The spread of mold in a townhouse project is an “occurrence” that triggers coverage by a Northern Virginia builder’s CGL policy, the 4th U.S. Circuit Court of Appeals says in a decision reversing a denial of relief to the builder.
Built in 2000, the Gaithersburg, Md. townhouse project developed problems immediately with mold on wooden trusses supplied by subcontractors under warranty. Carriers of Stanley Martin’s commercial general liability policies covered about $1.2 million of the builder’s $1.7 million in remediation costs, but the builder also sought coverage under an umbrella CGL policy from Ohio Casualty Group.
Policy coverage was pegged to an “occurrence,” which has yet to be defined by controlling Virginia law in this situation, both federal courts said.
On the one hand, Senior U.S. District Judge James C. Cacheris said because the costs of remediation arose from damages caused by a sub’s defective work, the overall damage was not “unexpected” or an “accident,” and did not qualify as an “occurrence.”
The panel, on the other hand, said that damage caused by a sub’s defective work to the insured’s nondefective work can constitute an “occurrence.”
In its per curiam opinion in Stanley Martin, the panel said the Ohio Casualty policy language was identical to most CGL policies. It noted that two recent 4th Circuit opinions, a published opinion relying on Maryland law and an unpublished opinion construing Virginia law, “diverge on the issue of what constitutes a triggering occurrence.”
The panel rejected application of the earlier unpublished decision, relying instead on the published decision that construed “substantially the same” policy language, under Maryland law that was “not materially different” from Virginia insurance law.
Under the appropriate analysis, the builder’s obligation to repair or replace defective trusses did not trigger a duty to indemnify because the repair/replace obligation “was not unexpected or unforeseen under the terms of its building contracts,” the panel wrote.
But “any mold damage that spread beyond the defective trusses and the gypsum fire walls to nondefective components of the townhouse was an unintended accident, or an occurrence that triggered coverage” under the umbrella policy.
The 4th Circuit remanded the case to allow the builder to show damage from the spread of mold through the townhouses.
Judges Allyson K. Duncan and Robert B. King were in the panel majority, and Judge Dennis W. Shedd dissented in part, saying he would certify the issue to the Supreme Court of Virginia.
By Deborah Elkins