Filed: Feb. 12, 2009
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 07-2102 STANLEY MARTIN COMPANIES, INCORPORATED, Plaintiff - Appellant, v. OHIO CASUALTY GROUP, Defendant – Appellee. - NATIONAL ASSOCIATION OF HOME BUILDERS, Amicus Supporting Appellant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. James C. Cacheris, Senior District Judge. (1:06-cv-01035-JCC) Argued: December 2, 2008 Decided: February 12, 2009 Before KING, SHEDD, and DUNCAN,
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 07-2102 STANLEY MARTIN COMPANIES, INCORPORATED, Plaintiff - Appellant, v. OHIO CASUALTY GROUP, Defendant – Appellee. - NATIONAL ASSOCIATION OF HOME BUILDERS, Amicus Supporting Appellant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. James C. Cacheris, Senior District Judge. (1:06-cv-01035-JCC) Argued: December 2, 2008 Decided: February 12, 2009 Before KING, SHEDD, and DUNCAN, ..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-2102
STANLEY MARTIN COMPANIES, INCORPORATED,
Plaintiff - Appellant,
v.
OHIO CASUALTY GROUP,
Defendant – Appellee.
------------------------------
NATIONAL ASSOCIATION OF HOME BUILDERS,
Amicus Supporting Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. James C. Cacheris, Senior
District Judge. (1:06-cv-01035-JCC)
Argued: December 2, 2008 Decided: February 12, 2009
Before KING, SHEDD, and DUNCAN, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion. Judge
Shedd wrote a separate opinion concurring in part and dissenting
in part.
ARGUED: David T. Dekker, HOWREY, L.L.P., Washington, D.C., for
Appellant. Elizabeth S. Skilling, HARMAN, CLAYTOR, CORRIGAN &
WELLMAN, Richmond, Virginia, for Appellee. ON BRIEF: Jeffrey R.
Gans, Stephen D. Palley, THELEN REID BROWN RAYSMAN & STEINER,
L.L.P., Washington, D.C., for Appellant. Thomas S. Garrett,
HARMAN, CLAYTOR, CORRIGAN & WELLMAN, Richmond, Virginia, for
Appellee. David S. Jaffe, NATIONAL ASSOCIATION OF HOME
BUILDERS, Washington, D.C., for Amicus Supporting Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
This appeal raises the issue of whether damage that a
subcontractor’s defective work causes to a general contractor’s
otherwise nondefective work constitutes an “occurrence” under
the general contractor’s commercial general liability (“CGL”)
insurance policy. Stanley Martin Companies (“Stanley Martin”)
sued its insurer, Ohio Casualty Co. (“Ohio Casualty”), seeking a
declaratory judgment that Ohio Casualty had breached its duty to
indemnify Stanley Martin for costs Stanley Martin incurred to
remediate mold damage caused by a subcontractor’s defective
work. The district court granted summary judgment in favor of
Ohio Casualty, finding that damage caused by a subcontractor’s
defective work does not constitute an “occurrence” triggering
coverage under the Ohio Casualty policy. Stanley Martin now
appeals. For the reasons that follow, we reverse the district
court.
I.
Stanley Martin is a residential builder. During 1999 and
2000, Stanley Martin was the general contractor for the
construction of 24 duplex townhouses in a development in
Gaithersberg, MD. Shoffner Industries (“Shoffner”), a
subcontractor, supplied wood trusses for the townhouses.
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Shoffner warranted to Stanley Martin that the trusses were free
of mold and agreed to indemnify Stanley Martin for any
liability, damages, or costs that arose from negligence or
default under the subcontract. Homeowners subsequently reported
mold growth in the townhouses, and an investigation revealed
that the mold had originated from Shoffner’s defective trusses
and the surrounding gypsum firewalls. The mold problems in the
townhouses eventually led to protracted litigation, and Stanley
Martin incurred over $1.7 million in remediation efforts.
The parties’ dispute in this case arises out of an umbrella
insurance policy that Ohio Casualty issued to Stanley Martin
with an effective period of April 1, 2000 to April 1, 2001. The
policy stated as follows:
We will pay on behalf of the “Insured” those sums in
excess of the “Retained Limit” that the “Insured”
becomes legally obligated to pay by reason of
liability imposed by law or assumed by the “Insured”
under an “insured contract” because of “bodily
injury,” “property damage,” “personal injury,” or
“advertising injury” that takes place during the
Policy Period and is caused by an “occurrence”
happening anywhere.
