
and you get into damages arising out of the work that was done, then you get into the two exclusions.

[00:14:30] Speaker 03:
The district court didn't reach those because the district court didn't find that there was any occurrence or accident to begin with.

[00:14:36] Speaker 01:
But it's correct, is it not, that the arbitrator found both that the problem was not doing the service contract and the quality of the work that was done.

[00:14:52] Speaker 05:
And if it was both, isn't that enough for us to send back?

[00:14:57] Speaker 03:
Even if it is both, it's not enough to send back because then you look to the exclusions in this case, both of which apply the damage to property exclusion and also the damage

[00:15:11] Speaker 03:
to your work exclusion, which is the bad, which applied to the bad worksmanship that arose in connection with what UCI did on the property.

[00:15:24] Speaker 02:
So- So, like Judge Berzon, when I read these exclusions, it just, it said, this is excluded except if it's this.

[00:15:34] Speaker 02:
But there's two exclusions.

[00:15:37] Speaker 05:
Correct.

[00:15:37] Speaker 02:
One seems to have... Technically, there's an exclusion to the exclusion.

[00:15:41] Speaker 02:
That's the one that... I have a hard time getting my head around the exclusion to J6, I think it is.

[00:15:47] Speaker 02:
But J5, the one about the work you're doing, seems to have a temporal aspect to it.

[00:15:55] Speaker 02:
It seems to be in the present tense, that J5 exclusion.

[00:16:00] Speaker 02:
The J6 exclusion is the one that has the completed property hazard exclusion to it, and I am having a hard time.

[00:16:09] Speaker 02:
Well, first answer, if the first exclusion has a temporal aspect to it, if it has to do with when you are doing the work as opposed to after you've completed the work.

[00:16:21] Speaker 03:
So what we have here then, Judge Walton, is a situation where UCI is performing some work.

[00:16:30] Speaker 03:
improperly, then it fits within that temporal component of the exclusion.

[00:16:36] Speaker 01:
But what Judge Bolton said and what I see as well is that that language seems to be applying to what's happening while you're working on it.

[00:16:51] Speaker 03:
So you have UCI performing work that if it was done improperly,

[00:16:59] Speaker 01:
You're now using the past tense, but the J5 doesn't use the past tense, it uses the present tense.

[00:17:08] Speaker 03:
It's work that UCI is doing, pursuant to the contract.

[00:17:13] Speaker 03:
While they're doing it.

[00:17:15] Speaker 03:
Right, so what they're doing, they're either painting, filling stucco, and so when they're doing that, if they do something incorrectly,

[00:17:26] Speaker 03:
and it leads to property damage, which is what UCI is alleging, then that work that's being done, the bad painting, the bad stucco filling, the bad wrought iron fixing, all that is being done that is work that is excluded under J5.

[00:17:49] Speaker 02:
Right, but wasn't it over?

[00:17:51] Speaker 02:
It was completed.

[00:17:57] Speaker 03:
You're going to get to a point where you have work that is done.

[00:18:01] Speaker 03:
But if it's done incorrectly... But that's exactly what J-6 says.

[00:18:06] Speaker 01:
Exactly.

[00:18:06] Speaker 01:
And almost from the words that you're saying.

[00:18:08] Speaker 01:
That particular part of any property that must be restored, repaired, or replaced because of your work was incorrectly performed on it.

[00:18:15] Speaker 01:
So that's J-6.

[00:18:16] Speaker 01:
It's not J-5.

[00:18:17] Speaker 03:
I'm sorry.

[00:18:18] Speaker 03:
I misspoke, Your Honor.

[00:18:20] Speaker 03:
But under either exclusion, you have

[00:18:24] Speaker 03:
work that is being done by UCI that wasn't performed non-negligently, for lack of a better term.

[00:18:33] Speaker 03:
And so that type of work falls within the exclusions.

[00:18:38] Speaker 01:
And if you... Well, why would you have... I mean, J6 has this exception to the exception, right, for the...

[00:18:49] Speaker 01:
For the, what's it called, the products completed operations hazard.

