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Gateway Residences At Exchange, LLC v. Illinois Union Insurance Co

United States Court of Appeals, Fourth Circuit

February 28, 2019

GATEWAY RESIDENCES AT EXCHANGE, LLC, Plaintiff - Appellant,
v.
ILLINOIS UNION INSURANCE COMPANY, d/b/a ACE American Insurance Company, d/b/a ACE Environmental, d/b/a Ace USA, d/b/a ACE USA Companies, Defendant-Appellee.

          Argued: December 12, 2018

          Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Liam O'Grady, District Judge. (1:17-cv-00629-LO-JFA)

         ARGUED:

          C. Thomas Brown, SILVER & BROWN, Fairfax, Virginia, for Appellant.

          Douglas Aaron Winegardner, SANDS ANDERSON, PC, Richmond, Virginia, for Appellee.

         ON BRIEF:

          Eric B. Lawson, SILVER & BROWN, Fairfax, Virginia, for Appellant.

          Before AGEE, DIAZ, and HARRIS, Circuit Judges.

          DIAZ, Circuit Judge:

         Having been awarded more than $900, 000 for a contractor's faulty workmanship, Gateway Residences at Exchange, LLC, sued to collect the judgment from the contractor's liability insurer, Illinois Union Insurance Company. The relevant policy, however, covered only claims reported to the insurer during the policy period, and that policy expired 19 months before Illinois Union learned about Gateway's claim.

         That should end this case. But Gateway claims it may nonetheless recover on the policy because, by Virginia statute, Illinois Union waived certain defenses by failing to promptly inform Gateway of its coverage denial. See Va. Code Ann. § 38.2-2226. The district court was unpersuaded and, for reasons that follow, we affirm.

         I.

         A.

         This insurance dispute started with two broken generators in an Alexandria, Virginia, apartment complex. Gateway, the building's owner, had hired a local contractor, Mechanical Design Group (MDG), to provide various engineering and design services. Among MDG's jobs was to install two "life and safety power generators" in the garage. J.A. 208. MDG apparently didn't install the generators very well, though, for when they started up in August 2014, they caught fire, wrecking the generators and delaying the 217-unit building's opening.

         Blaming MDG for the damage, Gateway demanded that its contractor "cure the negligent design and installation" of the generators. J.A. 209. But it didn't sue MDG, at least initially. And in September 2014, MDG went out of business.

         Before starting work on the Gateway project, MDG had bought liability insurance from Illinois Union. Under the policy, Illinois Union had agreed to indemnify MDG for legal claims that might arise from the Gateway job. The front page of the policy advised that it provided liability coverage "ON A CLAIMS-MADE AND REPORTED BASIS," meaning that it covered "ONLY CLAIMS FIRST MADE AGAINST THE INSURED AND REPORTED TO THE INSURER, IN WRITING, DURING THE POLICY PERIOD." J.A. 256 (typeface in original). To further stress the point, the policy made it a "condition precedent to coverage" that any claim be reported to the insurer during the policy period. J.A. 259. The policy period began on February 1, 2014, and ended one year later on February 1, 2015.[1]

         MDG apparently never told Illinois Union about Gateway's potential claim before its insurance policy expired in 2015. Instead, Illinois Union first heard about the generator incident on September 6, 2016, after Gateway notified MDG's insurers that it intended to sue. Ten days later, ...


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