Builders Mut. Ins. Co. v. Albrittain, Inc., 2020 U.S. Dist. LEXIS 81211 (E.D. Va. May 7, 2020)
J.L. Albrittain, Inc. (“Albrittain”) and Cathedral View, LLC (“Cathedral”) were business partners in the construction and sale of four townhouses and had a general liability insurance policy (“GL Policy”) issued by Builders Mutual Insurance Company (“BMIC”). After each buying a separate townhouse and moving in, Robert and Michelle Ward (collectively “Wards”), Whitney Albrittain (“W. Albrittain”), and James and Erin Seale (collectively “Seales”) discovered that their townhouses had significant water leaks and water damage. Each engaged professionals, who observed substantial water infiltration throughout the townhouse attributable to design and construction defects. Thereafter, the Seales, Wards, and W. Albrittain, on numerous occasions, asked the Cathedral, Albrittain, and their agents or representatives (collectively, the “Defendants”) to remedy the leaks and damage, but the Defendants failed to do so.
Seales, Wards, and W. Albrittain each sued the Defendants, alleging that: (i) the Defendants knew of the water leaks before they sold the townhouses, having attempted without success to repair the leaks throughout the construction process; (ii) the Defendants concealed or made misrepresentations regarding the leaks to induce Seals, Wards, and W. Albrittain into purchasing the townhouses; and (iii) due to the concealment and misrepresentations, the townhouses suffered significant physical damage, including saturated walls, mold, rusted heating and cooling systems, and permanent diminution in value. The Seales, Wards, and W. Albrittain asserted claims for breach of implied statutory warranty, fraud, fraud in the inducement, and violation of the Virginia Consumer Protection Act (“VCPA”) against the Defendants. BMIC filed a complaint seeking declaratory judgment that it did not owe a duty to defend its insureds or the Defendants.
The Court held that BMIC had no duty to defend the Defendants. Virginia applies the ‘Eight Corners Rule’ to determine if an insured has a duty to defend its policy holder. Under the Eight Corners Rule, Virginia courts compare the four corners of the underlying complaint with the four corners of the policy to determine whether the claims alleged in the complaint fall within the coverage provided by the policy. The duty to defend is triggered if the complaint alleges facts and circumstances, some of which would, if proven, be covered by the policy. If it is clear that the insurer would not be liable under its contract for any judgment based upon the allegations in the complaint, no duty to defend exists. The policy holder has the initial burden to establish a duty to defend. If the policy holder satisfies this initial burden, then the burden shifts to the insurer to show the policy’s exclusionary language clearly and unambiguously brings the particular alleged act or omission within its scope. Essentially, the insured has the burden to prove coverage, while the insurer bears the burden of proving that an exclusion applies.
The GL Policy defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The terms ‘occurrence’ and ‘accident’ are synonymous and refer to an incident that was unexpected from the viewpoint of the insured. An ‘accident’ is commonly understood to mean an event that creates an effect that is not the natural or probable consequence of the means employed and is not intended, designed, or reasonably anticipated and an ‘accidental injury’ is commonly understood to mean an injury that happens by chance or unexpectedly. Therefore, an intentional act is neither an occurrence nor an accident and is not covered by the standard commercial general liability policy.
The Seales, Wards, and W. Albrittain complaints alleged intentional conduct by the Defendants. Because such intentional conduct is neither an occurrence nor an accident, the allegations did not trigger BMIC’s duty to defend its insureds. Even if the complaints had alleged that the Underlying Defendants engaged in negligent conduct, that conduct would not constitute an ‘occurrence.’ Allegations of negligence are not synonymous with allegations of an accident and an occurrence. Damage resulting from the insureds 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.
