Filed 11/29/16
                              CERTIFIED FOR PUBLICATION




             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                               THIRD APPELLATE DISTRICT
                                          (Calaveras)
                                              ----




TIDWELL ENTERPRISES, INC. et al.,                               C078665

                 Plaintiffs and Appellants,             (Super. Ct. No. 14CV40000)

        v.

FINANCIAL PACIFIC INSURANCE COMPANY,
INC.,

                 Defendant and Respondent.



       APPEAL from a judgment of the Superior Court of Calaveras County, Thomas A.
Smith, Judge. Reversed.

       Prenovost, Normandin, Bergh & Dawe, Michael G. Dawe and Kristin F. Godeke
for Plaintiffs and Appellants.

      Gordon & Rees, Arthur Schwartz and Randall P. Berdan for Defendant and
Respondent.




                                               1
       A fire destroys a house. The homeowner‟s insurer agrees to pay for the damages
resulting from the fire, then sues the contractor who installed the fireplace several years
earlier, claiming negligence. The contractor tenders defense of the action to its liability
insurer, asserting that even though the fire occurred after the relevant policy periods
ended, there is a possibility of coverage because the fire may have been the result of
ongoing damage to the wood in the chimney chase1 during one or more policy periods
due to the exposure of that wood to excessive heat from the chimney every time a fire
was burned in the fireplace. Under the standard language in a commercial general
liability policy, does the liability insurer have a duty to defend the contractor? For
reasons we will explain, we say “yes.” Accordingly, we will reverse the judgment here
that concluded otherwise.
                   FACTUAL AND PROCEDURAL BACKGROUND
       Defendant Financial Pacific Insurance Company, Inc. (Financial Pacific) provided
general liability insurance coverage to plaintiffs Greg Tidwell, Tidwell Enterprises, Inc.,
and Tidwell Enterprises Fireplace Division (jointly, Tidwell) between March 2003 and
March 2010. Although the specific policy forms varied over the years, the provisions
that are relevant here were the same throughout all of the forms. Under the policies,
which appear to be standard commercial general liability policies, Financial Pacific
agreed to pay sums that Tidwell became “legally obligated to pay as damages because of
. . . „property damage‟ ” caused by an “occurrence” if the “property damage” occurred
during the policy period. The policies defined “occurrence” as “an accident, including
continuous or repeated exposure to substantially the same general harmful conditions.”
The policies further defined “property damage” as “[p]hysical injury to tangible property,




1      The chimney chase is the structure through which the chimney pipe runs.

                                              2
including or resulting in loss of use of that property” or “[l]oss of use of tangible property
that is not physically injured.”
       In 2006 or 2007, Tidwell participated in the construction of a house in
Copperopolis by installing a fireplace. Apparently, Tidwell‟s contract included the
fabrication and installation of a custom “termination top” for the fireplace designed by
the project architect, although Greg Tidwell later testified at a deposition that his
employees did not install the top on the chimney.
       On November 11, 2011 -- 20 months after the end of the last policy period for
Tidwell‟s general liability coverage with Financial Pacific -- the house in Copperopolis,
owned by Kendall Fox, was damaged by fire. At the time, Fox was insured by State
Farm General Insurance Company (State Farm).
       On November 29, 2011, State Farm‟s attorney sent a letter to Tidwell notifying
Tidwell of the fire. The letter stated that “the cause of the fire may be related to the
manufacture, design or installation of the fireplace, chimney chase, residence structure or
involved component parts” and expressed the understanding that Tidwell might have
been involved “with the construction elements of the home specifically related to the area
of the fireplace, chimney chase and residential structure.” The following day, Tidwell
forwarded State Farm‟s letter to Financial Pacific.
       On December 31, 2011, Financial Pacific sent a letter to Tidwell acknowledging
receipt of Tidwell‟s claim and agreeing to investigate the claim subject to a reservation of
rights. At some point thereafter, Financial Pacific received a fire investigation report
dated January 17, 2012 that was prepared for State Farm‟s attorney by Dale Feb of
F.I.R.E. Associates. Feb concluded that the fire was caused by the installation of the
“unlisted shroud located at the top of the chimney chase.” In Feb‟s opinion, the unlisted
shroud prevented the fireplace from drafting properly, which “resulted in the overheating
of the fireplace and heat transfer to the surrounding wood framing members.” According



                                              3
to Feb, “[t]he overheating of this fireplace resulted in the ignition of the surrounding
framing members at the sides, top and bottom of this fireplace.”
       On February 2, 2012, State Farm sued Tidwell for negligence, alleging that
Tidwell had negligently installed the fireplace system in the Fox home and that Tidwell‟s
negligence was the proximate cause of the fire, which resulted in damage to Fox‟s
property. State Farm alleged that it was seeking subrogation losses pursuant to the
insurance policy it had issued to Fox, under which State Farm was “required to, and will
pay damages . . . to and on behalf of its insured, as a direct and proximate result of”
Tidwell‟s negligence.
       At some point, Financial Pacific retained O‟Connor Engineering, Inc. to inspect
the fire scene. In a report dated May 22, 2012, O‟Connor reported to Financial Pacific
that the chimney assembly had been modified by the use of the customized termination
top that Tidwell fabricated and installed at the direction of the general contractor
following a design by the architect. O‟Connor concluded that the termination top posed a
fire hazard because it restricted the air flow in the chimney, which would “result in
increased operating temperature of the flue vent sections and the fireplace.” O‟Connor
could not rule out the installation of the custom terminal top as a cause of the fire.
       In June 2012, Financial Pacific sent a letter to Tidwell declining Tidwell‟s tender
of the defense of the State Farm action based on Financial Pacific‟s conclusion that no
potential for coverage existed. Financial Pacific concluded that “the fire started as a
result of the chimney shroud which did not allow free movement of air” but further
concluded that “the property damage occurred on November 11, 2011 the date of the fire
at issue, long after Financial Pacific‟s policies had expired,” and “for coverage to exist,
the property damage must take place during the policy period.”
       In August 2012, Tidwell‟s attorney wrote to Financial Pacific, disagreeing with
the insurer‟s denial of a duty to defend Tidwell in the State Farm action. Among other
things, Tidwell‟s attorney asserted that “[t]he construction of the fireplace and the