J.A. 431. The policy defined an “occurrence” as “an accident,
including continuous or repeated exposure to substantially the
same general harmful conditions.” Id. at 432. Section IV.1.b.2
of the policy (the “‘your work’ exclusion”) excluded from
coverage the following:
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[A]ny property damage . . . to “your work” arising out of it or
any part of it included in the “products – completed operations
hazard”; (but this Subparagraph (2) does not apply if the
damaged work or the work out of which the damage arises was
performed on your behalf by a subcontractor) . . . .
J.A. 448. The policy provided excess insurance coverage to
supplement coverage from Stanley Martin’s primary insurance
policy, issued by One Beacon Insurance (“One Beacon”), for the
same effective period.
At issue in this case is whether Ohio Casualty breached its
duty to indemnify Stanley Martin when it refused to contribute
to the remediation costs Stanley Martin incurred to address the
mold problems in the townhomes. The district court granted
summary judgment in favor of Ohio Casualty, finding that damage
caused by a subcontractor’s defective workmanship does not
constitute a covered “occurrence.” In reaching this conclusion,
the district court cited several Virginia lower court cases and
federal cases interpreting Virginia law to support the
proposition that “damage caused by the defective workmanship of
the insured or the insured’s subcontractor and limited to the
insured’s work does not constitute an ‘occurrence’ triggering
coverage.” J.A. 1660. Based on this case law, the district
court found:
5
As general contractor, [Stanley Martin] was
responsible for fulfilling the terms of its contracts,
and Shoffner’s faulty workmanship falls on [Stanley
Martin’s] shoulders. . . . Because [Stanley Martin’s]
remediation costs arose out of damage to [Stanley
Martin’s] own ‘work’ caused by the faulty workmanship
of its subcontractor, the property damage was not
‘unexpected’ or an ‘accident.’ Therefore, this Court
will find that under Virginia law there was no
‘occurrence’ and the Ohio Casualty policy was not
triggered.
J.A. 1662–63. The district court did find that Virginia law
defines “occurrence” to provide coverage for “faulty workmanship
that results in bodily injury or property damage to property
other than the insured’s work.” J.A. 1663–64. However, the
court found that Stanley Martin failed to show any evidence of
such third-party damage beyond the costs it incurred to repair
the defective trusses and gypsum firewalls.
Stanley Martin now appeals.
II.
We have jurisdiction over this case under 28 U.S.C. § 1291.
We review a district court’s grant of summary judgment de novo.
Jennings v. Univ. of N.C. at Chapel Hill, 482 F.3d 686, 694 (4th
Cir. 2007) (en banc) (citing Hill v. Lockheed Martin Logistics
Mgmt., Inc.,
354 F.3d 277, 283 (4th Cir. 2004) (en banc)).
6
III.
The primary issue raised on appeal is whether under
Virginia law the Ohio Casualty policy, which contains language
identical to most CGL policies, covers costs that Stanley Martin
incurred to repair damage caused to its own work by Shoffner’s
faulty workmanship. Because the CGL policy covers only
“occurrences,” at oral argument the parties focused on whether
the spread of mold from the defective trusses to nondefective
surrounding components constituted “an accident, including
continuous or repeated exposure to substantially the same
general harmful conditions.” Two recent cases from this circuit
diverge on the issue of what constitutes a triggering occurrence
and frame our analysis.
In Travelers Indemnity Co. of America v. Miller Building
Corp., 142 F. App’x 147 (4th Cir. 2005) (unpublished), a general
contractor was responsible for completing site development work
on two properties and then constructing a building on one of the
properties. The general contractor hired a subcontractor to
perform part of the site development work. The subcontractor
allegedly selected and used defective fill material for the
foundation, which eventually expanded and damaged the building
that the general contractor had constructed. The general
contractor sought a declaratory judgment that its insurance
7
company had a duty to indemnify it for the damage to the
building. Applying Virginia law, the Miller court noted that
“damages resulting from the insured’s defective performance of a
contract and limited to the insured’s work or product [are] not
covered” by a CGL policy because such damages are “‘expected’
from the standpoint of the insured.” 142 F. App’x at 149
(quoting Hotel Roanoke Conference Ctr. Comm’n v. Cincinnati Ins.
Co., 303 F. Supp. 2d 784, 786 (W.D. Va. 2004)). The Miller
court held that the damage to the general contractor’s building
“allegedly was a result of [the insured’s] subcontractor’s
defective performance” and “[a]s a result . . . is not
considered to be ‘unexpected,’ or caused by an ‘occurrence.’”
142 F. App’x at 149. Because the damage to the general
contractor’s work did not constitute an occurrence, it did not
trigger the insurer’s duty to indemnify.
In contrast, the court in French v. Assurance Co. of
America, 448 F.3d 693 (4th Cir. 2006), distinguished between the
subcontractor’s defective work itself and the damage that the
defective work caused to surrounding nondefective components.
