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HITT CONTRACTING, INC., et al. v. INDUSTRIAL RISK INSURERS


HITT CONTRACTING, INC., et
al.

v.

INDUSTRIAL RISK INSURERS


June 11, 1999

Record No. 981878

HITT CONTRACTING, INC., ET AL.

v.

INDUSTRIAL RISK INSURERS

FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA

Alfred D. Swersky, Judge

Present: All the Justices

OPINION BY JUSTICE ELIZABETH B. LACY


The issue in this appeal is whether a suit for failure to pay
a claim under a replacement coverage endorsement of an insurance
policy is subject to the two-year limitations period contained in
the policy and required by Code Sect. 38.2-2105.

Metropolitan Washington Airports Authority (the Authority)
hired Hitt Contracting, Inc. (Hitt) to build a new fuel farm at
Washington National Airport. Hitt subcontracted with John J.
Kirlin, Inc. (Kirlin) to furnish and install an underground
piping system as part of the project. The installation of the
piping system was completed in August of 1993. In April 1994,
leaks were discovered in the system. Kirlin repaired the system
and reported that the system passed an air pressure test
performed in June of 1994.

After further investigation, the Authority determined that
faulty design and improper installation had caused the leaks and,
in December 1994, directed Hitt to replace certain pipe joints
with differently designed joints. Kirlin replaced the joints as
directed by the Authority. Hitt notified the Authority that it
considered the repairs and replacement of the piping system to be
an "extra" under the construction contract and that it
was entitled to additional compensation for the costs incurred.
The Authority refused the claim for compensation.

In conjunction with the construction project, the Authority
had obtained an insurance policy from Industrial Risk Insurers
(IRI). Hitt submitted a claim for the additional work to IRI on
its own behalf and on behalf of Kirlin as insureds under this
policy. On March 21, 1996, IRI denied the claim based on a faulty
workmanship exclusion in the policy.

Hitt and Kirlin (collectively "the insureds") filed
a motion for judgment against IRI seeking recovery under the
policy. [1] IRI filed a demurrer and
special plea of the statute of limitations, asserting the suit
was barred because it was not filed within the two-year
limitations period contained in the policy. The insureds
responded that their claim was made pursuant to the Replacement
Coverage Endorsement and that the two-year limitations period did
not apply to suits seeking recovery under that endorsement. After
briefing and argument of counsel, the trial court sustained IRI’s
demurrer and special plea and dismissed the case with prejudice.
We awarded the insureds an appeal.

The insurance policy at issue is identified in the Memorandum
of Insurance as a "Standard Fire Insurance Policy" and
denotes the coverage as "ALL RISK PROPERTY POLICY." The
policy covers all risks of physical loss or damage, except as
excluded, to covered property during the policy term. Because the
policy covers property in Virginia and insures against the peril
of fire, it necessarily includes the mandatory provisions
enumerated in Code Sect. 38.2-2105. See Code
Sect. 38.2-2100.

These statutorily required contract provisions were made part
of this policy by an endorsement entitled "Virginia
Amendatory Endorsement." As relevant here, the Virginia
Amendatory Endorsement provides that a suit to recover a claim
under the policy must be "commenced within two years next
after inception of the loss."

The policy includes a Replacement Coverage Endorsement upon
which the insureds base their claim. It provides in pertinent
part:

In consideration of increased premium and subject to
all terms, conditions and stipulations of the policy to
which this endorsement is attached, not in conflict
herewith, the coverage under this policy . . .
is hereby extended to cover such property to the amount
actually expended by or in behalf of the Insured to
repair, rebuild or replace within two (2) years from the
date of loss or damage . . . .

The insureds advance three arguments to support their
contention that the two-year limitations period in the policy
required by Code Sect. 38.2-2105 does not apply to their
claims under the Replacement Coverage Endorsement. We reject all
three.

The insureds first assert that the insurance contract at issue
is not the type of fire insurance policy subject to the
provisions of Code Sect. 38.2-2105 because it provides
"much broader coverage than that provided by standard fire
insurance coverage." In support, they argue that a
"standard" fire insurance policy provides only actual
cash value coverage while the policy in this case provides
replacement cost coverage. We disagree. Contrary to the insured’s
assertion, the mere fact that this policy provides coverage for
other perils in addition to fire, and provides for insurer
liability on a basis other than actual cash value, does not mean
it is not subject to the "standard" provisions required
in a fire insurance policy pursuant to Chapter 21 of Title 38.2
of the Code of Virginia, Code Sects. 38.2-2101 through
-2124.

Code Sects. 38.2-2100 and -2101 provide that
"policies of fire insurance, and contracts or policies of
fire insurance in combination with other insurance coverages"
issued on property in Virginia must meet the requirements of
Chapter 21. (Emphasis added.) The Chapter allows inclusion of
perils other than fire "by endorsement by writing."
Code Sect. 38.2-2105. Furthermore, while the standard
provisions set out in Code Sect. 38.2-2105 provide for
insurer liability on an actual cash value basis in the case of
loss, Code Sect. 38.2-2119 permits the policy to contain an
endorsement providing for the payment of the full replacement
cost of property insured under the policy.

The policy in this case insures against the peril of fire. As
such it is required to and does contain the "standard"
fire insurance policy provisions of Code Sect. 38.2-2105. As
permitted by those mandatory provisions, the policy also contains
written endorsements extending coverage to all perils not
excluded and an endorsement providing that the insurer will be
liable for the replacement cost of certain property lost as a
result of a covered peril. The policy’s "broader
coverage" does not remove the policy from the provisions of
Title 38.2, Chapter 21, and nothing about the policy exempts it
from the mandatory provisions of Code Sect. 38.2-2105.
Therefore, the two-year statute of limitations mandated by Code
Sect. 38.2-2105 applies to this policy.

