West Virginia Supreme Court Finds No Duty to Defend or Indemnify Under CGL Policy For Contractor’s Work
In yet another decision arising from the construction of a home, the West Virginia Supreme Court of Appeals (“WVSCA”) in SER Nationwide v. Wilson, No. 15-0424 (W.Va. October 7, 2015) examined coverage under a commercial general liability ("CGL") policy issued to a contractor who allegedly negligently constructed the home, failed to complete construction, and failed to pay suppliers and subcontractors. The circuit court ruled that Nationwide’s commercial general liability policy issued to the contractor required it to defend and indemnify for any damages that may be recovered by the homeowners based upon the court’s finding that at least one claim triggered coverage. The causes of action asserted against the contractor included breach of contract, breach of the covenant of good faith and fair dealing, defamation, unfair and deceptive practices, fraud and intentional misrepresentation, conversion, unconscionability, injunctive relief, and defective workmanship. The WVSCA reversed finding that most of the claims asserted did not trigger coverage and those that did were precluded by applicable policy exclusions.
The policy at issue in SER Nationwide v. Wilson included Coverage A applicable to property damage and bodily injury liability caused by an occurrence and Coverage B applicable to personal and advertising injury. Although Nationwide believed that the primary claims for breach of contract and intentional acts were not covered, Nationwide agreed to provide a defense under a reservation of rights because of the negligence (faulty workmanship) claim. In light of the WVSCA’s prior holding inCherrington v. Erie Ins. Prop. & Cas. Co., 231 W.Va. 470, 745 S.E.2d 508 (2013), the circuit court held that the faulty workmanship claim was insured under the policy and, therefore, Nationwide “has a duty to indemnify [the contractor] for any damages that may be recovered against [the contractor], and Nationwide may not withdraw from its defense of the insured for this case.” Wilson, p. 5 (emphasis added). Nationwide sought a writ of prohibition arguing that the circuit court failed to properly consider whether coverage was really triggered, failed to consider applicable exclusions, and erred in finding that coverage under one count of the complaint triggered an indemnity obligation under all of the other counts. The WVSCA granted the writ and found that none of the damages sought by the homeowners triggered coverage or were otherwise subject to applicable exclusions and that the circuit court had improperly equated the duty to defend with the duty to indemnify.
Significantly, the WVSCA affirmed that eight of the counts, including the count for breach of contract, alleged misconduct that is either intentional or contractual in nature and, therefore, not an “accident” or “occurrence” under the terms of the contractor’s CGL policy. However, the claim for defective workmanship causing bodily injury or property damage triggered Coverage A, and the defamation claim triggered Coverage B, subject to applicable policy exclusions which the WVSCA examined carefully. While it has long been the case that an insurer has the burden of proving the operation of a policy exclusion, the WVSCA stressed that the allegations in the complaint are important to both the determination of whether coverage is triggered and the determination of whether an exclusion applies. Examining the allegations in the homeowners' amended complaint, the WVSCA noted that the amended complaint sought damages exclusively arising from the insured contractor’s work and that the homeowners refused to provide information in discovery that may have shed light on the involvement of any subcontractors. Therefore, the WVSCA concluded that the “your work” and “impaired property” exclusions unambiguously precluded coverage for damages arising from the contractor’s work under Nationwide’s CGL policy. Additionally, the homeowners' allegation that the contractor knowingly made false statements also fell squarely within an exclusion applicable to oral and written publication of information known to be false. Note also footnote 1 in which the WVSCA reminded the litigants that breach of the covenant of good faith and fair dealing is not a separate cause of action from breach of contract.