Taja Invs. LLC v. Peerless Ins. Co.
| Decision Date | 11 October 2017 |
| Docket Number | No. 16-1854,16-1854 |
| Parties | TAJA INVESTMENTS LLC; TAJA CONSTRUCTION & REHAB, INC., a/k/a Taja Construction LLC, Plaintiffs - Appellants, v. PEERLESS INSURANCE COMPANY, a/k/a Liberty Mutual Insurance Company, Defendant - Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
UNPUBLISHED
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Gerald Bruce Lee, District Judge. (1:15-cv-01647-GBL-TCB)
Before AGEE, KEENAN, and HARRIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: C. Thomas Brown, SILVER & BROWN, Fairfax, Virginia, for Appellants. Roman Lifson, CHRISTIAN & BARTON, LLP, Richmond, Virginia, for Appellee. ON BRIEF: Erik B. Lawson, SILVER & BROWN, Fairfax, Virginia, for Appellants. E. Ford Stephens, CHRISTIAN & BARTON, LLP, Richmond, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
Taja Construction LLC was renovating a row house owned by affiliate Taja Investments LLC (together, "Taja") when the east wall of the property collapsed. Taja sought to recover the cost of repairs under its insurance policy, issued by Peerless Insurance Company. After an investigation, Peerless determined that the collapse was caused by Taja's failure to support the building's foundation properly while excavating the basement, and it denied Taja's claim under a policy exclusion for defects in construction or workmanship. Peerless also denied the claim under a separate exclusion, this one for damages resulting from movement of the earth's surface.
Taja filed suit against Peerless for breach of its insurance policy. The district court granted summary judgment to Peerless, holding that both the cited exclusions apply and that either would be a sufficient basis for denying coverage. For the reasons given below, we affirm the judgment of the district court.
Taja is a real estate development company that purchases and renovates properties for resale. As part of its renovation of 117 New York Avenue, a row house in Northwest Washington, D.C., Taja planned to deepen the basement to create a larger living space. The structural drawings required that the basement be excavated in sections, dug one at a time, with concrete underpinning used to reinforce each section before proceeding to the next. J.A. 1144-45. But contrary to the plans, Taja's owner Michael Watson directed subcontractors to fully excavate the basement without intermittent underpinning.
Several people warned Watson against proceeding without the contemplated underpinning. In the weeks before the collapse, both the engineer responsible for thestructural drawings and a project subcontractor informed Watson of the need for structural underpinning during excavation, with the subcontractor going so far as to insert into his agreement with Taja a provision stating that he was "not responsible for any collapse due to non[-]underpinning." J.A. 1180. And roughly two days before the collapse, the owner of a construction company that had renovated a neighboring property told Watson that he was "concerned about the stability of [the] below grade soil," and that if Taja failed to underpin the property, it was "going to collapse." J.A. 461-62.
By the third day of construction, the basement had been fully excavated without any underpinning. J.A. 159, 165. A few hours after workers left the site, the property's east wall collapsed.
Taja's property was insured under a builder's risk policy issued by Peerless Insurance Company. That policy - a broad "all risk" policy - covered all risks of direct physical loss, except for those expressly excluded under the policy's terms. Taja filed a claim of $400,000 for repair costs, and Peerless hired an engineering firm to investigate the cause of the collapse. Zachary Kates, lead engineer on the investigation, found that Taja's failure to periodically underpin during excavation left the soil beneath the load-bearing walls in an unstable condition, which caused the collapse of the east wall. Watson, Taja's owner, confirmed that assessment, conceding at his deposition that Taja's removal of bricks and dirt beneath the wall directly caused the collapse.
Peerless denied Taja's claim. First, relying on Kates's report, Peerless cited the policy's exclusion of losses resulting from defects in workmanship and construction (the "Workmanship Exclusion"). And second, as an independent and alternative ground fordenying coverage, Peerless relied on the policy's "Earth Movement Exclusion," which excludes coverage for losses caused by "movement or vibration of the earth's surface." J.A. 127, 133. Taja disputed Peerless's denial of its claim, and filed suit for breach of insurance policy in Virginia state court. Peerless removed the claim to federal district court, invoking diversity jurisdiction, and both parties moved for summary judgment.
In a thorough and thoughtful opinion, the district court granted summary judgment to Peerless, holding that both exclusions apply and that each separately supports the denial of Taja's claim. Taja Invs. LLC v. Peerless Ins. Co., 196 F. Supp. 3d 587 (E.D. Va. 2016). We summarize the court's detailed opinion briefly here.
The court began with the Workmanship Exclusion, which provides that Peerless will "not pay for loss caused by an act, defect, error, or omission (negligent or not) relating to . . . construction, workmanship . . . [or] renovation." J.A. 135-36. Undisputed witness testimony attributed the collapse of the row house's east wall to Taja's failure to underpin the property while excavating. And Taja itself accepted and relied upon Kates's report concluding that Taja's faulty work sequence caused the collapse. The court thus found it beyond dispute that the Workmanship Exclusion applies - as Taja ultimately conceded before this court at oral argument.
Taja argued, however, that even assuming application of the Workmanship Exclusion, coverage is restored by the provision's "ensuing loss" clause. Ensuing loss clauses preserve coverage when a loss excluded under a policy - here, a loss caused by a defect in workmanship - results in a subsequent or "ensuing" loss that otherwise would be covered. See TRAVCO Ins. Co. v. Ward, 715 F. Supp. 2d 699, 718 (E.D. Va. 2010), aff'd,504 F. App'x 251, 253 (4th Cir. 2013). Specifically, the ensuing loss clause in Taja's policy provides that while Peerless will not pay for loss or damage caused by a workmanship defect, "if loss by a covered peril results," then Peerless will pay for "the resulting loss." J.A. 135. And according to Taja, that entitles it to recover for losses that "result[ed]" from the collapse caused by its defective workmanship.
The district court rejected that argument, finding that damages associated with the collapse were the direct result of Taja's failure of workmanship rather than a separate "resulting loss," and thus remained excluded under the Workmanship Exclusion. Taja Invs., 196 F. Supp. 3d at 594. Although the Supreme Court of Virginia has not directly addressed the scope of ensuing loss clauses,1 courts generally agree, as the district court explained, that when a workmanship exclusion is triggered, an ensuing loss clause applies only when there is significant attenuation between the direct result of a workmanship defect and the ultimate loss for which coverage is sought, usually due to an independent or fortuitous intervening cause. In other words, an ensuing loss provision "excludes from coverage the normal results of defective construction, and applies only to...
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