                                              4
continuous burning of fires therein create[d] the potential for continuous and repeated
exposure to the same general harmful conditions. The policy definition of „occurrence‟
does not rule out the possibility that damage could have been occurring prior to the final
fire that burned the house.” Referring to the reports Financial Pacific had already
received, Tidwell‟s attorney further asserted that “[t]he fact that the installation of the
termination top could have led to continuous and progressive damage as a result of each
fire in the fireplace running too hot fits squarely within the definition of an
„occurrence.‟ ” The attorney concluded by asserting that Financial Pacific could not “at
this point in the case, based on the allegations and expert reports, conclude that there was
no continuous and progressive property damage occurring during the policy period.
There could have been occurrences of property damage long before the fire manifested
itself on the date provided in the Complaint. As you cannot conclude there was a lack of
property damage during the policy period and you have no other basis for further denying
the duty to defend the insured against the above-referenced complaint, it is clear that
there has been an ongoing duty in Financial Pacific to have mounted and funded the
insured‟s defense since the initial tender of defense.”
       In September 2012, Financial Pacific‟s attorney responded, asserting (among other
things) that the insurer had no duty to defend Tidwell because “the only „property
damage‟ alleged and being sought in State Farm‟s Complaint occurred on November 11,
2011, the date of the fire.”
       In April 2013, Tidwell‟s attorney informed Financial Pacific‟s attorney that
Tidwell was “in the process of obtaining additional expert reports that we believe will
continue to support our position that the ongoing use of the fireplace during the policy
period in its allegedly defective condition created occurrence of damage to the fireplace
that culminated in the November 11, 2011 fire.” Thereafter, in July 2013, Tidwell‟s
attorney sent Financial Pacific a report prepared by a retained expert, Randy Brooks, who
had concluded that the repeated exposure of the combustible materials framing the

                                               5
chimney chase to the excessive heat from every fire burned in the fireplace since it was
installed “would begin [to] lower the ignition temperatures of that combustible framing to
in some cases below 250 degrees. This structure fire would not happen in most cases
with the first or a single fire [but] rather would take a number of fires over several years
since 2006 to complete pyrolysis and cause ignition.”2 Thus, it was Tidwell‟s position,
based on Brooks‟s opinion, that “successive fires over the course of six years (during five
of which Tidwell was insured by Financial Pacific) each caused damage to the chimney
system and lowered the point of combustion which eventually resulted in the main fire
damage to the Fox home.”
       In September 2013, Financial Pacific‟s attorney once again responded to Tidwell‟s
attorney, affirming the insurer‟s denial of Tidwell‟s tender of the defense in the State
Farm action. Financial Pacific‟s attorney asserted that “[c]overage under the Financial
Pacific policies applies to „property damage‟ during the policy period caused by an
„occurrence‟ ” and argued that the insurer‟s policy did “not provide coverage for injury
sustained after the expiration of the policy period as the result of a condition created
during the policy period.”
       In April 2014, Tidwell commenced the present action by filing a complaint against
Financial Pacific for declaratory relief, breach of contract, and tortious breach of contract.
Essentially, Tidwell alleged that Financial Pacific had breached its insurance contracts
with Tidwell by refusing to pay Tidwell‟s defense costs in the State Farm action because
it was possible there was “a continuing occurrence of property damage allegedly caused
by TIDWELL during the operative period of the Policies, which continuing occurrence
led inexorably and inextricably to the eventual total destruction of the Fox Residence.”
Tidwell alleged on information and belief “that numerous fires were repeatedly set in the



2     “Pyrolysis” is “chemical change brought about by the action of heat.” (Merriam-
Webster‟s Coll. Dict. (11th ed. 2003) p. 1014, col. 2.)

                                              6
fireplace at the Fox Residence during the period covered by the Policies, and that each of
those fires actually caused „physical injury to tangible property,‟ „property damage‟ as
defined in the Policies, by causing, inter alia, a chemical decomposition of wood in
framing proximate to the fireplace, in a process known as pyrolysis.” Tidwell sought a
declaration that Financial Pacific owed Tidwell a duty to defend the State Farm action
and damages from Financial Pacific for the insurer‟s breach of its duty to defend.
       In September 2014, Financial Pacific moved for summary judgment on the ground
that the insurer “had no duty to defend or indemnify Tidwell in [the State Farm action]
because Financial Pacific lacked any potential or actual coverage under its
insurance policies for the claims asserted” in that action. In December 2014, the trial
court granted that motion. In its ruling, the court found that “State Farm sought recovery
for the fire which occurred November 11, 2011. The insurance policy at issue in this case
lapsed March 1, 2010. . . . Plaintiffs may not assert alternative causes State Farm „should
have‟ alleged in order to create coverage issues.” The formal order granting summary
judgment was filed in January 2015, and the resulting judgment in favor of Financial
Pacific was filed in February. Tidwell timely appealed from that judgment.
                                       DISCUSSION
       “An insurer . . . bears a duty to defend its insured whenever it ascertains facts
which give rise to the potential of liability under the policy.” (Gray v. Zurich Insurance
Co. (1966) 65 Cal.2d 263, 276-277.) “[F]acts known to the insurer and extrinsic to the
third party complaint can generate a duty to defend, even though the face of the
complaint does not reflect a potential for liability under the policy. [Citation.] This is so
because current pleading rules liberally allow amendment; the third party plaintiff cannot
be the arbiter of coverage.” (Montrose Chemical Corp. v. Superior Court (1993) 6
Cal.4th 287, 296.) “Any doubt as to whether the facts establish the existence of the
defense duty must be resolved in the insured‟s favor.” (Id. at pp. 299-300.) “ „[T]he
insurer need not defend if the third party complaint can by no conceivable theory raise a

