Court Opinion

ID: 1027833
Source: CourtListenerOpinion
Date Created: 2013-07-05 07:30:42.879283+00
Date Added: 2024-06-11T09:18:31.553533
License: Public Domain

UNPUBLISHED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Reversed and remanded by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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.

                                          3
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:

                                             4
[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

                                       14
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