[00:00:06] Speaker 03:
Good morning, Your Honours.

[00:00:07] Speaker 03:
Michael Lopez of Lopez-Barkin-Schultz for Appellant SBE Electrical.

[00:00:13] Speaker 03:
May it please the Court, I'd like to just make four points.

[00:00:17] Speaker 03:
They're very related to each other.

[00:00:18] Speaker 03:
They sort of flow into each other, and I will of course answer any questions you may have.

[00:00:23] Speaker 03:
The first point is that in this case, we're dealing with a duty to defend case.

[00:00:31] Speaker 03:
And

[00:00:32] Speaker 03:
The operative allegations that are necessary for evaluating the duty to defend are very discreet.

[00:00:40] Speaker 03:
There are three or four, depending on how you look at it.

[00:00:45] Speaker 01:
The first... Counsel, can you please get to the J6 exclusion?

[00:00:49] Speaker 01:
I guess that's where I'm having... Why isn't that a problem for you all?

[00:00:54] Speaker 03:
Because none of the allegations that are necessary for my client's potential liability in this case

[00:01:00] Speaker 01:
Involve incorrect work and if there are no allegations of incorrect work on which my clients potential liability hold on because it was settled the judge It was settled correct absolutely then the judge has to take that into consideration and determining You know It's positioned.

[00:01:22] Speaker 01:
I mean, I guess that's that's the problem.

[00:01:23] Speaker 01:
I'm having I don't think that's true your honor I

[00:01:26] Speaker 03:
I think that the settlement is something that is taken into consideration with respect to the indemnity obligation that the insurer may have.

[00:01:33] Speaker 03:
And there are presumptions that apply to that if the duty to defend has been wrongfully denied.

[00:01:39] Speaker 03:
But with respect to the duty to defend, the only question is whether there are allegations in the underlying, in this case, counterclaim, normally you'd say complaint, that give rise to potential for coverage.

[00:01:54] Speaker 03:
And there are allegations,

[00:01:56] Speaker 00:
At issue in the underlying case here that give rise to potential for coverage that have nothing to do with any incorrect work whatsoever Well part of the contract required you to Take all action or your client to take all action to protect the switchgear correct yes, your honor and Apparently that was not done

[00:02:23] Speaker 00:
So is that incorrect work or not incorrect work?

[00:02:27] Speaker 03:
Well, it depends on what you mean by incorrect.

[00:02:30] Speaker 00:
Well, it depends on what you're arguing incorrect means.

[00:02:33] Speaker 03:
Right.

[00:02:35] Speaker 03:
So let's take an example.

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My client has installed switch gear.

[00:02:39] Speaker 03:
They've hooked it up to the utilities.

[00:02:40] Speaker 03:
They've drilled the holes for the conduits to carry the power to the rest of the plant.

[00:02:45] Speaker 03:
And then there's a fire and the entire structure collapses and

[00:02:50] Speaker 03:
The basements collapse and the switchgear is destroyed.

[00:02:53] Speaker 03:
Did my clients do anything wrong?

[00:02:56] Speaker 03:
I don't think so.

[00:02:57] Speaker 03:
There's certainly no even a hint of incorrect work there.

[00:03:02] Speaker 03:
And the presence of hundreds of gallons of water pouring down into a basement filled with electrical equipment

[00:03:11] Speaker 03:
seems to me to be exactly the same sort of scenario.

[00:03:14] Speaker 03:
My client doesn't need to have done anything wrong to have been liable in this case.

[00:03:18] Speaker 01:
But I guess I just want to make sure I understand what we have to decide because I think that we have to look at the allegations that Palmer was making, right?

[00:03:28] Speaker 01:
Their allegation was that there was improper work.

[00:03:30] Speaker 01:
and yes, and that And so the judge looked at that and and looked at those allegations and then determined well There was a settlement, so I I can't look at Whether or not there was proper or improper work this was an allegation that was made isn't that sufficient that for for for for the judges ultimately

[00:03:57] Speaker 01:
conclude that, in fact, there was an exclusion that applied?

[00:04:02] Speaker 03:
No, I don't think that's sufficient at all, Your Honor.

[00:04:05] Speaker 03:
The judge and the insurer in this case both have an obligation to look at the pleading that is put in and also take into account any other facts that they may know and look to see are there allegations here that give rise to a potential liability, which is what I... What do you do with the settlement?

[00:04:23] Speaker 01:
What do you do with the settlement?

[00:04:24] Speaker 03:
Nothing is needed with the settlement at the duty to defend stage, Your Honor.