In French, the general contractor was responsible for building a
residential home and hired a subcontractor to clad the exterior
of the home with a synthetic stucco system known as Exterior
Insulating Finishing System (“EIFS”). Defects in the EIFS
8
exterior allowed moisture intrusion that caused extensive
moisture and water damage to the home’s structure and walls.
Applying Maryland law, the French court found that by itself,
the subcontractor’s defective work did not constitute an
accident or occurrence under the policy because an insured’s
obligation to repair the defective work “is not unexpected or
unforeseen under the terms of the [general] contract.” Id. at
703 (citation and quotations omitted). On the other hand, the
French court found that damage caused to surrounding
nondefective components did constitute “an accident, and
therefore, an ‘occurrence’ under the initial grant of coverage
of the [CGL policy]” because “[a]s delivered per the
construction contract,” those components were “defect-free,”
such that their subsequent damage was unexpected.
Id. at 704-
05.
As noted, the unpublished Miller opinion relied on Virginia
law, while the published French opinion relied on Maryland law.
The parties in this case do not dispute that Virginia law
applies to the Ohio Casualty policy and that the Virginia
Supreme Court has not addressed the issue of whether damage that
a subcontractor’s defective work causes to the insured’s
nondefective work constitutes an occurrence. The parties
likewise agree that French involved a CGL policy with
9
substantially the same language as the Ohio Casualty CGL policy
in this case, and that Virginia insurance law is not materially
different from Maryland insurance law.
Having considered the parties’ arguments, we find Miller to
be inapposite and, in any event, not binding on this court.
Miller predates French, and its holding ultimately rests on case
law that addressed damage that a general contractor’s defective
work caused to its own finished product, not damage that a
subcontractor’s defective work caused to the general
contractor’s nondefective work. 1 By contrast, the analysis in
French is grounded in the plain language of the policy and the
interplay between the policy’s broad definition of an
1
See, e.g., Am. Fire & Cas. Ins. Co. v. Doverspike, 1995 WL
1055839, at *1 (Va. Cir. Ct. Apr. 25, 1995) (insured builder
sought coverage for damages arising out of its breach of
construction contract due to substandard, late, or nonexistent
work); Boiler Brick & Refractory Co., Inc. v. Md. Cas. Co.,
168
S.E.2d 100 (Va. 1969) (subcontractor sued insurer to recover
repair and replacement costs for its own work under its own
policy). Aside from Miller, only one Virginia lower court case
that the parties cite holds that a general contractor is
responsible for its subcontractor’s defective workmanship, such
that any defective work, as well as any damage it may cause to
nondefective components, is foreseeable and therefore not an
occurrence. See RML Corp. v. Assurance Co. of Am., No. CH02-127
(Va. Cir. Ct. Dec. 31, 2002), reprinted in 17 Mealey’s
Litigation Report #11, at 7. The language of the policy at
issue supported this conclusion because the policy’s exclusions
“specifically exclude[] any property damage to real property
that arises out of operations by a subcontractor on behalf of
[the general contractor].”
Id. at 9–10. The Ohio policy, in
contrast, contains no such exclusion.
10
“occurrence” and the policy’s “your work” exclusion. 2 See
French, 448 F.3d at 703 (noting that the subcontractor’s
defective work caused “property damage to otherwise nondefective
parts of the building” -- a distinction “which brings into play
the subcontractor exception to the ‘Your Work’ exclusion” in the
CGL policy).
At oral argument, Ohio Casualty attempted to distinguish
French on the ground that the moisture intrusion that damaged
the home’s nondefective structure in that case was a separate
event that could constitute an occurrence. In contrast, Ohio
Casualty emphasizes that in this case the defective trusses, the
source of the ensuing damage, were already present in the
2
The “your work” exclusion excludes coverage for damage that
the insured might cause to its own work, but exempts from that
exclusion any damage that an insured’s subcontractor might cause
to the insured’s work. The Miller court rejected the argument
that exclusions “create” coverage. 142 F. App’x at 149.
Although this is a valid point, it misses the mark slightly.
The import of the “your work” exclusion and its subcontractor
exception is not that the exclusion “creates” coverage. Rather,
the import is that the exception lends insight into the baseline
definition of “occurrence” from which parties and courts
interpreting CGL policies should operate. If the definition of
“occurrence” cannot be understood to include an insured’s faulty
workmanship, an exclusion that exempts from coverage any damage
the insured’s faulty workmanship causes to its own work is
nugatory. If, on the other hand, the definition of “occurrence”
does include an insured’s faulty workmanship, such an exclusion
functions as a meaningful “limitation or restriction on the
insuring clause.” Nationwide Mut. Ins Co. v. Wenger, 278 S.E.2d
874, 876 (Va. 1981) (quoting Haugan v. Home Indem. Co.,
197
N.W.2d 18, 22 (S.D. 1972)).
