In California, contractor general liability insurance policies are typically issued on
an occurrence basis. An issue that often arises with contractor general liability insurance
policies is whether a sudden failure (such as of a retaining wall) occurred as a result of
"continuous and progressive damage" that took place starting years before the failure – thereby
potentially triggering insurance coverage on the general liability insurance policies
which insured the contractor years before the failure.
In a case that highlights the complexities of this issue, in Guastello v. AIG Specialty
Insurance Company (2021) Westlaw 650878 ("Guastello case"), the California Court of Appeal, Fourth
District, ruled that a contractor general liability insurance policy, which insured a contractor in
2003 to 2004, could owe a defense and indemnity under the policy for the collapse of a retaining
wall which took place in 2010. The facts of the Guastello case are common enough. From 2003 to
2004, subcontractor C.W. Poss, Inc. ("Poss") built retaining walls in the Pointe Monarch Housing
Development in Dana Point, California. Poss performed all of the related excavation, ground and
grading work. At that time, it was insured under a general liability insurance policy issued by
AIG Specialty Insurance
Company ("AIG").
In 2006, Thomas Guastello ("Guastello") purchased a home in the Pointe Monarch Development. In
January 2010, a retaining wall close to Guastello's lot suffered a "massive failure" that caused
a "major soil collapse" and further caused the "perimeter wall on [Guastello's] backyard
to crack and separate."
In 2013, Guastello sued Poss, among others, claiming that Poss had negligently designed and
constructed the failed retaining wall. Guastello alleged various damages including
diminution in value of his home. AIG, the insurer for Poss in 2003 to 2004, disclaimed any duty
to defend or indemnify Poss asserting that the loss occurred long after the policy expired. In
2015, Guastello successfully obtained a default judgment against Poss. The trial court entered a
default judgment of $701,133.17 in favor of Guastello, and against Poss (which is now insolvent).
In 2017, Guastello filed a lawsuit against AIG alleging Causes of Action for
Enforcement of the Default Judgment, Breach of the Covenant of Good Faith and Fair Dealing and
Declaratory Relief. AIG in turn filed a Motion for Summary Judgment arguing that Guastello did not
experience property damage until well past the expiration of the AIG