LOS ANGELES—A California court has ruled that a commercial general liability insurance policy's products and completed operations hazards exclusion applies to a bus company's work that allegedly led to a fatality occurring off its premise.

Insurers and plaintiffs attorneys filed amicus briefs in the case of Tayarie Trayshaun Baker vs. National Interstate Insurance Co. et al. The case stems from an April 2001 bus collision that claimed the life of bus owner and driver La Shaun Clemmons.

In 2000, Ms. Clemmons purchased a bus from Four Winds Day Camp Inc., an Inglewood, Calif., bus company now called Four Winds Inc. Four Winds had coverage under a CGL policy issued by American National Fire Insurance Co. that included a widely used products and completed operations hazards exclusion, court records show.

Four Winds also contracted to inspect the bus it sold to Ms. Clemmons.

Following Ms. Clemmons' death, her family, the Bakers, sued Four Winds, alleging wrongful death because of its alleged negligence in repairing, servicing and maintaining the bus.

A trial court ruled that Four Winds negligently inspected or maintained the bus and ordered it to pay more than $9 million. But the Baker family agreed not to execute the judgment in exchange for assignment of rights to Four Winds' insurance coverage.

The insurer, however, had already declined to provide a defense and settle the case because Four Winds did not have products or completed operations coverage. The Baker family sued the insurer, alleging breach of good faith and contract because of its failure to settle the case.

A trial court denied the insurer’s motion for summary judgment, ruling the policy exclusion applied only to product liability-related claims, not to claims for negligent maintenance or inspection services. It also awarded the Bakers $12 million.

The insurer appealed.

California’s 2nd District Court of Appeal had to decide whether the CGL policy “excluded coverage for damages resulting from the insured‘s negligent inspection of a bus, a number of months after the insured had sold the bus,” according to court records.

In its ruling, published Monday, the state appellate court found that, among other issues, the policy did exclude coverage for injuries arising from Four Winds’ work, namely its negligent inspection of the bus.

It reversed the lower court and remanded the case with directions to vacate the order denying the insurer’s motion for summary judgment.

In a footnote, the court said “our references to American (National Fire) includes National Interstate Insurance Co. and Great American Insurance Co. of New York.”