                            UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                            No. 09-1930


FEDERAL HILL HOMEOWNERS ASSOCIATION, INC.,

                Plaintiff - Appellant,

           v.

COMMUNITY ASSOCIATION UNDERWRITERS       OF   AMERICA,   INC.;   QBE
INSURANCE CORPORATION,

                Defendants - Appellees.



Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.     Leonie M. Brinkema,
District Judge. (1:09-cv-00251-LMB-TRJ)


Argued:   May 12, 2010                        Decided:   June 21, 2010


Before GREGORY, Circuit Judge, C. Arlen BEAM, Senior Circuit
Judge of the United States Court of Appeals for the Eighth
Circuit, sitting by designation, and Samuel G. WILSON, United
States District Judge for the Western District of Virginia,
sitting by designation.


Reversed and remanded by unpublished opinion.             Judge Gregory
wrote the majority opinion, in which Judge               Wilson joined.
Senior Judge Beam wrote a dissenting opinion.


ARGUED: Mark Patrick Graham, REES BROOME, PC, Vienna, Virginia,
for Appellant. Lawrence Alexis Dunn, MORRIS & MORRIS, Richmond,
Virginia, for Appellees.    ON BRIEF: Maureen E. Carr, REES
BROOME, PC, Vienna, Virginia, for Appellant. Sandra S. Gregor,
MORRIS & MORRIS, Richmond, Virginia, for Appellees.


Unpublished opinions are not binding precedent in this circuit.




                                2
GREGORY, Circuit Judge:

        On July 24, 2009, the United States District Court for the

Eastern     District         of    Virginia          granted     summary      judgment        to

defendants       QBE     Insurance       Corporation           (“QBE”)     and     Community

Association Underwriters of America, Inc. after finding they had

no   duty   to    defend       Federal     Hill        Homeowners    Association,            Inc.

(“FHHA”) from a state suit brought by a property owner.                                      The

court found that the insurance policy at issue did not provide

coverage    for    the    allegations         of       “bodily    injury”     in      the    suit

because they were not caused by a requisite “occurrence.”                                    For

the reasons set forth below, we reverse the decision of the

district    court      and     remand      for       further   proceedings         consistent

with this decision.



                                              I.

      QBE    through         its    managing           agent     Community       Association

Underwriters of America, Inc., issued an insurance policy to

FHHA for the policy period January 14, 2006, to January 14, 2007

(“the    Policy”).        Under      the     General      Liability      section        of   the

Policy,     coverage      is      provided       for    claimed     damages      of    “bodily

injury,” “property damage,” “personal injury,” or “advertising




                                                 3
injury” “to which this insurance applies.”                           J.A. 77. 1      QBE has

the right and duty to defend any “suit” seeking those damages.

Significantly, the Policy only applies to “bodily injury” or

“property        damage”     which    is   caused        by    an   “occurrence”         taking

place during the policy period.                   Id.        “Bodily injury” is defined

as an “injury to the body, sickness or disease, disability of

shock, mental anguish, humiliation or mental injury sustained to

any person, including death resulting from any of these at any

time.”       Id. at 105.       An “occurrence” is “an accident, including

continuous        or   repeated       exposure          to     substantially       the     same

harmful conditions.”            Id. at 111.             Furthermore, “bodily injury”

or “property damage” expected or intended from the standpoint of

the insured is excluded from the General Liability section of

the Policy pursuant to Exclusion E.                     Id. at 79.

       On    August    13,    2007,    FHHA       requested         that    the    defendants

provide coverage pursuant to the Policy based on the lawsuit of

Jayne Hornstein v. Federal Hill Homeowners Association, Inc.,

Case       No.   CL-2007-9459        (Fairfax       Cir.        Ct.)       (“the   Hornstein

Lawsuit”).         In the Hornstein Lawsuit, the plaintiff, owner of

real property that is part of FHHA, alleged that she could not

sell       the   property      because     of      information         contained         in   a


       1
       Citations herein to “J.A. __” refer to the contents of the
Joint Appendix filed by the parties in this appeal.




                                              4
disclosure      packet    issued     by    FHHA    on     or    around       February   2006

(“the Disclosure Packet”).             The Disclosure Packet, provided upon

Hornstein’s request, 2 stated that the property was in violation

of    FHHA’s    rules    and    regulations.            Among    the    violations,      the

Disclosure Packet stated that the property’s fence encroached on

FHHA’s     property.       Based     on    the    Disclosure         Packet,     Hornstein

specifically alleged four causes of action against FHHA:                                 (1)

Declaratory Judgment; (2) Injunctive Relief; (3) Disparagement

of    Property/Slander         of   Title;   and    (4)        Tortious      Interference.

