Travelers Indemnity Co. v. Miller Building Corp.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1536
TRAVELERS INDEMNITY COMPANY OF AMERICA,
Plaintiff - Appellant,
versus
MILLER BUILDING CORPORATION; WAL-MART STORES,
INCORPORATED,
Defendants - Appellees,
and
I.B. VENTURES, LLC; PENNSYLVANIA
MANUFACTURERS’ ASSOCIATION INSURANCE COMPANY,
Defendants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. James R. Spencer, District
Judge. (CA-03-441-3)
Submitted: May 19, 2005 Decided: July 20, 2005
Before TRAXLER and DUNCAN, Circuit Judges, and Eugene E. SILER,
Jr., Senior Circuit Judge of the United States Court of Appeals for
the Sixth Circuit, sitting by designation.
Reversed and remanded by unpublished opinion. Senior Judge Siler
wrote the opinion, in which Judge Traxler and Judge Duncan joined.
Lee H. Ogburn, Steven M. Klepper, KRAMON & GRAHAM, P.A., Baltimore,
Maryland, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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SILER, Senior Circuit Judge:
The Travelers Indemnity Company of America appeals the
district court’s determination that it is obligated to indemnify
Miller Building Corporation for alleged damages of Wal-Mart Stores,
Inc. Because the allegedly defective performance of Miller’s
subcontractor was not an “occurrence,” and because a policy’s
subcontractor exception to an exclusion does not grant or extend
coverage, the district court’s grant of summary judgment on this
issue is reversed and the case remanded for further proceedings
consistent with this opinion.
BACKGROUND
Miller, a general contractor, obtained commercial general
liability (“CGL”) policies from Travelers. These CGL policies
obligate Travelers to indemnify Miller for bodily injury or
property damage caused by an “occurrence.” An “occurrence” is
defined by the policies to be “an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions.” The policies contained various exclusions, including
a “your work” exclusion that limits coverage for property damage to
the insured’s work. “This [“your work”] exclusion does not apply
[however] if the damaged work or the work out of which the damage
arises was performed on [the insured’s] behalf by a subcontractor.”
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Wal-Mart and I.B. Ventures, LLC hired Miller to complete site
development work on two adjacent pieces of property in Chesterfield
County, Virginia. Wal-Mart also hired Miller to build a Wal-Mart
store on one of the lots. Miller used a subcontractor to complete
the site development work; however, this subcontractor allegedly
selected and used defective fill material. The allegedly defective
fill material expanded, resulting in damage to buildings on both
properties, including the store that Miller built for Wal-Mart.
Wal-Mart and I.B. Ventures sued Miller in state court for
property damages. Travelers subsequently sought a declaratory
judgment in federal court to determine coverage under the CGL
policies. The district court granted summary judgment in favor of
Wal-Mart and I.B. Ventures. In this appeal, Travelers contests
only the district court’s determination that it is required to
indemnify Miller for Wal-Mart’s damages.
ANALYSIS
The district court’s grant of summary judgment is reviewed de
novo. Monumental Paving & Excavating, Inc. v. Pennsylvania Mfrs.’
Ass’n Ins. Co., 176 F.3d 794, 797 (4th Cir. 1999). This court also
reviews de novo the district court’s contract interpretation.
Seabulk Offshore Ltd. v. American Home Assurance Co., 377 F.3d 408,
418 (4th Cir. 2004). “The interpretation of a written contract is
a question of law that turns upon a reading of the document itself,
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and a district court is in no better position than an appellate
court to decide such an issue.” Id. at 418.
The district court applied Virginia law and the parties do not
contest that issue on appeal. Although the Supreme Court of
Virginia does not appear to have considered whether a contractor’s
deficient performance can constitute an “occurrence,” the U.S.
District Court for the Western District of Virginia recently
predicted how the Virginia Supreme Court would decide the issue.
See Hotel Roanoke Conference Ctr. Comm’n v. Cincinnati Ins. Co.,
303 F. Supp. 2d. 784, 786 (W.D. Va. 2004). It followed American
Fire & Casualty Insurance Co. v. Doverspike, 36 Va. Cir. 263, 1995
WL 1055839 (1995), in deciding that poor performance on a
renovation contract could not be considered an accident or
occurrence, and concluded that “[t]he insurance policy issued to
the [contractors] is a general liability policy covering accidents
causing bodily injury or property damage. It is not a performance
bond. It does not cover poor workmanship.” Hotel Roanoke, 303 F.