[00:04:28] Speaker 03:
I don't entirely understand what the settlement has to do with the existence of the insurer's duty to defend.

[00:04:35] Speaker 01:
Well, because it was settled, right, so the district court judge looking at that and looking at J6 has to determine whether or not there was improper work, right?

[00:04:47] Speaker 02:
No.

[00:04:50] Speaker 01:
Okay.

[00:04:50] Speaker 02:
Mr. Lopez, let's assume that we don't agree with you on your first point and get to the construction as Judge Mendoza was suggesting of J6.

[00:04:59] Speaker 02:
I mean, so assume that the allegations are of work incorrectly performed.

[00:05:09] Speaker 02:
Are there other aspects of J6 that get you out of the exclusion?

[00:05:14] Speaker 03:
But this is what I'm trying to tell you, Your Honor, is that the allegations

[00:05:18] Speaker 03:
that could potentially hold my client liable, that are covered by the policy, the allegations that are in the complaint have nothing to do with incorrect work.

[00:05:25] Speaker 03:
There are specific allegations that give rise to potential liability.

[00:05:29] Speaker 03:
And I can list them out if you'd like.

[00:05:31] Speaker 02:
Well, so I guess to distinguish between the allegations of whether the work was incorrect or not and what the work was.

[00:05:38] Speaker 02:
So why isn't it enough to trigger the exclusion that

[00:05:45] Speaker 02:
The switch gear was property that must be restored, repaired, or replaced.

[00:05:49] Speaker 02:
Do you agree with that?

[00:05:52] Speaker 02:
Yes.

[00:05:52] Speaker 02:
Okay.

[00:05:55] Speaker 02:
And the question is whether, and do you agree that if your work was incorrectly performed, that, according to the allegations, would have been on the damaged property?

[00:06:11] Speaker 03:
It sounds like you're starting to talk about J5 there when you're talking about the operations.

[00:06:16] Speaker 02:
No, your work was incorrectly performed on it.

[00:06:18] Speaker 02:
Sorry, I mean your work.

[00:06:20] Speaker 02:
Yes.

[00:06:22] Speaker 02:
Okay, so on it.

[00:06:24] Speaker 02:
Then the question is whether whatever your work is, which is a defined term, was incorrectly performed.

[00:06:30] Speaker 02:
Let's set aside whether

[00:06:32] Speaker 02:
the incorrectly performed discussion and discuss whether this was your work.

[00:06:38] Speaker 02:
And I think Judge Wardlaw asked the question that the scope of work includes a duty, sub 8, year 376, to use all means necessary to protect material before, during, and after installation to protect the installed work.

[00:06:54] Speaker 02:
is that part of your work in quotes that is included in J6, that duty to protect?

[00:07:01] Speaker 03:
That is absolutely part of my client's work under the contract and there is absolutely nothing in this case anywhere in the record or anywhere in the record of the underlying case that establishes that it was incorrectly performed, nor was it necessary.

[00:07:15] Speaker 02:
Well, this goes back to the discussion you were having with Judge Mendoza about.

[00:07:22] Speaker 02:
This is about coverage at the outset.

[00:07:24] Speaker 02:
It's whether they need to come in, defend, cover, et cetera.

[00:07:28] Speaker 02:
And we don't know where these things will go.

[00:07:31] Speaker 02:
There's been no determination of whether it was incorrect or not.

[00:07:34] Speaker 02:
It's just whether the allegations could lead there such to trigger coverage or to trigger the exclusion.

[00:07:40] Speaker 02:
Assuming that's where we are, and I agree or might disagree with your first point, you otherwise can see that the switchgear is the property in J6.

[00:07:49] Speaker 02:
Your work includes the duty to protect and sub-eight of the contract.

[00:07:54] Speaker 02:
And that any work that was performed, correctly or not, was performed on the switchgear, you concede all that?

[00:08:01] Speaker 03:
Any work that was performed on the switchgear was performed on the switchgear.

[00:08:05] Speaker 02:
Well, I get the allegations, though, are that so the flood comes through the conduit that was drilled, the hole that was drilled for the conduit that was running from the switchgear.

[00:08:15] Speaker 02:
I'm getting this generally right.

[00:08:17] Speaker 02:
The waters come in there.

[00:08:19] Speaker 02:
that's part of your work the hole up there too if if the water indeed did come through the hole then yes and that's work on and you would call that work on the switch here no I wouldn't your honor okay so is is that why so also I'm sorry why not

[00:08:38] Speaker 01:
Why not?

[00:08:39] Speaker 01:
Because you drilled the hole to put the conduit in.

