No Coverage for Faulty Workmanship Based Upon Exclusion for Contractual Assumption of Liability

Tred R. Eyerly | Insurance Law Hawaii | June 5, 2019

    The Supreme Court for West Virginia determined the policy’s contractual assumption exclusion barred coverage for the general contractor based upon claims of faulty workmanship. J.A. St & Assocs. v. Bitco Gen. Ins. Corp., 2019 W. Va. LEXIS 205 (May 1, 2019).

    J.A. Street & Associates, Inc. entered a contract with the developer, Thundering Herd Development, L.L.C., to build a commercial shopping center on seventy-eight acres of land. Street agreed to oversee the site preparation for the development and the construction of many of the buildings. Thundering Herd retained an engineering firm, S&ME, Inc. to do geotechnical exploration and to provide advice regarding land preparation for the shopping center. Thundering Heard also entered an agreement with the Target Corporation to construct a store on a pad to be prepared at the shopping center. 

    Street hired subcontractors to prepare the site by grading the land and installing fill material. A slope was constructed at the rear of the proposed Target site, but it failed, causing a landslide, damage to the pad, and damage to adjacent property owned by a third party. Thundering Heard incurred $721,875 in additional costs to repair this slope, reconstruct the Target site, and compensate the neighbor for the damage to the adjacent property. 

    Another problem arose with the foundation of Shops A when the walls began cracking due to settlement. Remedial action included the installation of pilings under the foundation and grout injection under the slab, as well as repairs of damage to the building. 

    Thundering Heard filed suit against S&ME. The complaint was later amended to add Street as an additional defendant based upon Street’s failure to comply with the construction contracts. resulting in harm to the shopping center due to the landslides.

    Street was insured under several CGL, umbrella and excess policies. Bitco General Insurance Corporation provided a defense to Street. Bitco also filed a declaratory judgment action asking the court to rule that it had no duty to defend or indemnify. Street filed a third-party complaint against all of its insurers who issued CGL, umbrella or excess policies during the period of construction. 

    In ruling on six different summary judgment motions, the circuit court found there was an “occurrence” resulting in “property damage” under the insurers’ policies. However, the contractual liability exclusion precluded coverage under each policy. 

    On appeal, the court found that the installation of fill material, the grading of the land, the construction of the slopes and other site preparation work constituted faulty workmanship and use of materials. Therefore, correction of the site preparation work was not covered under Bitco’s CGL policy. But damages for other injury to property that resulted from the alleged faulty workmanship, such as cracked walls or floors in structures caused by the setting of improper fill material, was covered “property damage.”

    But Bitco’s policies excluded “‘bodily injury’ or ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Thundering Herd’s underlying complaint sought to have Street to pay damages by reason of Street’s alleged assumption of liability in contract claims for the recovery of money. Such a claim was not covered by the policies. 

      In addition to the exclusion in Bitco’s policies, the umbrella and excess policies had similar exclusions for the contractual assumption of liability. Therefore, none of the insurers owed a defense to Bitco and the circuit court’s six orders granting summary judgment to the insurers were affirmed. 

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