Supp. 2d. at 786-87 (quoting American Fire & Cas. Ins. Co., 36 Va.
Cir. at 264, 1995 WL 1055839).* The Hotel Roanoke court
additionally noted that “a wealth of case law from other states
[also] supports the conclusion that damages resulting from the
*
Similarly, the Virginia Circuit Court of Fairfax County
determined that “defective workmanship cannot constitute a covered
‘occurrence’ . . . , as faulty workmanship by the insured is almost
always foreseeable.” Pulte Home Corp. v. Fid. & Guar. Ins. Co.,
No. 210454, 2004 WL 516216, *5 (Va. Cir. Ct. Feb. 6, 2004).
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insured’s defective performance of a contract and limited to the
insured’s work or product is not covered by a commercial general
liability policy because it is ‘expected’ from the standpoint of
the insured.” Hotel Roanoke, 303 F. Supp. 2d at 787. The damage
to the Wal-Mart store allegedly was a result of Miller’s
subcontractor’s defective performance. As a result, such damage is
not considered to be “unexpected,” or caused by an “occurrence.”
Wal-Mart did not file an appellate brief. It settled and is
not a party in this appeal. In its memorandum in support of its
motion for summary judgment, however, its arguments for coverage
for its damages were based not upon the existence of an
“occurrence,” but upon the subcontractor exception to the “your
work” exclusion. Travelers does not dispute that the subcontractor
exception would prevent denial of coverage under the “your work”
exclusion if the damage to the Wal-Mart store were considered to be
property damage caused by an “occurrence.” It does dispute,
however, the district court’s apparent determination that coverage
would be created by the subcontractor exception and would exist
even absent an “occurrence.”
In support of its determination that the subcontractor
exception provided coverage, the district court cited, inter alia,
L-J, Inc. v. Bituminous Fire & Maine Ins. Co., 567 S.E.2d 489, 494
(S.C. Ct. App. 2002), rev’d, ___ S.E.2d ___, 2004 WL 1775571 (S.C.
Aug. 9, 2004)). In reversing, the Supreme Court of South Carolina
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determined that there had been no “occurrence,” so there was no
need to consider the “your work” exclusion and subcontractor
exception. Id. at *4. It continued its discussion, however, “to
reverse the court of appeals’ determination that an exception to an
exclusion ‘restores’ coverage.” Id. Because South Carolina law
provided that “an exclusion does not provide coverage but limits
coverage,” the court determined that the lower court had erred in
stating that an exception to an exclusion “restore[d]” coverage.
Id. at *5 (quoting Engineered Prods., Inc. v. Aetna Cas. & Sur.
Co., 368 S.E.2d 674, 675-76 (S.C. Ct. App. 1988)). The
subcontractor exception merely rendered the “your work” exclusion
inapplicable; it did not itself provide coverage. Id. at *4-5. We
find this holding to be consistent with Virginia law. See
Nationwide Mut. Ins. Co. v. Wenger, 222 Va. 263, 267, 287 S.E.2d
874, 876 (1981) (quoting Haugan v. Home Indem. Co., 86 S.D. 406,
413, 197 N.W.2d 18, 22 (1972) (“Exclusion (a) does not extend or
grant coverage. To the contrary it is a limitation or restriction
on the insuring clause.”); see also RML Corp. v. Assurance Co. of
Am., No. CH02-127 (Va. Cir. Ct. Dec. 31, 2002) (citing Wenger, 222
Va. at 267, 287 S.E.2d at 876) (“[E]xclusions do not extend or
grant coverage. . . . The Court rejects [the] argument that
language excepting subcontractor’s work from [an] exclusion . . .
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extends coverage under the CGL policy to all repairs of
subcontractors’ defective workmanship.”).
Because the damage to the Wal-Mart store was not unexpected
and, therefore, not an “occurrence,” and because an exception to an
exclusion does not grant or extend coverage, Travelers is not
required under this policy to indemnify Miller for Wal-Mart’s
damages.
REVERSED AND REMANDED
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