Taja Investments LLC v. Peerless Insurance Company
UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 1:15-cv-01647-GBL-TCB Copies to all parties and the district court/agency. .. [16-1854]
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UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
TAJA INVESTMENTS LLC; TAJA CONSTRUCTION & REHAB, INC., a/k/a
Taja Construction LLC,
Plaintiffs - Appellants,
PEERLESS INSURANCE COMPANY, a/k/a Liberty Mutual Insurance Company,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern District of Virginia, at
Alexandria. Gerald Bruce Lee, District Judge. (1:15-cv-01647-GBL-TCB)
Argued: September 13, 2017
Decided: October 11, 2017
Before AGEE, KEENAN, and HARRIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: C. Thomas Brown, SILVER & BROWN, Fairfax, Virginia, for Appellants.
Roman Lifson, CHRISTIAN & BARTON, LLP, Richmond, Virginia, for Appellee. ON
BRIEF: Erik B. Lawson, SILVER & BROWN, Fairfax, Virginia, for Appellants. E. Ford
Stephens, CHRISTIAN & BARTON, LLP, Richmond, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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Taja Construction LLC was renovating a row house owned by affiliate Taja
Investments LLC (together, “Taja”) when the east wall of the property collapsed. Taja
sought to recover the cost of repairs under its insurance policy, issued by Peerless Insurance
Company. After an investigation, Peerless determined that the collapse was caused by
Taja’s failure to support the building’s foundation properly while excavating the basement,
and it denied Taja’s claim under a policy exclusion for defects in construction or
workmanship. Peerless also denied the claim under a separate exclusion, this one for
damages resulting from movement of the earth’s surface.
Taja filed suit against Peerless for breach of its insurance policy. The district court
granted summary judgment to Peerless, holding that both the cited exclusions apply and
that either would be a sufficient basis for denying coverage. For the reasons given below,
we affirm the judgment of the district court.
Taja is a real estate development company that purchases and renovates properties
for resale. As part of its renovation of 117 New York Avenue, a row house in Northwest
Washington, D.C., Taja planned to deepen the basement to create a larger living space.
The structural drawings required that the basement be excavated in sections, dug one at a
time, with concrete underpinning used to reinforce each section before proceeding to the
next. J.A. 1144–45. But contrary to the plans, Taja’s owner Michael Watson directed
subcontractors to fully excavate the basement without intermittent underpinning.
Several people warned Watson against proceeding without the contemplated
underpinning. In the weeks before the collapse, both the engineer responsible for the
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structural drawings and a project subcontractor informed Watson of the need for structural
underpinning during excavation, with the subcontractor going so far as to insert into his
agreement with Taja a provision stating that he was “not responsible for any collapse due
to non[-]underpinning.” J.A. 1180. And roughly two days before the collapse, the owner
of a construction company that had renovated a neighboring property told Watson that he
was “concerned about the stability of [the] below grade soil,” and that if Taja failed to
underpin the property, it was “going to collapse.” J.A. 461–62.
By the third day of construction, the basement had been fully excavated without any
underpinning. J.A. 159, 165. A few hours after workers left the site, the property’s east
Taja’s property was insured under a builder’s risk policy issued by Peerless
Insurance Company. That policy – a broad “all risk” policy – covered all risks of direct
physical loss, except for those expressly excluded under the policy’s terms. Taja filed a
claim of $400,000 for repair costs, and Peerless hired an engineering firm to investigate
the cause of the collapse. Zachary Kates, lead engineer on the investigation, found that
Taja’s failure to periodically underpin during excavation left the soil beneath the loadbearing walls in an unstable condition, which caused the collapse of the east wall. Watson,
Taja’s owner, confirmed that assessment, conceding at his deposition that Taja’s removal
of bricks and dirt beneath the wall directly caused the collapse.
Peerless denied Taja’s claim. First, relying on Kates’s report, Peerless cited the
policy’s exclusion of losses resulting from defects in workmanship and construction (the
“Workmanship Exclusion”). And second, as an independent and alternative ground for
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denying coverage, Peerless relied on the policy’s “Earth Movement Exclusion,” which
excludes coverage for losses caused by “movement or vibration of the earth’s surface.”
J.A. 127, 133. Taja disputed Peerless’s denial of its claim, and filed suit for breach of
insurance policy in Virginia state court. Peerless removed the claim to federal district
court, invoking diversity jurisdiction, and both parties moved for summary judgment.
In a thorough and thoughtful opinion, the district court granted summary judgment
to Peerless, holding that both exclusions apply and that each separately supports the denial
of Taja’s claim. Taja Invs. LLC v. Peerless Ins. Co., 196 F. Supp. 3d 587 (E.D. Va. 2016).
We summarize the court’s detailed opinion briefly here.
The court began with the Workmanship Exclusion, which provides that Peerless
will “not pay for loss caused by an act, defect, error, or omission (negligent or not) relating
to . . . construction, workmanship . . . [or] renovation.” J.A. 135–36. Undisputed witness
testimony attributed the collapse of the row house’s east wall to Taja’s failure to underpin
the property while excavating. And Taja itself accepted and relied upon Kates’s report
concluding that Taja’s faulty work sequence caused the collapse. The court thus found it
beyond dispute that the Workmanship Exclusion applies – as Taja ultimately conceded
before this court at oral argument.
