Hitt Contracting, Inc. v. Industrial Risk Insurers

Present: All the Justices

HITT CONTRACTING, INC., ET AL.

v. Record No. 981878 OPINION BY JUSTICE ELIZABETH B. LACY
June 11, 1999
INDUSTRIAL RISK INSURERS

FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA
Alfred D. Swersky, Judge

The issue in this appeal is whether a suit for failure to

pay a claim under a replacement coverage endorsement of an

insurance policy is subject to the two-year limitations period

contained in the policy and required by Code § 38.2-2105.

Metropolitan Washington Airports Authority (the

Authority) hired Hitt Contracting, Inc. (Hitt) to build a new

fuel farm at Washington National Airport. Hitt subcontracted

with John J. Kirlin, Inc. (Kirlin) to furnish and install an

underground piping system as part of the project. The

installation of the piping system was completed in August of

1993. In April 1994, leaks were discovered in the system.

Kirlin repaired the system and reported that the system passed

an air pressure test performed in June of 1994.

After further investigation, the Authority determined

that faulty design and improper installation had caused the

leaks and, in December 1994, directed Hitt to replace certain

pipe joints with differently designed joints. Kirlin replaced

the joints as directed by the Authority. Hitt notified the

Authority that it considered the repairs and replacement of
the piping system to be an "extra" under the construction

contract and that it was entitled to additional compensation

for the costs incurred. The Authority refused the claim for

compensation.

In conjunction with the construction project, the

Authority had obtained an insurance policy from Industrial

Risk Insurers (IRI). Hitt submitted a claim for the

additional work to IRI on its own behalf and on behalf of

Kirlin as insureds under this policy. On March 21, 1996, IRI

denied the claim based on a faulty workmanship exclusion in

the policy.

Hitt and Kirlin (collectively "the insureds") filed a

motion for judgment against IRI seeking recovery under the

policy. 1 IRI filed a demurrer and special plea of the statute

of limitations, asserting the suit was barred because it was

not filed within the two-year limitations period contained in

the policy. The insureds responded that their claim was made

pursuant to the Replacement Coverage Endorsement and that the

two-year limitations period did not apply to suits seeking

recovery under that endorsement. After briefing and argument

of counsel, the trial court sustained IRI's demurrer and

1
The motion for judgment also contained a breach of
contract count against the Authority. That count was
nonsuited and is not before us on appeal.
2
special plea and dismissed the case with prejudice. We

awarded the insureds an appeal.

The insurance policy at issue is identified in the

Memorandum of Insurance as a "Standard Fire Insurance Policy"

and denotes the coverage as "ALL RISK PROPERTY POLICY." The

policy covers all risks of physical loss or damage, except as

excluded, to covered property during the policy term. Because

the policy covers property in Virginia and insures against the

peril of fire, it necessarily includes the mandatory

provisions enumerated in Code § 38.2-2105. See Code § 38.2-

2100.

These statutorily required contract provisions were made

part of this policy by an endorsement entitled "Virginia

Amendatory Endorsement." As relevant here, the Virginia

Amendatory Endorsement provides that a suit to recover a claim

under the policy must be "commenced within two years next

after inception of the loss."

The policy includes a Replacement Coverage Endorsement

upon which the insureds base their claim. It provides in

pertinent part:

In consideration of increased premium and subject
to all terms, conditions and stipulations of the
policy to which this endorsement is attached, not
in conflict herewith, the coverage under this
policy . . . is hereby extended to cover such
property to the amount actually expended by or in
behalf of the Insured to repair, rebuild or

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 replace within two (2) years from the date of
loss or damage . . . .

The insureds advance three arguments to support their

contention that the two-year limitations period in the policy

required by Code § 38.2-2105 does not apply to their claims

under the Replacement Coverage Endorsement. We reject all

three.

The insureds first assert that the insurance contract at

issue is not the type of fire insurance policy subject to the

provisions of Code § 38.2-2105 because it provides "much

broader coverage than that provided by standard fire insurance

coverage." In support, they argue that a "standard" fire

insurance policy provides only actual cash value coverage

while the policy in this case provides replacement cost

coverage. We disagree. Contrary to the insured's assertion,

the mere fact that this policy provides coverage for other

perils in addition to fire, and provides for insurer liability

on a basis other than actual cash value, does not mean it is

not subject to the "standard" provisions required in a fire

insurance policy pursuant to Chapter 21 of Title 38.2 of the

Code of Virginia, Code §§ 38.2-2101 through -2124.

Code §§ 38.2-2100 and -2101 provide that "policies of

fire insurance, and contracts or policies of fire insurance in

combination with other insurance coverages" issued on property

in Virginia must meet the requirements of Chapter 21.

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(Emphasis added.) The Chapter allows inclusion of perils

other than fire "by endorsement by writing." Code § 38.2-

2105. Furthermore, while the standard provisions set out in

Code § 38.2-2105 provide for insurer liability on an actual

cash value basis in the case of loss, Code § 38.2-2119 permits

the policy to contain an endorsement providing for the payment

of the full replacement cost of property insured under the

policy.

The policy in this case insures against the peril of

fire. As such it is required to and does contain the

"standard" fire insurance policy provisions of Code § 38.2-

2105. As permitted by those mandatory provisions, the policy

also contains written endorsements extending coverage to all

perils not excluded and an endorsement providing that the

insurer will be liable for the replacement cost of certain

property lost as a result of a covered peril. The policy's

"broader coverage" does not remove the policy from the

provisions of Title 38.2, Chapter 21, and nothing about the

policy exempts it from the mandatory provisions of Code

§ 38.2-2105. Therefore, the two-year statute of limitations

mandated by Code § 38.2-2105 applies to this policy.

