Insurer Berkley Wants Judge in Virginia to Toss $5.8M Jury Verdict Over Mold Claim

August 25, 2023

Berkley Assurance Co. is asking a federal judge in Virginia to throw out a $5.8 million jury verdict against it in a case where the insurer maintains a construction firm failed to notify it of its mold claim in a timely manner.

The insurer insists that the evidence establishes as a matter of law that CBG Building Co. unreasonably delayed in reporting the mold claim, and thereby substantially and materially breached its reporting obligation.

CBG claims the evidence supports the jury’s finding that it reported the claim “as soon as reasonably possible” as the policy required.

CBG was hired for work by High Properties in the construction of three condo buildings in North Carolina. The contract was worth $37.5 million to CBG. But the project ran into trouble in 2021 when High Properties discovered a mold problem.

Berkley maintains that CBG knew of High Properties’ mold issue as early as April when High Properties first raised it and most certainly on May 7 when High Properties issued a stop work order. However, CBG did not notify its broker USI, or Berkley, until June 7.

CBG’s notice to Berkley said the mold had been discovered on May 15. CBG further told Berkley that there were upwards of 180 rental units that may be impacted and CBG was concerned that the mold conditions could result in both project delay as well as a pollution Claim. The notice further advised that CBG had a preferred mold contractor/consulting firm to bring in to investigate the mold conditions, potential cause, and evaluate applicable cleanup actions.

As of that time, Berkley claims CBG had already begun mold remediation for which its expenditures had increased to as much as $27,115 per day for its remediation contractor alone. CBG did not disclose to Berkley that it was incurring these expenses until June 23. The cost for remediation of all three buildings when completed exceeded $6 million.

CBG’s notice to Berkley on June 7 also happened to be a week after its policy had been renewed. During the renewal process, it never mentioned the mold issue with High Properties despite questions on the renewal application designed to elicit information on mold or any potential claims. Berkley alleges that CBG delayed reporting the claim in an effort to secure a renewal policy at a more favorable price.

For its part, CBG argues that it notified Berkley “as soon as reasonably possible” at a time when it was under mounting pressure from High Properties to address the mold so it could resume construction and avoid delays in the schedule. Between May 26 and May 28, as many as 30 units were inspected and the results confirmed widespread mold growth. Only then, CBG claims, did it become alerted to the extent of the mold issue and learn that remediation costs would be significant. Later, in a letter dated June 21, the environmental firm concluded that the cause of this mold growth was the fault of a subcontractor.

CBG maintains that Berkley’s claims person told CBG that Berkley had “no intent to hold up CBG.” He also said that Berkley might want to send a consultant to assess the situation but Berkley never did, according to CBG.

In June, according to CBG, the claims person acknowledged that “a claim was made by the stop work letter of May 7, but that coverage was still under investigation.” He also raised what CBG calls “Berkley’s incorrect assertion” that CBG’s notice to Berkley was late because CBG “knew of the mold issue at the latest April 15” but did not provide notice until after the policy expired on June 1. CBG noted that the policy does not require pollution claims to be reported during the policy period. Throughout the process, CBG’s agent, USI, argued that CBG’s claim was covered, and asserted that CBG had complied with the policy’s terms and conditions.

The dispute went to trial in federal district court for Eastern Virginia. On August 2, a jury decided that High Properties first cited the claim to CBG on May 7, the date of the stop work order. The jury also found that Berkley had not proven that CBG failed to report the claim as soon as reasonably possible, which it did 30 days later on June 7. The jury awarded CBG $5,763,065.52 in damages.

Berkley is protesting that verdict by requesting that the court dismiss CBG’s counterclaim against it in its entirety as a matter of law. Berkley cites four reasons for its position. The insurer alleges CBG failed to present sufficient evidence to show that it reported the claim “as soon as reasonably possible;” admitted liability and made “substantial concessions” to High Properties without Berkley’s consent; failed to present sufficient evidence that Berkley was legally obligated to pay any of the expenses for which CBG sought reimbursement; and because some of the categories of CBG’s claimed reimbursements are “clearly outside the coverage of the policy.”

Berkley maintains that much of what CBG undertook was designed to “mollify High Properties’ growing dissatisfaction with CBG’s performance” and to “restore CBG’s monthly draws against the $37.5 million contract price, which High had begun to withhold.” Berkley says High Properties was in a position to “dictate what CBG would do” and CBG acceded to High Properties’ demands, without any consideration of legal obligation.

In opposing Berkley’s move, CBG counters that the court’s findings on the record and the unanimous jury verdict in CBG’s favor both confirm the sufficiency of the evidence presented by CBG at trial.

CBG maintains that the burden of proof was on Berkley to show that CBG breached the policy’s notice provision and Berkley failed to meet this burden. There were “many facts” that did not support the position that the delay of 30 days was an unreasonably long delay, according to CBG.

Furthermore, CBG argues, the court already rejected Berkley’s argument related to the assumption or admission of liability “due to the lack of evidence in the record supporting a finding that CBG assumed or admitted liability without Berkley’s prior written consent.”

According to CBG, Berkley’s motion also fails to cite any evidence to support its statements that CBG’s damages were “designed to mollify” High Properties’ alleged dissatisfaction with CBG’s performance and to restore CBG’s monthly draws.

Finally, CBG asserts that there was plenty of evidence supporting CBG’s categories and amount of damages.

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