FIRST DIVISION

DOYLE, C. J.,

PHIPPS, P. J, and BOGGS, J.

NOTICE: Motions for reconsideration must be

physically received in our clerk’s office within ten

days of the date of decision to be deemed timely filed.

http://www.gaappeals.us/rules/

July 6, 2015

In the Court of Appeals of Georgia

A15A0145. AUTO OWNERS INSURANCE COMPANY v. GAY

CONSTRUCTION COMPANY.

DO-007

DOYLE, Chief Judge.

Gay Construction Company (“GCC”), a general contractor, filed suit against

Auto Owners Insurance Company to recover directly as an additional insured under

the commercial liability (“CGL”) policy issued by Auto Owners to Dai-Cole

Waterproofing Company, Inc. (“Dai-Cole”), GCC’s subcontractor on a project.

Specifically, GCC sought to recover from Auto Owners for costs associated with

allegedly faulty workmanship by Dai-Cole. Auto Ownersfiled a motion for summary

judgment, and the trial court denied the motion. Auto Ownersfiled an application for

interlocutory review, which this Court granted. For the reasons that follow, we

reverse.
To prevail at summary judgment under OCGA § 9-11-56, the

moving partymust demonstrate that there is no genuine issue of material

fact and that the undisputed facts, viewed in the light most favorable to

the nonmoving party, warrant judgment as a matter of law. On appeal

from the grant of summary judgment this Court conducts a de novo

review of the evidence to determine whether there is a genuine issue of

material fact and whether the undisputed facts, viewed in the light most

favorable to the nonmoving party, warrant judgment as a matter of law.1

So viewed, the record shows that GCC was the general contractor on a project

involving the reconstruction of a swimming pool and associated buildings for the

Piedmont Park Conservancy. As part of this project, GCC was tasked with

constructing a terrace above a newly constructed restroom and other areas. GCC subcontracted the pouring of concrete for the terrace floor to Gunby Construction, and

it subcontracted with Dai-Cole to install a waterproofing membrane and a drainage

mat to prevent leakage into the restrooms under the terrace. In early 2009, Gunby

poured the concrete bottom slab for the terrace, and Dai-Cole, or its own

subcontractor, installed the waterproofing membrane and drainage mat. A certificate

of occupancy was issued in May 2009. 

1

(Citation and punctuation omitted.) Home Builders Assn. of Savannah v.

Chatham County, 276 Ga. 243, 245 (1) (577 SE2d 564) (2003).

2
In mid-2009, Piedmont Park officials complained that water was leaking into

the space below the terrace during and after heavy rain. GCC investigated and

determined that the leak was caused by an allegedly improper application of the

waterproofing membrane. After unsuccessful attempts to have Dai-Cole repair the

membrane, GCC performed the work itself. To accomplish the repair, GCC removed

the terrace’s top concrete slab and drainage mat, repaired and replaced the

waterproofing membrane, replaced the top concrete slab, and repaired the underside

of the slab. GCC also repainted the underside of the slab to cover water stains and

replaced a light fixture that was damaged as a result of the water infiltration. In all,

GCC spent more than $126,000 to accomplish these repairs. 

As required by GCC and the Piedmont Park Conservancy, Dai-Cole had

obtained a CGL policy from Auto Owners. The policy provides that the term

“‘insured’means any person or organization qualifying assuch under Section II, Who

Is An Insured,” which provides:

A person or organization is an Additional Insured only with respect to

liability arising out of “your work” for that Additional Insured by or for

you: (1) [i]f required in a written contract or agreement; or (2) [i]f

required by an oral contract or agreement only if a Certificate of

3
Insurance was issued prior to the loss indicating that the person or

organization was an Additional Insured.

2

The terms “‘you’ and ‘your’ refer to the Named Insured shown in the Declarations.”

The policy also contemplates, however, that “other persons and organizations” may

“qualify[] as a Named Insured under this policy.” 

As in the standard CGL policy, Auto Owners agreed to “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 provides that

“[t]his insurance applies to ‘bodily injury’ and ‘property damage’ only if . . . [such]

is caused by an ‘occurrence’ that takes place in the ‘coverage territory.’” The policy

defines “property damage” as “[p]hysical injury to tangible property” or “[l]oss of use

of tangible property that is not physically injured.” “Occurrence” is defined as “an

accident, including continuous or repeated exposure to substantially the same general

harmful conditions.”3

2 The trial court assumed and the parties assume for purposes of this appeal that

GCC is an additional insured under the terms of the policy. 

3

 “Accident” is not defined in the policy. 

4
The policy contains multiple business risk exclusions. One excludes “loss or

damage caused by . . . [f]aulty, inadequate[,] or defective . . . [d]esign, specifications,

workmanship, repair, construction, [or] renovation. . . .” Another provision excludes

“Damage to Your Work” – that is, “‘[p]roperty damage’ to ‘your work’ arising out of

it or any part of it and included within the products-completed operations hazard.”