                                              7
single issue which could bring it within the policy coverage.‟ ” (Id. at p. 300, quoting
Gray, supra, 65 Cal.2d at p. 276, fn. 15.) Thus, to prevail on a motion for summary
judgment premised on a claim that the insurer had no duty to defend, “the insurer . . .
must present undisputed facts that eliminate any possibility of coverage.” (American
States Ins. Co. v. Progressive Casualty Ins. Co. (2009) 180 Cal.App.4th 18, 27.)
       On appeal, Tidwell essentially contends that Financial Pacific did not eliminate
any possibility of coverage in the State Farm action because the undisputed facts show
that Financial Pacific was aware of evidence that the November 2011 fire for which State
Farm sued Tidwell may have been “simply the culmination of an integrated process of
continuing and progressive property damage . . . without which the House Fire would
never have occurred” and some of that property damage could have occurred during the
periods when Financial Pacific‟s policies were in effect. Financial Pacific, on the other
hand, contends there was no possibility of coverage because State Farm sought to recover
from Tidwell only “for the fire damage post-dating Financial Pacific‟s coverage” and not
for any earlier damage that might have been done to the wood framing the chimney chase
as a result of the pyrolysis process. As we will explain, we conclude Tidwell has the
better argument. Even though State Farm did not seek to recover from Tidwell damages
directly attributable to physical injury to the Fox house that predated the November 2011
fire, there was a possibility that the damages State Farm did seek to recover occurred
because of earlier physical injury to the house for which Tidwell was responsible, and
thus there was a possibility that the damages State Farm sought fell within the coverage
provided by the terms of the general liability policies Financial Pacific issued to Tidwell.
Because there was a potential for liability under the policies, Financial Pacific owed
Tidwell a duty of defense.
       We reach this conclusion via a straightforward application of the applicable policy
provisions. It is undisputed that under the policies at issue here, Financial Pacific agreed
to pay sums that Tidwell became “legally obligated to pay as damages because of . . .

                                             8
„property damage‟ ” caused by an “occurrence” if the “property damage” occurred during
the policy period. The policies defined “occurrence” as “an accident, including
continuous or repeated exposure to substantially the same general harmful conditions.”
The policies further defined “property damage” as “[p]hysical injury to tangible property,
including or resulting in loss of use of that property” or “[l]oss of use of tangible property
that is not physically injured.”
       When the foregoing provisions are read together, it can be seen that Financial
Pacific would be liable under the policies for any sums Tidwell became legally obligated
to pay as damages because of physical injury to tangible property that: (1) occurred
during a policy period; and (2) was caused by continuous or repeated exposure to
substantially the same general harmful conditions. Thus, if Tidwell‟s negligence resulted
in a repeated exposure of tangible property to substantially the same general harmful
conditions (an occurrence), and that repeated exposure to those conditions resulted in
physical injury to that property (property damage) during a policy period, and Tidwell
became legally obligated to pay damages because of that negligence, then coverage
would, at least potentially, exist under the Financial Pacific policies.
       With this understanding of the policy language, it is apparent there was possibility
of coverage here based on the allegations of State Farm‟s complaint and the facts known
to Financial Pacific. This is so because, based on the allegations and the known facts,
there was reason to believe Tidwell might have negligently installed a custom top on the
chimney in the Fox house that restricted the flow of air in the chimney, which in turn
might have resulted in excessive heat in the chimney every time a fire was burned in the
fireplace from the time the house was built, which in turn (through the process of
pyrolysis) might have altered the chemical composition of the wood framing the chimney
chase, thereby reducing the temperature at which it would ignite, until eventually, on
November 11, 2011, the wood framing the chimney chase did ignite, which in turn
resulted in the fire that damaged Fox‟s house, for which State Farm was obligated to

                                              9
indemnify Fox as Fox‟s insurer. If that is what happened, then Financial Pacific would
potentially be liable under its policies to pay any sums Tidwell became legally obligated
to pay State Farm as damages because the repeated exposure of the wood framing the
chimney chase to the excessive heat in the chimney, for which Tidwell was responsible,
may have caused physical injury to the wood (by altering its chemical composition and
reducing its ignition point) during one or more policy periods, and that physical injury
would have caused Tidwell‟s legal obligation to pay damages for the fire that resulted (at
least in part) from the damaged wood.
       Of course, we need not and do not conclude that this is what happened; we
conclude only that under the allegations of State Farm‟s complaint and the facts known to
Financial Pacific this is what might have happened. And because this might have
happened, there was a potential for liability under the policies, and Financial Pacific had
a duty to defend.
       Financial Pacific‟s contentions to the contrary are unavailing. To the extent
Financial Pacific addresses the relevant policy provisions at all, the insurer‟s position is
that “[t]he coverage grant of the . . . policies requires the damage at issue take place in the
policy period” and here that did not happen because “State Farm‟s claim was based on
damage sustained in the fire at the Fox home on November 11, 2011,” after the last
policy period ended. Thus, Financial Pacific argues that coverage is determined by the
damage for which the third party sues the insured (in Financial Pacific‟s words, “the
damage at issue”) and whether that damage occurred during a policy period, and here
State Farm did not sue Tidwell for the damage to the wood framing the chimney chase
prior to the November 2011 fire but for the damage to the house resulting from the
November 2011 fire. It is in connection with this point that Financial Pacific relies
heavily on Remmer v. Glens Falls Indem. Co. (1956) 140 Cal.App.2d 84 (Remmer) for
the proposition that “it is the „damage, injury, and cause of action‟ alleged [in the third
party complaint] that controls the coverage determination.”

