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A federal district court in California has ruled that an insurance policy issued by a risk retention group to a group of general contractors and real estate developers was void where the group failed to pay required deductibles based on the number of homeowner claims filed against it.

The Case

Five separate construction defect cases comprised of at least 200 individual homeowners were filed against JKB Homes NorCal, Inc., JKB Homes, Corp., and JKB Development, Inc. (collectively, "JKB"). In each of the five construction defect cases, ProBuilders Specialty Insurance Company, RRG, a risk retention group from which JKB had purchased insurance policies, tendered a defense on behalf of JKB.

The per claim deductible provisions of the ProBuilders insurance policies required JKB to pay the deductible amount to ProBuilders within 10 days of request; if payment was not received, the policy was void.

The total deductible amount owed by JKB was determined by multiplying the number of claimants/homes by the per claim deductible. ProBuilders sent requests to JKB requesting payment of the deductibles under this provision, but JKB failed to pay any deductibles.

ProBuilders went to court, seeking a declaration that the policies were void due to JKB's nonpayment.

ProBuilders moved for summary judgment. It argued that the term "claim" as defined in the policy and used within the per claim deductible provision was unambiguous and applied to each individual homeowner claimant.

For its part, JKB did not dispute that the language of the per claim deductible required that it pay a deductible on each claim "irrespective of the number of claims which may be joined in any one suit." JKB also did not dispute that ProBuilders tendered a defense in the underlying lawsuits under the insurance policies, or that JKB had not made any payment to ProBuilders despite multiple requests for payment of the deductibles.

Instead, JKB argued that because ProBuilders had not invoiced JKB separately for each homeowner claimant and had not separately allocated defense costs, ProBuilders could not assert that the terms of the policies demanded a deductible on a per claim basis.

The District Court's Decision

The district court granted ProBuilders' motion, ruling that the term "claim" as used in the per claim deductible provision was not ambiguous and that it unambiguously referred to each individual homeowner claimant.

A contrary outcome, the district court said, was "simply nonsensical."

The district court was not persuaded by JKB's argument that because of ProBuilders' billing practices – where it did not separately account for or bill on a per-person, per-claim basis – it was precluded from demanding that the deductible be paid on a per-person, per-claim basis. The district court said that JKB had "not explain[ed]" how this argument impacted the analysis of the meaning of the term "claim," or how it should influence the determination of the declaratory relief requested by ProBuilders.

The district court found that, to the extent that JKB asserted that ProBuilders' billing practices revealed an ambiguity in the contract, JKB's argument was "unavailing." The district court said that it found that this evidence did "not reasonably lend the terms of the contract to the interpretation" urged by JKB. Because the language in the contract was clear and the term "claim" was unambiguous, the district court added, it would not consider the extrinsic evidence of ProBuilders' billing practices to alter the meaning of the contract.

The district court held that the term "claim" was unambiguous and applied on a per-claimant/per-home basis. Accordingly, it concluded, it followed that because JKB had not paid the required deductible, the policy was "void."

The case is ProBuilders Specialty Ins. Co. v. JKB Homes Norcal, Inc., No. 1:15-CV-01381-TLN-BAM (E.D. Cal. Oct. 3, 2019). Attorneys involved include: For Probuilders Specialty Insurance Company, RRG, a Risk Retention Group, Plaintiff: Dawn A. Silberstein, John H. Podesta, LEAD ATTORNEYS, Wilson Elser Moskowitz Edelman & Dicker LLP, San Francisco, CA; John T. Burnite, LEAD ATTORNEY, McDowell Hetherington LLP, Oakland, CA. For JKB Homes Norcal, Inc., JKB Homes Corporation, Defendants: Naresh Channaveerappa, LEAD ATTORNEY, Channaveerappa & Phipps, LLP, Modesto, CA. For JKB Development, Inc., Defendant: Michael S Warda, LEAD ATTORNEY, Michael S. Warda, a Professional Law Corporation, Turlock, CA.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.