11
townhouses when they were completed. Ohio Casualty argues that
the subsequent spread of mold in the townhouses represented only
a further deterioration of already defective work, rather than a
new, unexpected event that would trigger coverage. This labored
distinction places more weight on the policy language than it
can bear. The policy’s definition of occurrence is broad and
inclusive, providing coverage for any “accident” -- that is, any
“event that takes place without one’s foresight or expectation.”
Wooden v. John Hancock Mut. Life Ins. Co., 139 S.E.2d 801, 804
(Va. 1965) (citation omitted). As in French, there is no
allegation here that Stanley Martin “either expected or intended
that its subcontractor” would perform defective work, or that
the spread of mold beyond the defective trusses was expected or
intended. 448 F.3d at 704. At oral argument, Ohio Casualty was
unable to point to language in the policy that would exclude
from coverage the unintended, unexpected spread of mold from the
defective trusses to surrounding nondefective components, nor
could we find any.
Under the analytical framework established by French,
Stanley Martin’s obligation to repair or replace the defective
trusses was not unexpected or unforeseen under the terms of its
building contracts for the townhouses and does not trigger a
duty to indemnify. However, any mold damage that spread beyond
12
the defective trusses and the gypsum fire walls to nondefective
components of the townhouses was an unintended accident, or an
occurrence that triggered coverage under the Ohio Casualty
policy. 3
The parties dispute whether Stanley Martin has shown
damages beyond the costs incurred to repair or replace the
defective trusses. The district court did not reach this issue
because it found that the spread of mold did not constitute a
triggering occurrence. Instead, the district court considered
only whether Stanley Martin had shown “damage to third-party
property other than the insured’s work that triggered coverage
under the Ohio Casualty policy.” J.A. 1664. Because a fact
issue exists as to whether Stanley Martin has shown that it
incurred costs to remediate mold damage beyond replacing or
3
Although the dissent points out that the Miller court,
applying Virginia law, found that “damages resulting from the
insured’s defective performance of a contract and limited to the
insured’s work or product [are] not covered” by a CGL policy,
the Miller court did not base such a determination on an
analysis of the “your work” exception. 142 F. App’x at 149
(quoting Hotel Roanoke Conference Ctr. Comm’n v. Cincinnati Ins.
Co., 303 F. Supp. 2d 784, 786 (W.D. Va. 2004)). Rather, the
Miller court found that damage caused by a “subcontractor’s
defective performance . . . is not considered to be . . . caused
by an ‘occurrence.’”
Id. Having found an occurrence, with
which the dissent does not appear to disagree, our published
opinion in French would appear to govern the district court’s
interpretation of virtually identical, standard contract
language.
13
repairing the defective trusses and gypsum fire walls, we remand
to the district court for further inquiry into this issue.
IV.
Because we find that damage a subcontractor’s defective
work causes to an insured’s nondefective work constitutes an
occurrence under the Ohio Casualty policy, we reverse the
district court and remand the matter for proceedings consistent
with this opinion.
REVERSED AND REMANDED
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SHEDD, Circuit Judge, concurring in part and dissenting in part:
I agree with the majority that the district court erred in
not finding an occurrence in this instance based on the
definition of “accident.” Nevertheless, I would not reach the
question of whether there is coverage in this case in the first
instance. The Supreme Court of Virginia has never determined
whether there is coverage for damage that a subcontractor’s
defective work causes to a general contractor’s otherwise
nondefective work under the general contractor’s commercial
general liability insurance policy. Unlike the majority, I
would not adopt French v. Assurance Company of America, 448 F.3d
693 (4th Cir. 2006). French is based on Maryland law, and in
French, we were expressly persuaded by the Maryland state law
case of Lerner Corp. v. Assurance Co. of Am.,
707 A.2d 906
(Md.App. 1998). See French, 448 F.23d at 705. Here, however, we
are deciding Virginia law. Compare French with Travelers
Indemnity Co. of America v. Miller Building Corp., 142 Fed.Appx.
147, 149 (4th Cir. 2005) (applying Virginia law, we noted that
“damages resulting from the insured’s defective performance of a
contract and limited to the insured’s work or product [are] not
covered” by a CGL policy).
This is a difficult and important area of the law. Thus, I
would certify this issue to the Supreme Court of Virginia to
15
determine whether there is coverage in light of the “your work”
exclusion and subcontractor exception. Therefore, I
respectfully concur in part and dissent in part from the
judgment of the majority.
16