                                              10
       Contrary to Financial Pacific‟s position, Remmer does not compel the conclusion
that there was no potential for coverage here. In Remmer, the Remmers, who owned a lot
uphill from a lot owned by the Morrises, graded and filled their lot in 1947. (Remmer,
supra, 140 Cal.App.2d at p. 85.) At the time, the Remmers had a comprehensive
personal liability insurance policy with Glen Falls Indemnity Company, which was later
canceled in January 1948. (Ibid.) Four years later, in January 1952, “large quantities of
earth and rock slid from the fill on [the Remmers‟] property onto the property of the
Morrises.” (Ibid.) In April 1952, the Morrises sued the Remmers, alleging (among
others not relevant here) a cause of action for nuisance. (Id. at p. 86.) The nuisance
cause of action apparently characterized the fill that remained on the Remmers‟ property
as a nuisance and sought an injunction, as well as damages for the diminution in the value
of the Morrises‟ property from the continuing nuisance. (Id. at pp. 86-87.) The insurer
rejected the Remmers‟ tender of the defense of the action. (Id. at p. 86.) Thereafter, the
Morrises recovered a judgment for $2,000 against the Remmers for the diminution to the
value of their property caused by the continuance of the nuisance. (Id. at p. 87.)
       The Remmers then sued the insurer to recover the amount awarded to the
Morrises, as well as their defense costs in the Morris action. (Remmer, supra,
140 Cal.App.2d at p. 87.) The trial court found in favor of the insurer, concluding that
“ „[t]he damage complained of was the present threat to, and depreciation of, the Morris
land caused by the current maintenance of the balance of the rocks. This damage
occurred after the policy was cancelled in 1948.‟ ” (Id. at p. 88.) On appeal, the
Remmers argued that “the action in Morris v. Remmer was for damages caused by a
nuisance created in 1947, and, therefore, the „occurrence‟ was created during the policy
period.” (Ibid.) The appellate court disagreed, noting that “[t]he general rule is that the
time of the occurrence of an accident within the meaning of an indemnity policy is not
the time the wrongful act was committed, but the time when the complaining party was
actually damaged.” (Ibid.) The court further explained that while “the findings of fact in

                                             11
Morris v. Remmer declare[d] that the nuisance was created by the fill of 1947, and was a
continuing nuisance, and . . . it was by reason of this nuisance that the Morrises‟ property
diminished in value,” “this [wa]s not a complete or proper description of what was
involved in the case of Morris v. Remmer. The pleadings in that action . . . demonstrate
that the damage, injury and cause of action there alleged were for the maintenance and
continuance of a nuisance at the time the action was filed, April of 1952. The action of
Morris v. Remmer was for the maintenance and existence of that nuisance. That was the
nuisance that constituted the „occurrence‟ for which damages were allowed. This
„occurrence‟ was in 1952, and therefore not within the coverage.” (Id. at pp. 88-89.) The
court also went on to observe that “[t]he fact that the Morrises were suing for the present
maintenance of a present nuisance is demonstrated not only by the allegations of the
complaint, but also by the fact that in 1952 the Morrises could not have successfully sued
for damages for the original creation of the nuisance in 1947, because such cause of
action would have been barred by either the three or four-year statute of limitations.” (Id.
at p. 89.)
       In relying on “the damage, injury and cause of action” alleged in the earlier action
to determine there was no coverage, the Remmer court did not purport to state a rule that
compels the conclusion there was no potential for coverage here. Even assuming
Remmer can be reasonably understood as holding, as Financial Pacific claims, that “it is
the „damage, injury, and cause of action‟ alleged [in the third party complaint] that
controls the coverage determination,” application of that rule here would not eliminate all
potential for coverage. As we have explained, State Farm sought to recover from Tidwell
the amounts it was going to be liable to pay Fox because of the fire in November 2011.
As Financial Pacific argues, that was the “damage, injury, and cause of action” alleged by
State Farm. As we have also explained, however, it was possible that the November
2011 fire was caused by the repeated exposure of the wood framing the chimney chase to
excessive heat resulting from a custom chimney cap installed by Tidwell, which altered

