Title: National Housing v. Acordia of Virginia
Citation: N/A
Docket Number: 030269
State: Virginia
Issuer: Virginia Supreme Court
Date: January 16, 2004

PRESENT: Hassell, C.J., Lacy, Keenan, Kinser, Lemons, and Agee, 
JJ., and Carrico, S.J. 
 
NATIONAL HOUSING BUILDING CORPORATION 
 
 
 
OPINION BY 
v.  Record No. 030269 
JUSTICE G. STEVEN AGEE 
 
 
 
JANUARY 16, 2004 
ACORDIA OF VIRGINIA INSURANCE  
AGENCY, INC., T/A ACORDIA OF VIRGINIA 
 
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 
H. Thomas Padrick, Jr., Judge 
 
 
National Housing Building Corporation ("NHBC") brought suit 
against Acordia of Virginia Insurance Agency, Inc. ("Acordia"), 
for negligence and breach of an oral contract by failing to 
include NHBC as a named insured on a policy of builders risk 
insurance.  The trial court granted Acordia's motion to strike 
NHBC's evidence for failure to prove "a covered cause of loss," 
even though it found that Acordia was negligent in failing to 
list NHBC as a named insured on the policy. 
 
On appeal, NHBC asserts ten assignments of error, all of 
which revolve around the trial court's refusal to allow recovery 
for expenses incurred in "mitigating" defects in the 
construction covered by the policy. 
 
For the reasons that follow, we will affirm the judgment of 
the trial court. 
I. 
 
Madison Ridge, L.P. ("Madison Ridge") hired NHBC as a 
general contractor to build the Madison Ridge apartment complex 
in Harrisonburg, Virginia, (the "Project").  National Housing 
 
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Corporation ("NHC"), as agent for NHBC, negotiated with Acordia 
to procure a builders risk insurance policy covering NHBC and 
other entities for work on several construction projects, 
including the Project.  Acordia obtained a builders risk 
insurance policy from Security Insurance of Hartford 
("Security") and intended that NHBC be an insured under that 
policy ("the Policy").  Acordia admitted, however, that it never 
asked Security to list NHBC as a named insured and, in fact, 
NHBC was not a named insured under the Policy. 
 
The Project was built on a steep slope that required the 
construction of multiple retaining walls.  The retaining walls 
constrained the earth behind them which, in turn, supported 
apartment buildings further up the slope from the walls.  NHBC 
does not dispute that it defectively designed and built the 
retaining walls because its specifications failed to properly 
consider the steep incline of the Project. 
 
In the early months of 1998 NHBC requested that a civil 
engineer examine one of the retaining walls (Wall 1-2) that had 
moved forward approximately eight feet so that it was no longer 
straight.  This condition concerned NHBC and its engineer 
because the soils retained by Wall 1-2 supported the other walls 
and the foundations of the apartment buildings uphill.  Due to 
his concern about the structural collapse of Wall 1-2, the 
engineer recommended taking remedial measures to ensure the 
stability of the foundations for the uphill apartment buildings.  
 
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NHBC instituted the suggested remedial measures and eventually 
replaced Wall 1-2 with one designed to properly accommodate the 
topography of the project.  Although the other walls had not 
failed and the apartment buildings suffered no physical damage, 
NHBC adopted the engineer's suggested remedial measures to 
underpin the foundations of those structures so as to prevent 
any loss or damage.  No loss or damage occurred to the apartment 
buildings. 
 
NHBC notified Acordia of its claimed loss for the remedial 
measures, and on May 5, 1998, NHBC formally requested that 
Acordia submit a claim under the Policy to Security.  On several 
occasions executives at Acordia notified NHBC of its duty to 
mitigate any loss, but did not affirm a coverage determination 
had been made.  Security initially denied NHBC's claim based on 
an exclusion in the Policy for loss "caused by or resulting from 
any of the following: . . . . error, omission or deficiency in 
designs, plans or specifications," due to the defective wall 
design.  Subsequent to its first denial of NHBC's claim and the 
filing of a suit by NHBC to recover insurance proceeds, Security 
notified NHBC that it "was not and never had been a named 
insured under the policy claimed and sued upon." 
 
