Auto Owners Ins. Co., Inc. v. Newman

Decision Date08 September 2009
Docket NumberNo. 26450.,26450.
Citation385 S.C. 187,684 S.E.2d 541
CourtSouth Carolina Supreme Court
PartiesAUTO OWNERS INSURANCE COMPANY, INC., Appellant, v. Virginia T. NEWMAN and Trinity Construction, Inc., Respondents.

C. Mitchell Brown, of Nelson Mullins Riley & Scarborough, and John L. McCants, of Ellis Lawhorne & Sims, both of Columbia, for Appellant.

Frank M. Cisa, of Cisa & Dodds, of Mt. Pleasant, Joseph K. Qualey, of Qualey & Beck, of Charleston, and Michael S. Seekings and Amy E. Melvin, both of Leath Bouch & Crawford, of Charleston, for Respondents.

George E. Mullen and Daniel F. Oberklein, both of Mullen Wylie & Seekings, of Hilton Head Island, for Amicus Curiae South Carolina Community Associations Institute.

Kenneth E. Ormand, Jr., of Ormand Ashley & Gibbons, of Columbia, for Amicus Curiae National Association of Home Builders and Home Builders Association of South Carolina.

David E. Dukes and William C. Wood, Jr., both of Nelson Mullins Riley & Scarborough, of Columbia, and Laura A. Foggon and Parker J. Lavin, both of Wiley Rein, of Washington, D.C., for Amicus Curiae Complex Insurance Claims Litigation Association.

Lawrence M. Hunter, Jr., of Hunter & Foster, of Greenville, for Amicus Curiae Bituminous Casualty Corporation.

Stephen P. Groves, Sr., of Nexsen Pruet, of Charleston, for Amicus Curiae Builders Mutual Insurance Company.

C. Mitchell Brown, William C. Wood, Jr., Matthew D. Patterson, and A. Mattison Bogan, of Nelson Mullins Riley & Scarborough, of Columbia, for Amicus Curiae Harleysville Mutual Insurance Company.

Chief Justice TOAL.

The issuer of a homebuilder's commercial general liability policy sought a declaratory judgment to determine whether the policy covered a homeowner's claim for damages caused by the negligence of a construction subcontractor. The trial court determined that the homeowner's claim fell within the policy's coverage and this appeal followed. We certified the case pursuant to Rule 204(b), SCACR, and affirmed the trial court's decision. We now withdraw our prior opinion and substitute it with this opinion. We affirm in part and reverse in part.


Respondent Trinity Construction, Inc. ("Trinity") completed the construction of a home for Respondent Virginia Newman ("Homeowner") in May 1999. Shortly thereafter, the Homeowner filed a claim against Trinity for breach of contract, negligence, and breach of warranty, alleging defective construction primarily related to the installation of the stucco siding. Based on the report of an engineer hired by the Homeowner to inspect the home's construction, the Homeowner alleged that the application of the stucco did not conform to industry standards and that these nonconforming aspects of the stucco installation allowed water to seep into the home causing severe damage to the home's framing and exterior sheathing. The Homeowner and Trinity referred the action to binding arbitration in which an arbitrator issued the Homeowner an award of itemized damages due to the defective construction totaling $55,898.

At the time of construction, Trinity held a commercial general liability (CGL) policy issued by Appellant Auto-Owners Insurance Company ("Auto-Owners"). Following arbitration, Auto-Owners sought a declaratory judgment to determine its rights and obligations under the CGL policy, contending that the damages awarded by the arbitrator were not covered under the policy. The trial court determined that the policy covered the damages because they resulted from an "occurrence" and because Auto-Owners failed to show that any policy exclusions applied. Accordingly, the trial court determined that the CGL policy covered all but four items of the damages provided for in the arbitration award. Auto-Owners appealed. After certifying the case, we affirmed the trial court's ruling. Auto-Owners Ins. Co., Inc. v. Newman, Op. No. 1383 (S.C. Sup. Ct. filed March 10, 2008) (Shearouse Adv. Sh. No. 9 at 63).

On rehearing, we now consider the following issue for review:

Did the trial court err in holding that the damages awarded by the arbitrator for negligent construction were covered under a CGL policy?