                                             12
the chemical composition of the wood and reduced its ignition point until the wood
finally ignited on the date of the fire. And as we have also explained, due to this possible
causal relationship between what happened to the wood and Tidwell‟s potential legal
obligation to pay damages to State Farm for the November 2011 fire, there was a
potential for coverage under the language of Financial Pacific‟s policies because the
excessive heat in the chimney, for which Tidwell may have been responsible, might have
caused physical injury to the wood framing the chimney chase and that physical injury
might have occurred during one or more policy periods, which would mean that physical
injury during a policy period caused Tidwell‟s legal obligation to pay damages for the
resulting fire, which would be sufficient to trigger coverage under the policy provisions at
issue here. Under this scenario, the fact that the “damage, injury, and cause of action”
State Farm alleged in its complaint against Tidwell was for a fire that occurred outside
any policy period does not preclude the possibility of coverage because of the causal role
that the degradation of the wood during one or more policy periods may have played in
causing the fire for which State Farm sought to recover damages. The decision in
Remmer does not compel a contrary conclusion.
       To the extent Financial Pacific attempts to refute the foregoing reasoning by citing
Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, for the proposition
that “[a] cause of damage is insufficient to create a potential for covered damage,” we do
not find any such proposition in that case. What the Supreme Court explained there was
that, for purposes of triggering coverage, there is a distinction between the “occurrence”
and the resulting “bodily injury or property damage,” and it is the latter, not the former,
that must occur during the policy period for coverage to exist. (Ibid.) This distinction
between “the causative event -- an accident or „continuous and repeated exposure to
conditions‟ -- and the resulting „bodily injury or property damage‟ ” (ibid.) is entirely
unremarkable and does not refute the reasoning set forth above. Here, an initial causative
event constituting an “occurrence” -- namely, the repeated exposure of the wood framing

                                             13
the chimney chase to excessive heat in the chimney -- may have resulted in property
damage over a period of years -- namely, the physical degradation of that wood -- which
in turn may have led ultimately to the fire in November 2011. It is true that the initial
occurrence was, by itself, “insufficient to create a potential for covered damage,” but
there is nothing in the relevant policy language, or in the case on which Financial Pacific
relies, to support the conclusion that the physical injury to the wood that resulted from
this initial causal event could not itself have served as a further causal event in the chain
of causation between Tidwell‟s negligence in installing the custom chimney top and the
ultimate fire in November 2011 for which State Farm sought to recover damages from
Tidwell. Thus, contrary to Financial Pacific‟s assertion, a “cause of damage” may be
sufficient “to create a potential for covered damage” if that “cause of damage”
constituted physical injury to tangible property that occurred during a policy period,
resulted from an “occurrence,” and ultimately led to the insured‟s legal obligation to pay
damages.
       To the extent Financial Pacific attempts to call into question the validity of the
pyrolysis theory -- whether by complaining that it “originated with Tidwell‟s own
„expert,‟ ” pointing out that it was not specifically mentioned by Feb or O‟Connor, or
asserting that it is a “controversial” concept -- the insurer‟s arguments go nowhere
because they do not eliminate all possibility of coverage. To prevail on summary
judgment based on the contention that pyrolysis could not be used to establish a potential
for coverage under the policies, Financial Pacific would have had to establish as a matter
of law on undisputed facts that pyrolysis is not a valid scientific theory and that, as such,
it could not be used to establish that physical injury to tangible property occurred during
a policy period. The insurer did not do so. Whatever aspersions Financial Pacific may
seek to cast on the idea that the repeated exposure of wood to excessive heat can result in
the physical degradation of that wood, those aspersions are not sufficient to eliminate all



                                              14
possibility that pyrolysis is a valid theory and that it was operative here in causing the fire
in November 2011.
       To the extent Financial Pacific relies on Hurley Construction Co. v. State Farm
Fire & Casualty Co. (1992) 10 Cal.App.4th 533 (Hurley) and Gunderson v. Fire Ins.
Exchange (1995) 37 Cal.App.4th 1106 (Gunderson) for the proposition that an insured
may not speculate about facts or theories to create a duty to defend, those authorities are
of no moment here. In Hurley, a contractor (Hurley) was sued by an insurer (Fireman‟s
Fund) for participating in a conspiracy to engage in fraudulent billing practices. (Hurley,
at pp. 536-538.) Hurley tendered the defense of that action to its liability insurer, State
Farm. (Id. at p. 537.) State Farm denied coverage; Hurley sued for breach of the
insurance contract. (Id. at pp. 536-537.) State Farm successfully moved for summary
judgment, arguing that it had no duty to defendant because (among other things) “the
Fireman‟s Fund complaint did not seek compensation for property damage or bodily
injury.” (Id. at pp. 537-538.) On appeal, Hurley argued that even though Fireman‟s
Fund‟s complaint showed no potential for coverage on its face, State Farm had a duty to
defend because Fireman‟s Fund might have amended its complaint in the future such that
the action would “become an action for property damage and bodily injury.” (Ibid.) The
court rejected this argument because “[t]he extraneous „facts‟ regarding potential liability
came from Hurley‟s counsel who speculated about how Fireman‟s Fund might amend its
complaint at some future date,” and “the insured may not speculate about unpled third
party claims to manufacture coverage.” (Id. at p. 538.)
       In Gunderson, a property owner (Ferrando) sued adjacent property owners (the
Gundersons) to quiet title to real property, for declaratory relief, and for injunctive relief
relating to an easement the Gundersons claimed over her property. (Gunderson v. Fire
Ins. Exchange, supra, 37 Cal.App.4th at p. 1110.) The Gundersons tendered defense of
the action to their homeowners liability insurer (Fire Insurance Exchange), but the insurer
declined the tender because Ferrando‟s complaint contained no reference to a claim for

