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Essex Insurance Co. v. Y&J Construction, Inc.

United States District Court, E.D. Virginia, Alexandria Division

January 3, 2017

Y&J CONSTRUCTION, INC., et al., Defendants.


          T. S. Ellis, III, United Slates Distridt Judge

         This insurance coverage dispute arises from property damage caused by a fire that occurred during a construction project at Building 207 at Fort Belvoir, Virginia (the “Fort Belvoir project”).[1] The damage stemmed from roofing activities by a subcontractor, defendant Y&J Construction, Inc. (“Y&J”), that involved the use of torches in the installation of the roof. The general contractor's insurer, defendant Pennsylvania National Mutual Insurance Company (“Penn”), paid for the damage and subsequently filed a subrogation action against Y&J to recover the amount paid. See Pa. Nat'l Mut. Cas. Ins. Co. v. Y&J Constr., Inc., No. 15-cv-1283 (E.D. Va. Oct. 2, 2015) (Complaint) (the “Subrogation Action”).[2] Specifically, Penn, in the Subrogation Action, has alleged (i) that Y&J acted negligently in causing the Fort Belvoir fire on August 13, 2012; (ii) that Y&J breached its subcontracting agreement with the general contractor on the Fort Belvoir project, Autumn Contracting, Inc. (“Autumn Contracting”); and (iii) that Y&J must indemnify Penn. See Id. Y&J's insurer, Essex Insurance Company (“Essex”), filed this declaratory judgment action pursuant to 28 U.S.C. § 2201(a), [3] seeking:

(i) a declaration that Essex has no obligation to defend Y&J in Penn's Subrogation Action against Y&J;
(ii) a declaration that Essex has no obligation to indemnify Y&J for any judgment, settlement, or recovery in the Subrogation Action; and
(iii) a declaration that Essex has no obligation to Penn, including any obligation to indemnify Penn, with respect to any subrogation rights Penn possesses as a result of Penn's payment on behalf of its insured resulting from the Fort Belvoir fire caused by Y&J.

         Following full discovery and the disposition of pretrial motions, the parties waived a jury, and a bench trial was held. During the bench trial plaintiff presented three witnesses, and defendant offered two. Importantly, it was undisputed that Y&J's use of torches caused the fire at the Fort Belvoir project on August 13, 2012, and that the insurance policy (“the Policy”) that Essex issued to Y&J included a roofing endorsement that excluded from coverage damages arising from Y&J's use of torches. Given that these essential facts were undisputed, during the trial the parties focused on the following key issues: (i) whether Y&J was given notice of the roofing endorsement in the Policy; and (ii) whether Y&J is entitled to reformation of the Policy's roofing endorsement to include coverage of Y&J's torch work. The following Findings of Fact and Conclusions of Law are issued pursuant to Rule 52, Fed. R. Civ. P.


         1. Essex was an insurance company organized under the laws of Delaware, with its principal place of business in Glen Allen, Virginia.[4]

         2. Essex contracted with an insurance broker, All Risks, Inc. (“All Risks”), to underwrite, issue, and deliver insurance policies on Essex's behalf. All Risks underwrote the Policy at issue in this case.

         3. Y&J was a corporation organized under the laws of Maryland, with its principal place of business in Fulton, Maryland. Y&J's president was Youngjae Jeon (“Jeon”), and Y&J's general manager was Ms. Jeon's husband, Duok Yun (“Yun”).[5]

         4. Ms. Jeon, Y&J's president, is a registered nurse with a master's degree in Hospital Administration who reads, writes, and speaks English.

         5. Penn is a corporation organized under the laws of Pennsylvania with its principal place of business in Harrisburg, Pennsylvania.

         6. At all relevant times, Y&J and Penn transacted or did some business in Virginia.

         7. Defendant Penn insured Autumn Contracting, the general contractor on the Fort Belvoir project.

         8. On November 7, 2011, Autumn Contracting and Y&J executed a Master Subcontracting Agreement, which agreement obligated Y&J to perform roofing work on the Fort Belvoir project and to obtain insurance coverage for that work.

         9. Subsequently, Y&J engaged Insurance Plus, an experienced, licensed insurance agency based in Maryland, to provide Y&J assistance in procuring commercial general liability insurance for Y&J's roofing work on the Fort Belvoir project.

