Virginia Builder Fixing Drywall Without Lawsuit Gets No Insurance Coverage

Real Estate, Land Use & Construction Law

Virginia Builder Fixing Drywall Without Lawsuit Gets No Insurance Coverage

Mar 25, 2010 | Real Estate, Land Use & Construction Law

torn umbrellaAs reported yesterday by Virginia Lawyer’s Weekly, a Virginia federal judge has ruled that a builder who remediated 70 homes constructed with Chinese drywall was not entitled to insurance recovery of the remediation costs. This case is a painful reminder of how even positive, proactive business decisions can translate to tremendous liability risks, particular where interpretation of contracts and insurance occurs under Virginia law.

Judge Rebecca Beach Smith of the US District Court for the Eastern District of Virginia (Norfolk Division) issued the opinion. Dragas Management Corp. had multiple liability and umbrella policies with Builders Mutual Insurance Company and Firemen’s Insurance Company of Washington, D.C. The underlying liability policies all contained language which obligated the insurers to pay damages which the builder became legally obligated to pay because of bodily injury or property damage.

Dragas received reports of health symptoms and property damage from various owners. It filed claims on its various insurance policies. It also indicated in writing it was planning on beginning a remediation plan and tendered the same to the insurers. Soon after, BMIC flat denied coverage and rapidly filed a declaratory judgment action. FIC rapidly denied coverage as well. In June 2009, BMIC sent a new letter agreeing to defend Dragas against drywall related lawsuits subject to a reservation of rights.

Four home owner complaints were filed against Dragas. These claims were later voluntarily dismissed because of the Dragas voluntary remediation plan. Dragas conceded there were no other drywall related cases pending.

The court agreed with the insurance carriers that based on the allegations, Dragas’ remediation plan was voluntary and undertaken without legal obligation. Dragas may have a glimmer of hope in that leave to amend was granted and the opinion emphasized that it failed to allege even specific threats of lawsuits by individual owners or specific demands made by owners prior to remediation.

There are a host of policy and business reasons to encourage parties to proactively respond to complaints and voluntarily remediate problems. This case stands as a cautionary tale that such plans may run seriously awry when placed into the context of tightly written insurance policies.

Image by y-cart


Follow us on LinkedIn to view the latest blogs from our team.

About – Business Insights

Our business blog focuses on issues affecting Virginia, D.C. and Maryland business owners as well as those in other jurisdictions throughout the country. We provide timely insight and commentary on federal and state rules and how they affect you. If you are interested in having us cover a specific topic, please let us know.

About – Employment Law

As employment law constantly changes, the attorneys at Bean, Kinney & Korman stay up to date on the law as it develops. Our blog topics focus on those changes and what you need to know about them, ranging from severance agreements and the FLSA to social media in the workplace and recent court decisions. If you are interested in having us cover a specific topic, please let us know.

About- Real Estate

This blog focuses on real estate, land use and construction-related topics affecting Virginia and the Washington, D.C. metro area. With topics ranging from contract drafting and negotiation to local and regional land use project updates, the attorneys at Bean, Kinney & Korman provide timely insight and commentary on the issues affecting owners, builders, developers, contractors, subcontractors and other players in the industry. If you are interested in having us cover a specific topic, please let us know.

Fairfax County Signage Shake-up

Whether you are demonstrating your support for your favorite political candidate, sharing the day’s specials at your restaurant, or showcasing the location of a major office tenant, you’re undoubtedly using signage to get people’s attention. The who, where, when, and...

The Missing Middle

Arlington County’s Planning & Housing study “The Missing Middle” has entered its second phase, “Analysis & Draft Framework.” The initiative has garnered attention from homeowners, homebuilders, and community members who are interested in how the plan might...