Century Indem. Co. v. GOLDEN HILLS BLDRS.

Decision Date11 March 2002
Docket NumberNo. 25426.,25426.
Citation561 S.E.2d 355,348 S.C. 559
CourtSouth Carolina Supreme Court
PartiesCENTURY INDEMNITY COMPANY, as successor to CCI Insurance Company, as successor to Insurance Company of North America, Respondent, v. GOLDEN HILLS BUILDERS, INC., Peter O. Stoltz, and Brooke M. Stoltz, of whom Peter O. Stoltz and Brooke M. Stoltz are Appellants.

Richard R. Gleissner, of Finkel & Altman, of Columbia, for appellants.

J.R. Murphy and Anthony W. Livoti, both of Murphy & Grantland, of Columbia, for respondent.

Andrea C. Pope, of Barnes, Alford, Stork & Johnson, of Columbia, for Amicus Curiae Insurance Environmental Litigation Association.

Justice MOORE:

We accepted the following questions certified by the United States Fourth Circuit Court of Appeals:

1. Does a standard commercial general liability insurance policy that explicitly provides coverage only for property damage occurring during the policy period provide coverage for continuing damage that begins during the policy period?
2. If so, is coverage precluded by a provision excluding coverage for damage to property that is owned, rented, or occupied by the insured, where the insured held legal title to the property, which was under contract for sale, when the damage began?
3. If not, is a general contractor's claim for the cost of repair to the substrate and framing of a house that was damaged by a subcontractor's improper installation of a stucco exterior precluded by a faulty workmanship exclusion?
4. If the coverage is precluded by the faulty workmanship provision, is that coverage restored by a provision that provides coverage for damage arising from products-completed operations hazards?
FACTS

The appellants, Peter and Brooke Stoltz (hereinafter referred to as Homeowners), filed an action in South Carolina state court against Golden Hills Builders (Insured), a general contractor engaged in the business of constructing residential homes. Homeowners alleged their home was defective because a subcontractor of Insured constructed the synthetic stucco exterior of their home in a manner that caused moisture damage to the properly constructed substrate and framing of the home.

Insured began building the home in 1989 and substantially completed it by mid-1990. On June 28, 1990, Insured entered into a contract for completion of the house with Homeowners. Insured's commercial general liability insurance policy had an effective date of December 7, 1989, to December 7, 1990. The residence was deeded to Homeowners on February 22, 1991. Homeowners began noticing problems in 1998; however, the parties stipulate that the moisture damage began occurring prior to December 7, 1990, and that the damage has been continuous since that time.

Homeowners sought damages incurred in replacing the defective exterior and repairing the substrate and framing. They also sought attorney's fees and punitive damages.

Respondent, Century Indemnity Company (Insurer),1 filed an action in the United States District Court for the District of South Carolina against Insured and Homeowners. Insurer sought a declaratory judgment that any damages awarded in the state court action would not be covered by a standard commercial general liability policy that Insurer had issued to Insured. The District Court granted Insurer's motion for summary judgment, finding coverage did not exist for the cost of replacing the synthetic stucco exterior or for repairing the damage to the substrate. Insured did not appeal the District Court's ruling. Homeowners, however, appealed to the Fourth Circuit Court of Appeals the portion of the decision that addressed the lack of coverage for the substrate damage.

CERTIFIED QUESTION 1
Does a standard commercial general liability insurance policy that explicitly provides coverage only for property damage occurring during the policy period provide coverage for continuing damage that begins during the policy period?
DISCUSSION

The insurance policy at issue in the instant case states:

We will pay those sums that the insured becomes legally obligated to pay as damages because of ... "property damage" to which this insurance applies.

The policy further states:

This insurance applies to ... "property damage" only if: (1) the ... "property damage" is caused by an "occurrence" that takes place in the "coverage territory" and (2) the ... "property damage" occurs during the policy period.

"Occurrence" is defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." This case, as stipulated, involves the "repeated exposure to substantially the same general harmful conditions." Moisture penetrates past the synthetic stucco of the home, becomes trapped, and then damages the wooden substrate and framing of the home. This repeated exposure began during the policy period.

