When a wall collapsed during renovation of a row house, the developer sought to recover repair costs under its Builders Risk Insurance policy. The carrier denied coverage based on an exclusion in the policy for defects in construction or workmanship. It also asserted the earth movement exclusion for denying coverage. The wall collapsed during excavation of the existing basement to make a larger living area. Structural drawings required excavation to be done a section at a time, with concrete underpinnings to reinforce each section before proceeding to the next. Contrary to the plans, the developer directed subcontractors to fully excavate the basement with no underpinning. Several people warned the developer against proceeding without underpinning. After the third day of construction, the basement had been fully excavated without any underpinning. A few hours after the workers left the site for the night, a basement wall collapsed. The trial court granted summary judgment to the carrier on the basis of both exclusions, and this was affirmed on appeal.
The court found that the damages associated with the collapse were the direct result of the failure of workmanship rather than a separate “resulting loss” that might have been covered as an “ensuing loss” under the policy. With regard to the earth movement exclusion, the developer argued that it didn’t apply since the movement was below street or ground level. The court held that although the wall collapse occurred below grade, it still involved movement of the earth surface, and the exclusion in the policy was therefore applicable to deny coverage. Taja Investments, LLC v. Peerless Insurance, 196 F. Supp 3d 587 (E.D. Va. 2016), affirmed in Taja Investments, LLC v. Peerless Insurance, 2017 WL 4534788 (U.S., 4th Cir. 2017).
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 20, No. 4 (Apr 2018).
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