[00:18:56] Speaker 01:
J5 doesn't have that because it's not about completed products.

[00:19:00] Speaker 01:
I mean, it just seems obvious that that's the case, that J5 is about if you're working on something and while you're working on something you break something else while you're working on it.

[00:19:09] Speaker 03:
That's the language, our performing operations.

[00:19:13] Speaker 03:
So then under J6, though, Your Honor, it would still fit in as an exclusion.

[00:19:18] Speaker 01:
I accept there's this exception to the exception.

[00:19:21] Speaker 01:
So the question is, what does that exception to the exception mean?

[00:19:24] Speaker 01:
The product's completed operations hazard.

[00:19:42] Speaker 03:
I didn't bring it up here with me.

[00:19:47] Speaker 01:
It's always a little disconcerting when the judges know the key document better than the lawyers do, but that turns into the key question.

[00:19:59] Speaker 03:
I'm sorry, Your Honor.

[00:20:00] Speaker 01:
The key question then is what does the completed products hazard thing mean?

[00:20:10] Speaker 01:
Property completed operations hazard.

[00:20:13] Speaker 01:
What does that mean?

[00:20:16] Speaker 01:
What does the products completed operations hazard mean?

[00:20:19] Speaker 01:
Because it's an exception to J6.

[00:20:21] Speaker 01:
And J6 is the operable exclusion here.

[00:20:24] Speaker 01:
So that's where we are.

[00:20:26] Speaker 01:
Can you help us with that?

[00:20:28] Speaker 03:
So the products completed operations hazard would be a hazard.

[00:20:38] Speaker 03:
as opposed to an issue with the product

[00:20:47] Speaker 03:
that was completed, the operations being the painting, or the stucco repair, or the wrought iron filling.

[00:20:56] Speaker 05:
So I guess the way I'm reading this, and tell me if I'm wrong, the way I'm reading this is exclusion six says there are these exclusions, except that this is the exclusion three exclusion says, so the damage that occurs after the work was completed would not be excluded.

[00:21:15] Speaker 05:
Is that correct?

[00:21:17] Speaker 05:
Yes.

[00:21:18] Speaker 01:
All right, so that's what we have here.

[00:21:20] Speaker 03:
No, but what we have here is not damage that occurred after the work was completed.

[00:21:27] Speaker 03:
We have damage that occurred because of the work at the time the work was being performed.

[00:21:34] Speaker 03:
So it might manifest itself later, but the issue occurred later.

[00:21:39] Speaker 01:
But the additional rust and the wood injuries occurred later because they weren't being protected.

[00:21:51] Speaker 03:
Well, you have original problems, which is why UCI is being called in to repair it.

[00:21:59] Speaker 05:
And if they do a bad repair... To me, that's the interesting issue that might be worthy of looking at carefully.

[00:22:12] Speaker 05:
Because here, the question is, was this caused after the fact, or was it caused at the time, or was it prior?

[00:22:23] Speaker 03:
I mean, I guess that's where I'm... So you have an issue, which is why they contracted

[00:22:29] Speaker 03:
with UCI to conduct the repairs, the painting, whatever it was.

[00:22:34] Speaker 03:
And UCI goes out and does it, and they obviously do a poor job at it.

[00:22:40] Speaker 03:
So they breach that contract, and they also breach the contract where you're talking about the manifestation of the property damage later in time.

[00:22:49] Speaker 03:
They also breach the service contract where they're supposed to be monitoring and maintaining that

[00:22:56] Speaker 03:
that work that they did so that you don't have an issue that arises.

[00:23:01] Speaker 03:
So it's all related to a breach of contract.

[00:23:04] Speaker 03:
It's not related necessarily to their negligent worksmanship.

[00:23:09] Speaker 03:
And that's why we get back to the occurrence issue and why there's no accident.

[00:23:13] Speaker 03:
It's because they're operating under a contract and they breach that contract.