         10. Insurance Plus is licensed to sell, solicit, and negotiate insurance contracts in Virginia, and has offices in both Maryland and Virginia.

         11. Y&J selected Insurance Plus after looking through the Korean business phone book, noting that Insurance Plus was a Korean insurance agency, and learning that one of Insurance Plus's employees, Jong Yang (“Yang”), spoke Korean.

         12. Jeon and Yun, on behalf of Y&J, visited Yang at an Insurance Plus office in Virginia on one occasion; during the course of that visit, Jeon and Yun informed Yang that Y&J was opening a roofing business and needed general liability and worker's compensation insurance coverage.

         13. Y&J advised Insurance Plus that Y&J's workers had used torches on past roofing projects. Although Y&J misrepresented in its insurance application how much of its work dealt with new roofing, as opposed to repair work, Mr. Yun stated that Y&J sought coverage for work involving the use of asphalt, metal roofs, welding, and torches.

         14. Mr. Yang at Insurance Plus assisted Jeon and Yun in filling out the paperwork to obtain insurance coverage from a surplus lines insurance carrier for Y&J's roofing work at the Fort Belvoir project.[6]

         15. Essex's broker, All Risks, drafted the Policy in Maryland on behalf of Essex.

         16. The Policy was issued to Y&J as a commercial general liability insurance policy for the period running from November 14, 2011 to November 14, 2012, in the amount of $1, 000, 000 for any occurrence and $2, 000, 000 in general aggregate limit, subject to the terms and exclusions of the Policy.

         17. The Policy was sent to Insurance Plus from Maryland, and delivered to Y&J in Maryland.

         18. Insurance Plus also sent Y&J a certificate of liability insurance that, on its face, stated that the certificate was not the Policy and conferred no rights on the certificate holder. D. Ex. 6.

         19. The Policy requires Essex to provide coverage for amounts that Y&J becomes legally obligated to pay as damages due to “bodily injury” or “property damage” to which the Policy applies. See Policy (P. Ex. 2) § I-1.

         20. Specifically, “property damage” under the Policy means, inter alia, “[p]hysical injury to tangible property, including all resulting loss of use of that property.” See Id. at CG 00 0112 07.

         21. The Policy includes a provision permitting a “person or organization” to sue Essex on the “Coverage Part [so long as] all of its terms have been complied with.” Id. at CG 00 0112 07 § 3.

         22. The Policy further permits “[a] person or organization [to] sue [the insurer] to recover on an agreed settlement or on a final judgment against an insured, ” so long as the damages are “payable under the terms of [the Policy] and [not] in excess of the applicable limit of insurance.” Id.

         23. Pursuant to the Policy, Essex has no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which the insurance coverage does not apply.

         24. In this respect, the Policy contains a roofing endorsement that excludes from coverage any bodily injury, property damage, personal injury, advertising injury, or any injury, loss, or damage arising out of “[a]ny operations involving any hot tar, wand, open flame, torch or heat applications, or membrane roofing.” Id. M/E-191 (4/99), § 3.

         25. The Policy also excludes from coverage “claims arising out of breach of contract, whether written or oral, express or implied, implied-in-law, or implied-in-fact….” Id. MEGL 0001 05 10, § 1.

         26. Essex would not have issued the insurance policy without a roofing endorsement, and the Policy's premium would have been significantly higher had Essex intended to cover the torch work that caused the fire at the Fort Belvoir project.

         27. On November 9, 2011, before Y&J purchased the Policy, an underwriter employed by All Risks sent Insurance Plus an email advising that the Policy would include the roofing endorsement. That November 9, 2011 email also attached the roofing endorsement. See P. Ex. 33 (“I have attached a copy of the roofing endt ME-191 (4/99).”).

         28. That same day, November 9, 2011, All Risks also sent Insurance Plus two insurance quotations for the Policy.

         29. The first quotation warned that the coverage Essex was offering could differ from the coverage Y&J had requested. Specifically, the quotation stated, “We are pleased to submit our proposal . . . . Quote is based on the following limits, coverage, etc. Please read quote carefully as ...

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