Are Untimely Repairs an “Occurrence” Triggering CGL Coverage?

All Class A commercial contractors in Virginia are required to have a minimum level of Commercial General Liability (CGL) coverage.  As a general rule, this insurance is there for damage to property or persons arising from an “occurrence” that is covered by the policy.  Many cases that are litigated relating to coverage for certain events under a CGL policy turn on the definition of “occurrence” and whether the event leading to a request for coverage constitutes an “occurrence.”

A recent case in Fairfax County, Virginia, Erie Insurance Exchange v. Spalding Enterprises, et al., is just such a case.  In the Spalding Enterprises case, the Court considered the following scenario.  A homeowner, Mr. Yen contracted with Spalding Enterprises to fix some fire damage at his home.  Spalding promised the repairs would be complete in October of 2019.  However, after Mr. Yen paid a $300,000.00 deposit, Spalding Enterprises stated that the work would not be completed until November of 2019.  Yen then fired Spalding Enterprises and sued for breach of contract, constructive fraud, and violation of the Virginia Consumer Protection Act.  Spalding Enterprises sought coverage from Erie Insurance for the claim and Erie denied coverage and sought a declaratory judgment that the events alleged in the Complaint by Mr. Yen did not fall under the definition of “occurrence” in the CGL policy held by Spalding Enterprises.

After discussing the definition of occurrence in the policy and the law in Virginia that generally precludes intentional acts from that definition where the result of the intentional act is a natural or probable consequence of that intentional act, the Court stated:

Here, Mr. Yen’s detrimental reliance is unquestionably a natural or probable consequence of the misrepresentations made upon which Mr. Yen was intended to rely. It follows that any alleged constructive fraud in the complaint is not an occurrence under Spaulding Enterprise’s CGL policy with Erie.

Because the fraud allegations (set out in more detail in the opinion) stated that the damages directly arose from the actions of Spalding Enterprises, the Court agreed with Erie and stated that the allegations in the factual allegations found in the Complaint did not constitute an “occurrence” under the policy.

The takeaways (aside from having an experienced Virginia construction attorney assist with any of these tricky issues) are 1. CGL policies do not cover everything and 2. be sure to carefully read any policy documents because the Virginia courts will look at the specific language very carefully in determining if coverage applies.

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