More on Duty to Defend a Subcontractor

While we don’t often discuss insurance coverage issues here at Construction Law Musings, occasionally a case comes up that makes the grade for a post.  One such case was Erie Insurance Exchange v. Salvi, where the question of an “occurrence” that warranted coverage and defense under an insurance policy was at issue.  That case discussed this key question in a residential construction context based upon poor workmanship. A recent case out of the Western District of Virginia federal court analyzed this coverage issue in the commercial context.

In Nautilus Ins. Co. v. Strongwell Corp., the Court considered a challenge by the insurance company, Nautilus, to its duty to defend based on both the definition of “occurrence” and the definition of “property damage.”  Nautilus filed a declaratory judgment action seeking a declaration that it need not either defend or indemnify because the extrinsic evidence (as distinguished from the “eight corners” of the policy) precluded coverage for the types of claims made by an owner and by extension a general contractor in a separate lawsuit.

The Virginia Court rejected the argument that extrinsic evidence can be used by an insurer to determine the duty to defend and relied on the so called “eight corners rule” to find a duty to defend because the allegations of the Missouri complaint had enough in them to potentially implicate coverage.  The court further determined that where, as in the case before it, an allegation does not clearly fall within an exclusion, the duty to defend (if not to pay) exists.

As always I recommend that you read the case (linked above in .pdf) for yourself and that you consult a Virginia construction attorney to determine whether you should pursue your carrier for a defense of any construction claim made against you.

What do you think of this case?  Is there a wrinkle I missed?  Let me know.

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