Id. at 207-09.          Included in the damages Hornstein alleged in her

Slander of Title claim are “the lost economic benefits of the

sale of the Property,” “the diminution in fair market value of

the Property,” and “the mental and emotional pain and anguish

suffered by Hornstein as a result of the stress and financial

hardships caused by not being able to sell the Property.”                               Id.

at 208.

       The defendants acknowledged receipt of FHHA’s claim under

the    Policy    and     denied     coverage       on    August        14,    2007.     The

defendants      denied     coverage       under    both        the   General     Liability


       2
       Virginia law requires a property owners’ association to
furnish an “association disclosure packet” upon the request of
an owner who is selling property within the association.    Va.
Code Ann. § 55-509.5 (2009).    The packet must include whether
any improvements on, alterations of, or use of the property
violate any association rules and regulations. Id.




                                             5
section of the Policy and the Directors and Officers Liability

section.      While FHHA conceded no coverage under the Directors

and   Officers          Liability       section,      it    brought       a   declaratory

judgment      action       against       defendants        on     February        2,        2009,

alleging,         in    part,    that    the       defendants     failed      to       provide

coverage to FHHA related to the Hornstein Lawsuit according to

the General Liability section.                     On June 17, 2009, FHHA filed a

motion      for    summary       judgment      against      the   defendants           seeking

judgment as a matter of law on its breach of duty to defend

claim.       The       defendants      both   opposed      FHHA’s    motion       and       filed

their own summary judgment motion asserting lack of coverage.

      The     district          court    granted       summary      judgment           to     the

defendants on July 24, 2009.                   The court found that, comparing

the Hornstein Lawsuit with the Policy as required under Virginia

law, the Policy did not provide coverage for the allegations of

“bodily      injury”       in    the    Hornstein       Lawsuit,         mental    anguish,

because there was no requisite “occurrence.”                              Id. at 270-71.

FHHA timely appealed.



                                              II.

      This Court reviews the district court’s grant of summary

judgment de novo, “viewing the facts in the light most favorable

to,   and    drawing       all    reasonable        inferences      in    favor    of,       the

nonmoving party.”            Garofolo v. Donald B. Heslep Assocs., Inc.,


                                               6
405 F.3d 194, 198 (4th Cir. 2005).                   If there is a genuine issue

of material fact or if the moving party is not entitled to

judgment    as   a    matter    of    law       on   this   record,      then    summary

judgment is inappropriate.             Fed. R. Civ. P. 56(c); see also

Celotex v. Catrett, 477 U.S. 317, 322 (1986).



                                        III.

     FHHA contends that the district court erred in finding that

the alleged “bodily injury” in the Hornstein Lawsuit was not

caused     by    an    “occurrence,”            as    defined     by     the     Policy.

Specifically, FHHA argues that the mental and emotional pain and

anguish suffered by Hornstein was not a reasonably foreseeable

result of the issuance of the Disclosure Packet.                       We agree.

                                            A.

     “A federal court hearing a diversity claim must apply the

choice-of-law     rules    of   the    state         in   which   it    sits.”     Res.

Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 635

(4th Cir. 2005).          Here, the appeal arises from a declaratory

judgment action filed in the Eastern District of Virginia, and

we apply Virginia’s choice-of-law rules.                    It is undisputed that

Virginia law governs.

     “Under Virginia law, an insurer’s obligation to defend an

action ‘depends on comparison of the policy language with the

underlying complaint to determine whether any claims alleged [in


                                            7
the complaint] are covered by the policy.’”                    America Online,

Inc. v. St. Paul Mercury Ins. Co., 347 F.3d 89, 93 (4th Cir.

2003) (quoting Superformance Int’l, Inc. v. Hartford Cas. Ins.

Co.,   332    F.3d   215,   220    (4th    Cir.   2003))    (alteration   in   the

original).        This is referred to as the “eight corners rule.”

Erie Ins. Exch. v. State Farm Mut. Auto. Ins. Co., 2002 WL

32075410, at *5 (Va. Cir. Ct. Dec. 16, 2002).                  The insured has

the burden to prove coverage, Res. Bankshares Corp., 407 F.3d at

636, while “the insurer bears the burden of proving that an

exclusion applies,” Bohreer v. Erie Ins. Group, 475 F. Supp. 2d

578, 585 (E.D. Va. 2007).

       When following the eight corners rule, we must recognize

that “[t]he duty to defend is broader than the duty to indemnify

because      it   ‘arises   whenever      the   complaint   alleges   facts    and

circumstances, some of which, if proved, would fall within the

risk covered by the policy.’”              Res. Bankshares Corp., 407 F.3d

at 636 (quoting Brenner v. Lawyers Title Ins. Corp., 397 S.E.2d

100, 102 (Va. 1990)).             “[I]f it is doubtful whether the case

alleged is covered by the policy, the refusal of the insurer to

defend is at its own risk.”            Brenner, 397 S.E.2d at 102.         “And,

if it be shown subsequently upon development of the facts that

the claim is covered by the policy, the insurer necessarily is

liable for breach of its covenant to defend.”                Id.




