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Proactive builder denied coverage for drywall fix

In what may be the first insurance coverage decision arising from the wave of Chinese drywall lawsuits, a Norfolk federal judge held Wednesday that a home builder who voluntarily fixed drywall-related problems in customers’ homes is not entitled to reimbursement from its insurer because the builder was not faced with a “legal obligation” to pay “damages.”

The decision from U.S. District Judge Rebecca Beach Smith may leave Dragas Management Corp. of Virginia Beach without coverage because it stepped up and repaired homes without waiting to be sued by homeowners. Dragas has 14 days to present any additional evidence to try to bring its losses into the scope of its insurance coverage.

The issue as to whether an insured may incur a “legal obligation” to pay before a lawsuit has been filed against it has not previously been addressed under Virginia law, Beach noted.

“[W]hile this court may agree that Dragas made an appropriate and well-conceived decision to remediate from a business, public relations, and moral standpoint, this court is not free to rewrite the … policies to further those ends,” Smith wrote.

By Peter Vieth

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