Virginia Federal Court Upholds Construction Defect Claims Not Covered by CGL Policies | payne and fears
Third-party claims seeking damages for faulty workmanship resulting in property damage are covered by general liability policies in most jurisdictions. Virginie is not one of them. A federal district court recently reaffirmed that Virginia remains in the small minority of states that consider construction defect claims a business risk to be borne by the builder, even when the claims result from negligent conduct resulting in damage. materials. Pennsylvania National Mutual Casualty Insurance Company v River City Roofing, LLCNo. 3:21CV365-HEH, 2022 WL 1185888 (ED Va. 21 Apr 2022) (“River City”).
In river town, Branch Builds, Inc. (“Branch”) was the general contractor for a residential apartment project (the “Project”). River City Roofing (“River”) contracted with Branch to install the roofing and sheathing for the project. Pursuant to its contract, River warranted its materials and work, agreed to indemnify Branch, and agreed to make Branch an additional insured under its Commercial General Liability (CGL) policy. After the apartments were completed, Branch discovered roofing and cladding defects that caused damage to the apartments. Branch compensated the landlord for all damage to the apartments, but was never compensated by River.
When Branch sued River for breach of contract and breach of warranty, River took the suit to its insurer CGL, which in turn filed a declaratory judgment action regarding its obligations to defend and indemnify River against Branch’s lawsuit. . The River City court held that, under Virginia law, River’s manufacturing defects were excluded by the police. First, River City argued that the policy’s commercial risk exclusions (“your work” and “damaged property”) excluded coverage for damage to River’s work or damage to other components resulting from River’s work. Second, the policy’s “contractual liability” exclusion excluded coverage because all of Branch’s claims arose out of River’s contractual obligations to Branch. This means that, even though Branch alleged that River’s work was done negligently, Virginia law considers negligent performance of contractual obligations not actionable in tort and therefore not not an “event” under a standard general liability policy.
Take away food
river city confirms Virginia’s place on the restricted list of states that do not treat construction defect claims as covered under CGL policies. Normally, favorable indemnification agreements with subcontractors can protect against the need for additional insured coverage, but this requires a solvent and responsible subcontractor. Builders operating in Virginia should, where possible, negotiate during the procurement process amended wording that expands coverage or favorable choice of law provisions. Alternatively, builders can turn to specially designed homeowner’s controlled insurance programs (OCIPs) to provide coverage for construction defect claims.