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.
4
(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
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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.
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"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,
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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
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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.
10