The insureds alternatively argue that the several additional
coverages added to the fire insurance policy are, in effect,
separate coverages. They assert that the Replacement Coverage
Endorsement under which they claim provides a different type of
coverage than standard fire insurance coverage and is, thus, not
subject to the limitations period mandated in Code
Sect. 38.2-2105 for standard fire insurance policies. Again,
we disagree.

Fire insurance coverage (or fire insurance coverage in
combination with other insurance coverages, see Code
Sect. 38.2-2100) and an endorsement for replacement cost
coverage, are not different types of insurance. The former
describes the risk insured against in the policy. The latter,
replacement cost coverage, provides the method of measuring the
amount of recovery an insured will receive for the property it
lost because of a risk insured against in the policy. The
endorsement does not provide "separate" coverage, as
the insureds contend, but merely extends coverage "to the
amount actually expended" to repair, rebuild, or replace the
damaged property. Therefore, we reject the insureds’ argument
that the two-year limitations provision in Code
Sect. 38.2-2105 and in this policy does not apply to a suit
to recover under the Replacement Coverage Endorsement because
replacement coverage is a separate type of insurance.

Next, the insureds argue that Code Sect. 38.2-2119(B)
establishes a "different procedure" for recovery under
a replacement cost endorsement, and therefore, that the General
Assembly anticipated application of a different limitations
period to suits brought under such an endorsement. The insureds,
however, mischaracterize Code Sect. 38.2-2119(B). [2] Anticipating that the insured
will follow the procedure mandated in Code Sect. 38.2-2105
for making a timely claim for the actual cash value of the
losses, the subsection protects the insured’s ability to make a claim
for the difference
between the actual cash value and the
replacement cost value. It also sets out the time frame within
which that claim must be submitted to the insurer.

While this procedure addresses an element involved in securing
recovery for replacement cost that does not exist in recovery for
actual cash value, it does not provide a "different
procedure" for recovery under the policy. The
"standard" procedures for recovery mandated by Code
Sect. 38.2-2105, such as notifying the insurer of the loss,
presenting the proof of loss, and resolving disputes over the
amount of the loss, are applicable to claims under the
Replacement Coverage Endorsement as well as to claims under other
portions of the policy.

Furthermore, Code Sect. 38.2-2119 specifically provides
that it applies to policies issued under Chapter 21, the same
Chapter in which Code Sect. 38.2-2105, the section imposing
the two-year limitation, is found. Thus, we must assume that the
General Assembly anticipated that both the procedure set out in
Code Sect. 38.2-2119(B) and the two-year limitations period
set out in Code Sect. 38.2-2105 would apply in the same
policy and operate together. There is no support for the
insureds’ argument that the General Assembly intended a
limitations period other than that prescribed in Code
Sect. 38.2-2105 to apply to replacement cost coverage.

Finally, the insureds assert that because costs incurred up to
two years after the loss are recoverable under the Replacement
Coverage Endorsement, applying the two-year limitations period
could require an insured to file suit "before those costs
can be presented to the insurers, or before the insured and
insurer even fail to agree to the amount of the recovery."
As a result of these circumstances, the insureds argue, logic and
common sense dictate that the two-year limitations period
required by Code Sect. 38.2-2105 should not apply to claims
made under the Replacement Coverage Endorsement. [3] However,
the possibility that in certain circumstances an insured might
not be able to recover replacement costs incurred near or at the
end of the two-year limitations period does not change the plain
language of Code Sect. 38.2-2105 and of this policy. By
requiring every policy of fire insurance covering property in
Virginia to contain all the provisions contained in Code
Sect. 38.2-2105, the General Assembly indicated the
importance it attached to these provisions. As we said in Ramsey
v. Home Insurance Co.
, 203 Va. 502, 506, 125 S.E.2d 201, 204
(1962):

The limitation involved in the present case is not in
the language of the insurance company. It is in the
language of the General Assembly and expressed in words
which the statute requires to be inserted in the policy,
word for word, line for line, number for number. It says
in plain, unambiguous words that no suit shall be
sustainable unless it is commenced within [two years] next after the inception of the loss.

Accordingly, we conclude that the two-year limitations period
established by Code Sect. 38.2-2105 and contained in the
contract of insurance was applicable to the insureds’ motion for
judgment against IRI and that the trial court correctly dismissed
the motion for judgment on the basis that it was not filed within
the two-year limitations period.

Affirmed.

 

FOOTNOTES:

[1]
The motion for judgment also contained a breach of contract count
against the Authority. That count was nonsuited and is not before
us on appeal.

[2]
Code Sect. 38.2-2119(B) provides:

Where any policy of insurance issued or delivered in
this Commonwealth pursuant to this chapter provides for
the payment of the full replacement cost of property
insured thereunder, the policy shall permit the insured
to assert a claim for the actual cash value of the
property without prejudice to his right to thereafter
assert a claim for the difference between the actual cash
value and the full replacement cost unless a claim for
full replacement cost has been previously resolved. Any
claim for such difference must be made within six months
of (i) the last date on which the insured received a
payment for actual cash value or (ii) date of entry of a
final order of a court of competent jurisdiction
declaratory of the right of the insured to full
replacement cost, whichever shall last occur.

[3] We note that such circumstances
are not presented in the instant case. According to the motion
for judgment, the insureds’ claim was submitted to and rejected
by IRI sometime before the end of the two-year limitations
period.

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