[00:08:43] Speaker 01:
Why is that not the work?

[00:08:44] Speaker 01:
Because it has to be incorrect, Your Honor, and the hole's supposed to be there.

[00:08:47] Speaker 02:
No, we don't want to... I'm sorry, I don't want to speak for Judge Mendoza, but I'm not interested in whether it's correct or not.

[00:08:53] Speaker 02:
I want to know whether the work you did in drilling the hole for the conduit to the switchgear, why do you maintain that was not on the switchgear, that hole?

[00:09:02] Speaker 03:
Because the switchgears, they separately line items, piece of equipment,

[00:09:05] Speaker 03:
And this is the global modular.

[00:09:07] Speaker 02:
It has to be the particular property.

[00:09:10] Speaker 02:
It has to be the particular part of it.

[00:09:11] Speaker 03:
I mean, we could go down that road if you wanted to talk about J5.

[00:09:15] Speaker 00:
The part of the property that has to be replaced is the switchgear.

[00:09:19] Speaker 00:
And your work, you're narrowly construing your work as to the switchgear is narrow to the switchgear itself, not stuff around the switchgear.

[00:09:35] Speaker 03:
I was asked if that was work on the switchgear, and I said no.

[00:09:40] Speaker 03:
It's still part of our work.

[00:09:41] Speaker 03:
Our work includes putting in the circuitry for hundreds and hundreds of condominiums across three buildings.

[00:09:47] Speaker 00:
That's my point, is that your work was broader.

[00:09:50] Speaker 00:
You're arguing your work was broader than what work you did on the switchgear.

[00:09:58] Speaker 03:
With respect to J6,

[00:10:01] Speaker 00:
Right.

[00:10:01] Speaker 00:
I get that.

[00:10:02] Speaker 00:
We're talking about J6.

[00:10:03] Speaker 00:
Yes.

[00:10:04] Speaker 00:
We're talking about J6.

[00:10:05] Speaker 03:
I'm sorry.

[00:10:05] Speaker 03:
I didn't quite finish my sentence.

[00:10:08] Speaker 00:
Okay.

[00:10:08] Speaker 03:
With respect to J6, I'm saying it doesn't matter because there isn't any established incorrect work at all anywhere in the record whatsoever.

[00:10:16] Speaker 00:
But there only has to be allegations of incorrect work.

[00:10:20] Speaker 00:
in the underlying counterclaim, right?

[00:10:23] Speaker 03:
No, Your Honor, that's not true.

[00:10:24] Speaker 00:
No, there has to be a potential for liability.

[00:10:27] Speaker 03:
Yes.

[00:10:28] Speaker 00:
Right, so I'm assuming your potential for liability would come from allegations in the counterclaim, correct?

[00:10:34] Speaker 03:
That is absolutely correct, Your Honor, but as I said at the very beginning, there are allegations in this complaint sufficient to establish a potential for liability for my client that have nothing to do with incorrect work.

[00:10:46] Speaker 00:
Okay, that's what I'm saying.

[00:10:52] Speaker 00:
Okay.

[00:10:53] Speaker 00:
That's why I'm looking at on it too, although I'm not sure you raised that argument in your blue brief.

[00:10:59] Speaker 03:
Which argument?

[00:11:00] Speaker 00:
That six pertains to work, your work on it, the switchgear.

[00:11:09] Speaker 00:
It's narrowed to the switchgear itself and not anything else.

[00:11:16] Speaker 03:
That's because that's not important.

[00:11:17] Speaker 03:
That isn't one of our arguments, Your Honor.

[00:11:19] Speaker 02:
It is not?

[00:11:20] Speaker 02:
It is not.

[00:11:23] Speaker 02:
concede, in other words, that assuming it was incorrectly performed, we understand that that's one of your arguments.

[00:11:29] Speaker 02:
We just need to get to other arguments, too.

[00:11:32] Speaker 02:
Assuming it was incorrectly performed, your work, which includes the duty to protect on it, stipulating that on it, with respect to the switchgear, is your entire electrical work, up to however many stories the building is, way above the basement in other buildings, that any

[00:11:53] Speaker 02:
incorrectly performed work, stipulate that, on anywhere in those other buildings would trigger J6 as to the switchgear.

[00:12:06] Speaker 03:
If it was the cause of the damage, yes, Your Honor.

[00:12:08] Speaker 02:
So the audit is doing no work for you here.

[00:12:11] Speaker 02:
That's not one of your arguments.

[00:12:13] Speaker 03:
If I may take two seconds to look at the language?

