Court Opinion

ID: 1016485
Source: CourtListenerOpinion
Date Created: 2013-07-04 21:49:56.855473+00
Date Added: 2024-06-11T09:41:07.705712
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                            No. 04-1700

AUTO-OWNERS    INSURANCE    COMPANY;      OWNERS
INSURANCE COMPANY,

                                             Plaintiffs - Appellees,

          versus

ESSEX HOMES SOUTHEAST, INCORPORATED; REX
THOMPSON    BUILDERS,   INCORPORATED; MARC
HOMEBUILDERS, INCORPORATED,

                                            Defendants - Appellants,

          and

GARRYLE DEAS; VERONICA DEAS; ALMA E. OWENS;
TONI C. YARBER; RON THOMAS; CANDACE R. THOMAS;
HENRY   O.  JACOBS   BUILDERS,   INCORPORATED;
VANTAGE BUILDERS, INCORPORATED; JAMES WALDON;
LELA WALDON; REGINALD PERRY; JEANETTE PERRY;
THEODORE COLE; SUSAN IRWIN; MIKE IRWIN; WEBB
THOMPSON;   DIANE   THOMPSON;   CARL   BRAZELL
BUILDERS, INCORPORATED,

                                                         Defendants.

                            No. 04-1945

HARLEYSVILLE MUTUAL INSURANCE COMPANY,

                                               Plaintiff - Appellee,

          versus
MUNGO  HOMES     INCORPORATED;   MUNGO   COMPANY
INCORPORATED,

                                            Defendants - Appellants,

          and

DAVID WARREN; RON THOMAS; CANDACE THOMAS; MARC
HOMEBUILDERS, INCORPORATED,

                                                          Defendants.

                             No. 04-1986

BUILDERS MUTUAL INSURANCE COMPANY,

                                               Plaintiff - Appellee,

           versus

MARC HOMEBUILDERS, INCORPORATED,

                                              Defendant - Appellant,

           and

RON THOMAS; CANDACE R. THOMAS,

                                                          Defendants.

Appeals from the United States District Court for the District of
South Carolina, at Columbia.     Joseph F. Anderson, Jr., Chief
District Judge. (CA-02-2093-17-3; CA-03-2715-17-3; CA-02-3899-17-
3)

Argued:   May 24, 2005                       Decided:   June 29, 2005

                                 -2-
Before LUTTIG and DUNCAN, Circuit Judges, and Eugene E. SILER, Jr.,
Senior Circuit Judge of the United States Court of Appeals for the
Sixth Circuit, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: Robert Charles Brown, BROWN & BREHMER, Columbia, South
Carolina, for Appellants Essex Homes Southeast, Incorporated, Rex
Thompson   Builders,    Incorporated,   and    Marc   Homebuilders,
Incorporated; Frederick Albert Gertz, GERTZ & MOORE, Columbia,
South Carolina, for Appellants Mungo Homes, Incorporated, and Mungo
Company, Incorporated.      Grenville D. Morgan, Jr., MCANGUS,
GOUDELOCK & COURIE, L.L.P., Columbia, South Carolina, for Appellees
Auto-Owners Insurance Company and Owners Insurance Company; Stephen
P. Groves, Sr., NEXSEN PRUETT, Charleston, South Carolina, for
Appellee Builders Mutual Insurance Company; John Robert Murphy,
MURPHY & GRANTLAND, P.A., Columbia, South Carolina, for Appellee
Harleysville Mutual Insurance Company. ON BRIEF: J. Austin Hood,
BROWN & BREHMER, Columbia, South Carolina, for Appellants Essex
Homes Southeast, Incorporated, Rex Thompson Builders, Incorporated,
and Marc Homebuilders, Incorporated.       Larry A. Foster, Jr.,
MCANGUS, GOUDELOCK & COURIE, L.L.P., Columbia, South Carolina, for
Appellees Auto-Owners Insurance Company and Owners Insurance
Company; Adam J. Neil, MURPHY & GRANTLAND, P.A., Columbia, South
Carolina, for Appellee Harleysville Mutual Insurance Company.
Bradish J. Waring, NEXSEN PRUETT, Charleston, South Carolina, for
Appellee Builders Mutual Insurance Company.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

                               -3-
PER CURIAM:

     Appellants in the three cases before us appeal from the

district court’s declaratory judgment that the appellees, who

provide Commercial General Liability insurance to appellants, are

not obligated to defend appellants against third-party litigation

in state court.1     We affirm the judgment of the district court,

albeit for reasons different than those advanced by that court.

                                      I.

     Appellants     are    builders    and   developers    of   the    Summit

Development, “an upscale multi-use planned residential development

in Columbia, South Carolina.”           J.A. 256.2   Appellants are the

defendants    in   state   court   litigation    arising    out   of    their

involvement in the Summit Development.          In that litigation, the

plaintiffs, purchasers of Summit Development lots and homes (herein

referenced as the third-party claimants), have alleged, inter alia,

that appellants failed to disclose that the Summit Development had

previously been used by the Department of Defense as a training

site for aerial bombing and, as a result, contained Ordinance and

Explosive Wastes (OEW).      J.A. 256.

     1
       Because these three appeals present insurance coverage
disputes involving the application of identical insurance policy
language to the same underlying state court litigation, we
consolidated the cases for argument and dispose of them together in
this opinion.
     2
       Unless otherwise noted, citations to the joint appendix
refer to the appendix submitted in the Auto-Owners case.