In the policy, "property damage" is defined as a:

Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; ...

Accordingly, property damage relates back in time to the time of the occurrence, that is, when the first injury occurred to the property.

The parties have stipulated that the home in question was within the "coverage territory," that "property damage" was caused by an "occurrence," and that "property damage" occurred during the policy period.

The issue is whether the policy should cover (1) only the amount of property damage that occurred during the policy period, i.e., between December 7, 1989, and December 7, 1990; or (2) all sums Insured becomes legally obligated to pay if property damage occurs during the policy period.

We believe this issue can be resolved solely by reference to Joe Harden Builders, Inc. v. Aetna Cas. & Sur. Co., 326 S.C. 231, 486 S.E.2d 89 (1997).2 In Joe Harden, the Court adopted a modified continuous trigger theory for determining when coverage is triggered under a standard occurrence policy. "Under this theory, coverage is triggered whenever the damage can be shown in fact to have first occurred, even if it is before the damage became apparent, and the policy in effect at the time of the injury-in-fact covers all the ensuing damages." Id. at 236, 486 S.E.2d at 91. Coverage is also triggered under every policy applicable thereafter.

Because the policy at issue here contains substantially the same language as the policy at issue in Joe Harden, the modified continuous trigger theory applies in the instant case. As a result, the insurance policy provides coverage for property damage that occurred during the policy period and for any continuing damage.

Therefore, the answer to the certified question of whether the policy provides coverage for continuing damage that began during the policy period is yes.

CERTIFIED QUESTION 33
Is a general contractor's claim for the cost of repair to the substrate and framing of a house that was damaged by a subcontractor's improper installation of a stucco exterior precluded by a faulty workmanship exclusion?
DISCUSSION

Insured was the general contractor of the home that Homeowners purchased. The defective stucco exterior was constructed by a subcontractor of Insured.

The policy excludes from coverage property damage to:

That particular part of any property that must be restored, repaired, or replaced because "your work" was incorrectly performed on it.

(hereinafter referred to as the faulty workmanship provision). "Your work" is defined as "[w]ork or operations performed by you or on your behalf and ... materials, parts or equipment furnished in connection with such work or operations."

Insurance policies are subject to the general rules of contract construction. B.L.G. Enterprises, Inc. v. First Financial Ins. Co., 334 S.C. 529, 514 S.E.2d 327 (1999). The Court must give policy language its plain, ordinary, and popular meaning. Id. When a contract is unambiguous, clear, and explicit, it must be construed according to the terms the parties have used. Id. Furthermore, exclusions in an insurance policy are always construed most strongly against the insurer. Boggs v. Aetna Cas. and Sur. Co., 272 S.C. 460, 252 S.E.2d 565 (1979).

A comprehensive general liability policy, such as the one at issue, provides coverage "for all the risks of legal liability encountered by a business entity," with coverage excluded for certain specific risks. Rowland H. Long, LL.M., The Law of Liability Insurance, § 3.06[1] (2001). This type of insurance "is not intended to insure business risks, i.e., risks that are the normal, frequent, or predictable consequences of doing business, and which business management can and should control or manage." Id. § 10.01[1]. Specifically, "[t]he policies do not insure [an insured's] work itself, but rather, they generally insure consequential risks that stem from that work." Id. See also Isle of Palms Pest Control Co. v. Monticello Ins. Co., 319 S.C. 12, 459 S.E.2d 318 (Ct.App. 1995),

aff'd

321 S.C. 310, 468 S.E.2d 304 (1996) (general liability policy is intended to provide coverage for tort liability for physical damage to property of others; it is not intended to provide coverage for insured's contractual liability which causes economic losses); Sapp v. State Farm Fire & Cas. Co., 226 Ga.App. 200, 486 S.E.2d 71, 75 (1997) (noting risk intended to be insured is possibility that work of insured, once completed, will cause bodily injury or damage to property other than to completed work itself, and for which insured may be found liable; coverage applicable under CGL policy is for tort liability for injury to persons and damage to other property and not for contractual liability of insured for economic loss because completed work is not that for which the damaged person bargained).

Homeowners argue that the provision, which excludes from coverage property damage to "[t]hat...

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