[00:23:19] Speaker 03:
And so

[00:23:20] Speaker 03:
It's all related, all the damages that flow from what UCI did or didn't do are attributable to the service contract and the failure to perform initially the proper work to paint, fill, and de-iron the wrought iron.

[00:23:40] Speaker 05:
But what do we do with the damage that occurs after?

[00:23:44] Speaker 05:
Because there's damage that occurs after.

[00:23:45] Speaker 05:
And that's not excluded.

[00:23:48] Speaker 03:
The damage that occurs after, again, within the occurrence penumbra, the damage that occurs after is related to the breach of the surface contract.

[00:24:00] Speaker 01:
All right.

[00:24:00] Speaker 01:
All right.

[00:24:00] Speaker 01:
The product's completed operations hazard says specifically that work that may need surface maintenance, correction repair, or replacement, which is otherwise complete, will be treated as completed.

[00:24:11] Speaker 03:
So that's the other...

[00:24:14] Speaker 03:
The other reason that the exclusion applies is UCI completed their work.

[00:24:21] Speaker 01:
Right.

[00:24:22] Speaker 01:
It's excluded.

[00:24:23] Speaker 01:
It's excluded if it's completed.

[00:24:25] Speaker 01:
I mean, it's excluded from the exclusion.

[00:24:30] Speaker 01:
You haven't read your own contract.

[00:24:32] Speaker 01:
It's basically what was happening there, right?

[00:24:34] Speaker 03:
I did.

[00:24:34] Speaker 03:
I'm just trying to get to your question.

[00:24:37] Speaker 01:
All right.

[00:24:37] Speaker 01:
The product's completed operational hazard, operations hazard, is excluded from J6, right?

[00:24:47] Speaker 01:
And part of what's excluded, because it's considered completed, is work that may need surface maintenance, correction, repair, or replacement, but is otherwise completed.

[00:25:04] Speaker 01:
So it's excluded from the exclusion, so it's in the coverage, even if it may need service, maintenance, correction, repair, or replacement.

[00:25:18] Speaker 05:
The question is, is that the correct reading?

[00:25:25] Speaker 03:
Yeah, I believe that the exclusion, as you're reading it,

[00:25:29] Speaker 03:
Is it's an exception to the exclusion, right?

[00:25:33] Speaker 01:
So therefore the surface maintenance contract doesn't seem to be

[00:25:38] Speaker 01:
pertinent because there's a specific statement that even if it needs service but is otherwise complete, it's going to be treated as completed, meaning it's going to be within the exclusion to the exclusion.

[00:25:52] Speaker 01:
I don't know why people write things this way.

[00:25:55] Speaker 01:
Me neither.

[00:25:56] Speaker 03:
But the issue with regard to the ongoing

[00:26:00] Speaker 03:
service contract, Your Honor, is not work that has already been performed.

[00:26:06] Speaker 03:
That's an ongoing issue that UCI has to undertake, and that's one of the things that the arbitrator found was lacking, was their failure to maintain and monitor.

[00:26:17] Speaker 01:
So that's not... That's one of the things, but it's only one of the things.

[00:26:22] Speaker 03:
But it relates to whether the exclusion applies or the exception to the exclusion applies because that work is ongoing.

[00:26:31] Speaker 03:
It's not work past performed.

[00:26:35] Speaker 01:
Okay.

[00:26:36] Speaker 01:
So that's why the... So all of this may go maybe to what the damages are or what exactly it is you had to cover, but it doesn't go to whether there is some coverage here because some of it, it appears, is within the agreement, maybe.

[00:26:54] Speaker 03:
Well, so the first part, I think we're in agreement about the exclusion for the breach of contract for doing bad worksmanship is an occurrence

[00:27:05] Speaker 03:
What I see is troubling your honor is What happened after that and that's where again we get into the the service contract aspect of it which is a situation where they performed like let's just use painting they painted once and then they were supposed to to maintain and monitor and make sure that if there were issues that

[00:27:27] Speaker 03:
that arose with the painting, that they went and fixed it so that there wouldn't be any damage or any problems that arose after that.

