General liability insurance coverage can be perceived differently in the eyes of the law depending on where you are in the Mid-Atlantic.

Two cases decided this year by the United States Court of Appeals for the Fourth Circuit reached very different results on whether a contractor had coverage under a comprehensive general liability (CGL) insurance policy. These cases emphasize the importance of the governing law as well as the specific facts of each case to determining whether there is coverage.

Virginia Law Controlling

In Travelers Indemnity v. Miller Building Corporation, Travelers sued its insured, Miller, for a declaratory judgment that there was no coverage under its CGL policy. Miller was a contractor on the construction of a Wal-Mart store. Travelers argued there was no coverage because defective performance of construction was not an “occurrence” under the CGL policy.

CGL policies generally contain an exclusion for damages to “your work”. They also generally contain an exception to that exclusion where the damages to “your work” are caused by a subcontractor. Miller claimed it was entitled to coverage under the CGL policy because the damages to its work were caused by subcontractors.

The Fourth Circuit ruled that it believed that Virginia courts would find there was no “occurrence” under the policy and thus no insurance coverage. The Court decided to issue the decision as an “unpublished opinion”, and as such the case is not binding on the Court in the future. This decision was likely made because the Supreme Court of Virginia courts has yet to speak conclusively on this question.

Pennsylvania Law Controlling

In Limbach Company v. Zurich American, Limbach filed suit against Zurich. The trial court ruled that the damage was excluded from coverage and awarded summary judgment to Zurich.

Limbach installed an underground steam line. A supplier manufactured the pipe. A subcontractor excavated the trench and backfilled the trench after installation. After construction, the line leaked. Apparently, Limbach’s employees damaged the pipe with torches when they unpacked it. The leak damaged surrounding insulation, backfill and landscaping.

Zurich claimed that the backfill was part of Limbach’s work and subject to the “your work” exclusion. The Court on appeal disagreed finding that the subcontractor exception applied. Limbach also sought the cost of replacing the damaged pipe. Limbach claimed the pipe was not excluded from coverage because it was manufactured by a subcontractor. On appeal, the Court agreed and found the supplier was a subcontractor. Thus, the exception to the “your work” exclusion applied, and there was coverage for damage to the steam pipe. Similarly, damage to surrounding contractors’ work was covered.

Analysis

The contrast in the two cases highlights three important points. First, the governing law can have a huge impact. While the Supreme Court of Virginia has not ruled on these questions, they tend to be quite conservative and thus the Travelers decision is not surprising. Pennsylvania appears a bit more apt to find coverage than Virginia.

Second, even declaratory judgment cases involved insurance contracts can be very fact intensive. The decision in Limbach appears driven in large part by the fact that Limbach could show some property damages to the work of third parties caused by the steam pipe leak.

Third, and perhaps most importantly, never assume you have coverage for construction repair work. You may think you are completely insulated from liability by paying premiums for insurance coverage, but there are plenty of decisions that may call that coverage into question on construction litigation matters.
 

Timothy R. Hughes, Esq., is the principal of the Northern Virginia law firm of Hughes & Associates, P.L.L.C. He specializes in construction litigation, corporate and business related representation, and complex civil litigation. He may be reached at tim@hughesnassociates.com.

Printed with permission from Mid-Atlantic Construction

http://midatlantic.construction.com/2005/12/01/MA_12_01_2005_law-01.asp

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