4th Circuit: Carrier has duty to defend, even if there are excluded claims – Declaratory judgment

On March 3, 2015, homeowners sued ARC Construction LLC and Ali Ergul, ARC’s manager, in the District of Co­lumbia Superior Court with regard to renovation and demolition work performed on their neighbors’ half of a duplex home. The plaintiffs, who own the other half of the duplex, alleged ARC’s work contam­inated their home with lead paint dust and spray insulation which endangered their health and ex­acerbated one plaintiff’s asthmatic con­dition. The homeowners also claimed ARC and Ergul’s work damaged the duplex “party wall” causing cracks that compromised the structural integrity of their home. The plaintiffs alleged neg­ligence, negligence per se, private nui­sance, and trespass to land, as a result of ARC’s “willful” acts. Builders’ Mutual Insurance Company issued a commer­cial package policy to ARC and is cur­rently defending the lawsuit under a reservation of rights.

On March 24, 2015, Builders filed a declaratory judgment action in federal court in Alexandria against ARC and Ergul, seeking a declaration that it had no duty to defend in the underlying ac­tion because the plaintiffs did not allege an “occurrence,” as defined by the policy, and that several policy exclusions ap­plied. On June 2, 2015, Judge Anthony J. Trenga found that Builders was not relieved of its duty to defend. Builders appealed to the 4th U.S. Circuit Court of Appeals.

In Builders Mutual Insurance Com­pany v. Ali, LLC et al., (No. 15-1867, May 11, 2016), a unanimous panel de­termined there were sufficient claims in the underlying dispute that warranted a defense by the insurer, despite inclu­sion of otherwise excluded claims. In a per curiam opinion, the Fourth Circuit found that, under Virginia law, “the duty of an insurer to defend an insured…is broader than its obligation to indemni­fy its insured.” Citing Fuisz v. Selective Ins. Co. of Am. (61 F.3d 238, 242 [4th Cir. 1995]), the panel held that courts must construe policy terms in favor of the in­sured and that “exclusions from coverage are enforceable only when the exclusions unambiguously bring the particular act or commission within its scope.” Thus, if a pleading sets forth any set of facts and circumstances that if proved fall within the risk covered by the policy, the insur­er has a duty to defend. (“If a complaint, however ambiguous, may be read a pre­mising liability on alternative grounds, and either ground states liability poten­tially or arguably covered by the policy, the insured is entitled to a defense.”).

“We have revised the record and found no reversible error. Accordingly, we affirm the district court’s order We dispense with oral argument because the facts and legal contentions are adequately present­ed in the materials before this court and argument would not aid in the decisional process,” the panel said.

[16-T-086]

Type of action: Insurance Declaratory Action

Name of case: Builders Mutual Insurance Company v. ARC Construction LLC et al.

Court: 4th U.S. Circuit Court of Appeals

Case no.: 15-1867

Name of judges: Judges Wilkinson, Motz, and Floyd

Date resolved: May 11, 2016

Verdict or settlement: Decision

Amount: Affirmed decision of U.S. District Court dismissing insurer’s declaratory judgment action and finding a duty to defend its insured and pay attorney’s fees in underlying lawsuit which included claims otherwise excluded under commercial liability policy.

Attorneys for defendant: Joseph F. Cunning­ham and Aaron Jefferson Cheatham, Arlington

Attorneys for plaintiff: Danny M. Powell; Michael T. Marr and Sarah Bucovetsky, McLean