NHBC then filed a motion for judgment claiming breach of 
contract and negligence by Acordia for the failure to include 
NHBC as a named insured under the Policy.  NHBC claimed damages 
from Acordia "for engineering, repairing, and stabilizing the 
 
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affected walls, and underpinning buildings whose structural 
integrity and safety had been compromised" (the "remediation 
expenses").  NHBC alleged these "losses would have been covered 
by the policy if it had been a named insured thereunder." 
 
At trial, Acordia questioned whether NHBC was the proper 
party to bring suit since Madison Ridge paid the remediation 
expenses.  Acordia asserted that NHBC was not obligated to cover 
the remediation expenses because Madison Ridge incurred the 
expenses and failed to "purchase or maintain" all-risk insurance 
covering NHBC as required by the contract between NHBC and 
Madison Ridge. 
 
At the conclusion of all the evidence, Acordia renewed a 
motion to strike NHBC's evidence.  The trial court found that 
NHBC had sustained damages in the amount of $518,690.25 for the 
remediation expenses and that Acordia was negligent as a matter 
of law in failing to include NHBC as a named insured on the 
Policy. 
 
The trial court then determined that NHBC could not recover 
against Acordia because even if NHBC had been a named insured 
under the Policy, its "loss" was not covered by the Policy.  
Since NHBC could not have recovered under the Policy, then it 
could not recover against Acordia.  The trial court then granted 
Acordia's motion to strike because NHBC failed "to prove a 
covered cause of loss."  We granted NHBC this appeal. 
II. 
 
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[A] court must adhere to the terms of a contract 
of insurance as written, if they are plain and 
clear and not in violation of law or inconsistent 
with public policy.  It is not our function to 
"make a new contract for the parties different 
from that plainly intended and thus create a 
liability not assumed by the insurer." 
 
Blue Cross & Blue Shield v. Keller, 248 Va. 618, 626, 450 S.E.2d 
136, 140 (1994) (quoting Pilot Life Ins. Co. v. Crosswhite, 206 
Va. 558, 561, 145 S.E.2d 143, 145 (1965)). 
 
NHBC's claim against Acordia rests on the premise that had 
Acordia properly fulfilled its duty as an insurance broker and 
caused NHBC to be listed on the Policy, then NHBC would have 
recovered from the insurer the remediation expenses caused by 
the defective wall.  In other words, if NHBC could have 
recovered under the Policy, it could recover against Acordia. 
 
In sustaining Acordia's motion to strike, the trial court 
opined from the bench. 
I don't want to substitute my judgment for the 
jury, but the Court is making a legal finding 
that it doesn't fall within the policy, and that 
if the jury did come back and award $518,690.25, 
quite frankly I would have to take it away. . . . 
But the facts are what the facts are.  It's true 
that Acordia screwed up.  They didn't list [NHBC] 
as a named insured.  If they had listed them as a 
named insured then the result would have been the 
same. 
 
 
We agree with the trial court. 
 
The Policy provides coverage "for 'loss' to Covered 
Property from any of the Covered Causes of Loss."  The term 
"Covered Causes of Loss" is then defined as "Risks of Direct 
 
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Physical 'Loss' to Covered Property except those causes of 
'loss' listed in the exclusions." (Emphasis added). 
 
The Exclusions provision of the Policy then plainly 
provides: 
2. 
We will not pay for a "loss" caused by 
or resulting from any of the following: 
 
. . . . 
 
e.   Defective materials or poor 
workmanship; error, omission or 
deficiency in designs, plans or 
specifications. 
 
 
This exclusion does not apply to 
resultant "loss" to other Covered 
Property. 
 
 
There is no dispute about, and NHBC does not assign error 
to, the trial court's finding that Wall 1-2 was defectively 
designed and the activities NHBC undertook in anticipation of 
the prospect that Wall 1-2 would fail are the basis of the 
remediation expenses.  Despite the Policy's plain language 
excluding loss caused by defective design from coverage under 
the Policy, NHBC nonetheless claims its remediation expenses are 
compensable under the "Duties in the Event of Loss" section of 
the Policy, which provides in pertinent part: 
C.  DUTIES IN THE EVENT OF LOSS 
 
You must see that the following are done in the 
event of "loss" to Covered Property: 
 
. . . . 
 
