Insured’s Decision Caused Damage Not Covered

Commercial Liability	Construction Defect
Exclusion – Intentional	Loss of Use

Cincinnati Insurance Company (Cincinnati) wrote a CGL and a commercial umbrella policy that covered a Deed of Easement (Deed) agreement. The Deed was between two separate entities, the Hotel Roanoke (Hotel) and the Hotel Roanoke Conference Center Commission (Commission). The deed was necessary because the conference center awarded access to its facility to the hotel, and the two were designed to attract and serve large groups of guests. Under both policies, the Hotel and the Commission appeared as the insured and the additional insured, respectively.

The Commission paid the Hotel nearly $700,000 because a serious building defect in the conference center's foundation required it to close down the conference center (and parts of the hotel) for several months. The payment was to reimburse the Hotel for its loss of revenue from cancelled bookings.

Initially, the Commission requested coverage handled by the CGL and umbrella policies. After the insurer denied the claim, the Commission made the payment mentioned earlier and then sued for recovery. Cincinnati filed a motion for summary judgment. It argued that since the Commission was responsible for the improper foundation construction that required the foundation to be replaced, the closure of the two facilities and the financial consequences were foreseeable. Therefore, the loss was intended from the insured's standpoint, making the loss ineligible for coverage. A district court heard the dispute because of a diversity issue. The Commission is a Virginia entity, whereas Cincinnati is a corporate citizen of Ohio.

The court reviewed the exclusionary language in the CGL and the umbrella policies. Both forms barred coverage for BI or PD that an insured intentionally caused. The court also reviewed several relevant cases featuring similar circumstances. The court reasoned that the Commission chose to use a certain method to form the conference center's foundation. Because of an expansion of fill material, the foundation was weakened to the point that replacement was necessary. The expanding nature of the fill material (steel slag) was known when the material was chosen and used. The closure of the conference center for repairs/replacement was a direct consequence of the earlier decision. Therefore, the loss was intended from the standpoint of the Commission, an insured under the CGL and commercial umbrella policies. The court ruled that the policy exclusions were clear and applicable to the situation. The court granted summary judgment in favor of Cincinnati.

Hotel Roanoke Conference Center Commission, Plaintiff, v. Cincinnati Insurance Company, Defendant. U.S. District Court, Western District of Virginia. Civil Action No. 7:03CV00109. February 23, 2004. CCH Personal and Commercial Liability Cases. Paragraph 8019.