[00:27:36] Speaker 03:
And that is what you get to the second part where the exclusion applies to take them out of coverage for the arbitration award damages aspect.

[00:27:47] Speaker 03:
I notice that I'm flashing, but if there's any questions.

[00:27:50] Speaker 05:
Any additional questions?

[00:27:51] Speaker 05:
No.

[00:27:51] Speaker 05:
Any additional questions?

[00:27:52] Speaker 05:
All right.

[00:27:52] Speaker 05:
Thank you, sir.

[00:27:53] Speaker 05:
Thank you.

[00:28:03] Speaker 04:
Thank you very quickly, Judge Berzon, Judge Mendoza, Judge Bolt.

[00:28:07] Speaker 04:
Your questions are great.

[00:28:08] Speaker 04:
Let me get right to the heart of it.

[00:28:09] Speaker 04:
In my Second Amendment counterclaim, I do set forth that no work was being performed by UCI at the time the property damaged.

[00:28:17] Speaker 04:
in this matter occurred.

[00:28:18] Speaker 04:
That's in my complaint.

[00:28:19] Speaker 04:
Where?

[00:28:20] Speaker 04:
On page 14 of 22.

[00:28:22] Speaker 02:
But wasn't that because they weren't honoring their service agreement?

[00:28:25] Speaker 04:
But the service agreement, again, the contract itself doesn't exclude coverage.

[00:28:33] Speaker 04:
It's whether or not, again, you're looking at the difference between the work of what they did and the damage to their work and the damage to another person's property.

[00:28:42] Speaker 04:
As soon as another person's property is damaged,

[00:28:45] Speaker 04:
These business exclusions, and again, I don't think they know their policy, but these business exclusions are not applicable.

[00:28:52] Speaker 01:
Suppose the paint that they put on flakes after they leave.

[00:28:57] Speaker 01:
Does that count?

[00:28:58] Speaker 04:
That's different.

[00:29:00] Speaker 01:
Nothing happens to the wood but the paint flakes.

[00:29:02] Speaker 04:
That's correct.

[00:29:02] Speaker 04:
That's different.

[00:29:03] Speaker 04:
That's for their product.

[00:29:05] Speaker 04:
But that's not what we're talking about.

[00:29:06] Speaker 04:
The problem with the wood is you had fungal growth, you had splitting, you had actual physical.

[00:29:11] Speaker 04:
And by the way, the Star Surplus Lines case in Nevada goes with this line of thinking of Vandiver.

[00:29:16] Speaker 02:
Wasn't that expected if the work wasn't done properly?

[00:29:23] Speaker 04:
I don't think, Judge Bolden, your question is good again.

[00:29:27] Speaker 04:
I don't think there is any evidence

[00:29:29] Speaker 04:
to suggest that I'm aware of that that was expected or intended.

[00:29:33] Speaker 04:
It was just negligent.

[00:29:35] Speaker 04:
They were negligent in what they did.

[00:29:37] Speaker 04:
They didn't do a good job.

[00:29:39] Speaker 01:
But the negligence was bad paint which flaked and didn't cover the wood properly or in some instances they didn't paint what they were supposed to paint apparently.

[00:29:51] Speaker 01:
So what Judge Bolton is asking is that the flaked paint itself isn't covered, but the flaked paint was no mystery that if you don't cover something, the wood's going to go bad.

[00:30:07] Speaker 04:
I don't think the flaked paint is the issue.

[00:30:10] Speaker 01:
I understand, but the fact that it was flaked paint or that it was otherwise inadequate paint is completely predictable that wood is going to rot.

[00:30:21] Speaker 04:
Again, I'm not an expert, and they had expert opinion, and they came in and they testified.

[00:30:27] Speaker 04:
Obviously, they had 20 plus hours, 32 hours of testimony.

[00:30:31] Speaker 04:
But again, there's no evidence that the product that was applied, the paint product, was incorrect.

[00:30:40] Speaker 04:
We have a difference here between the product that they applied and damage to another person's property.

[00:30:46] Speaker 01:
Once you damage another person's property... Something must have been wrong with the paint of the wood, right?

