Court Says Real Estate Developer’s Separate Soil Grading Suits Will Fall Under One Policy

When D.R. Horton Los Angeles Holdings Company began construction on a residential housing development in Santa Clarita, Calif., it hired Leighton and Associates as its geotechnical/soils engineering firm.

In April 2001, Lehighton prepared a preliminary soil grading plan for the entire project and later amended the plan to accommodate conditions and issues encountered during grading. At the time, Leighton held a claims-made professional liability insurance policy.

In 2003, several homeowners who lived adjacent to the project sued D.R. Horton and Leighton for damages arising from slope movement allegedly caused by the project’s grading activities. Leighton’s insurer defended the firm and paid $116,372 (of the $1 million per claim limit) upon settlement.

Four years later, in 2007, homeowners from the project alleged damages arising from slope movement. This time, only D.R. Horton was named as a party, but D.R. filed a cross-complaint naming Leighton.

Leighton’s insurer and insurance broker agreed this new claim was “related” to the 2003 claim and tendered to Leighton the remaining limits of its 2003 policy.

Before trial on the cross-complaint, D.R. Horton and Leighton settled, and as such, Leighton assigned its rights under its 2007 professional liability insurance policy to D.R. Horton. Trail proceedings concluded with a $3.2 million judgment for damages and costs, which Leighton owed to D.R. Horton.

But the insurer was adamant the 2003 policy applied; not the 2007 one.

D.R. Horton filed action against Leighton’s 2007 policy. It stated that the 2007 claim was unrelated to the 2003 claim, and therefore should be covered under the 2007 policy.

In court, D.R. Horton’s geotechnical engineering expert was asked to testify what the damages were in the 2003 claim in comparison to the 2007 claim.

He said the cause of property damage in the first lawsuit resulted from “backcut failures” that occurred while using Leighton’s proposed “sliding slot key method” to provide temporary stability while addressing stability issues due to a landslide plain. Per the 2007 suit, “It’s one design, one grading permit, one grading plan, one soil engineer, one civil engineer. It’s just one project,” the expert said.

Scorecard: From this testimony, and from D.R. Horton’s inability to fully demonstrate a separation between the 2003 suit and the 2007 suit, the court determined that the 2003 policy was the only one that applied.

Takeaway: When it comes to claims made against an insured, it is possible for other similar claims to mount years later. Review allegations and remain vigilant over which policy may apply. &