                                              15
bodily injury or property damage. (Ibid.) After the Ferrando action settled, the
Gundersons sued their insurer for breach of the insurance contract, but the insurer
successfully moved for summary judgment on the ground that it had no duty to defend
the Ferrando action. (Id. at pp. 1111-1112.) On appeal, the Gundersons argued the
insurer had a duty to defend “because Ferrando could have made a claim for „physical
injury to or destruction of tangible property‟ in connection with [a] fence across a portion
of the easement which [the Gundersons] removed at the outset of the dispute” over the
easement. (Id. at pp. 1113, 1115.) The court rejected this argument because, among
other things, “as in Hurley . . . , Ferrando‟s complaint, on its face, alleged no facts
showing a potential for coverage” and “[t]he extrinsic „facts‟ regarding potential liability
for property damage [came] from speculation about how Ferrando might have (but did
not) amend her complaint at some future date. Just as a third party complainant is not the
arbiter of the coverage of an insurance policy, so is it also the rule that insureds
themselves may not manufacture coverage by speculating about unpled third party
claims.” (Id. at p. 1117.)
       Hurley and Gunderson both stand for the proposition that an insured cannot
manufacture a duty to defend by speculating that the third party plaintiff might amend or
could have amended its complaint to allege a claim for damages arising from bodily
injury or property damage when the operative complaint did not contain any such claim.
That proposition has no bearing here. The “speculation” Financial Pacific complains of
here consists of the opinions of “Tidwell‟s own „experts‟ . . . of what may have occurred”
inside the walls of Fox‟s house, i.e., the pyrolysis damage to the wood framing the
chimney chase from the excessive heat in the chimney. But that is not the sort of
speculation forbidden by Hurley and Gunderson. In determining whether “a bare
„potential‟ or „possibility‟ of coverage” exists, which is all that is necessary to trigger the
duty to defend (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 300),
neither Hurley nor Gunderson bars an insured from “speculating” about how its actions

                                              16
may have led to the damages for which the insured is being sued by means of property
damage that could have occurred during a policy period.
       Stated another way, all Tidwell did here was offer a viable theory as to how the
fire that damaged Fox‟s house, for which State Farm was suing Tidwell, might have been
the result of physical injury to tangible property that occurred during one or more of
Financial Pacific‟s policy periods and that resulted from an occurrence, thus potentially
triggering coverage and, in turn, a duty to defend. Tidwell did not speculate that State
Farm might plead some other claim against Tidwell that would potentially be covered by
the Financial Pacific policies. Rather, Tidwell simply hypothesized how the claim that
State Farm had already pleaded might be covered. Neither Hurley nor Gunderson
precluded Tidwell from doing so.
       To the extent Financial Pacific relies on three out-of-state decisions that have
rejected the pyrolysis theory as a basis for establishing a duty to defend a lawsuit for a
fire that postdated the applicable insurance coverage, we do not find any of those cases
persuasive. In Greenlee v. Sherman (N.Y.App.Div. 1989) 536 N.Y.S.2d 877 (Greenlee),
a furnace installer installed a furnace in the Greenlees‟ home in 1980. (Id. at p. 878.)
After a fire destroyed their home in 1984, the Greenlees sued the executor of the estate of
the furnace installer on the theory that “improper installment of the flue pipe from the
furnace . . . resulted in the exposure of a wooden joist to intense radiant heat while the
furnace was operating,” which in turn “allegedly caused a chemical process, known as
pyrolysis, in the wooden joist which ultimately lowered the ignition temperature of the
wood the point where it was ignited by the flue pipe.” (Id. at pp. 878-879.) In a related
action, the furnace installer‟s liability insurer (Hanover) obtained a summary judgment
declaring that it was not obligated to defend or indemnify the estate. (Id. at p. 879.)
Based on policy language similar to that applicable here, Hanover contended that “since
the fire occurred after the expiration of the policy period, the physical injury to the
Greenlees‟ house for which they s[sought] damages . . . d[id] not constitute property

                                              17
damage within the meaning of the policy.” (Id. at p. 880.) The Greenlees contended that
the policy “should be construed as requiring only that some physical injury occur during
the policy period,” and “since the wooden joist sustained some injury during the policy
period due to the exposure to intense heat, there was an occurrence which triggered the
policy‟s coverage, making Hanover liable for any and all subsequent related physical
injury to the property, irrespective of whether the subsequent injury occurred during the
policy period.” (Ibid.)
       On appeal, the court agreed with the insurer, explaining as follows: “Even if . . .
there was an occurrence within the meaning of the policy due to the chemical
decomposition of the wooden joist which occurred during the policy period, the policy
cannot be construed as affording coverage for the subsequent physical injury to the
remainder of the structure due to the fire which occurred after the expiration of the policy
period. Pursuant to the terms of the policy, coverage is provided for „property damage to
which this insurance applies, caused by an occurrence‟. Thus, there must not only be an
occurrence, but also „property damage to which this insurance applies‟, and it is clear
from the definition of property damage that the physical injury to the property must occur
during the policy period in order to be considered „property damage to which this
insurance applies‟. . . . [T]he Greenlees seek . . . to recover damages due to the physical
injury to their property caused by the fire, not damages due to the physical injury to the
wooden joist caused during the policy period, and we agree that the injuries are separate
and distinct for the purposes of determining coverage under the policy.” (Greenlee,
supra, 536 N.Y.S.2d at p. 880.)
       In response to the Greenlees‟ contention that “the fire was merely the
„manifestation‟ of the continuing injury sustained during the policy period,” the court
concluded that “the record d[id] not support this claim. On the contrary, the expert
evidence submitted on the motions establishes that both the continuing injury and the fire
were caused by the presence of an intense radiant heat source in close proximity to the

