PRESENT: Hassell, C.J., Lacy, Keenan, Kinser, Lemons, and Agee,
JJ., and Carrico, S.J.
NATIONAL HOUSING BUILDING CORPORATION
OPINION BY
v. Record No. 030269 JUSTICE G. STEVEN AGEE
JANUARY 16, 2004
ACORDIA OF VIRGINIA INSURANCE
AGENCY, INC., T/A ACORDIA OF VIRGINIA
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
H. Thomas Padrick, Jr., Judge
National Housing Building Corporation ("NHBC") brought suit
against Acordia of Virginia Insurance Agency, Inc. ("Acordia"),
for negligence and breach of an oral contract by failing to
include NHBC as a named insured on a policy of builders risk
insurance. The trial court granted Acordia's motion to strike
NHBC's evidence for failure to prove "a covered cause of loss,"
even though it found that Acordia was negligent in failing to
list NHBC as a named insured on the policy.
On appeal, NHBC asserts ten assignments of error, all of
which revolve around the trial court's refusal to allow recovery
for expenses incurred in "mitigating" defects in the
construction covered by the policy.
For the reasons that follow, we will affirm the judgment of
the trial court.
I.
Madison Ridge, L.P. ("Madison Ridge") hired NHBC as a
general contractor to build the Madison Ridge apartment complex
in Harrisonburg, Virginia, (the "Project"). National Housing
Corporation ("NHC"), as agent for NHBC, negotiated with Acordia
to procure a builders risk insurance policy covering NHBC and
other entities for work on several construction projects,
including the Project. Acordia obtained a builders risk
insurance policy from Security Insurance of Hartford
("Security") and intended that NHBC be an insured under that
policy ("the Policy"). Acordia admitted, however, that it never
asked Security to list NHBC as a named insured and, in fact,
NHBC was not a named insured under the Policy.
The Project was built on a steep slope that required the
construction of multiple retaining walls. The retaining walls
constrained the earth behind them which, in turn, supported
apartment buildings further up the slope from the walls. NHBC
does not dispute that it defectively designed and built the
retaining walls because its specifications failed to properly
consider the steep incline of the Project.
In the early months of 1998 NHBC requested that a civil
engineer examine one of the retaining walls (Wall 1-2) that had
moved forward approximately eight feet so that it was no longer
straight. This condition concerned NHBC and its engineer
because the soils retained by Wall 1-2 supported the other walls
and the foundations of the apartment buildings uphill. Due to
his concern about the structural collapse of Wall 1-2, the
engineer recommended taking remedial measures to ensure the
stability of the foundations for the uphill apartment buildings.
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NHBC instituted the suggested remedial measures and eventually
replaced Wall 1-2 with one designed to properly accommodate the
topography of the project. Although the other walls had not
failed and the apartment buildings suffered no physical damage,
NHBC adopted the engineer's suggested remedial measures to
underpin the foundations of those structures so as to prevent
any loss or damage. No loss or damage occurred to the apartment
buildings.
NHBC notified Acordia of its claimed loss for the remedial
measures, and on May 5, 1998, NHBC formally requested that
Acordia submit a claim under the Policy to Security. On several
occasions executives at Acordia notified NHBC of its duty to
mitigate any loss, but did not affirm a coverage determination
had been made. Security initially denied NHBC's claim based on
an exclusion in the Policy for loss "caused by or resulting from
any of the following: . . . . error, omission or deficiency in
designs, plans or specifications," due to the defective wall
design. Subsequent to its first denial of NHBC's claim and the
filing of a suit by NHBC to recover insurance proceeds, Security
notified NHBC that it "was not and never had been a named
insured under the policy claimed and sued upon."
NHBC then filed a motion for judgment claiming breach of
contract and negligence by Acordia for the failure to include
NHBC as a named insured under the Policy. NHBC claimed damages
from Acordia "for engineering, repairing, and stabilizing the
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affected walls, and underpinning buildings whose structural
integrity and safety had been compromised" (the "remediation
expenses"). NHBC alleged these "losses would have been covered
by the policy if it had been a named insured thereunder."
At trial, Acordia questioned whether NHBC was the proper
party to bring suit since Madison Ridge paid the remediation
expenses. Acordia asserted that NHBC was not obligated to cover
the remediation expenses because Madison Ridge incurred the
expenses and failed to "purchase or maintain" all-risk insurance
covering NHBC as required by the contract between NHBC and
Madison Ridge.
At the conclusion of all the evidence, Acordia renewed a
motion to strike NHBC's evidence. The trial court found that
NHBC had sustained damages in the amount of $518,690.25 for the
remediation expenses and that Acordia was negligent as a matter
of law in failing to include NHBC as a named insured on the
Policy.
The trial court then determined that NHBC could not recover
against Acordia because even if NHBC had been a named insured
under the Policy, its "loss" was not covered by the Policy.
Since NHBC could not have recovered under the Policy, then it
could not recover against Acordia. The trial court then granted
Acordia's motion to strike because NHBC failed "to prove a
covered cause of loss." We granted NHBC this appeal.
II.
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[A] court must adhere to the terms of a contract
of insurance as written, if they are plain and
clear and not in violation of law or inconsistent
with public policy. It is not our function to
"make a new contract for the parties different
from that plainly intended and thus create a
liability not assumed by the insurer."
Blue Cross & Blue Shield v. Keller, 248 Va. 618, 626, 450 S.E.2d
136, 140 (1994) (quoting Pilot Life Ins. Co. v. Crosswhite, 206
Va. 558, 561, 145 S.E.2d 143, 145 (1965)).