                                           8
       In    Virginia,        “an   insurance            policy   is   a    contract             to    be

construed in accordance with the principles applicable to all

contracts.”         Seabulk Offshore, Ltd. v. American Home Assur. Co.,

377    F.3d      408,    419    (4th    Cir.         2004).       Accordingly,              “[u]nder

Virginia law, if policy language is clear and unambiguous, we do

not apply rules of construction; rather, we give the language

its    plain       and     ordinary    meaning           and   enforce          the       policy       as

written.”         Id.    If we find ambiguity “and the intentions of the

parties      cannot      be    ascertained,          the    policy     must          be    construed

strictly         against      the   insurer       and      liberally       in    favor       of       the

insured.”         Id.; see also Ocean Acc. & Guarantee Corp., Ltd., of

London, England, v. Washington Brick & Terra Cotta Co., 139 S.E.

513,       513    (Va.     1927)    (“It    is       a     well   recognized              rule     that

insurance policies, in case of doubt, should be construed most

strongly against the insurer.”).

                                               B.

       All parties agree that the Hornstein Lawsuit’s allegations

of    “mental      and     emotional       pain      and    anguish”       fall       within          the

“bodily injury” requirement of the Policy.                         Thus, the only issue

before this Court is whether there was an “occurrence” under the

Policy. 3         The    Policy     defines       “occurrence”         as       an    “accident.”


       3
       The district court did not address the applicability of
Exclusion E. However, our analysis under the exclusion would be
identical to our determination of whether there was an
(Continued)


                                                 9
Virginia courts have expounded on this definition, holding in

the insurance context that an “occurrence” means “an incident

that was unexpected from the viewpoint of the insured,” Utica

Mut. Ins. Co. v. Travelers Indem. Co., 286 S.E.2d 225, 226 (Va.

1982), or “an event which creates an effect which is not the

natural or probable consequence of the means employed and is not

intended,     designed,     or   reasonably    anticipated,”     Lynchburg

Foundry Co. v. Irvin, 16 S.E.2d 646, 648 (Va. 1941).            This Court

has found that to determine whether something is an accident

under   an   insurance    policy,   Virginia   courts   ask   “whether   the

incident or injury was a reasonably foreseeable result of the

insured’s actions.”       Res. Bankshares Corp., 407 F.3d at 637.

     The district court in this case found no allegations of an

accident under Virginia law.        The court’s justification reads:

     The problem you have here is I think it is not at all
     unforeseeable that if a homeowners association or any
     entity sends a communication to someone indicating
     that there may be a cloud on the title to their
     property or an encumbrance, in this case, you know,
     your fence encroaches, so you’re going to have to do
     something,   all  right,  it’s  not  unreasonable  or
     unforeseeable to anticipate that this is going to



occurrence   under  the   Policy.    Both   inquiries   turn   on
foreseeability, as the exclusion provides that the Policy does
not apply to “bodily injury” or “property damage” expected or
intended from the standpoint of the insured.    J.A. 79.    Thus,
because we find that the mental anguish alleged was not
reasonably foreseeable, there was an occurrence, and Exclusion E
does not apply.




                                     10
       upset the homeowner, because they’re going to have to
       put out money or it holds up a sale, and apparently in
       the context of this case, that’s why the letter was
       even generated, so that I don’t think the mental
       anguish   resulting    from   the   communication   is
       unforeseeable, and therefore – I’m ruling, all right?
       – and therefore, that would not be covered by this
       insurance policy.    In other words, that claim for
       mental anguish I don’t find would transform this
       intentional act to an accident that would therefore be
       covered.

J.A.   270-71.       We    hold     that    the      district       court    erroneously

concluded that Hornstein’s alleged “mental and emotional pain

and anguish” was a “reasonably foreseeable result of [FHHA’s]

actions.”       Res. Bankshares Corp., 407 F.3d at 637.                     To determine

foreseeability, we ask whether the result, “was a natural and

probable consequence” of the insured’s actions.                          Patch v. Metro.

Life Ins. Co., Inc., 733 F.2d 302, 304 (4th Cir. 1984).                                The

alleged     mental       anguish    was     not      a    “natural        and   probable

consequence” of FHHA’s issuance of the Disclosure Packet for

several reasons.