Taja argued, however, that even assuming application of the Workmanship
Exclusion, coverage is restored by the provision’s “ensuing loss” clause. Ensuing loss
clauses preserve coverage when a loss excluded under a policy – here, a loss caused by a
defect in workmanship – results in a subsequent or “ensuing” loss that otherwise would be
covered. See TRAVCO Ins. Co. v. Ward, 715 F. Supp. 2d 699, 718 (E.D. Va. 2010), aff’d,
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504 F. App’x 251, 253 (4th Cir. 2013). Specifically, the ensuing loss clause in Taja’s
policy provides that while Peerless will not pay for loss or damage caused by a
workmanship defect, “if loss by a covered peril results,” then Peerless will pay for “the
resulting loss.” J.A. 135. And according to Taja, that entitles it to recover for losses that
“result[ed]” from the collapse caused by its defective workmanship.
The district court rejected that argument, finding that damages associated with the
collapse were the direct result of Taja’s failure of workmanship rather than a separate
“resulting loss,” and thus remained excluded under the Workmanship Exclusion. Taja
Invs., 196 F. Supp. 3d at 594. Although the Supreme Court of Virginia has not directly
addressed the scope of ensuing loss clauses, 1 courts generally agree, as the district court
explained, that when a workmanship exclusion is triggered, an ensuing loss clause applies
only when there is significant attenuation between the direct result of a workmanship defect
and the ultimate loss for which coverage is sought, usually due to an independent or
fortuitous intervening cause. In other words, an ensuing loss provision “excludes from
coverage the normal results of defective construction, and applies only to distinct,
The district court properly applied Virginia law to this dispute. A federal court
sitting in diversity applies the forum state’s choice-of-law rules. Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 494 (1941). Virginia choice-of-law rules provide that “the
law of the place where an insurance contract is written and delivered controls.” Buchanan
v. Doe, 431 S.E.2d 289, 291 (Va. 1993). Before the district court, the parties agreed that
the policy was delivered in Virginia and that Virginia law applied. On appeal, Taja now
suggests that Washington D.C. law should apply. Appellants’ Br. at 26–27. Taja concedes,
however, that “there is no difference” between D.C. and Virginia law as applied here.
Appellants’ Br. at 23 n.26. Because the parties agree there is no substantive difference
between the applicable laws, we need not perform a choice of law analysis. Millennium
Inorganic Chems. Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 744 F.3d 279, 284
n.5 (4th Cir. 2014).
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separable, and ensuing losses.” Friedberg v. Chubb & Son, Inc., 691 F.3d 948, 953 (8th
Cir. 2012) (internal quotation marks and alteration omitted) (applying Minnesota law); see
Taja Invs., 196 F. Supp. 3d. at 593 (citing, inter alia, Alton Ochsner Med. Found. v.
Allendale Mut. Ins. Co., 219 F.3d 501, 507 (5th Cir. 2000) (ensuing loss clause generally
applies only to damage that “result[s] fortuitously from events extraneous to the
construction process”) (emphasis in original) (internal quotation marks omitted); In Re
Chinese Manufactured Drywall Prods. Liab. Litig., 759 F. Supp. 2d 822, 850 (E.D. La.
2010) (ensuing loss clause not applicable to damages that are a direct and continuous result
of workmanship defect)). 2
Applying the consensus approach, the district court rejected Taja’s effort to
“separate cause and effect” by distinguishing between a wall collapse caused by defective
workmanship and losses resulting directly from that collapse. Taja Invs., 196 F. Supp. 3d
at 594. “If a defectively-designed building collapses, one does not characterize the effect
of gravitational forces as a distinct and separate event, and the cost of replacing the
collapsed building is not an ensuing loss.” Id. at 593 (quoting Performing Arts Cmty.
Improvement Dist. v. Ace Am. Ins. Co., No. 13-0945-CV-W-ODS, 2015 WL 3491292, at
*6 (W.D. Mo. June 3, 2015)). Endorsing Taja’s approach, the court explained, would
violate basic principles of Virginia contract interpretation by “essentially . . . writ[ing] the
Workmanship [E]xclusion out of the [p]olicy”: Virtually any damage caused by a defect
As the district court recognized, the case law on ensuing loss clauses is not entirely
uniform. See Taja Invs., 196 F. Supp. 3d. at 593 (citing Vision One, LLC v. Philadelphia
Indem. Ins. Co., 276 P.3d 300, 307 (Wash. 2012) (“[T]he dispositive question in analyzing
ensuing loss clauses” is not causal attenuation, but “whether the loss that ensues from the
excluded event is covered or excluded.”)).
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in workmanship could be re-characterized as a “resulting loss” for which coverage was
restored. Id. at 594. The district court thus concluded that Taja could not invoke the
ensuing loss clause and that its claim remains subject to the Workmanship Exclusion.
The district court also ruled for Peerless on the alternative ground that Taja’s claim
is barred under the policy’s Earth Movement Exclusion, which applies to damages caused
by “any movement or vibration of the earth’s surface.” J.A. 127. Before the district court,
Taja argued that the Earth Movement Exclusion does not apply because the “movement”
in this case occurred below the earth’s surface, at the basement level of the row house being
renovated. The court disagreed, explaining that Taja’s position conflated movement below
grade – that is, below street- or ground-level – with movement below the earth’s surface.
The court found no ambiguity in the terms of the exclusion: “Using the plain meaning of
[the] words, it is evident that while the movement that caused the east wall’s collapse
occurred below grade (in the basement, below the ground level of the structure), it still
involved movement of the earth surface (the uppermost layer of the soil and clay).” Taja
Invs., 196 F. Supp. 3d at 597–98. Accordingly, the district court ruled, the Earth Movement
Exclusion provided an independent basis for denial of Taja’s claim.
On appeal, the parties now raise substantially the same arguments as they did before
the district court. Having carefully considered the controlling law and the parties’ briefs
and oral arguments, we affirm on the reasoning of the opinion of the district court.
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