Dragas Management Corp. v. Hanover Insurance
798 F. Supp. 2d 758
E.D. Va.2011Background
- DMC builds residential developments in Hampton Roads, including The Hampshires in Chesapeake and Cromwell Park in Virginia Beach.
- Porter-Blaine contracted to supply/install drywall for the two developments.
- A portion of installed drywall was Chinese-made and defective, containing unusually high sulfur levels.
- Defective drywall allegedly caused damage by corroding HVAC coils, wiring, metals, and emitting odor; DMC remedied at its own cost after Porter-Blaine refused to fix.
- DMC held arbitration against Porter-Blaine; the arbitrator awarded $4.9 million in damages plus costs and post-judgment interest.
- DMC filed suit in federal court to enforce the arbitration award against Porter-Blaine’s insurers, Citizens and Hanover, seeking coverage under their policies.
- The court granted in part and denied in part DMC’s motion for partial summary judgment regarding coverage issues under Citizens and Hanover policies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the defective drywall installation constitutes an occurrence under the policies | DMC argues that damage to non-defective parts constitutes an occurrence. | Citizens and Hanover contend the defective drywall itself is not an occurrence; only resulting damages to non-defective work may be. | Replacement of defective drywall is not an occurrence; damage to non-defective components qualifies as an occurrence. |
| Whether each drywall installation constitutes a separate occurrence | Each home’s drywall installation independently caused damage. | There was a single underlying cause—the defective drywall product. | There were seventy-four separate occurrences, one per affected home. |
| Whether the 'your work' exclusion bars coverage and can be determined at this stage | DMC argues exclusion does not apply due to subcontractor use by Porter-Blaine. | There is insufficient evidence of subcontractor use to resolve the exclusion now. | Summary judgment on the 'your work' exclusion is not proper; factual disputes remain. |
Key Cases Cited
- French v. Assurance Co. of America, 448 F.3d 693 ((4th Cir.2006)) (subcontractor defective work may trigger coverage for resultant damage to non-defective work)
- Stanley Martin Cos., Inc. v. Ohio Casualty Group, 313 F.Appx. 609 ((4th Cir.2009)) (unpublished; repair of damage beyond defective work triggers coverage)
- S.F. v. West American Insurance Co., 463 S.E.2d 450 ((Va. 1995)) (occurrence ambiguity; separate occurrence for each victim in pattern of conduct)
- Lennar Corp. v. Great American Insurance Co., 200 S.W.3d 651 ((Tex.App.2006)) (each installation can be a separate occurrence under similar policy language)
- Maryland Casualty Co. v. Cole, 156 Va. 707 ((Va. 1931)) (insured bears burden to show coverage under policy)