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GAF Corp. v. Cty. Sch. Bd. - 629 F.2d 981 (4th Cir. 1980)

Rule:

The United States Court of Appeals for the Fourth Circuit holds that a small element of "insurance" should not be construed to bring a transaction within the reach of the insurance regulatory laws unless the transaction involves one or more of the evils at which the regulatory statutes are aimed and the traditional insurance elements of risk transfer and distribution give the transaction its distinctive character.

Facts:

Defendant contracted with plaintiff, a school board, to supply roofing materials to contractors building two schools. Under the contract, defendant guaranteed to repair damage caused by various defects in the materials and workmanship but excluded leaks in the roof caused by events unrelated to any defect in defendant's products. Subsequent to the formation of leaks in the roof, plaintiff sued defendant and served process under state's Unauthorized Insurer law, contending defendant's guarantee constituted an insurance contract under Virginia law. The district court agreed and found plaintiff had properly invoked the provisions of Virginia's Unauthorized Insurers Process Act when serving process in its suit against defendant.  Defendant appealed.

Issue:

Was the contract to provide roofing materials, which included a guarantee to repair any damages from defective materials or workmanship, an insurance contract under the state of Virginia's Unauthorized Insurers Process Act?

Answer:

No.

Conclusion:

Noting that the Virginia statute did not explicitly define "insurance contract," the United States Court of Appeals for the Fourth Circuit analyzed the provisions of the parties' agreement and held the guarantees at issue were considered provisions of a warranty rather than insurance. The appellate court acknowledged that the guarantee contained traditional insurance elements of risk transfer and distribution; however, the Fourth Circuit held that these elements did not give the contract its distinctive character, and the guarantee was not the type that the state's insurance laws were meant to regulate.

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