## Facts

- National Mutual Insurance Company issued McMahon & Sons, Inc. a general business liability policy covering its contracting and development operations.
- McMahon & Sons later contracted to build a house for two homeowners; the construction contract required the owners to carry fire insurance, and Farmers & Mechanics issued a fire policy to the homeowners.
- During construction, while McMahon & Sons’ workers were on site, a fire destroyed the partially built house; McMahon & Sons did not dispute negligence connected to the fire’s origin.
- The homeowners recovered under their fire policy; Farmers & Mechanics paid and became subrogated to the homeowners’ rights.
- As subrogee, Farmers & Mechanics brought a negligence action against McMahon & Sons in the homeowners’ name.
- National Mutual filed a declaratory judgment action asserting it had no duty to defend or indemnify McMahon & Sons, relying primarily on a “care, custody or control” exclusion and related property-damage exclusions.
- The circuit court, relying largely on stipulated facts and judicial notice of related litigation, entered judgment for National Mutual; McMahon & Sons and Farmers & Mechanics appealed.

## Issues

1. Whether the record was sufficiently developed to permit a declaratory judgment applying the policy’s exclusionary clauses, including the “care, custody or control” exclusion, to the fire loss.
2. Whether, on the available facts, the partially constructed house was within McMahon & Sons’ “care, custody or control” so as to trigger the exclusion.
3. Whether other exclusions relating to property ownership or the insured’s work barred coverage.
4. Whether National Mutual’s conduct could estop it from asserting exclusions, and whether prejudice was required to establish estoppel in this setting.

## Decision

- The Supreme Court of Appeals of West Virginia reversed the declaratory judgment and remanded.
- The court held the factual record was inadequate to support a determination that the exclusions barred a defense or indemnity obligation.
- The court declined to decide the ultimate coverage question because the facts necessary to evaluate control, possessory interests, and the parties’ relationships were not sufficiently developed.

## Legal Principles

- Declaratory relief on insurance coverage should not be granted on a skeletal factual record when material facts bearing on coverage or exclusions remain unresolved.
- Ambiguous exclusionary language in an insurance policy is construed strictly against the insurer and in favor of coverage.
- Application of a “care, custody or control” property-damage exclusion is highly fact-dependent and requires developed evidence regarding the insured’s degree of possession and control over the damaged property.
- Estoppel to deny coverage generally requires a showing of prejudice to the insured, subject to recognized exceptions; on remand, the court must assess the insurer’s conduct and any resulting prejudice when evaluating asserted policy defenses.

## Conclusion

The court set aside the insurer’s no-coverage declaratory judgment because the limited stipulations and judicial notice did not provide enough facts to apply ambiguous and fact-sensitive exclusions, and it remanded for further factual development before resolving the insurer’s defense and indemnity obligations.


Nat’l Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W. Va. 734, 356 S.E.2d 488 (W. Va. 1987)