View Opinion

Horvitz & Levy LLP represented defendant National Interstate Insurance Company in this appeal from a $12 million judgment in this insurance coverage dispute. National Interstate’s policyholder, Four Winds, sold a school bus to La Shaun Clemmons, who operated another school bus business. After the sale, Four Winds, at Clemmons’ request, inspected the bus to prepare it for a change of ownership inspection performed by the Highway Patrol. Several months later, the bus was involved in a collision with another vehicle and Clemmons was killed when the bolts securing the driver’s seat broke loose and Clemmons was ejected through the windshield onto the freeway. Her heirs filed a wrong death action against Four Winds, which tendered its defense to National Interstate. Relying on the Products-Completed Operations Hazard exclusion, National Interstate denied a defense and subsequently rejected an offer to settle the wrongful death action within the $1 million policy limits. The heirs then obtained a $9 million wrongful death judgment against Four Winds. In return for the heirs’ covenant not to execute, Four Winds assigned them its rights under the policy and they filed this action against National Interstate.

The trial court, relying on Insurance Co. of North America v Electronic Purification Co. (1967) 67 Cal.2d 679, ruled that the Products-Completed Operations Hazard applies only to work performed on the insured's products, and was inapplicable to this case because Four Winds’ inspection of the bus was independent of its sale of the bus. The court then entered judgment against National Interstate for $11,958,326.90, consisting of the $9 million wrongful death judgment plus interest and costs. In a published opinion, the California Court of Appeal, Second Appellate District, Division Eight, reversed with directions to enter judgment for National Interstate. It held this case was distinguishable from Electronic Purification because, in contrast to the exclusion in that case, which defined “products hazard” to include both “goods or products” and “operations,” the exclusion here stated that it applied to either “‘your product’ or ‘your work’” and separately defined “your work” and “your product.”