Erie Ins. Exch. v. Spalding Enters., 2020 Va. Cir. LEXIS 98 (City of Fairfax Cir. Ct. July 14, 2020)
Hsin Yen’s (“Yen”) home suffered fire damage. Having insured the home through Erie Insurance Group, the insurance company put Yen in contact with Gregory Spalding of Spalding Enterprises, Inc. (“Spalding Enterprises”), a previously designated vendor by the insurance company representative, in February 2019. Gregory represented to Yen that Spalding Enterprises could complete the project by the end of October 2019. Based in part on Gregory’s representations, Yen hired Spalding Enterprises to repair his home. Yen paid a $300,000 deposit to Spalding Enterprises on August 18, 2019. In September 2019, Gregory told Yen the project would not be completed until November 2019. Yen terminated Spalding Enterprises on September 8, 2019 due to the change
and alleged misrepresentations associated with an allegedly fraudulent plumbing quote. Yen alleged that Spalding Enterprises, Gregory Spalding, and Dennis Spalding engaged in a fraudulent scheme to induce Yen into hiring Spalding Enterprises as general contractor and to obtain and retain the $300,000 deposit from Yen. Spalding Enterprises turned to its insurance carrier, Erie Insurance Exchange (“Erie”), and filed a claim for coverage under its CGL policy. Erie denied coverage, stating that Yen’s claims were not an “occurrence” as contemplated under the policy. Moreover, if an occurrence had been alleged, exclusions based upon Expected or Intended Injury and Contractual Liability excluded coverage. Erie filed this case seeking declaratory judgment that Erie had no duty to defend or indemnify Spalding Enterprises with respect to Yen’s lawsuit and for a determination that the CGL policy did not provide coverage for the claims asserted.
The Court granted Erie’s motion for summary judgment. For complaints involving insurance policies, courts apply the ‘eight corners rule’ because the determination is made by comparing the ‘four corners’ of the underlying complaint with the ‘four corners’ of the policy to determine whether the allegations in the underlying complaint come within the coverage provided by the policy. An insurer’s duty to defend is broader than its obligation to pay and arises whenever the complaint alleges facts and circumstances, some of which would, if proved, fall within the risk covered by the policy.
Courts interpret insurance policies, like other contracts, in accordance with the intention of the parties gleaned from the words they have used in the document. Where there is doubt as to a word’s meaning, courts favor the interpretation that grants coverage, rather than that which withholds it. Language in a policy purporting to exclude certain events from coverage will be construed most strongly against the insurer. The CGL policy defined “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” This definition refers to an incident that was unexpected form the viewpoint of the insured. An intentional act is not an occurrence and is not covered by a standard policy. If a result is the natural or probable consequence of an insured’s intentional act, it is not an occurrence. Even if an insured’s intentional act starts the chain of events, when the alleged injury results from an unforeseeable cause that is out of the ordinary expectations of a reasonable person, the injury may be covered by an occurrence policy provision. The dispositive issue in determining whether an accidental injury occurred is not whether the action undertaken by the insured was intended, but rather whether the resulting harm is alleged to have been reasonably anticipated or the natural or probable consequences of the insureds intentional act. For coverage to be precluded under a CGL policy because there was no occurrence, it must be alleged that the result of the insured’s intentional act was more than a possibility; it must be alleged that the insured subjectively intended or anticipated the result of its intentional act or that objectively, the result was a natural or probable consequence of the intentional act. With respect to Yen’s constructive fraud claim, such claim, by definition, requires an intentional act. Yen’s detrimental reliance on Gregory’s representations was a natural or probable consequence of the misrepresentations made upon which Yen was intended to rely. Therefore, any alleged constructive fraud in the complaint is not an occurrence under Spalding Enterprises’ CGL policy with Erie. For similar reasons, the court found that Yen’s claims of fraudulent inducement and violations of the Virginia Consumer Protection Act in his complaint were not an ‘occurrence’ under Spalding Enterprises’ CGL policy with Erie.