Encroachment Is Not An Accident Within The Meaning Of Homeowner Policy

By: ja, February 23, 2010

Summary by , Esq.

On January 26, 2010, the Fourth Appellate District filed its opinion in Fire Insurance Exchange v. Superior Court, 181 Cal. App. 4th 388, holding the insurer had no duty to defend its insureds in an action by an adjoining landowner as a result of an encroachment because building a structure that encroaches onto another’s property is not an accident within the meaning of the policy even if the insureds acted in the good faith, but mistaken, belief they were legally entitled to build.

Factual and Procedural Background

Kenneth and Dorothy Bourguignon owned property adjoining land owned by Louise Leach.  Ms. Leach granted the Bourguignons an access easement over a five-and-one-half-foot-wide portion of her property that bordered theirs.  When the Bourguignons decided to rebuild and renovate their house, Leach, unbeknownst to co-owners of the property, agreed to a “Lot Line Adjustment.”  When Ron and Marie Parsons purchased Leach’s property, they discovered the Bourguignons house encroached on their property.  The Bourguignons sued the Parsons for quiet title and adverse possession of the five-and-one-half-foot strip.  The Parsons cross-complained alleging that the Bourguignons knew the newly built residence encroached on the Leach property and had misrepresented the facts to obtain Leach’s approval.

The Bourguignons tendered the defense of the claim to Fire Insurance Exchange (FIE) under the homeowner policy issued to them.  FIE refused to defend.  The Bourguignons sued FIE for breach of contract and bad faith.  FIE contended it had no obligation to defend, because the alleged loss resulted from the Bourguignons’ intentional act of building over the lot line, and thus was not the result of an accident.  The trial court disagreed, finding there was a potential for coverage because the intentional act of constructing the home could constitute an “accident” if done with the mistaken belief of ownership of the disputed property.

Judicial Holding and Analysis

The appellate court reversed the trial court decision holding there was no coverage because the claimed damage did not arise from an “accident.”  The policy covered damages the insured becomes legally obligated to pay because of property damage resulting from an occurrence.  “Occurrence” was defined as “an accident including exposure to conditions which results during the policy period in . . . property damage.”  The commonsense interpretation of the term “accident” is an unintentional, unexpected, chance occurrence.  An accident does not occur when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.  The court cited Merced Mutual v. Mendez (1989) 213 Cal. App. 3d 41 which explained:  When a driver intentionally speeds, and as a result, negligently hits another car, the speeding is an intentional act.  However, the act directly responsible for the injury-hitting the other car-was not intended by the driver and was fortuitous.  Accordingly, the occurrence resulting in injury would be deemed an accident.  This situation is distinct from an instance where a driver speeds and deliberately hits the other car.

Where the insured intended all of 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.  The insured’s subjective intent is irrelevant.  The term “accident” refers to the nature of the act giving rise to liability, not to the insured’s intent to cause harm.  (The court noted that State Farm v. Superior Court (2008) 164 Cal. App. 4th 317 appears to conflict with this rule.  In that case, the insured tried to throw a man into a swimming pool, but the man hit the stairs of the pool injuring his ankle.  The court held the injury was caused by an accident because it was not foreseen.  The insured intended the man to fall into the water, not on the steps.)

The Bourguignons intended to build the house where they built it.  The act of construction was intentional and not an accident even though the insureds acted under a mistaken belief that they had a right to build.  The reason for their failure to obtain title to the disputed property was irrelevant to the determination of whether their construction of the building could be characterized as an accident.  The Bourguignons mistaken belief in their legal right to build did not transform their intentional act of construction into an accident.

Comments and Implications

The court cited several cases for the proposition that an insured’s mistake of fact or law does not transform a purposeful act into an accident.  For example:  Sexual assault/molestation is not an accident notwithstanding the insured’s belief the victim consented.  Quan v. Truck Ins. Exch. (1998) 67 Cal. App. 4th 583; Lyons v. Fire Ins. Exch. (2008) 161 Cal. App. 4th 880.  An insured’s belief in the need for self-defense does not turn the resulting intentional act of assault and battery into an accident.  Delgado v. Interinsurance Exch. (2009) 47 Cal. 4th 302.  A misunderstanding of legal rights does not turn conversion of property into an accident.  Collin v. American Empire Ins. Co. (1994) 21 Cal. App. 4th 787.  A mistaken belief that acts were lawful does not render wrongful eviction of a tenant an accident.  Swain v. California Casualty (2002) 99 Cal. App. 4th 1.  An employment termination, even if due to a mistake of fact, is an intentional act, not an accident.  Lipson v. Jordache Enterprises (1992) 9 Cal. App. 4th 151.

The court also discussed three federal court cases involving property disputes.  Two of the cases ruled that trespass was not an accident.  Allstate v. Salahutdin (N.D. Cal. 1992) 815 F. Supp. 1309; Bailey v. State Farm (N.D. Cal. 1992) 810 F. Supp. 267.  In the other case, the court held there was a potential for coverage because the insureds did not know they had been trespassing on their neighbors’ property.  Allstate v. Vavasour (N.D. Cal. 1992) 797 F. Supp 785.  The FIE court followed Salahutdin and Bailey as they were in accord with the California rule that the term accident refers to the nature of the conduct itself rather than to its consequences.  The suggestion in Vavasour that the harm occasioned by intentional conduct may constitute an accident when the insured is unaware of its wrongful character is contrary to California authorities.

Judge Miller dissented from the majority opinion in FIE on the ground the record supported the finding the Bourguignons’ conduct was executed without the objective of encroaching on their neighbors’ property.  The dissent referred to the examples given in the Delgado case finding that, like the speeding driver who intended to speed, but not hit another car, the Bourguignons intentionally constructed their house, but did not intend to encroach on their neighbors’ property.  Thus, the encroachment, in Judge Miller’s mind, was an accident.  The majority opinion recognized that, unlike the speeding driver who did not intend to hit the other car, the Bourguignons intentionally constructed their house on property belonging to their neighbors.  The majority opinion is the better reasoned decision as it follows the general rule in California that an intentional act is not an accident even where the insured does not intend to cause harm.

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