Stanley Martin Companies, Inc. v. Ohio Casualty Group (Insurance Coverage)


Fourth Circuit Court of Appeals

NAHB Involvement


During 1999 and 2000, Stanley Martin was the general contractor for the construction of 24 duplex townhouses in a development known as Quince Orchard Park in Maryland. Shortly after the townhouses were built, home owners began reporting mold growing on the wood trusses and gypsum board "fire" walls and demanded that Stanley Martin repair the problem. With the knowledge and consent of its insurers, Stanley Martin hired a remediation contractor to undertake a comprehensive mold remediation effort at a cost of over $1.7 million. Despite comprehensive efforts to repair the problem, 14 of 24 home owners sued Stanley Martin. Stanley Martin notified the insurers of the lawsuits. After Stanley Martin completed the remediation process, the home owners chose to settle and all claims were resolved. One of the insurers refused to make any contribution for indemnification of the remediation costs, and Stanley Martin sought a declaratory judgment finding that the insurer had breached its duty to indemnify Stanley Martin for remediation costs relating to mold damage and that the insurer was obligated to contribute to those costs.

Applying Virginia law, the United States District Court for the Eastern District of Virginia granted the insurer's motion for summary judgment. The Court held that because Stanley Martin's remediation costs arose out of the damage to its own work caused by the faulty workmanship of its subcontractor, the property damage was not "unexpected" or an "accident," and therefore there was no "occurrence." The Court concluded that Virginia law interprets "occurrence" to include faulty workmanship that results in bodily injury or property damage to property other than the insured's work.

NAHB filed an amicus brief on Feb. 5, 2008; the Fourth Circuit granted the motion and accepted NAHB's brief on Feb. 29, 2008. On Feb.12, 2009, the Fourth Circuit issued an opinion finding in favor of Stanley Martin. The court held that damage that a subcontractor's defective work causes to an insured's nondefective work did constitute an occurrence under the CGL policy. The court remanded the case back to the District Court for further inquiry to determine whether the builder showed it incurred costs to remediate mold damage beyond replacing or repairing the defective work.