[00:12:17] Speaker 02:
Yeah.

[00:12:18] Speaker 02:
Yeah.

[00:12:19] Speaker 02:
You should get J6 in front of you.

[00:12:21] Speaker 02:
That's where I think I'm focused.

[00:12:25] Speaker 03:
particular part of any property that must be restored, repaired, or replaced because your work was incorrectly performed on it.

[00:12:31] Speaker 02:
So the particular part of any property that must be repaired, restored, or replaced is the switchgear.

[00:12:35] Speaker 02:
Your work is the work as defined here, including the duty to protect the materials of other trades and installed work.

[00:12:43] Speaker 02:
And assuming you're incorrectly performed, why wouldn't the exclusion apply?

[00:12:49] Speaker 03:
Our work on the switchgear.

[00:12:50] Speaker 03:
It sounded like you were saying, if we performed work in another building,

[00:12:56] Speaker 03:
that was incorrect and it damaged the switchgear, would that be excluded by J6?

[00:13:03] Speaker 03:
Is that what you're asking?

[00:13:04] Speaker 02:
Yes, in combination with your duty to protect the work of all other trades.

[00:13:12] Speaker 03:
I don't understand what other trades you mean.

[00:13:14] Speaker 03:
Well, your work includes... You mean our duty to protect the switchgear.

[00:13:19] Speaker 02:
Your work, of course, includes the switchgear, but I think we'd asked you earlier

[00:13:27] Speaker 02:
under sub eight of the scope of work, your work also includes protecting the work and materials of all other trades.

[00:13:37] Speaker 02:
Yes, your honor.

[00:13:38] Speaker 02:
So that work is happening all over the building because there's all sorts of other trades with respect to anything that you may be working on.

[00:13:47] Speaker 02:
If your work is on property that's damaged anywhere in the building because you have a duty to

[00:13:56] Speaker 02:
protect the work of those trades.

[00:13:58] Speaker 02:
That's within the scope of your work.

[00:13:59] Speaker 03:
And if we perform work incorrectly on any other property, including the work for the trades, yes, J6 would apply.

[00:14:05] Speaker 02:
Okay.

[00:14:07] Speaker 02:
In this case, it just so happens that the switchgear is your materials, your trade.

[00:14:16] Speaker 01:
Yes, it is.

[00:14:16] Speaker 01:
And it is undisputed that you all put in the conduit, correct?

[00:14:24] Speaker 03:
Yes, we put in the conduits, we drilled the holes, we installed the switch gear.

[00:14:29] Speaker 03:
It's also relatively undisputed that we had nothing to do with the water intrusion at all.

[00:14:35] Speaker 03:
That was an outside force, flooding of the basement, broken pipes, rain pouring down into the sub-basements, into a room with sensitive electrical equipment.

[00:14:47] Speaker 02:
One of the things that the global modular... Wasn't it necessary to protect that material under your scope of work though?

[00:14:52] Speaker 03:
We were liable for the damage, and yes, if we want to avoid contractual liability, we would have to figure out a way to protect it.

[00:15:00] Speaker 03:
But sometimes, and this is what the global modular court recognized, and what we all intuitively know, sometimes you can do everything right and still lose.

[00:15:10] Speaker 03:
A meteor could hit the site, right?

[00:15:14] Speaker 03:
There's nothing you can do about that.

[00:15:16] Speaker 03:
There's not always going to be things that you can do

[00:15:22] Speaker 03:
to protect your work.

[00:15:23] Speaker 03:
And that's not going to change your liability, but it will absolutely change the application of J6.

[00:15:29] Speaker 03:
That's exactly what the Global Modular Court recognized, is that there was not evidence sufficient in that case, just as there isn't evidence here, for the insurer to meet its burden of proving that the exclusion applies.

[00:15:44] Speaker 03:
Because the insurer has to prove that.

[00:15:45] Speaker 03:
They have to prove that there was incorrect work.

[00:15:49] Speaker 02:
But the exclusion wouldn't apply if a meteor hit it because you weren't performing any

[00:15:56] Speaker 02:
work on.

[00:15:57] Speaker 03:
But we weren't well I mean we were still installing it and still drilling things.

[00:16:01] Speaker 02:
The meteor didn't hit it because.

[00:16:03] Speaker 01:
Well I don't want to talk about meteors here for a second I'm sorry to interrupt but I guess I want to go back to a statement you just said because I think that's an incorrect statement of the law because according to Sentry Select Insurance versus Royal we have to look at the undisputed facts when there's a settlement and is the undisputed facts here indicate that you all created again the conduit and all the other stuff

[00:16:26] Speaker 01:
Right?