[00:30:52] Speaker 04:
There's no indication in the arbitration award that that's the case.

[00:30:56] Speaker 01:
Then the wood rotting must not have been their fault.

[00:31:01] Speaker 01:
If it isn't due to something wrong with the paint, then it's not their fault.

[00:31:05] Speaker 04:
He attributed that the former judge attributed the, as a result of their lack of proper diligence and work, attributed damage to the property of another.

[00:31:17] Speaker 01:
Right, and it must be because something was wrong with the paint.

[00:31:19] Speaker 04:
Well, again, I'm not going to put words into it, but I mean, I'm with you.

[00:31:23] Speaker 04:
I think what needed to happen here, instead of dismissing the entire action, there should have been some discovery.

[00:31:30] Speaker 04:
And we should have gone in, Judge Mendoza, you kind of talked about that.

[00:31:33] Speaker 04:
We should have gone in and said, what's potentially covered and what's not covered?

[00:31:36] Speaker 04:
Let's do some discovery and figure out.

[00:31:38] Speaker 01:
Why would the discovery be a bad?

[00:31:39] Speaker 04:
Well, the discovery would be about, for example, the wrought iron.

[00:31:42] Speaker 04:
What exactly did they do?

[00:31:44] Speaker 04:
Had they finished their work?

[00:31:45] Speaker 04:
Had they finished their work, which we allege, because once it's finished, it's products complete operations, that's when the damage occurred after it was finished.

[00:31:53] Speaker 02:
But you incorporated your expert's report into your complaint.

[00:31:58] Speaker 02:
Correct.

[00:31:58] Speaker 02:
Wasn't all of that in there?

[00:32:00] Speaker 04:
That's all of that in there.

[00:32:01] Speaker 02:
Therefore, that's all part of the complaint, all that the judge could consider.

[00:32:06] Speaker 02:
What more were you going to find out that your expert had not already found out because he's the one that substantiated what all the damage was that were awarded by the arbitrator?

[00:32:19] Speaker 04:
And that was a little surprising to me, Judge Bolden, that the district judge didn't really comment on the expert report.

[00:32:27] Speaker 02:
No, but this is about what else were you going to discover?

[00:32:30] Speaker 02:
You already had an expert who did a complete investigation, prepared a report, and the report is part of the complaint.

[00:32:37] Speaker 04:
Yeah, I think it's a timing issue.

[00:32:39] Speaker 04:
I don't know if the report is in depth in describing the timing.

[00:32:44] Speaker 04:
And if the timing, if their work was finished,

[00:32:47] Speaker 04:
And this happened, damage to another property.

[00:32:50] Speaker 04:
Then according to the case law, you've got an occurrence and you've got no business exclusion.

[00:32:56] Speaker 01:
This is complicated because only part of the work was finished.

[00:33:00] Speaker 01:
Because there was also a service contract agreement and it wasn't finished.

[00:33:04] Speaker 04:
Well, and again, under the product's completed operations, even if there is service that continues, it's finished.

[00:33:10] Speaker 01:
Well, it's a separate contract.

[00:33:12] Speaker 01:
Yeah, it seems like it's a separate contract.

[00:33:13] Speaker 04:
And again, you look to the nature of the damage, you look to all of these issues, which they didn't look to.

[00:33:19] Speaker 04:
All the court says was, oh, you got a contract?

[00:33:21] Speaker 04:
Oh, and that's all they've argued.

[00:33:22] Speaker 04:
You got a contract?

[00:33:23] Speaker 04:
Oh, you can't.

[00:33:24] Speaker 04:
There's no occurrence.

[00:33:25] Speaker 04:
You can't get this under occurrence, and the case law is clear.

[00:33:29] Speaker 04:
You absolutely can.

[00:33:31] Speaker 01:
What strikes me is that cases just like this must arise all the time, and you don't have one, neither of you.

[00:33:38] Speaker 01:
Because the problem of poor work leading to somewhat downstream

[00:33:47] Speaker 01:
damage to something which isn't the work itself is routine, I would think.

