1

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.,

Plaintiffs and Appellants,

v.

FINANCIAL PACIFIC INSURANCE COMPANY, 

INC.,

Defendant and Respondent.

C078665

(Super. Ct. No. 14CV40000)

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.
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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.
3

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 
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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 
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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 
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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.” (MerriamWebster‟s Coll. Dict. (11th ed. 2003) p. 1014, col. 2.)
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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 
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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 . . . 
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„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 
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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.” 
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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 
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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 
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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 
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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
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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 
16

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 
17

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 
18

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 
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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 
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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 
21

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 
22

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.
23

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 
24

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.
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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.