 
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4. 
Take all reasonable steps to protect the 
Covered Property from further damage and keep a 
record of your expenses necessary to protect the 
Covered Property, for consideration in the 
settlement of the claim.  This will not increase 
the Limit of Insurance.  However, we will not pay 
for the subsequent "loss" resulting from a cause 
of loss that is not a Covered Cause of Loss. 
 
 
Essentially, NHBC claims it would have been under a 
contractual duty, had it been listed as a named insured, to have 
undertaken the mitigation resulting in the remediation expenses 
in order to prevent loss to the uphill apartment buildings, 
which are "Covered Property" under the Policy.  That duty, if it 
existed, does not afford a right to compensation to NHBC under 
the facts of this case. 
 
No damage occurred to the apartment buildings or other 
Covered Property.  Therefore, as the trial court noted, there 
was no "loss" to Covered Property.  Such loss is a condition 
precedent to any compensation under the "Duties in the Event of 
Loss" section.  A " 'loss' to Covered Property", the Policy's 
predicate to mandatory mitigation, did not occur, and therefore 
no obligation to compensate NHBC arose under the Policy. 
 
Moreover, subparagraph 4 of the "Duties in the Event of 
Loss" section further limits any obligation of the insurer 
because the contractor's expenses to protect Covered Property 
are to be considered "in the settlement of the claim."  The 
claim, under the facts of this case and policy, would be 
 
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"resulting from a cause of loss that is not a Covered Cause of 
Loss" and therefore not compensible. 
 
In effect, NHBC attempts to bootstrap its remediation 
expenses into a covered claim through the "Duties in the Event 
of Loss" provision, despite the clear exclusion from coverage 
for loss caused by NHBC's defective design.  We agree with the 
trial court that the Policy's plain language does not permit 
NHBC to circumvent the exclusion from coverage in this manner 
and recoup its remediation expenses.  See Southern Cal. Edison 
Co. v. Harbor Ins. Co., 83 Cal. App. 3d 747, 759-60 (1978) ("The 
duty of an insured to prevent and mitigate insurable loss and 
the obligation of the insurer to reimburse for expenses so 
incurred are separate questions.  The fulfillment of the duty to 
mitigate does not necessarily give rise to the obligation of 
reimbursement . . . ."). 
 
Even if the Policy does not permit NHBC to recover its 
remediation expenses, NHBC claims that its common law duty to 
mitigate damages allows recovery of the remediation expenses 
from Acordia.  Usually, the failure to mitigate damages is an 
affirmative defense and, therefore, on that point the breaching 
party, not the injured party, has the burden to produce 
evidence.  Marefield Meadows, Inc. v. Lorenz, 245 Va. 255, 266, 
427 S.E.2d 363, 369 (1993).  However, this case does not involve 
a failure to mitigate damages. 
 
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In a case such as this, where the injured party asserts as 
part of his recovery the expense of taking corrective measures 
to mitigate the potential liability of the defendant, the cost 
of mitigation is simply another element of his damages.  It is 
axiomatic that where “there is no liability, . . . there can be 
no recovery.”  Southern Railway Co. v. Lewis, 113 Va. 117, 120, 
73 S.E. 469, 470 (1912).  NHBC's theory of liability is that but 
for Acordia's negligence, its damages, including the cost of 
mitigation, would have been recoverable under the insurance 
contract.  As we have demonstrated, however, those losses were 
not a liability covered by the policy and, thus, Acordia's 
negligence was not a proximate cause of NHBC's losses.  
Regardless of whether NHBC premises its theory of recovery on 
contract law or common law, it cannot recover damages where 
there is no liability. 
III. 
 
For the reasons stated above, we find that even if NHBC had 
been a named insured on the Policy, the Policy did not provide 
coverage for the remediation expenses it now seeks against 
Acordia.  Consequently, NHBC has no cognizable claim against 
Acordia either in contract or tort.  The trial court did not err 
 
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in granting Acordia's motion to strike NHBC's evidence.  
Therefore, the judgment of the trial court will be affirmed.*
Affirmed. 
                     
 
* Having resolved NHBC's assignments of error in favor of 
Acordia, we do not address any of Acordia's assignments of 
cross-error.