UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

KAREN L. POTESTA; CYNTHIA P.
KEANE, d/b/a C & K Associates, a
general partnership; BOSSIO
ENTERPRISES, INCORPORATED, a
corporation,
                                                             No. 96-2229
Plaintiffs-Appellees,

v.

UNITED STATES FIDELITY &
GUARANTY COMPANY, a corporation,
Defendant-Appellant.

KAREN L. POTESTA; CYNTHIA P.
KEANE, d/b/a C & K Associates, a
general partnership; BOSSIO
ENTERPRISES, INCORPORATED, a
corporation,
                                                             No. 96-2343
Plaintiffs-Appellants,

v.

UNITED STATES FIDELITY &
GUARANTY COMPANY, a corporation,
Defendant-Appellee.

Appeals from the United States District Court
for the Northern District of West Virginia, at Clarksburg.
Robert Earl Maxwell, Senior District Judge.
(CA-95-52)

Argued: May 9, 1997

Decided: July 7, 1998
Before RUSSELL* and WILLIAMS, Circuit Judges, and
MICHAEL, Senior United States District Judge for the
Western District of Virginia, sitting by designation.

_________________________________________________________________

Vacated and remanded by unpublished opinion.

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COUNSEL

ARGUED: Peter Gregory Zurbuch, BUSCH & TALBOTT, L.C.,
Elkins, West Virginia, for Appellant. Avrum Levicoff, BROWN &
LEVICOFF, P.C., Pittsburgh, Pennsylvania, for Appellees. ON
BRIEF: John E. Busch, BUSCH & TALBOTT, L.C., Elkins, West
Virginia, for Appellant. Joseph E. Starkey, Jr., BROWN & LEVIC-
OFF, P.C., Pittsburgh, Pennsylvania, for Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

This appeal arises from a declaratory judgment action involving
issues of insurance coverage for the loss of a commercial building in
Morgantown, West Virginia. We certified two questions of law to the
Supreme Court of Appeals of West Virginia, which has now
answered our questions. See Potesta v. United States Fidelity & Guar-
anty Co., No. 24441, 1998 WL 248612 (W. Va. May 15, 1998). The
facts are fully recited in our order of certification and in the opinion
_________________________________________________________________
*Judge Russell heard oral argument in this case but died prior to the
time the decision was filed. The decision is filed by a quorum of the
panel pursuant to 28 U.S.C. § 46(d).

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of the Supreme Court of Appeals of West Virginia. See id., at *2-4.
Therefore, we will repeat them only briefly here.

Bossio Enterprises, Inc. (Bossio) leased a commercial building in
Morgantown, West Virginia, from C & K Associates (C&K), the
owner. Bossio, in turn, subleased the building to Finial, Inc. (Finial)
and Robert Vecchio, an officer of Finial. The sublease contained an
indemnity clause that held Finial liable for losses occurring from Fini-
al's use of the property and required that Finial obtain liability insur-
ance on the property. In accordance with the terms of the sublease,
Finial obtained a businessowner's policy from United States Fidelity
& Guaranty Company (USF&G). Finial undertook extensive renova-
tions of the building in May of 1993. As a part of these renovations,
Finial contracted with Jackson's Wash-On-Wheels to perform exte-
rior cleaning of the building. The building was severely damaged as
a result of the renovations, including the high pressure cleaning of the
building's exterior. The substantial damage ultimately required the
demolition of the building.

On September 29, 1993, C&K and Bossio filed an action against
Finial, Vecchio, and Jackson's Wash-On-Wheels in the Circuit Court
of Monongalia County, West Virginia, seeking to recover damages
incurred from the demolition of the building. The circuit court deter-
mined that Finial was contractually liable to C&K. When USF&G
denied coverage under Finial's insurance policy, C&K filed a declara-
tory judgment action against USF&G in the circuit court.1 USF&G
removed the action to the United States District Court for the North-
ern District of West Virginia on the grounds of diversity jurisdiction.
C&K moved for summary judgment, alleging in part that USF&G
relied on an improper ground for denying coverage to Finial. USF&G
_________________________________________________________________
1 USF&G argues on appeal that C&K does not have standing to assert
Finial's cause of action claiming coverage. We disagree. We conclude
that the district court was correct in its determination that the circumstan-
tial evidence indicated that an assignment did occur. As the district court
held, a writing is not required for an effective assignment in West Vir-
ginia. See Potesta v. United States Fidelity Guaranty Company, No.
1:95-cv52 (N.D. W. Va. Aug. 14, 1996) (accepting the Proposed Find-
ings of Fact and Recommendation for Disposition of the magistrate
judge).

