Isle of Palms Pest Control Co. v. Monticello Ins. Co.

• Decision Date: 02 November 1994
• Docket Number: No. 2263,2263
• Citation: 319 S.C. 12,459 S.E.2d 318
• Parties: ISLE OF PALMS PEST CONTROL COMPANY, Respondent, v. MONTICELLO INSURANCE COMPANY, Appellant. . Heard
• Court: South Carolina Court of Appeals

Page 318

459 S.E.2d 318

319 S.C. 12

ISLE OF PALMS PEST CONTROL COMPANY, Respondent, v. MONTICELLO INSURANCE COMPANY, Appellant.

No. 2263.

Court of Appeals of South Carolina.

Heard Nov. 2, 1994.

Decided Dec. 12, 1994.

Rehearing Denied Aug. 4, 1995.

G. Dana Sinkler and Elizabeth T. Thomas, Warren & Sinkler, Charleston, for appellant.

Carl H. Jacobson, Uricchio, Howe, Krell, Jacobson, Toporek & Theos, Charleston, for respondent.

HOWELL, Chief Justice.

Pursuant to its general liability policy with Monticello Insurance Company (Monticello), Isle of Palms Pest Control Company, Inc. (Isle of Palms) brought a declaratory judgment action seeking to require Monticello to provide liability coverage and defense costs in a third party action against Isle of Palms for fraud and negligence in connection with its preparation of a termite inspection report. The trial court held that the policy obligates Monticello to indemnify and defend Isle of Palms. We affirm.

I.

In connection with the sale of a home, Isle of Palms issued a termite inspection letter on January 23, 1990. The letter stated that there was no visible evidence of infestation in the home. The purchaser of the home (Purchaser) subsequently brought an action against Isle of Palms, claiming there was in fact infestation at the time of the report. In his complaint, the Purchaser alleged that Isle of Palms conducted its inspection in a negligent manner. The Purchaser also included allegations of fraud, breach of contract, unfair trade practices, conspiracy, negligent misrepresentation, and breach of warranty on the part of Isle of Palms in connection with Isle of Palms' failure to properly prepare the report.

Isle of Palms brought a declaratory judgment action, arguing that under the policy Monticello was obligated to defend and indemnify Isle of Palms in connection with the action by the Purchaser. Monticello contended that the policy did not provide coverage for the claim made against Isle of Palms by the Purchaser.

In its order, the court found that Isle of Palms "has proven the material allegations of its Complaint by the greater weight or the preponderance of the evidence and there is liability coverage provided in this instance." The court found that "there has been property damage that has been sustained in accordance with the general definitions of the ... policy, thus affording [Isle of Palms] coverage in this instance." ¹

II.

On appeal, Monticello contends there is no coverage and no duty to defend because Isle of Palms' negligence in issuing the termite letter does not constitute an occurrence covered under the policy. We disagree.

The policy at issue provides that Monticello will pay all damages Isle of Palms is legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence. The policy defines an occurrence as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

Questions of coverage and the duty of a liability insurance company to defend a claim brought against its insured are determined by the allegations of the third party's complaint. C.D. Walters Constr. Co., Inc. v. Fireman's Ins. Co. of Newark, N.J., 281 S.C. 593, 316 S.E.2d 709 (Ct.App.1984). If the underlying complaint creates a possibility of coverage under an insurance policy, the insurer is obligated to defend. Gordon-Gallup Realtors, Inc. v. Cincinnati Ins. Co., 274 S.C. 468, 265 S.E.2d 38 (1980). Here, the underlying complaint alleges that Isle of Palms negligently performed the inspection, because the property in fact was infested with termites. The complaint further alleges that, as a result of Isle of Palms' negligence, the Purchaser suffered damages, including costs of "repair and efforts to stop the damage." The complaint thus clearly alleges an accident (the negligent inspection) which caused property damage (termite damage). While the complaint also includes allegations of intentional conduct which would not be covered by the policy, the inclusion of some non-covered claims does not abrogate an insurer's duty to defend when a complaint raises claims covered by the policy. Accordingly, the trial court properly held that Monticello owes Isle of Palms a duty to defend against the Purchaser's claims.

Other jurisdictions have likewise determined that damage caused by the negligent issuance of a termite letter is within the scope of a comprehensive general liability insurance policy. In Posing v. Merit Insurance Co., 258 Ill.App.3d 827, 196 Ill.Dec. 335, 629 N.E.2d 1179 (1994), an exterminator was sued by various parties alleging, inter alia, that the exterminator negligently conducted property inspections and failed to discover termite infestation. After the insurer refused to defend, the exterminator brought a declaratory judgment action against its insurer. Id., 196 Ill.Dec. at 337-38, 629 N.E.2d at 1181-82. Construing a policy with the same definitions of property damage and occurrence as Monticello's policy, the Posing court held that the termite infestation constituted an occurrence, and the damage caused by the termites was property damage within the meaning of the policy. Id., 196 Ill.Dec. at 340, 629 N.E.2d at 1184. Similarly, the court held that an insurer had a duty to defend an exterminator against claims of fraud in connection with the issuance of a termite letter in Fowler Pest Control & Insulation, Inc. v. Hartford Insurance Co. of Alabama, 512 So.2d 88 (Ala.1987). See also Hurtig v. Terminix Wood Treating & Contracting Co., 67 Haw. 480, 692 P.2d 1153 (1984) (where exterminator improperly performed contract to inspect and treat house for termites, claim for resulting property damage covered under comprehensive general liability policy).

Monticello contends that the Purchaser's complaint against Isle of Palms is really one for faulty workmanship, which is not covered by the policy. Monticello relies heavily on Western Exterminating Co. v. Hartford Accident & Indemnity Co., 479 A.2d 872 (D.C.1984) as support for its position. In Western, the court held that the insurer had no duty to defend a claim brought against its insured as a result of an inaccurate termite inspection letter. In that case, however, the underlying complaint contained no "allegation that Western's negligence caused an accident resulting in damage to tangible property." Id. at 875. The underlying claim in Western was thus for economic damages only.

A general liability policy is intended to provide coverage for tort liability for physical damage to the property of others; it is not intended to provide coverage for the insured's contractual liability which causes economic losses. C.D. Walters, 281 S.C. at 596-97, 316 S.E.2d at 712. It is for this reason that a general liability insurance policy typically does not cover claims of faulty workmanship, but instead covers claims of faulty workmanship that causes an accident. Id. Here, however, the faulty workmanship did cause an accident--the improperly performed inspection resulted in continued termite damage. Had there been preexisting termite damage, but no active termite infestation, the Purchaser's claim against Isle of Palms would have been one for faulty workmanship resulting in only economic losses. There would be no possibility of coverage for such a claim because, under that factual scenario, Isle of Palms' improper inspection would not have caused property damage. However, because the Purchaser does allege that Isle of Palms' negligence resulted in property damage, the policy issued by Monticello does provide coverage for such damage, and Monticello is therefore obligated to defend.

III.

Because we have concluded that the Purchaser's complaint raises claims within the scope of Isle of Palms' policy, we must now determine whether any exclusions to the policy relieve Monticello of its obligation to defend and indemnify. See USAA Property & Casualty Ins. Co. v. Rowland, 312 S.C. 536, 435 S.E.2d 879 (Ct.App.1993), cert. denied (Feb. 17, 1994) (no duty to defend against claim falling within policy exclusion).

Monticello contends that the professional liability exclusion is applicable and defeats any claim of coverage by Isle of...