NHBC's claim against Acordia rests on the premise that had
Acordia properly fulfilled its duty as an insurance broker and
caused NHBC to be listed on the Policy, then NHBC would have
recovered from the insurer the remediation expenses caused by
the defective wall. In other words, if NHBC could have
recovered under the Policy, it could recover against Acordia.
In sustaining Acordia's motion to strike, the trial court
opined from the bench.
I don't want to substitute my judgment for the
jury, but the Court is making a legal finding
that it doesn't fall within the policy, and that
if the jury did come back and award $518,690.25,
quite frankly I would have to take it away. . . .
But the facts are what the facts are. It's true
that Acordia screwed up. They didn't list [NHBC]
as a named insured. If they had listed them as a
named insured then the result would have been the
same.
We agree with the trial court.
The Policy provides coverage "for 'loss' to Covered
Property from any of the Covered Causes of Loss." The term
"Covered Causes of Loss" is then defined as "Risks of Direct
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Physical 'Loss' to Covered Property except those causes of
'loss' listed in the exclusions." (Emphasis added).
The Exclusions provision of the Policy then plainly
provides:
2. We will not pay for a "loss" caused by
or resulting from any of the following:
. . . .
e. Defective materials or poor
workmanship; error, omission or
deficiency in designs, plans or
specifications.
This exclusion does not apply to
resultant "loss" to other Covered
Property.
There is no dispute about, and NHBC does not assign error
to, the trial court's finding that Wall 1-2 was defectively
designed and the activities NHBC undertook in anticipation of
the prospect that Wall 1-2 would fail are the basis of the
remediation expenses. Despite the Policy's plain language
excluding loss caused by defective design from coverage under
the Policy, NHBC nonetheless claims its remediation expenses are
compensable under the "Duties in the Event of Loss" section of
the Policy, which provides in pertinent part:
C. DUTIES IN THE EVENT OF LOSS
You must see that the following are done in the
event of "loss" to Covered Property:
. . . .
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4. Take all reasonable steps to protect the
Covered Property from further damage and keep a
record of your expenses necessary to protect the
Covered Property, for consideration in the
settlement of the claim. This will not increase
the Limit of Insurance. However, we will not pay
for the subsequent "loss" resulting from a cause
of loss that is not a Covered Cause of Loss.
Essentially, NHBC claims it would have been under a
contractual duty, had it been listed as a named insured, to have
undertaken the mitigation resulting in the remediation expenses
in order to prevent loss to the uphill apartment buildings,
which are "Covered Property" under the Policy. That duty, if it
existed, does not afford a right to compensation to NHBC under
the facts of this case.
No damage occurred to the apartment buildings or other
Covered Property. Therefore, as the trial court noted, there
was no "loss" to Covered Property. Such loss is a condition
precedent to any compensation under the "Duties in the Event of
Loss" section. A " 'loss' to Covered Property", the Policy's
predicate to mandatory mitigation, did not occur, and therefore
no obligation to compensate NHBC arose under the Policy.
Moreover, subparagraph 4 of the "Duties in the Event of
Loss" section further limits any obligation of the insurer
because the contractor's expenses to protect Covered Property
are to be considered "in the settlement of the claim." The
claim, under the facts of this case and policy, would be
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"resulting from a cause of loss that is not a Covered Cause of
Loss" and therefore not compensible.
In effect, NHBC attempts to bootstrap its remediation
expenses into a covered claim through the "Duties in the Event
of Loss" provision, despite the clear exclusion from coverage
for loss caused by NHBC's defective design. We agree with the
trial court that the Policy's plain language does not permit
NHBC to circumvent the exclusion from coverage in this manner
and recoup its remediation expenses. See Southern Cal. Edison
Co. v. Harbor Ins. Co., 83 Cal. App. 3d 747, 759-60 (1978) ("The
duty of an insured to prevent and mitigate insurable loss and
the obligation of the insurer to reimburse for expenses so
incurred are separate questions. The fulfillment of the duty to
mitigate does not necessarily give rise to the obligation of
reimbursement . . . .").
Even if the Policy does not permit NHBC to recover its
remediation expenses, NHBC claims that its common law duty to
mitigate damages allows recovery of the remediation expenses
from Acordia. Usually, the failure to mitigate damages is an
affirmative defense and, therefore, on that point the breaching
party, not the injured party, has the burden to produce
evidence. Marefield Meadows, Inc. v. Lorenz, 245 Va. 255, 266,
427 S.E.2d 363, 369 (1993). However, this case does not involve
a failure to mitigate damages.
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In a case such as this, where the injured party asserts as
part of his recovery the expense of taking corrective measures
to mitigate the potential liability of the defendant, the cost
of mitigation is simply another element of his damages. It is
axiomatic that where “there is no liability, . . . there can be
no recovery.” Southern Railway Co. v. Lewis, 113 Va. 117, 120,
73 S.E. 469, 470 (1912). NHBC's theory of liability is that but
for Acordia's negligence, its damages, including the cost of
mitigation, would have been recoverable under the insurance
contract. As we have demonstrated, however, those losses were
not a liability covered by the policy and, thus, Acordia's
negligence was not a proximate cause of NHBC's losses.
Regardless of whether NHBC premises its theory of recovery on
contract law or common law, it cannot recover damages where
there is no liability.
III.
For the reasons stated above, we find that even if NHBC had
been a named insured on the Policy, the Policy did not provide
coverage for the remediation expenses it now seeks against
Acordia. Consequently, NHBC has no cognizable claim against
Acordia either in contract or tort. The trial court did not err
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in granting Acordia's motion to strike NHBC's evidence.
Therefore, the judgment of the trial court will be affirmed. *
Affirmed.
*
Having resolved NHBC's assignments of error in favor of
Acordia, we do not address any of Acordia's assignments of
cross-error.
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