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cross-moved for summary judgment, contending that it had a valid,
previously unstated reason for denying coverage. The district court
granted summary judgment in favor of C&K. USF&G appealed the
judgment, and C&K cross-appealed, claiming that it was entitled to
attorneys' fees and costs as the assignee of Finial, the insured.

We determined that these cross-appeals presented unsettled ques-
tions of West Virginia law. Accordingly, we certified the following
two questions to the Supreme Court of Appeals of West Virginia:

          1. Does West Virginia law require a showing of detrimen-
          tal reliance by the insured in order to assert waiver or estop-
          pel against an insurer who initially denies coverage on a
          specific ground, but then attempts to rely on an alternate
          ground for the denial of coverage in subsequent litigation?

          2. Does the Supreme Court of Appeals of West Virginia
          adopt the statement of West Virginia law in Insurance Co.
          of North America v. National Steel Service Center, Inc., 391
          F. Supp. 512, 517-22 (N.D. W. Va. 1975) -- i.e., the princi-
          ples of waiver and estoppel do not operate to extend insur-
          ance coverage beyond the terms of the insurance contract,
          except if the insurer expressly relinquishes his right to deny
          coverage or if the insured detrimentally relies on an insur-
          er's unconditional defense of an action brought against the
          insured?

Order of Certification to the Supreme Court of Appeals of West Vir-
ginia, Nos. 96-2229 & 96-2343, at 7-8 (4th Cir. Aug. 25, 1997). The
Supreme Court of Appeals of West Virginia issued an opinion on
May 15, 1998, in which it answered these two questions. See Potesta,
1998 WL 248612.

In response to our first certified question, the court began by distin-
guishing between the doctrines of waiver and estoppel, noting that
"waiver and estoppel are two distinct doctrines which must be inde-
pendently applied." Id. at *8. Thus, the court provided a two-part
answer to the first certified question. First, the court addressed the
doctrine of waiver and held that an insured need not prove detrimental
reliance upon an insurer's previously stated reason(s) for denying
coverage in order to assert that the insurer has waived its right to
assert additional, previously unstated, reasons for denying coverage
during subsequent litigation. See id. Instead, the insured must show

                    4
by clear and convincing evidence that the insurer knowingly and
intentionally waived the previously unarticulated reasons for denying
coverage. See id. In other words, the "insured must show that the
insurer intentionally relinquished a known right." Id. at *14. Second,
the court addressed the doctrine of estoppel and held that the insured
must prove that he relied to his detriment on the initially stated
grounds for declination to estop the insurer from asserting previously
unarticulated grounds for denial. See id. at *8.

In response to our second certified question, the court adopted the
majority rule that, generally, the principles of waiver and estoppel
cannot extend insurance coverage beyond the terms of an insurance
contract. See id. at *11. With regard to waiver, the court specifically
held that "while implied waiver may be employed to prohibit an
insurer, who has previously denied coverage on specific ground(s),
from subsequently asserting a technical ground for declination of cov-
erage, implied waiver may not be utilized to prohibit the insurer's
subsequent denial based on the nonexistence of coverage." Id. at *13
(internal footnote omitted). With regard to the doctrine of estoppel,
the court held that there are at least three exceptions to the general
rule that estoppel may not be used to extend insurance coverage
beyond the terms of an insurance contract. See id. at *14. The excep-
tions include, but are not limited to, instances when an insured is prej-
udiced as a result of: (1) an insurer's misrepresentation resulting in
the insured not obtaining the coverage he desired; (2) the insurer has
defended an action against its insured without a reservation of rights;
and (3) an insurer's acting in bad faith. See id.

Given the opinion of the Supreme Court of Appeals of West Vir-
ginia, it is now clear that this case requires further determination of
the facts. We, therefore, vacate the decision below granting summary
judgment to C&K and remand to the district court for proceedings not
inconsistent with this opinion and the decision of the Supreme Court
of Appeals of West Virginia.2

VACATED AND REMANDED
_________________________________________________________________
2 Because we vacate the decision below granting summary judgment to
C&K, C&K's cross-appeal is moot. In addition, we need not decide
whether the Liability Coverage Form's limit of $2,000,000.00 or the
Tenant Liability Coverage Form's limit of $50,000.00 applies.

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