Similarly, the policy excludes “‘[p]roperty damage’to ‘impaired property’ or property

that has not been physically injured arising out of . . . [a] defect, deficiency,

inadequacy[,] or dangerous condition in ‘your product’ or ‘your work.’” 

Believing itself to be an additional insured under Dai-Cole’s policy, GCC filed

a first-party claim, seeking reimbursement for the costs of repairing and replacing the

defective terrace. After Auto Owners ultimately denied GCC’s claim, GCC filed this

lawsuit against Auto Owners, claiming breach of contract and seeking reimbursement

of the monies spent repairing the faulty waterproofing, as well as attorney fees and

bad faith damages pursuant to OCGA § 33-4-6.

4

 Auto Owners moved for summary

judgment. The trial court denied its motion, concluding that GCC’s claim was for

property damage and therefore covered by the policy. The court also determined that

4 GCC also named Dai-Cole as a defendant in the lawsuit, but those claims are

not at issue on appeal.

5
the claim did not fall under the policy’s business risk exclusions. In doing so, the

court interpreted the business risk exclusions to encompass only the work that was

tasked to Dai-Cole and expressly rejected Auto Owners’s argument that the

exclusions apply to all the work that was charged to GCC. The trial court certified its

order for immediate review, and this Court granted Auto Owners’s application for

interlocutory appeal. 

1. Auto Owners argues that the trial court erred by denying its motion for

summary judgment on the grounds that (a) GCC’s claims failed to seek damages

resulting from “property damage” as defined by the policy, and (b) the damages

sought by GCC in its first-party claim are excluded by the business risk exclusions

contained in the contract.

In Georgia, 

[t]he construction of contracts involves three steps. At least initially,

construction is a matter of law for the court. First, the trial court must

decide whether the language is clear and unambiguous. If it is, the court

simply enforces the contract according to its clear terms; the contract

alone is looked to for its meaning. Next, if the contract is ambiguous in

some respect, the court must apply the rules of contract construction to

resolve the ambiguity. Finally, if the ambiguity remains after applying

6
the rules of construction, the issue of what the ambiguous language

means and what the parties intended must be resolved by a jury.

5

Here, GCC filed a first-party claim seeking reimbursement of costs associated

solely with the repair and correction of faulty workmanship by Dai-Cole; there was

no claim for damage to nondefective property not covered by GCC’s or Dai-Cole’s

scope of work.

6 This claim is barred by the business risk exclusions in the AutoOwners policy.

Generally, “business risk exclusions of a CGL policy . . . exclude liabilities for

the repair or correction of defective work from the scope of coverage.”7

Georgia courts have clearly defined the risks that business-risk

exclusions are intended to remove from coverage[,] . . . typically

examin[ing] the following facts of each case when reviewing businessrisk exclusions: First, the type and extent of construction work that the

contractor is performing at the time of the accident and, second, the

extent that the damages resulting from the contractor’s accident may

5

Schwartz v. Harris Waste Mgmt. Group, 237 Ga. App. 656, 660 (2) (516

SE2d 371) (1999).

6 GCC did have to repaint and repair lighting caused by Dai-Cole’s faulty

workmanship, but such repairs came within GCC’s scope of work for the entire

project.

7

(Punctuation omitted.) Taylor Morrison Svcs., Inc. v. HDI-Gerling America

Ins. Co., 293 Ga. 456, 461-462 (1) (746 SE2d 587) (2013).

7
exceed the contractor’s contractual duties. In short, the court asks itself,

“Will the payment of insurance proceeds effectively cause an insurance

company to guarantee the contractor’s work?” If the answer is yes, the

business-risk exclusions apply and the claim is denied. However, if the

court finds that the payment of proceeds results from a negligent act

causing damage above and beyond the original contractual obligations

or to other property, the business-risk exclusions do not apply. . . .

8

Business risk exclusions are designed to exclude coverage for defective

workmanship by the insured builder causing damage to the construction

project itself. There are two kinds of risks that are incurred by a

contractor. The first is the business risk borne by the contractor to

replace or repair defective work to make the building project conform

to the agreed contractual requirements. This type of risk is not covered

by the [CGL] policy, and the business risk exclusionsin the policy make

this clear. The second is the risk that the defective or faulty

workmanship will cause injury to people or damage to other property.

Because of the potentially limitless liability associated with this risk, it

is the type for which commercial general liability coverage is

contemplated. The risk intended to be insured is the possibility that the

work of the insured, once relinquished or completed, will cause bodily

8

(Punctuation omitted.) Transp.Ins. Co. v. PiedmontConstr. Group, LLC, 301

Ga. App. 17, 19 (1) (686 SE2d 824) (2009).

