Builders Mutual Insurance v. Dragas Management Corp.
2011 U.S. Dist. LEXIS 63571
| E.D. Va. | 2011Background
- The case arises from Chinese drywall installed by Porter-Blaine at two DMC developments, The Hampshires in Chesapeake and Cromwell Park in Virginia Beach.
- DMC acted as general contractor and entered into drywall-related subcontracts with Porter-Blaine; some drywall came from a Chinese supplier Taishan Gypsum Co. Ltd.
- Remediation costs were incurred for 74 homes with elevated sulfur, causing corrosion, odor, and property damage; DMC negotiated remediation agreements with affected homeowners who signed releases.
- DMC sought coverage under five insurance policies (three BMIC policies and two FIC policies) and notified insurers of remediation costs.
- Insurers BMIC and FIC denied coverage, while Porter-Blaine’s insurers Hanover and Citizens insured DMC as additional insureds; other insurers were later involved as third-party defendants.
- The court had previously addressed related motions to dismiss, concluding that DMC had not shown a legal obligation to pay damages without a final judgment or settlement, and this opinion resolves coverage on that basis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether DMC had a legal obligation to pay remediation costs as damages to trigger CGL coverage. | DMC argues the policy language requires a legal obligation to pay damages, which is met by remediation costs. | The insurers contend there is no legal obligation to pay damages absent a final judgment or settlement. | No coverage; no legal obligation to pay damages existed. |
| Whether voluntary remediation constitutes damages triggering coverage. | Remediation costs are damages under the policies and should be covered despite no suit. | Voluntary remediation cannot create a legal obligation to pay damages without a judgment or settlement. | Remediation costs paid voluntarily do not constitute damages under the policies. |
| Whether there must be a final judgment or settlement to trigger coverage for remediation costs. | Threats of litigation and pre-suit actions can establish a legal obligation to pay. | A final judgment or settlement is generally required to create a legal obligation to pay under CGL. | A final judgment or settlement is required; threats alone do not create coverage. |
| Whether Virginia law supports treating remediation costs as damages in the absence of a lawsuit. | Remediation costs can be damages under Virginia law when legitimately incurred. | Virginia law does not extend damages coverage to voluntary remediation absent litigation. | Virginia-law precedent does not support treating voluntary remediation as damages under these policies. |
Key Cases Cited
- Detroit Water Team Joint Venture v. Agric. Ins. Co., 371 F.3d 336 (6th Cir. 2004) (legal obligation to pay requires judgment or settlement)
- Helena Chem. Co. v. Allianz Underwriters Ins. Co., 357 S.C. 631 (S.C. 2004) (remediation costs within damages scope)
- Morrow Corp. v. Harleysville Mut. Ins. Co., 101 F. Supp. 2d 422 (E.D. Va. 2000) (environmental remediation damages; insurer denial of defense)
- C.D. Spangler Constr. Co. v. Indus. Crankshaft & Eng'g Co., Inc., 326 N.C. 133 (N.C. 1990) (damages interpretation and environmental cost recovery)
- Patrons Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16 (Me. 1990) (damages interpretation in context of remediation)
- Klein v. Fid. & Deposit Co. of Am., 117 Md.App. 317 (Md. Ct. Spec. App. 1997) (letters warning claims imminent not enough to create legal obligation)