                                             18
wooden joist. Had the heat source been removed at any time prior to the fire, no further
injury to the wooden joist would have occurred, and there would have been no fire,
despite the chemical decomposition of the wooden joist allegedly caused during the
policy period. On the other hand, with the heat source present, the fire eventually would
have occurred, irrespective of whether the wooden joist had sustained some injury during
the policy period. Accordingly, the fire was not the „manifestation‟ of an injury sustained
during the policy period, but the „manifestation‟ of the condition created by [the
installer]‟s negligence during the policy period. Hanover‟s policy does not provide
coverage for injury sustained after the expiration of the policy period as the result of a
condition created during the policy period.” (Greenlee, supra, 536 N.Y.S.2d at p. 881.)
       We do not find Greenlee persuasive here. In concluding that the two injuries --
the damage to the wood from pyrolysis and the damage to the rest of the house from the
fire -- were “separate and distinct for the purposes of determining coverage under the
policy” (Greenlee, supra, 536 N.Y.S.2d at p. 880), the Greenlee court appears to have
relied on the conclusion, based on expert evidence submitted in that case, that the earlier
damage to the wooden joist was not a cause of the fire that ultimately destroyed the house
because “the fire eventually would have occurred, irrespective of whether the wooden
joist had sustained some injury during the policy period.” (Id. at p. 881.) Under the facts
before us, however, we are unable to reach the same conclusion. Here, it is at least
possible that the only reason the fire occurred is because the repeated exposure of the
wood framing the chimney chase to excessive heat in the chimney lowered the ignition
point of that wood until the wood was able to ignite at the temperature routinely found in
the chimney, which would have been insufficient to ignite wood that was not chemically
altered by the pyrolysis process. Thus, contrary to the Greenlee court, we have
essentially concluded that the two injuries -- the damage to the wood from pyrolysis and
the damage to the rest of the house from the fire -- may not be “separate and distinct for
the purposes of determining coverage under the policy” because of the possibility that the

                                             19
earlier injury to the wood from the excessive heat was part of what caused the fire in
November 2011. For this reason, the decision in Greenlee that there was no coverage
does not govern here.
       In Aetna Casualty and Surety Co. v. Naran (Tex.Ct.App. 1999) 1999 WL 59782
(Aetna Casualty), the defendant‟s home, garage, and two cars were destroyed by a fire in
July 1986 attributed to a catalytic converter installed on one of the cars by a franchisee of
a company that had several general liability insurance policies issued by the plaintiff
(Aetna) that terminated in June 1986. (Id. at *1.) The defendant (Naran) sued the
franchisee and the franchisor (Village Imports) for negligence, and Village Imports
tendered defense of the action to Aetna. (Ibid.) Aetna ultimately refused the tender, and
Naran ended up recovering a judgment against Village Imports of almost $1.8 million.
(Id. at *1-*2.) As the judgment creditor, Naran filed suit against Aetna “seeking, among
other things, a declaration that Aetna‟s policies covered his claim and that Aetna was
therefore liable for the resulting judgment.” (Id. at *2.) The trial court granted partial
summary judgment to Naran and denied summary judgment to Aetna, concluding that
Aetna was required to provide coverage under the policies. (Ibid.)
       On appeal, Aetna argued “there was no occurrence under the policies because
property damage did not manifest itself until the fire and the fire occurred outside the
policy periods. On the other hand, Naran argue[d] that, even though the fire occurred
after the policies expired, certain events occurred within the policy periods that triggered
coverage under the policies and provide[d] coverage for the fire damage. In particular, he
contend[ed] that an accident or occurrence took place as early as March 1985, when
Naran began to drive his Mercedes with the allegedly improperly installed catalytic
converter. Specifically, Naran refer[red] to a heating process known as pyrolysis. Naran
relied on affidavits from two expert witnesses who explained that as the heat from the
catalytic converter removed the moisture from the car‟s carpet, the ignition temperature
of the carpet was lowered until it was reduced to a point that the carpet ignited from the

                                             20
heat of the catalytic converter. Both experts concluded that this heating process was a
continuous process of damage to Mr. Naran‟s vehicle which ultimately resulted in the
fire.” (Aetna Casualty, supra, 1999 WL 59782, at *3.)
       The appellate court concluded coverage was not triggered by the repeated heating
of the carpet by the catalytic converter. (Aetna Casualty, supra, 1999 WL 59782, at *5.)
The court explained that “[w]hile both of [Naran‟s] experts conclude[d] that pyrolysis
was in itself property damage, their characterization of pyrolysis as a heating process that
simply lowered the moisture content in the Mercedes carpeting belies this conclusion.
There is no evidence in the record that this loss of moisture to the carpet in and of itself
constituted property damage. In any event, Naran is not seeking recovery for the loss of
moisture to his car‟s carpeting but for the damage caused by the fire. Regardless, even if
we were to indulge Naran‟s argument that the pyrolysis does in fact constitute property
damage, the record is absolutely devoid of any evidence that this property damage
became apparent or manifested during the policy periods. Our review of the record
reveals no discernable injury until the fire.” (Ibid.)
       Like Greenlee, Aetna Casualty is not persuasive here. First and foremost, the
court in Aetna Casualty concluded that the case was controlled by the “manifestation”
theory, under which “[l]iability arises under a policy only if property damage manifests
itself or becomes apparent during the policy period.” (Aetna Casualty, supra, 1999 WL
59782, at *4.) In California, our Supreme Court has rejected application of the
manifestation theory to standard comprehensive general liability policy language (like
that at issue here) in third party cases where successive policies and continuous or
progressively deteriorating losses are involved. (See Montrose Chemical Corp. v.
Admiral Ins. Co., supra, 10 Cal.4th at pp. 654-655.) Instead, the Supreme Court has
adopted the “continuous injury” trigger of coverage in such cases, under which “bodily
injury and property damage that is continuous or progressively deteriorating throughout
several policy periods is potentially covered by all policies in effect during those