8
injury or damage to property other than to the completed work itself, and

for which the insured may be found liable.9

Here, the claim asserted by GCC involved only corrections to and resulting

repairs for faulty workmanship, which is precisely the type of claim generally barred

by businessrisk exclusions. The only question, therefore, is whether the businessrisk

exclusions contained in Dai-Cole’s Auto Owners policy applied to GCC’s claim in

this case. 

As in many CGL policies, the business risk exclusions here barred coverage

for property damage to “your work.” In previous cases, this Court has looked to the

general contractor’s scope of work when determining whether certain exclusions in

a CGL policy apply to a general contractor’s claim against its own insurer.10 And

when a subcontractor seeks first-party coverage under a CGL, courts consider the

9

(Punctuation omitted; emphasissupplied.) QBE Ins. Co. v. Couch Pipeline &

Grading, Inc., 303 Ga. App. 196, 199-200 (2) (692 SE2d 795) (2010), quoting

SawHorse, Inc. v. Southern Guar. Ins. Co. of Ga., 269 Ga. App. 493, 495-496 (1)

(604 SE2d 541) (2004).

10 See, e.g., Bituminous Cas. Corp. v. Northern Ins. Co. of New York, 249 Ga.

App. 532, 533-534 (548 SE2d 495) (2001), citing Sapp v. State Farm Fire & Cas.

Co., 226 Ga. App. 200, 203-204 (b) (486 SE2d 71) (1997).

9
subcontractor’sscope of work.

11 Georgia courts have not, however, considered which

party’sscope of work should be considered when determining whether a businessrisk

exclusion applies to a general contractor’s claim for first-party coverage as an

additional insured under its subcontractor’s CGL policy.

12

Here, Auto Owners did not guarantee the work of Dai-Cole, and the business

risk exclusions in the policy removed from coverage the defective workmanship by

Dai-Cole that caused damage to the project. GCC, as the general contractor, was

responsible for all work done within the scope of work which it contracted to perform

11 See, e.g., SawHorse, 269 Ga. App. at 495 (1); Canal Indem. Co. v.

Blackshear Farmers Tobacco Warehouse, Inc., 227 Ga. App. 637, 639-640 (2) (490

SE2d 129) (1997).

12

In denying summary judgment to Auto Owners, the trial court relied upon

Hathaway Dev. Co., Inc. v. American Empire Surplus Lines Ins. Co., 301 Ga. App.

65 (686 SE2d 855) (2009), in which this Court held that a general contractor may

recover a judgment against a subcontractor from the insurance company that issued

the subcontractor’s CGL policy. The trial court’s reliance is misplaced. Although the

general contractor in Hathaway initially filed a direct claim against the insurance

company as an additional insured, the general contractor abandoned that argument on

appeal. See id. at 66, n.1. Thus, the sole issue on appeal was whether the general

contractor could recover a default judgment against the subcontractor from the

subcontractor’sinsurance company for defective plumbing work bythe subcontractor

that damaged other portions of the apartment building projects. See id. at 65-66. A

general contractor’sfirst-party claims against an insurance company as an additional

insured are not equivalent to a general contractor’s claims as a judgment creditor

against its debtor’s insurer.

10
for the Piedmont Park Conservancy. To limit the businessrisk exclusionsto only that

work performed by Dai-Cole would permit GCC more coverage as an additional

insured than that granted to Dai-Cole as policy-holder and would effectively require

Auto Owners to financially guarantee Dai-Cole’s work. Further, the business risk

exclusions expressly excluded property damage to the work of a named insured

arising out of the work, and the policy contemplated the possibility of qualifying an

additional insured as a named insured under the policy.

Under these circumstances, the business risk exclusions in the Auto Owners

policy exclude coverage for GCC’s first-party claim for reimbursement for damages

caused by Dai-Cole’s faulty workmanship.

13 The trial court erred by denying

summary judgment on this issue.

2. The trial court further erred by denying Auto Owners’s motion for summary

judgment as to GCC’s claim for bad faith penalties and attorney fees. Under OCGA

§ 33-4-6, an award of attorney fees and a bad faith penalty is not authorized if the

insurer “had any reasonable ground to contest the claim.”14 Based on our holding in

13 See Taylor Morrison Svcs., 293 Ga. at 461-462 (1). See also SawHorse, Inc.,

269 Ga. App. at 496-497 (1) (a); Sapp, 226 Ga. App. at 203-204 (b).

14

(Punctuation omitted.) Grange Mut. Cas. Co. v. Law, 223 Ga. App. 748, 750

(2) (479 SE2d 357) (1996).

11
Division 1, Auto Owners had a reasonable ground to contest GCC’s claim. Thus,

penalties and fees under OCGA § 33-4-6 are not authorized.

Judgment reversed. Phipps, P. J., and Boggs, J., concur.

12