Joint Venture Endorsement Covers Design Liability for General Contractor in Virginia (4th Circuit)

The 4th Circuit, applying North Carolina law, recently concluded that an insurer had a duty to indemnify a policyholder for issues related to foundation design at a student housing project. Clancy & Theys was a general contractor and joint venture partner with another entity. To insure its liability as a partner or venturer in the joint venture, Clancy purchased a “Joint Venture Endorsement” to its Westchester Insurance policy to cover its liability as a partner in the Brasfield/Clancy Joint Venture. The underlying policy — a commercial general liability and professional liability policy — excluded coverage for joint venture liability, providing, “No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.”

After construction was well under way, a portion of the building began to lean, damaging other portions of the building. After a plan for repair was agreed to, the Brasfield/Clancy Joint Venture initiated a mediation process with potentially responsible subcontractors to agree to an allocation of the $14.4 million repair costs. Following the process, the subcontractors and their insurance companies agreed to pay $10.5 million, leaving the remainder to be absorbed by the Brasfield/Clancy Joint Venture.

The Court held that Clancy’s liability arose from the joint venture, which was the very insurance it procured.

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