[00:16:27] Speaker 01:
So if you all created that and during the settlement that was negotiated away, isn't that actually sort of a big problem for you all?

[00:16:41] Speaker 03:
I don't understand why you would think that there are undisputed facts in the settlement pertaining to anything having to do with how the water got in or the work that we did.

[00:16:52] Speaker 01:
Well, you settled.

[00:16:53] Speaker 03:
That's right, we settled because there was a contractual liability clause that made us liable for damage to the switchgear absolutely no matter what, no matter how it happened, because the work had not yet been accepted.

[00:17:05] Speaker 03:
And those facts, this is what I started out the argument with, those facts are in the counterclaim.

[00:17:11] Speaker 03:
The existence of the contractual requirements of our liability for any damage, the fact that water poured in, the fact that Palmer was damaged to

[00:17:20] Speaker 03:
the tune of $10 million or more, and our liability for it.

[00:17:24] Speaker 03:
And none of that has anything to do with our work.

[00:17:28] Speaker 03:
It has nothing to do with where the water came from.

[00:17:31] Speaker 03:
It has nothing to do with our doing anything incorrectly.

[00:17:34] Speaker 03:
It just has to do with raw contractual liability.

[00:17:38] Speaker 03:
And it's sufficient to activate a potential for coverage that the insurance company has an obligation to respond to by defending us.

[00:17:50] Speaker 03:
And they didn't defend my client.

[00:17:52] Speaker 03:
And so my client went out and settled as it's allowed to.

[00:17:58] Speaker 03:
And there's nothing in any of those allegations that I just described.

[00:18:02] Speaker 03:
And like I said, I can tell you where they are.

[00:18:04] Speaker 03:
There's nothing in there about our doing anything wrong, about our drilling holes, about our failing to cover.

[00:18:09] Speaker 03:
It's raw, pure, strict contractual liability.

[00:18:16] Speaker 03:
And it's for property damage caused by an occurrence.

[00:18:19] Speaker 03:
So it's covered in the first instance by the insurance policy.

[00:18:23] Speaker 03:
And that shifts the burden to the insurer to show through evidence that the exclusions conclusively apply.

[00:18:32] Speaker 03:
Because if there are no allegations that are triggering the liability, no allegations of incorrect work, no allegations of our involvement with the water, if those allegations are not necessary for our liability, then the insurer has to actually come up with evidence and say, this is why the exclusion applies.

[00:18:53] Speaker 03:
And they cannot do this on this record, just as they couldn't do it on the record in global model.

[00:18:57] Speaker 00:
What stage of proceedings?

[00:18:58] Speaker 00:
Are we in the motion to dismiss stage?

[00:19:00] Speaker 03:
It's a Rule 12C, judgment on the pleadings motion, Your Honor.

[00:19:03] Speaker 00:
Oh, judgment on the pleadings, okay.

[00:19:06] Speaker 00:
And I see the paragraph in your answer and counterclaim of SB, paragraph 40, you say the argument you're relying on now.

[00:19:19] Speaker 00:
SBE could thus potentially be found contractually liable.

[00:19:23] Speaker 00:
to Palmer for water damage to the switch gear, regardless of whether SBE was negligent, performed any work incorrectly or failed to meet any applicable standard of care.

[00:19:35] Speaker 00:
That's your point, right?

[00:19:37] Speaker 03:
That is my point, Your Honor, yes.

[00:19:38] Speaker 00:
Okay.

[00:19:40] Speaker 00:
I think I finally get it.

[00:19:42] Speaker 00:
Okay.

[00:19:43] Speaker 00:
You're over your time.

[00:19:44] Speaker 00:
Why don't we?

[00:19:45] Speaker 03:
I apologize.

[00:19:46] Speaker 03:
We're going over, Your Honor.

[00:19:47] Speaker 00:
Okay.

[00:19:48] Speaker 00:
We were asking a lot of questions.

[00:20:02] Speaker 04:
May it please the court and good morning.

[00:20:04] Speaker 04:
Dan Kattabaugh for Associated Industries Insurance Company, Inc.

[00:20:08] Speaker 04:
I'd like to turn to the point in the repartee you just had with Mr. Lopez, my friend over there, about whether or not there were allegations in the underlying pleadings of incorrect work.

[00:20:16] Speaker 04:
Mr. Lopez has vociferously told you there were none.

[00:20:19] Speaker 04:
I frankly don't understand how we got to this point.

