Opinion ID: 2509803
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Heading: Commercial General Liability Policies and the Coverage Question in a Progressive Damage Case

Text: We affirm the trial court's finding of coverage based on an occurrence. An occurrence was once simply defined as an accident. However, in 1966, the occurrence definition was expanded to include continuous or repeated exposure to substantially the same general harmful conditions. [3] This Court, among others, has struggled to discern the meaning of the expanded occurrence definition in the context of progressive damage cases. The lack of a clear meaning, we believe, leaves us with an ambiguity, which we must construe against the insurer. See Super Duper Inc. v. Pennsylvania Nat'l Mut. Cas. Ins. Co., 385 S.C. 201, 210, 683 S.E.2d 792, 796 (2009) (Ambiguous terms must be construed in favor of the insured.). Accordingly, we construe the ambiguous definition of occurrence in favor of the insured, Crossmann, and find the insuring language of the policies was triggered by the damages caused by repeated water intrusion. [4]
While we adhere to the result in Newman, because progressive damage cases often are highly complex and involve many stakeholders, we elect to clarify the applicable legal framework for determining whether coverage is triggered. In Newman, a homeowner brought a suit against a builder alleging breach of warranty, breach of contract, and negligence. The homeowner established that a subcontractor negligently applied stucco to the side of her house and, as a result, progressive damage ensued as water seeped into the home causing damage to the home's framing and exterior sheathing. We held that the costs of replacing the defective application of the stucco were not covered by the builder's CGL policy, but the damage caused by the continuous moisture intrusion resulting from the subcontractor's negligence did fall within the CGL's expansive definition of an occurrence. We analyzed Newman solely through the lens of whether there was an occurrence, specifically a continuous or repeated exposure to substantially the same harmful conditions. 385 S.C. at 194, 684 S.E.2d at 544-45 (citing Travelers Indem. Co. of America v. Moore & Assocs., Inc., 216 S.W.3d 302, 309 (Tenn.2007)). We believe a more complete understanding of the coverage issue in this kind of progressive property damage case should involve the policy term property damage. The standard CGL policy defines property damage in two different ways, as follows: 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; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it. [5] With respect to the first quoted definition of property damage, the critical phrase is physical injury, which suggests the property was not defective at the outset, but rather was initially proper and injured thereafter. We emphasize the difference between a claim for the costs of repairing or removing defective work, which is not a claim for `property damage,' and a claim for the costs of repairing damage caused by the defective work, which is a claim for `property damage.' See United States Fire Ins. Co., 979 So.2d at 889-90 (citing cases adopting this approach); see also Wm. C. Vick Constr. Co. v. Pennsylvania Nat'l Mut. Cas. Ins. Co., 52 F.Supp.2d 569, 582 (E.D.N.C.1999) ([T]he property allegedly damaged has to have been undamaged or uninjured at some previous point in time.), aff'd, 213 F.3d 634 (4th Cir.2000) (unpublished table decision); L-J, Inc. v. Bituminous Fire & Marine Ins. Co., 366 S.C. 117, 124, 621 S.E.2d 33, 36 (2005) (In the present case, the complaint did not allege property damage beyond the improper performance of the task itself.); Travelers Indem. Co. of America, 216 S.W.3d at 311 ([W]e hold that claims alleging only damages for replacement of a defective component or correction of faulty installation do not allege `property damage.'). Further, we note it is only after property damage has been alleged that the question of occurrence is reached. With respect to the components of a project that sustained physical injury, we look to the definition of occurrence, which is ambiguous and must be construed in favor of the insured, and find coverage was triggered. Returning to Newman and viewing those facts through the lens of both property damage and occurrence, we clarify that the costs to replace the negligently constructed stucco did not constitute property damage under the terms of the policy. The stucco was not injured. However, the damage to the remainder of the project caused by water penetration due to the negligently installed stucco did constitute property damage. Based on those allegations of property damage and construing the ambiguous occurrence definition in favor of the insured, the insuring language of the policy in Newman was triggered by the property damage caused by repeated water intrusion. [6] In sum, we clarify that negligent or defective construction resulting in damage to otherwise non-defective components may constitute property damage, but the defective construction would not. We find the expanded definition of occurrence is ambiguous and must be construed in favor of the insured, and the facts of the instant case trigger the insuring language of Harleysville's policies. We note, however, that various exclusions may preclude coverage in some instances. Because the parties in the present case stipulated not to raise the issue, we do not address any policy exclusions and exceptions.