Coverage for the collapse of a foundation was not covered under the contractor's builder's risk policy. Taja Investments LLC v. Peerless Ins. Co., 2017 U.S. App. LEXIS 19855 (4th Cir. Oct. 11, 2017).
Taja Construction LLC was renovating a row house owned by Taja Investments LLC when the east wall of the property collapsed. Taja submitted a claim for repair costs in the amount of $400,000. Peerless denied coverage because the collapse was caused by Taja's failure to support the building's foundation properly while excavating the basement. The policy excluded coverage for defects in construction or workmanship. The claim was also denied under the earth movement exclusion.
Taja filed suit, but Peerless prevailed on summary judgment. The court held that both exclusions applied.
The Fourth Circuit affirmed. Taja planned to deepen the basement to increase the 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. Nevertheless, Taja directed the subcontractors to fully excavate the basement without intermittent underpinning.
By the end of the third day, the basement was fully excavated without any underpinning. A few hours after workers left the site, the property's east wall collapsed.
Peerless hired an engineering firm to investigate the cause of the collapse. The investigators determined that Taja's failure to periodically underpin during excavation left the soil beneath the load-bearing walls in an unstable condition, which caused the collapse.
The Workmanship Exclusion provided that Peerless would "not pay for loss caused by an act, defect, error, or omission (negligent or not) relating to . . . construction, workmanship . . . [or] renovation." Undisputed testimony attributed the collapse of the wall to Taja's failure to underpin the property while excavating. The district court therefore found that the Workmanship Exclusion applied.
Taja argued that coverage was restored by the ensuing loss provision. Taja submitted that loss resulting from the collapse caused by the defective workmanship was recoverable. The court disagreed. 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.
The Earth Movement exclusion also applied. Taja argued the exclusion did not apply because the "movement" occurred below the earth's surface. While the movement that caused the east wall's collapse occurred below grade in the basement, it still involved movement of the earth surface, invoking the exclusion.