[00:20:22] Speaker 04:
I am on the third volume of the excerpts, page 432, the first paragraph of Palmer's counterclaim.

[00:20:29] Speaker 04:
Respondent brings this counterclaim to recover the astronomical damages claimant has caused by their plainly deficient and non-code compliant electrical work.

[00:20:40] Speaker 04:
Next.

[00:20:40] Speaker 00:
Is that electrical work on the switchgear?

[00:20:43] Speaker 04:
Yes.

[00:20:44] Speaker 04:
And that is the next page, Your Honor.

[00:20:47] Speaker 04:
Page 433 of the excerpts.

[00:20:49] Speaker 04:
Paragraph 6.

[00:20:50] Speaker 04:
One of claimant's failures in particular caused extraordinary harm to respondent.

[00:20:55] Speaker 04:
Claimant did not protect the main switchgear from water intrusion.

[00:20:59] Speaker 04:
even though that responsibility is squarely allocated to them by the party's agreement.

[00:21:03] Speaker 04:
And when it says squarely allocated, we're looking at Exhibit A to the construction contract, which says at the beginning, the scope of work to be performed by trade contractor shall be in accordance with and shall include without being limited to the following.

[00:21:16] Speaker 04:
Paragraph 8, this is page 376 of the excerpts by the way, trade contractor shall use all means necessary to protect material before, during, and after installation.

[00:21:26] Speaker 04:
So there you have it right there.

[00:21:27] Speaker 04:
That's basically everything you just asked Mr. Lopez.

[00:21:30] Speaker 04:
There are allegations of incorrect work on the switchgear failing to protect it.

[00:21:33] Speaker 04:
That is contractually made part of SBE scope of work.

[00:21:36] Speaker 04:
And then Palmer goes on to allege all the ways in which SBE failed to protect the switchgear.

[00:21:41] Speaker 04:
There's the drilling of the conduit holes that were not sealed.

[00:21:44] Speaker 04:
Then there is an alleged failure to place terping over the switch gear in accordance with industry standards.

[00:21:48] Speaker 04:
And then there is also the failure to place curbs around the switch gear to repel water.

[00:21:53] Speaker 04:
Those are Palmer's three allegations of defective work by SBE, and that is what Palmer alleged caused the damage to the switch gear.

[00:21:59] Speaker 02:
And there's not just a contract claim, there's a negligence claim.

[00:22:02] Speaker 04:
No, there's a breach of contract claim and there is a negligence claim.

[00:22:05] Speaker 04:
And on the breach claim, it is essentially the same thing as the contract claim.

[00:22:08] Speaker 04:
I mean, or excuse me, the negligence claim.

[00:22:10] Speaker 04:
They both say the same thing.

[00:22:11] Speaker 04:
They just plead the different standards of the different claim.

[00:22:13] Speaker 02:
And why is that enough to show that it was incorrect?

[00:22:17] Speaker 04:
Why is what enough?

[00:22:19] Speaker 02:
Why is these allegations here, just to finish the thought in terms of it, your friend says, well, those aren't allegations that we did it incorrectly.

[00:22:31] Speaker 02:
It just shows that we breached the contract.

[00:22:33] Speaker 04:
But those are allegations that they did it correctly.

[00:22:34] Speaker 04:
When it says that you have a duty to protect the switchgear, and then Palmer alleges you failed in your work to protect the switchgear, here is how you failed to do that by doing nothing to tarp it, by failing to place water repellent barriers around it, and by drilling unsealed holes around it, you failed to protect the switchgear from water intrusion.

[00:22:53] Speaker 02:
How much does your

[00:22:54] Speaker 02:
argument on J6, I guess, turn on the particular phrasing of work on the switchgear.

[00:23:05] Speaker 02:
In other words, so if we understand it sounds like there's agreement that paragraph 8 of the scope of work brings in a duty to protect everything everywhere in the building.

[00:23:19] Speaker 02:
So are there any limits to that?

[00:23:21] Speaker 02:
So if their work negligently causes damage to property that wasn't the switchgear but was in some other building, the exclusion would apply?

[00:23:39] Speaker 02:
Are we talking about in a world where the switchgear is still damaged and that's what Palmer sues for no I mean I think that's what so as we read J6 if you sued for Damage to the plumbing in another building because somehow They hadn't protected

[00:24:06] Speaker 02:
that material, they drive a truck in and it breaks a pipe or something, so that's excluded too?

[00:24:14] Speaker 04:
We're saying would it be excluded if a plumbing pipe had broken because SBE drove a truck into it while it was working at the property?

[00:24:22] Speaker 04:
Yeah.

