Virginia Lawyers Weekly VA Lawyers Weekly
Where a subcontractor’s faulty excavation work on a building construction project caused a delay in the project and required the subcontractor to perform significant remediation work, the resulting damages incurred by the site owner and general contractor were not covered by the general contractor’s insurance policy.
Background
This case arises from the delay of a building construction project in Bethesda, Maryland. Bainbridge St. Elmo Bethesda Apartments LLC owned the site and hired Turner Construction Co. as the general contractor for the project. Turner subcontracted with Schnabel Foundation Co. to provide the support for the excavation system to hold back earth on adjoining properties as excavation and construction occur on the site.
The support for the excavation system involved drilling large holes several feet apart, installing steel beams vertically in the holes and attaching wooden slats horizontally to the beams. Schnabel began its work in September 2011. In an attempt to construct the system as close to the property line as possible, it drilled larger holes for the steel beams than it had planned. Because the holes were oversized, the earth around them shifted and sloughed into the holes. Schnabel then had to use a vibrating air hammer to install the remaining beams, which exacerbated the soil movement.
Several neighboring properties suffered damage as a result of the excavation and, in March 2012, Montgomery County issued a stop work order for the project, allowing only the implementation of safety measures and remediation of the support of the excavation work to continue. Regular construction resumed in July, and Schnabel completed proper support of the excavation system in October 2012.
Overall, Schnabel’s faulty work on system delayed completion of the project by approximately one year.
As a result of the damage they sustained, the neighboring properties sued Bainbridge, Turner, and Schnabel for property damages and business disruption losses. The defendants then sued each other, each seeking to saddle the others with those liabilities. Turner had a commercial general liability insurance policy for the project from National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, which provided coverage for property damage caused by an occurrence during the policy period.
National refused to provide coverage for Bainbridge’s suit against Turner for construction delay costs, lost profits and loss of use damages. That action was settled by an agreement providing that Turner would pay Bainbridge $3 million and Bainbridge would assign its remaining rights to Turner.
National also denied coverage for Turner’s suit against Schnabel for the cost of Schnabel’s remediation work and for indemnification for the Bainbridge settlement. That suit was settled by an agreement providing that Schnabel would pay Turner $5 million and Turner would assign its remaining rights to Schnabel.
Schnabel then sued National in Maryland state court seeking $8 million in coverage, consisting of $3 million for Bainbridge’s delay damages and $5 million for Turner’s repair damages. National removed the case to federal court and obtained summary judgment on the complaint. This appeal followed.
Analysis
We agree with the district court that the policy does not cover Schnabel’s repair damages as a matter of law. As the Supreme Court of New Jersey has made clear, commercial general liability policies cover damages to third-party property, not costs to replace a contractor’s own faulty work.
Moreover, we need not decide if the district court correctly analyzed whether there was an “occurrence” to trigger coverage under the policy because, even assuming that there was, coverage for Schnabel’s claims is barred by a specific exclusion contained in the policy which covers impaired property or property that has not been physically injured that suffers damage consisting of a defect, deficiency, inadequacy or dangerous condition in “your work or a delay or failure by you or anyone acting on your behalf to perform a contract.”
The district court correctly found that the site constituted “impaired property” under the policy because it is tangible property that became less useful through the incorporation of the defective support of excavation system, which necessitated the stop work order. In addition, while neighboring properties suffered physical injuries as a result of the defective excavation, the site itself was not physically injured by Schnabel’s work.
Further, as one of Turner’s subcontractors, Schnabel clearly worked on Turner’s behalf to complete projects in furtherance of Turner’s general contract with Bainbridge. Schnabel’s work was also clearly defective and its failure to timely construct an adequate support of excavation system on Turner’s behalf caused a delay or failure to perform a contract. Under these circumstances, the subject policy exclusion plainly bars coverage for Schnabel’s claimed damages.
Affirmed.
Schnabel Foundation Co. v. National Union Fire Insurance Co. of Pittsburgh, Case No. 18-1782, July 10, 2019. 4th Cir. (Agee), Appeal from USDC for the District of Maryland (Xinis). C. Thomas Brown for Appellant; Agelo L. Reppas for Appellee. VLW 019-2-201. 16 pp.