                                              21
periods.” (Id. at p. 655.) The court in Aetna Casualty specifically rejected application of
the “continuous injury” trigger under Texas law. (Aetna Casualty, supra, 1999 WL
59782, at *4.)
       Beyond that, we find no persuasive value in the Aetna Casualty court‟s conclusion
that there was “no evidence in the record [in that case] that th[e] loss of moisture to the
carpet in and of itself constituted property damage” or the court‟s observation that “[i]n
any event, Naran [wa]s not seeking recovery for the loss of moisture to his car‟s carpeting
but for the damage caused by the fire.” (Aetna Casualty, supra, 1999 WL 59782, at *5.)
On the first point, here we need not determine conclusively whether the repeated
exposure of wood to excess heat can alter the chemical composition of the wood to such
an extent that the result can be characterized as property damage (that is, physical injury
to tangible property). Instead, it is enough for us to conclude that Financial Pacific failed
to negate all possibility that it can be so characterized. As we have explained, for the
duty to defend to exist, there only needs to be “a bare „potential‟ or „possibility‟ of
coverage” (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 300), and
to prevail on a motion for summary judgment on the duty to defend, Financial Pacific had
to “present undisputed facts that eliminate[d] any possibility of coverage” (American
States Ins. Co. v. Progressive Casualty Ins. Co., supra, 180 Cal.App.4th at p. 27). Here,
Financial Pacific did not present undisputed facts sufficient to eliminate the possibility
that wood repeatedly exposed to excessive heat can be deemed physically injured because
the change in the chemical composition of the wood lowers its ignition point far below
what it would otherwise be. And on the second point, we point back to our previous
analysis, where we have explained how the fact that the third party is seeking to recover
for a fire that occurred outside the policy period does not necessarily preclude coverage
where some earlier property damage that occurred within a policy period may have been
a link in the causal change between the insured‟s negligence and the fire.



                                              22
       That leads us to the third and final out-of-state case, Truck Ins. Exchange v.
O'Mailia (2015) 378 Mont. 231 [343 P.3d 1183] (O’Mailia). The facts in O’Mailia were
similar to those in Greenlee, except that the fire in O’Mailia related to a water heater
instead of a furnace. (Id. at p. 1184.) After the contractor who installed the water heater
(O‟Mailia) tendered defense of a lawsuit related to the fire to his liability insurer (Truck),
Truck sought a declaration that the property damage resulting from the fire was not
covered because the damage occurred after the policy was terminated. (Id. at pp. 1184-
1185.) The trial court agreed and granted summary judgment to the insurer,
“characterizing pyrolysis not as property damage, but as a condition that increased the
risk of property damage.” (Id. at p. 1186.) On appeal, the Montana Supreme Court
agreed. The court first observed that under Montana law, “physical injury” to property is
defined as “a physical and material alteration resulting in detriment.” (Ibid.) The court
then pointed out that “none of the investigators . . . claimed that the structure surrounding
the water heater would have been significantly damaged or rendered unusable merely as a
result of exposure to high temperatures. Pyrolysis was not itself the detriment suffered in
this case . . . . At most, pyrolysis created a condition that increased the probability of a
later physical injury.” (Id. at p. 1187.) The court also concluded that “the assumption
that pyrolysis occurred during the policy period is itself speculative, and thus insufficient
to avoid summary judgment. . . . None of the experts . . . concluded or even suggested
that harmful exposure to high temperatures occurred during the policy period.” (Ibid.)
       Like Greenlee and Aetna Casualty, O’Mailia is not persuasive here. First, the
issue in O’Mailia was whether the fire was actually covered by the policy and in order to
avoid summary judgment on that question the insured was required, but failed, to produce
evidence that the wood that eventually ignited was exposed to the pyrolysis process
during the policy period. Here, in contrast, the question was not whether there was
coverage but whether there was potential coverage, and the burden was on the insurer,
not the insured. Thus, the burden here was on Financial Pacific to prove by undisputed

                                              23
facts that there was no potential for coverage. Financial Pacific did not meet that burden,
because the insurer did not eliminate all possibility that the wood framing the chimney
chase was repeatedly exposed to excessive heat during one or more policy periods.
       Second, we are not persuaded by the Montana Supreme Court‟s conclusion that
the pyrolysis process cannot be characterized as causing property damage to the wood
that is exposed to excessive heat. One of the experts in O’Mailia explained that pyrolysis
was, effectively, degradation of the wood, causing the wood to ultimately “ „ignite at a
temperature much lower than its typical ignition temperature.‟ ” (O’Mailia, supra, 343
P.3d at p. 1185.) If, as under Montana law, “physical injury” is “a physical and material
alteration resulting in detriment,” then it seems to us that the degradation of wood caused
by repeated exposure to excessive heat, such that the wood will ignite at a temperature
much lower than normal, meets that definition. The degradation of the wood by repeated
exposure to high heat could readily be characterized as “a physical and material
alteration” to the wood, and the lowering of the ignition point of the wood could easily be
characterized as “detriment” resulting from the physical alteration to the wood.
       In any event, for our purposes it is sufficient to conclude that Financial Pacific
failed to eliminate all possibility that the repeated exposure of wood to excessive
temperatures chemically alters the wood in such a way that the wood can be deemed
physically injured (i.e., damaged) by that exposure. For this reason (and the other
reasons stated in this opinion), Financial Pacific failed to eliminate all possibility of
coverage, and the trial court erred in granting summary judgment to the insurer.




                                              24
                                     DISPOSITION
       The judgment is reversed, and the case is remanded to the trial court with
instructions to vacate its order granting summary judgment and to enter a new order
denying summary judgment. Tidwell shall recover costs on appeal. (Cal. Rules of Court,
rule 8.278(a).)



                                                      /s/
                                                 Robie, J.



We concur:



     /s/
Nicholson, Acting P. J.



     /s/
Hoch, J.




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