[00:24:22] Speaker 04:
Asking if J6 would exclude that.

[00:24:24] Speaker 04:
Yeah.

[00:24:25] Speaker 04:
It depends on if they were in the process of working and if they were doing work on the pipe, but if we're just saying they drove a truck.

[00:24:30] Speaker 02:
Well, the process piece is more of a J5 thing as I understand, but with J6,

[00:24:34] Speaker 02:
So if they drove a truck over the pipe you're saying yeah, so would there wouldn't be in that scenario?

[00:24:40] Speaker 04:
Were they doing work on the pipe?

[00:24:42] Speaker 02:
I don't know there there there there the truck was carrying the switchgear that they were going to install Right, but we're not talking about a damaged switch here.

[00:24:49] Speaker 04:
We're talking about a broken pipe Yeah, but I don't believe they're doing work on the pipe, okay So that would be that would be a limitation because I guess I was trying to understand

[00:24:59] Speaker 02:
So in other words, ONIT is doing important work here in terms of limiting, because otherwise, if ONIT is not limiting the scope of the J6 exclusion, the insurance policy doesn't cover very much at all in terms of accidents that might happen away from their work.

[00:25:14] Speaker 04:
If it didn't limit it to the scope of what the insurer is working on, I mean, it would effectively be a blanket exclusion for any liability at all during the job.

[00:25:23] Speaker 00:
That would be illusory if there was policy.

[00:25:25] Speaker 04:
Yeah, it would, Judge Johnstone.

[00:25:27] Speaker 04:
It's just that that's such an attenuated hypothetical.

[00:25:30] Speaker 04:
It's hard for me to understand, and I certainly mean no insult here.

[00:25:34] Speaker 04:
That really has nothing to do with what Palmer said happened and what they sued for.

[00:25:36] Speaker 04:
Palmer said, you broke my switch gear.

[00:25:38] Speaker 02:
The key is if the work, if we're incorporating paragraph eight, as I think both parties are, into your work in J6, on it has to be a limiting principle to prevent them from being

[00:25:55] Speaker 02:
excluded from coverage of anything that happens to installed work and materials to all those other trades.

[00:26:01] Speaker 04:
Sure.

[00:26:01] Speaker 04:
You look at what was alleged, it was damage to the switch gear.

[00:26:04] Speaker 04:
I had to replace the switch gear because it was, you know, the water intrusion shorted it out.

[00:26:08] Speaker 04:
It was not accepted.

[00:26:09] Speaker 04:
It had to be replaced.

[00:26:10] Speaker 04:
So what work was done on the switch gear?

[00:26:12] Speaker 04:
That's what the exclusion asks.

[00:26:13] Speaker 02:
Okay.

[00:26:13] Speaker 02:
Now why is the hole away from the switch gear?

[00:26:16] Speaker 02:
I've seen photos and the holes over there, the switch gears here.

[00:26:20] Speaker 02:
Why is that work on the switch gear?

[00:26:22] Speaker 04:
Yeah.

[00:26:23] Speaker 04:
So as Mr. Lopez said, it's part of the conduit drilling to run power to and from the switch gear.

[00:26:27] Speaker 02:
So you're agreed there to?

[00:26:28] Speaker 04:
Yes.

[00:26:28] Speaker 04:
Okay.

[00:26:29] Speaker 04:
We seem to be.

[00:26:30] Speaker 04:
That's what I took to.

[00:26:32] Speaker 04:
Yeah.

[00:26:33] Speaker 04:
So if we're in agreement that it was work on the switchgear and the switchgear had to be replaced, the only question that remains for J6 textually and very unambiguous is, was it incorrect work?

[00:26:46] Speaker 04:
That's all Palmer alleges.

[00:26:47] Speaker 04:
I mean, Palmer goes through, there's a subsection in its counterclaim

[00:26:52] Speaker 04:
We're on page 434 of the excerpts.

[00:26:54] Speaker 04:
Subsection B, starting before paragraph 13, it's titled Claimants Deficient Work, goes through some of the shoddy workmanship allegations that are not at issue here.

[00:27:04] Speaker 04:
get to page 436 of the record, starting with paragraph 23, and then it goes through all the ways in which claimant failed to protect the project-level electrical equipment at the property, the switchgear.

[00:27:14] Speaker 04:
Then it lays out everything I just got up here and said.

[00:27:15] Speaker 04:
Drilled unsealed holes, didn't curb, didn't place water barriers around those holes, didn't place tarping over the switchgear, didn't place any water barriers around the switchgear.

