Low, Ball & Lynch’s

WEEKLY LAW RESUME

December 1, 2005 Issue   By: Ray Coates

Coverage – Homeowner’s Policy - Exclusions

Cynthia Davis, et al. v. Farmers Insurance Group

Court of Appeal, Fourth District

 (November 18, 2025)

Homeowner’s policies typically do not cover claims arising out of the failure to disclose defects that existed in property at the time of sale.  This case reaffirms that view, based upon a specific exclusion.

Cynthia and Daniel Davis purchased a course of construction policy from Fire Insurance Exchange for a home they were building.  After completion of the home, the policy converted into a homeowner’s policy.  The Davises sold the property to Rick and Kristin Engebretsen.  Thereafter, the policy was cancelled.

Three years later, the Engebretsens sued the Davises for failing to disclose construction defects in the home, which the Davises knew or should have known at the time of the sale, but failed to inform the Engebretsens.  Damage to the property and injury to the Engebretsens was alleged, including personal injuries from high concentration of fungi, which resulted in medical attention. 

The Davises tendered the underlying action to Fire Insurance Exchange.  Fire Insurance Exchange denied the request for defense or indemnity.  The Davises then filed a complaint for breach of contract and breach of the implied covenant of good faith and fair dealing.  The Davises filed a motion for summary adjudication, asking the Court to conclude that Fire Insurance Exchange owed a duty to defend the underlying action, and that Fire Insurance Exchange had breached that duty.  Fire Insurance Exchange moved for summary judgment, arguing that there was no potential for coverage.  The trial court denied the Davises’ motion and granted Fire Insurance Exchange’s motion.  The Davises appealed.

The Court of Appeal affirmed.  The policy provided coverage for bodily injury or property damage resulting from an occurrence.  The policy defined “occurrence” as an accident which resulted in bodily injury or property damage during the policy period.  The Court held that, since the complaint alleged injuries that occurred after the policy had been cancelled and after the sale of the property, there was no allegation of bodily injury or property damage during the term of the policy. 

In addition, the policy contained an exclusion for bodily injury or property damage arising out of the sale or transfer of real property, including known or unknown property or structural defects.  The Davises attempted to argue that the complaint alleged negligent construction, and thus the claim was not excluded.  The Court of Appeal rejected that interpretation, and stated that after real property was sold, claims for bodily injury or property damage resulting from known or unknown defects in the property were not covered.  Here the claim was for damages that arose after the sale of the property.  The exclusion therefore encompassed the very type of claims alleged.  Because the exclusion precluded coverage as a matter of law, Fire Insurance Exchange had no duty to defend or indemnify the Davises, and the trial court properly granted the summary judgment.  The judgment was, therefore, affirmed.

COMMENT

This case is consistent with prior appellate court decisions in this area.  The decision is unique, in that it interprets an exclusion that is not common in most homeowner’s policies.

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