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When is Trespass an Accident for Insurance Purposes? Encroachment in California and the Insurer’s Duty to Defend the Lawsuit.

A recent California court decision addressed this issue, with surprising results. The B’s renovated their earthquake-damaged residence and, in the process, encroached on the neighbor’s land. The neighbors sold, and the new neighbors sued the B’s for the encroachment. The B’s insurance company refused to defend the lawsuit, claiming that they rebuilt the house intentionally, so it was not an accident that would be covered under the property. The B’s sued their insurance company for breach of the insurance contract.

The lower court denied summary judgment, saying that the act of intentionally building the home could be an accident if they were in the mistaken belief that they owned the property.

The Court of Appeals disagreed. They found that the insurance covered only an “occurrence”, defined in the policy as “an accident… which results…in property damage.” It found that when the insured intended all the acts that resulted in the victim’s injury, the event may not be deemed an accident merely because the insured did not intend to cause injury.

Lastly, it stated that B’s action under the mistaken belief of their legal right to build does not transform their intentional act into an accident. There was no potential for coverage, and the insurance company won.

It’s hard to guess what could have transformed this event into an accident- it would have had to have been an “unexpected and unintended event between the intentional construction of the building and the encroachment.” Perhaps another earthquake which displaced the survey stakes would apply. Unfortunately for the B’s, while the encroachment lawsuit would not have included an award of attorney fees, their insurance contract surely had an attorney’s fee provision, which resulted in requiring the B’s to pay the insurance company’s fees.
Fire Insur. v. Sup Ct. of San Bernardino Co, 4th DCA E046531

Law Office of James J. Falcone