A declaratory judgment action is neither legal nor equitable, and therefore, the standard of review is determined by the nature of the underlying issue. Colleton County Taxpayers Ass'n v. Sch. Dist. of Colleton County, 371 S.C. 224, 231, 638 S.E.2d 685, 688 (2006). When the purpose of the underlying dispute is to determine whether coverage exists under an insurance policy, the action is one at law. Auto-Owners Ins. Co. v. Hamin, 368 S.C. 536, 540, 629 S.E.2d 683, 685 (Ct.App.2006). In an action at law tried without a jury, the appellate court will not disturb the trial court's findings of fact unless there is no evidence to reasonably support them. Id.

A. Negligent construction as an "occurrence" under the policy

Auto-Owners argues that the arbitrator's award for the Homeowner's property damage is not covered by the policy. Specifically, Auto-Owners argues that pursuant to this Court's opinion in L-J v. Bituminous Fire & Marine Insurance Co., 366 S.C. 117, 621 S.E.2d 33 (2005), the subcontractor's defective installation of stucco did not cause an "accident" constituting an "occurrence" subject to coverage under the policy. We disagree.

The CGL policy issued by Auto-Owners in this case is the standard Insurance Services Office (ISO) CGL policy used since 1986 and is identical to that reviewed by this Court in L-J. The relevant policy provisions state that Auto Owners will "pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." The policy further explains that the insurance applies to such "bodily injury" or "property damage" only if it is caused by an "occurrence."

The CGL policy defines many of the particular terms used to outline the scope of its coverage. The policy defines "property damage" as "physical injury to tangible property, including all resulting loss of use of that property," and defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same harmful conditions." The policy does not define the term "accident," however, and this Court has found that in the absence of a prescribed definition in the policy, the definition of "accident" is "[a]n unexpected happening or event, which occurs by chance and usually suddenly, with harmful result, not intended or designed by the person suffering the harm or hurt." Green v. United Ins. Co. of America, 254 S.C. 202, 206, 174 S.E.2d 400, 402 (1970).

We begin our analysis in this case with a review of L-J, which all parties, as well as the trial court, assert in support of their respective resolutions of the issue. In L-J, a developer hired L-J, Inc. ("L-J") as contractor for the site development and road construction in a subdivision development. 366 S.C. at 119, 621 S.E.2d at 34. L-J hired subcontractors to perform most of the work, and four years after construction was completed, the roads began to deteriorate due to negligent road design, preparation, and construction. Id. The developer sued L-J and the parties settled. L-J subsequently sought indemnification from Bituminous Fire and Marine Insurance Company ("Bituminous") and three other insurance companies who insured L-J under various CGL policies. Id. Bituminous refused to indemnify L-J and brought a declaratory judgment action to determine whether its CGL policy issued to L-J covered the damage to the roads caused by the negligent construction. Id. at 120, 621 S.E.2d at 34.

This Court found that although the deterioration to the roadways may have constituted property damage, the various negligent acts of the subcontractors upon which the developer based its claim did not constitute an "occurrence" for which the CGL policy provided coverage. Id. at 123, 621 S.E.2d at 36. Specifically, the Court found that the developer's claim alleged negligent construction causing damage only to the defective work product itself (i.e. the roadway), and that such a claim was merely one for faulty workmanship. Id. Reasoning that "faulty workmanship is not something that is typically caused by an accident or by exposure to the same general harmful conditions," the Court held that the developer's claim did not allege an "occurrence" falling within the policy's scope of coverage. Id. See also Isle of Palms Pest Control Co. v. Monticello Ins. Co., 319 S.C. 12, 16, 459 S.E.2d 318, 320 (Ct.App.1994) (explaining that a claim solely for economic losses resulting from faulty workmanship is part of an insured's contractual liability which a CGL policy is not intended to cover).

The L-J court went on to explain, however, that a CGL policy may provide coverage where faulty workmanship causes third party bodily injury or damage to other property besides the defective work product. Id. n. 4. To illustrate this theory, the Court examined the case of High Country Associates v. New Hampshire Insurance Co., in which a condominium homeowners' association sued the condominium builder seeking damages allegedly due to negligent construction of the condominium buildings. 139 N.H. 39, 648 A.2d 474, 476 (1994). The complaint alleged that the continuous moisture intrusion resulting from a subcontractor's defective installation of siding resulted in moisture seeping into the buildings, which caused widespread decay of the interior and exterior walls and loss of structural integrity over a nine-year period. Id. The High Country court found that the complaint was not simply a claim for faulty workmanship seeking damages to repair the defective siding itself, but rather, was a claim for negligent construction resulting in damage to other property. Id. at 477. The court determined that the continuous...

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