Travelers Indemnity Co. v. Miller Building Corp. , 142 F. App'x 147 ( 2005 )


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  •                             UNPUBLISHED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    Reversed and remanded by unpublished opinion.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    Unpublished opinions are not binding precedent in this circuit.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).
    2
    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.”
    3
    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,
    4
    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).
    5
    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
    6
    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 . . .
    7
    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
    8