[00:27:25] Speaker 04:
That's what Palmer alleged caused the damage to his switchgear, and that is SBE's work.

[00:27:29] Speaker 04:
And getting to a point Judge Mendoza was talking about with Mr. Lopez, then you settled the claim.

[00:27:34] Speaker 04:
And in the settlement, there's a recital that says SBE or, excuse me, Palmer alleged that SBE caused all of this damage.

[00:27:41] Speaker 04:
They used the word caused.

[00:27:43] Speaker 04:
So when Mr. Lopez says that there's no allegation and no ability to discern shoddy workmanship or incorrect work in the switch gear, that's the only thing that was alleged and that's the only thing that was settled.

[00:27:54] Speaker 04:
So by its terms, J6 should apply.

[00:27:55] Speaker 04:
It should be an open and shut case.

[00:28:00] Speaker 04:
If there are no further questions on J6, are there further questions on J5?

[00:28:04] Speaker 04:
Because I noticed we had not actually addressed that yet.

[00:28:08] Speaker 00:
Well, do you need both?

[00:28:09] Speaker 04:
You don't need both.

[00:28:10] Speaker 04:
You just need one.

[00:28:11] Speaker 04:
You just need one exclusion to eliminate coverage.

[00:28:13] Speaker 00:
Right.

[00:28:13] Speaker 00:
So maybe we're not talking about J5 for a reason.

[00:28:17] Speaker 04:
OK.

[00:28:18] Speaker 04:
Well, Your Honors, pending further questions, I will see the rest of my time.

[00:28:22] Speaker 00:
All right.

[00:28:22] Speaker 00:
Thank you very much.

[00:28:25] Speaker 00:
Associate Industries Insurance Company versus SB Electrical.

[00:28:30] Speaker 00:
Oh, I'm sorry.

[00:28:31] Speaker 00:
Do you have rebuttal?

[00:28:32] Speaker 03:
I took up all my time answering your question, John.

[00:28:35] Speaker 03:
If I could have 60 seconds, I would agree.

[00:28:37] Speaker 00:
OK.

[00:28:37] Speaker 00:
I'm sorry.

[00:28:38] Speaker 00:
Yes.

[00:28:38] Speaker 00:
I didn't notice that you were.

[00:28:41] Speaker 00:
wanted, you didn't ask for it, among other things, but now you have.

[00:28:47] Speaker 03:
Your clerk did remind me to tell you that I had reserved four minutes.

[00:28:51] Speaker 03:
I neglected to mention that at the outset.

[00:28:54] Speaker 03:
This won't take but 60 seconds.

[00:28:56] Speaker 03:
It is true that this counterclaim, this is the Palmer counterclaim, has dozens of allegations of negligent work, of mistakes, of how we caused the water damage.

[00:29:07] Speaker 03:
But nothing has been established at all in that.

[00:29:10] Speaker 03:
And there are three allegations.

[00:29:12] Speaker 03:
The allegations are that the contract has a provision that holds us responsible for damage until the switchgear is accepted.

[00:29:24] Speaker 03:
Period.

[00:29:26] Speaker 03:
There's an allegation that the switchgear was damaged by water.

[00:29:30] Speaker 03:
And there's an allegation that Palmer suffered $10 million of damage.

[00:29:33] Speaker 03:
You pull those three allegations out, you don't take anything else with it.

[00:29:36] Speaker 03:
SBE can still be liable under that theory.

[00:29:39] Speaker 03:
And that potential for liability under those allegations activates the duty to defend under Gray v. Zurich.

[00:29:47] Speaker 03:
You have the duty to defend the entire action.

[00:29:49] Speaker 03:
You have the duty to get in there and defend us against negligent claims.

[00:29:54] Speaker 00:
That's all I wanted to say, Your Honor, is that it's a very... The duty was triggered, so the insurance company should have defended you in the lawsuit until such time as there was proof?

[00:30:10] Speaker 03:
If it ever became established that the sole source of our liability was in fact our negligent work, or even that the damage had in fact been caused by our negligent work,

[00:30:23] Speaker 03:
or that some other exclusion applied, then yes, the insurer can then say, we will stop defending, and you're on your own.

[00:30:30] Speaker 03:
But that's not what happened here.

[00:30:34] Speaker 00:
OK.

[00:30:36] Speaker 00:
Thank you.

[00:30:37] Speaker 00:
This case will be submitted, and you're welcome.

[00:30:41] Speaker 00:
Thank you.

[00:30:42] Speaker 00:
And the last case on our docket for today, Martinez versus City of Los Angeles, has previously been submitted.