Western World Ins. Co., Inc. v. Carrington, 8710SC1088

• Decision Date: 21 June 1988
• Docket Number: No. 8710SC1088,8710SC1088
• Citation: 90 N.C.App. 520,369 S.E.2d 128
• Court: North Carolina Court of Appeals
• Parties: WESTERN WORLD INSURANCE COMPANY, INC. v. Rodney CARRINGTON, d/b/a Carrington Engineered Waterproofing Systems, and d/b/a Carrington Engineering & Waterproofing, Inc. and Clancy & Theys Construction Company.

Page 128

369 S.E.2d 128

90 N.C.App. 520

WESTERN WORLD INSURANCE COMPANY, INC. v. Rodney CARRINGTON, d/b/a Carrington Engineered Waterproofing Systems, and d/b/a Carrington Engineering &amp Waterproofing, Inc. and Clancy & Theys Construction Company.

No. 8710SC1088.

Court of Appeals of North Carolina.

June 21, 1988.

John E. Bugg and William L. London, III, Durham, for defendant-appellant Clancy & Theys Constr. Co.

Merriman, Nicholls, Crampton, Dombalis & Aldridge by W. Sidney Aldridge, Raleigh, for defendant-appellant Carrington.

Maupin, Taylor, Ellis & Adams by Mark S. Thomas and Armistead J. Maupin, Raleigh, for plaintiff-appellee.

EAGLES, Judge.

A declaratory judgment action may be brought to determine whether coverage exists under an insurance policy. Hobson Construction Co. v. Great American Ins. Co., 71 N.C.App. 586, 322 S.E.2d 632 (1984), disc. rev. denied, 313 N.C. 329, 327 S.E.2d 890 (1985); G.S. 1-254. The complaint and the record must show that an actual controversy exists. Gaston Bd. of Realtors, Inc. v. Harrison, 311 N.C. 230, 316 S.E.2d 59 (1984). The complaint and the record here show that plaintiff's insured is being sued on a claim for which it denies coverage and for which, if coverage exists, it has a duty to defend. Accordingly, a declaratory judgment action may be brought. Cf. N.C. Farm Bureau Mut. Ins. Co. v. Warren, 89 N.C.App. 148, 365 S.E.2d 216 (1988). Our Supreme Court has held, under facts similar to the instant case, that the insurer's declaratory judgment action to determine whether coverage existed was proper. See Insurance Co. v. Simmons, Inc., 258 N.C. 69, 128 S.E.2d 19 (1962).

The sole issue here is whether plaintiff's policy provides Carrington with coverage against Clancy & Theys' claim. The policy states that plaintiff will pay all claims which the insured becomes legally obligated to pay as damages because of bodily injury or property damage. For purposes of this action there is no dispute that there is "property damage" as defined in the policy. The policy, however, contains certain "exclusions" from coverage which plaintiff argues exempt it from the obligation to defend and pay.

Exclusion (o) of the policy provides that the insurance does not apply:

(o) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.

The record does not contain a copy of the complaint in Clancy & Theys' action against Carrington. However, the record clearly indicates that Clancy & Theys' claim consists solely of costs incurred in replacing the allegedly defective waterproofing work done by Carrington with a new waterproofing system. We hold that "exclusion (o)" operates to exclude those costs from the policy's coverage.

Exclusionary clauses are not favored and must be narrowly construed. Nationwide Mut. Fire Ins. Co. v. Allen, 68 N.C.App 184, 314 S.E.2d 552, disc. rev. denied, 311 N.C. 761, 321 S.E.2d 42 (1984). The court, however, must interpret the policy as written and may not disregard the plain meaning of the policy's language. Fidelity Bankers Life Ins. Co. v. Dortch, 318 N.C. 378, 348 S.E.2d 794 (1986). Although there are no North Carolina cases construing the language of "exclusion (o)," numerous decisions from other jurisdictions have held that identical or similar exclusionary clauses are unambiguous and operate to exclude from coverage the type of damages which Clancy & Theys is claiming here.

Exclusion (o) is one of several "work product" exclusions found in standardized liability insurance policies. See Gulf Mississippi Marine Corp. v. George Engine Co., 697 F.2d 668 (5th Cir.1983). Since the quality of the insured's work is a "business risk" which is solely within his own control, liability insurance generally does not provide coverage for claims arising out of the failure of the insured's product or work to meet the quality or specifications for which the insured may be liable as a matter of contract. See Western World Ins. v. H.D. Eng. Design, 419 N.W.2d 630 (Minn.1988); Henderson, "Insurance for Products Liability and Completed Operations--What Every Lawyer Should Know," 50 Neb.L.Rev. 415, 441 (1971). The cases interpreting this kind of exclusion recognize, as we do, that liability insurance policies are not intended to be performance bonds. See Breaux v. St. Paul Fire & Marine Ins. Co., 345 So.2d 204 (La.App.1977). Consequently, courts have uniformly held that the language of exclusion (o) excludes damages sought for the cost of repairing or replacing the insured's own work or product. See Gulf Mississippi Marine Corp. v. George Engine Co., supra; Biebel Bros., Inc. v. United States Fidelity & G. Co., 522 F.2d 1207 (8th Cir.1975); Carboline Company v. Home Indemnity Company, 522 F.2d 363 (7th Cir.1975); Simons v. Great Southwest Fire Ins. Co., 569 F.Supp. 1429 (E.D.Mo.1983), aff'd, 734 F.2d 1318 (8th Cir.1984); G.L. Shaw Bldrs. v. State Auto Ins. Co., 182 Ga.App. 220, 355 S.E.2d 130 (1987); Hartford Accident & Ind. Co. v. Case Foundation Co., 10 Ill.App.3d 115, 294 N.E.2d 7 (1973); Breaux v. St. Paul Fire & Marine Ins. Co., supra; Taylor-McDonnell v. Commercial Union Ins., 744 P.2d 892 (Mont.1987); Weedo v. Stone-E-Bricks, Inc., 81 N.J. 233, 405 A.2d 788 (1979); Travelers Ins. Co. v. Volentine, 578 S.W.2d 501 (Tx.App.1979). Here, the record shows that the damages sought against Carrington are those costs incurred in replacing his allegedly defective waterproofing system with an effective waterproofing system. Therefore, the claim is excluded from the policy's coverage.

Defendants contend that exclusion (o) does not apply and cite several cases, including Bundy Tubing Company v. Royal Indemnity Company, 298 F.2d 151 (6th Cir.1962), in support of their argument. All of the cases cited by defendants, however, are readily distinguishable since they involve claims for damages other than costs for repairing or replacing the insured's defective work or product. In Bundy, supra, the insured manufactured some defective tubing, which was installed beneath concrete flooring....