       First,     FHHA   being     sued    for    mental      anguish       cannot    be   a

natural     and    probable       consequence        of    the       issuance    of    the

Disclosure      Packet    containing       violations         of    the    association’s

rules and regulations when the violations cited could have been

easily cured.       Before bringing suit, according to the Complaint,

FHHA    informed     Hornstein       that       to    bring        her    property    into

compliance, all she had to do was “remove the existing fence and

gate” and “erect a new fence on the Property where one has not


                                           11
previously been built.”          J.A. 206.       The Record makes clear that

Hornstein was informed of the required action more than once.

Id. at 221, 226-27.        Instead of taking this action, she decided

to sue FHHA.        It is not reasonable to expect that informing a

property owner of straight-forward steps to bring her property

into compliance with association policy, essentially performing

the   job   a    homeowners’    association      is   obligated     to   do,   would

cause the property owner to experience mental anguish to the

extent compensable at law.              The Hornstein Lawsuit alleges that

the mental anguish was caused by not being able to sell the

property.          However,     the     Record    shows      that   FHHA       timely

communicated with her about the status of the violations and how

they were to be corrected.               Any extended period of time when

Hornstein was not able to sell the property was a result of her

legal wrangling, not the action of FHHA.

      Second, the alleged mental anguish is not a natural and

probable    consequence       because    Hornstein    was    informed    that     the

Disclosure Packet would be issued and that it would contain the

core noncompliance in dispute — the fence encroachment — in the

event that she attempted to sell the property.                       In a letter

dated more than a month before the Disclosure Packet was issued,

FHHA informed Hornstein of the fence encroachment “and that the

circumstances of the encroachment of the existing fence must be

included    on    any   disclosure.”       Id.   at   211.      After    Hornstein


                                         12
entered into a contract to sell the property without remedying

the violations, FHHA issued the Disclosure Packet, following the

course of action it had already set out.                        The issuance of the

Disclosure Packet and its contents therefore were not a surprise

to Hornstein.         In fact, a survey Hornstein herself commissioned

put Hornstein on notice that the fence at issue was off her

property.       FHHA knew that Hornstein was aware of this survey

because she submitted it to FHHA, an action which caused the

issuance of the letter mentioned above.                      Id. (“Your application

to make repairs to the fence as indicated on the attached house

location     survey       had    been    denied.        As   shown     on   the   survey,

included with your application, your current fence encapsulates

property that belongs to Federal Hill Homeowner Association.”).

It   thus    was    not    reasonably         foreseeable      that   Hornstein     would

suffer      compensable         mental    anguish       from    receiving     requested

information with which she was already intimately familiar.

      Moreover,       Hornstein         set   in   motion      the    issuance    of    the

Disclosure Packet, and FHHA’s course of action was required by

state law.         See Va. Code Ann. § 55-509.5.                The violation stated

in the required Disclosure Packet was not extraordinary, and

there is no doubt that the association is frequently confronted

with such situations when property owners wish to sell their

property; in other words, FHHA was simply doing its job.                               FHHA

surely      could    not    reasonably        foresee    a     suit   alleging     mental


                                              13
anguish     as    a    damage   based     on     fulfilling    both    its    legal

obligation and its role as a homeowners’ association.

       Finally, a review of the Complaint reveals that Hornstein

was simply asserting mental anguish as a damage under her claim

for    “slander       of   title,”   it   being    necessary      to   demonstrate

“special damages” to prove slander of title under Virginia law.

Warren v. Bank of Marion, 618 F. Supp. 317, 320 (W.D. Va. 1985)

(“It   is   generally      recognized     that    in   bringing   an   action   for

slander of title the plaintiff must prove that the defendant

maliciously published false words, which disparaged plaintiff’s

property causing plaintiff to suffer special damages.”).                     Courts

from other jurisdictions have held that an injured party can

only recover for pecuniary loss for slander of title.                   See James

O. Pearson, Jr., Annotation, What Constitutes Special Damages in

Action for Slander of Title, 4 A.L.R. 4th 532 (1981 & 1991

Supp.).     General damages, such as mental anguish, are not within

the range of special damages.             Id. at 536-37; see also Lawson v.

Valley Mortgage & Inv. Corp., 1987 WL 488637, at *2 (Va. Cir.

Ct. Apr. 21, 1987).           Thus, we cannot say that it is reasonably

foreseeable that FHHA would be sued for a damage that is not

recoverable in the first place.




                                          14
                                      IV.

      Because   we    find   that    “mental   and   emotional    pain   and

anguish” alleged in the Hornstein Lawsuit was not a “reasonably

foreseeable result of [FHHA’s] actions,” Res. Bankshares Corp.,

407 F.3d at 637, we reverse the decision of the district court

and   remand    for    further      proceedings   consistent     with    this

decision.

                                                     REVERSED AND REMANDED




                                      15
BEAM, Senior Circuit Judge, dissenting.

     I   would   affirm   the   well-reasoned    conclusions   of   the

district court in this matter.    J.A. 264-76.




                                  16