[00:33:54] Speaker 01:
I mean, every time somebody paints something badly, you're going to have rotted wood.

[00:33:58] Speaker 04:
And I don't know why there's just doesn't seem to be any case law Yeah, and again the star surplus lines case the Vandenberg case Which the Ninth Circuit has cited this very court has cited Vandenberg in dealing with CGL policies and and actually what this this precise problem ie work that is done on

[00:34:21] Speaker 01:
on a project which is a breach of contract because it was poorly done, but there's injury to something other than the work itself.

[00:34:33] Speaker 04:
Vandenberg was a case where they installed storage tanks in the ground.

[00:34:39] Speaker 04:
under a contract and they did it negligently and they were supposed to maintain them and watch them.

[00:34:46] Speaker 04:
Years later, it was found out that they leaked and they contaminated the ground.

[00:34:52] Speaker 04:
They caused injury to the property.

[00:34:54] Speaker 04:
So it's the same type of situation.

[00:34:56] Speaker 04:
You have a contract there, you have work that was being performed that was supposed to be performed.

[00:35:02] Speaker 04:
Some of it was, some of it wasn't.

[00:35:04] Speaker 04:
And Vandenberg says, rather, the focus of the coverage for property damage is the property itself.

[00:35:10] Speaker 04:
Coverage under the CGL is not based upon the fortuity of the form of action chosen by the injured party.

[00:35:18] Speaker 04:
Determination of coverage must be individually by considering the nature of the property, the injury, and the risk that caused the injury in light of the particular provisions of each applicable policy.

[00:35:30] Speaker 01:
If I don't see Vandenberg cited in your opening brief, where is it?

[00:35:33] Speaker 04:
I'm sorry.

[00:35:33] Speaker 01:
I don't see Vandenberg cited in your opening brief.

[00:35:37] Speaker 04:
Is it cited in your brief?

[00:35:38] Speaker 04:
It is in my brief.

[00:35:39] Speaker 04:
I apologize, but it is also in my complaint.

[00:35:42] Speaker 04:
It's listed in my second amendment counterclaim.

[00:35:45] Speaker 04:
And it is not, for some reason, Your Honor, it is in my brief, but it's not in the list of cases.

[00:35:50] Speaker 04:
I don't know how that happened.

[00:35:52] Speaker 04:
I just saw that this morning in my apologies.

[00:35:54] Speaker 04:
That seems weird to me.

[00:35:56] Speaker 04:
But it is in my brief.

[00:35:57] Speaker 04:
And again, Vandenberg

[00:35:59] Speaker 04:
And I will say that as an officer of the court, the Star Surplus Lines case in Nevada, which is a 2023 case, it's not similar facts.

[00:36:06] Speaker 04:
It was a COVID case about a business trying to collect on COVID.

[00:36:10] Speaker 01:
That's not in your brief either.

[00:36:11] Speaker 04:
But the reasoning of that, I'm sorry.

[00:36:15] Speaker 01:
That doesn't seem to be in your opening brief either.

[00:36:18] Speaker 01:
Yes, I just saw that, Judge, and I wanted to bring it to your attention because it is one that... You're gonna do that, you're supposed to file 28A letter, and if you don't do that, you're supposed to give us a form when you come in here.

[00:36:29] Speaker 01:
I mean, how are we supposed to know anything about this case that you're just telling us about this?

[00:36:32] Speaker 05:
Yes, I apologize, Judge, on that Star Lines case.

[00:36:34] Speaker 05:
Counsel, and it looks like you're over time.

[00:36:36] Speaker 05:
Are there any other questions?

[00:36:38] Speaker 02:
None.

[00:36:38] Speaker 05:
Thank you.

[00:36:40] Speaker 05:
All right, thank you.

[00:36:41] Speaker 05:
Thank you so much.

[00:36:42] Speaker 05:
Appreciate all of you.

[00:36:44] Speaker 05:
This case, American fire and casualty versus unforgettable coatings will be submitted.