The insureds alternatively argue that the several

additional coverages added to the fire insurance policy are,

in effect, separate coverages. They assert that the

5
Replacement Coverage Endorsement under which they claim

provides a different type of coverage than standard fire

insurance coverage and is, thus, not subject to the

limitations period mandated in Code § 38.2-2105 for standard

fire insurance policies. Again, we disagree.

Fire insurance coverage (or fire insurance coverage in

combination with other insurance coverages, see Code § 38.2-

2100) and an endorsement for replacement cost coverage, are

not different types of insurance. The former describes the

risk insured against in the policy. The latter, replacement

cost coverage, provides the method of measuring the amount of

recovery an insured will receive for the property it lost

because of a risk insured against in the policy. The

endorsement does not provide "separate" coverage, as the

insureds contend, but merely extends coverage "to the amount

actually expended" to repair, rebuild, or replace the damaged

property. Therefore, we reject the insureds' argument that

the two-year limitations provision in Code § 38.2-2105 and in

this policy does not apply to a suit to recover under the

Replacement Coverage Endorsement because replacement coverage

is a separate type of insurance.

Next, the insureds argue that Code § 38.2-2119(B)

establishes a "different procedure" for recovery under a

replacement cost endorsement, and therefore, that the General

6
Assembly anticipated application of a different limitations

period to suits brought under such an endorsement. The

insureds, however, mischaracterize Code § 38.2-2119(B). 2

Anticipating that the insured will follow the procedure

mandated in Code § 38.2-2105 for making a timely claim for the

actual cash value of the losses, the subsection protects the

insured's ability to make a claim for the difference between

the actual cash value and the replacement cost value. It also

sets out the time frame within which that claim must be

submitted to the insurer.

While this procedure addresses an element involved in

securing recovery for replacement cost that does not exist in

recovery for actual cash value, it does not provide a

"different procedure" for recovery under the policy. The

2
Code § 38.2-2119(B) provides:
Where any policy of insurance issued or
delivered in this Commonwealth pursuant to this
chapter provides for the payment of the full
replacement cost of property insured thereunder,
the policy shall permit the insured to assert a
claim for the actual cash value of the property
without prejudice to his right to thereafter
assert a claim for the difference between the
actual cash value and the full replacement cost
unless a claim for full replacement cost has been
previously resolved. Any claim for such
difference must be made within six months of (i)
the last date on which the insured received a
payment for actual cash value or (ii) date of
entry of a final order of a court of competent
jurisdiction declaratory of the right of the
insured to full replacement cost, whichever shall
last occur.
7
"standard" procedures for recovery mandated by Code § 38.2-

2105, such as notifying the insurer of the loss, presenting

the proof of loss, and resolving disputes over the amount of

the loss, are applicable to claims under the Replacement

Coverage Endorsement as well as to claims under other portions

of the policy.

Furthermore, Code § 38.2-2119 specifically provides that

it applies to policies issued under Chapter 21, the same

Chapter in which Code § 38.2-2105, the section imposing the

two-year limitation, is found. Thus, we must assume that the

General Assembly anticipated that both the procedure set out

in Code § 38.2-2119(B) and the two-year limitations period set

out in Code § 38.2-2105 would apply in the same policy and

operate together. There is no support for the insureds'

argument that the General Assembly intended a limitations

period other than that prescribed in Code § 38.2-2105 to apply

to replacement cost coverage.

Finally, the insureds assert that because costs incurred

up to two years after the loss are recoverable under the

Replacement Coverage Endorsement, applying the two-year

limitations period could require an insured to file suit

"before those costs can be presented to the insurers, or

before the insured and insurer even fail to agree to the

amount of the recovery." As a result of these circumstances,

8
the insureds argue, logic and common sense dictate that the

two-year limitations period required by Code § 38.2-2105

should not apply to claims made under the Replacement Coverage

Endorsement. 3 However, the possibility that in certain

circumstances an insured might not be able to recover

replacement costs incurred near or at the end of the two-year

limitations period does not change the plain language of Code

§ 38.2-2105 and of this policy. By requiring every policy of

fire insurance covering property in Virginia to contain all

the provisions contained in Code § 38.2-2105, the General

Assembly indicated the importance it attached to these

provisions. As we said in Ramsey v. Home Insurance Co., 203

Va. 502, 506, 125 S.E.2d 201, 204 (1962):

The limitation involved in the present case
is not in the language of the insurance company.
It is in the language of the General Assembly and
expressed in words which the statute requires to
be inserted in the policy, word for word, line
for line, number for number. It says in plain,
unambiguous words that no suit shall be
sustainable unless it is commenced within [two
years] next after the inception of the loss.

Accordingly, we conclude that the two-year limitations

period established by Code § 38.2-2105 and contained in the

contract of insurance was applicable to the insureds' motion

for judgment against IRI and that the trial court correctly

3
We note that such circumstances are not presented in the
instant case. According to the motion for judgment, the

9
dismissed the motion for judgment on the basis that it was not

filed within the two-year limitations period.

Affirmed.

insureds' claim was submitted to and rejected by IRI sometime
before the end of the two-year limitations period.
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