                                      -4-
        At the time appellees instigated the instant declaratory

judgment    action,      the      operative    complaint    in    the   state    court

proceedings alleged that appellants’ tortious conduct resulted only

in economic damages to their property.                See J.A. 12 (“As a result

of the existence of OEW within the Summit Development the value of

Plaintiffs’ property . . . is substantially less than the value it

was represented to be.”). The district court, before resolving any

of the issues in the case, certified the following question to the

South Carolina Supreme Court:

        Do the subject CGL policies obligate the plaintiffs to
        indemnify and defend the corporate defendants for the
        claims of the claimants which are economic in nature and
        based solely on the diminution in value of the claimants’
        respective properties?

Auto-Owners Ins. Co. v. Carl Brazell Builders, Inc., 588 S.E.2d

112, 115 (S.C. 2003).             The South Carolina Supreme Court answered

this question in the negative.                   It noted that the subject CGL

policies defined “property damage” as either “physical injury to

tangible property, including all resulting loss of use of that

property”       or   “loss   of    use    of   tangible    property     that    is   not

physically injured.” Id. The court concluded that only the former

definition (physical injury) was at issue here as the operative

complaint did “not contain a claim for loss of use.”                       Id.       The

court    then    concluded     that      the   complaint    did   not   “allege      any

physical injury . . . but solely economic damages,” which are not

covered by the policies.            Id.

                                           -5-
     After this ruling, the third-party claimants amended their

state court complaint to include an allegation that “[p]laintiffs

. . . can not enjoy the full use of their property without first

conducting geographical surveys to determine the extent of OEW

contamination on their property and taking steps to remove such

materials.”   J.A. 66.   Plaintiff-appellees subsequently sought a

declaration from the district court that they were not obligated to

defend against the “loss of use” claims.              The district court

granted   Plaintiff-appellees’   summary    judgment     motion   and   the

instant appeal followed.

                                 II.

     The CGL policies at issue in this appeal provide, in relevant

part, as follows:

     1. a. We will 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. We will have the right and duty to defend any
     “suit” seeking those damages.

                            **********

     b. This insurance applies         to   “bodily    injury”    and
     “property damage” only if:

     (1) The “bodily injury” or “property damage” is caused by
     an “occurrence” that takes place in the “coverage
     territory”; and

     (2) The “bodily injury” or “property damage” occurs
     during the policy period.

                            **********

                                 -6-
     “Occurrence” means an accident, including a continuous or
     repeated exposure to substantially the same general
     harmful conditions.

     “Property damage” means:

     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 shall be deemed to
     occur at the time of the “occurrence” that caused it.

J.A. 17-30.

     In this diversity case, we apply South Carolina law to the

question of whether the foregoing policy terms require appellee-

insurance companies to defend appellants against the claims of the

third-party claimants.   Under South Carolina law, “[q]uestions 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 . . . .   If the underlying complaint

creates a possibility of coverage under an insurance policy, the

insurer is obligated to defend.”   Isle of Palms Pest Control Co. v.

Monticello Ins. Co., 459 S.E.2d 318, 319 (S.C. Ct. App. 1995)

(emphasis added).   Accordingly, consistent with the foregoing CGL

policy terms, we must examine the third-party claimants’ complaint

to determine whether it alleges an occurrence that occurred during

the policy period that caused the loss of use of the third-party

claimants’ property.

                                -7-
       The district court held that the complaints in the underlying

litigation did not allege an occurrence during the policy period

that caused property damage as defined in the policy, i.e., loss of

use.    The district court reasoned that there were two possible

occurrences,    either   the   bombing    or   the   appellants’   “alleged

negligent misrepresentation and negligent failure to inform the

Claimants of the contamination.”          J.A. 258.      According to the

district court, neither of these occurrences triggered coverage;

the bombing occurred before the policy period and appellants’

negligence “did not ‘cause’ the property damage.”          J.A. 258.

       The district court erred.         Whether appellants’ negligence

caused the third-party claimants’ loss of use is a question of fact

that will ultimately be resolved in the underlying state court

litigation.    This factual determination has no bearing under South

Carolina law on the question relevant to appellees’ duty to defend,

namely whether the third-party claimants have alleged an occurrence

that caused their loss of use.           Here, the underlying complaint

alleges that appellants’ negligence “caused Plaintiffs and members

of Plaintiff Class to suffer . . . interference with the full use

and enjoyment of their property.” J.A. 67-68 (emphasis added); id.

at 66 (“Plaintiffs . . . can not enjoy the full use of their

property . . .”) (emphasis added).       While the district court may be

correct that the third-party claimants’ lawsuit is meritless as to

the loss of use damages, such a conclusion does not relieve

                                   -8-
appellees of their duty to defend appellants.             The duty to defend

is triggered by frivolous and non-frivolous allegations alike.

     Appellees nonetheless maintain that the underlying complaint

does not trigger a duty to defend because appellants’ alleged

negligence     does     not   satisfy   the    policies’     definition    of

“occurrence.”    But the South Carolina Supreme Court has held that

negligence is an occurrence as that term is defined in the instant

CGL policies.     See Boggs v. Aetna Casualty and Surety Co., 252

S.E.2d 565 (S.C. 1979) (holding that “Boggs’ negligent decision to

place the house on that particular portion of the lot was an

‘occurrence’ within the meaning of the policy,” where occurrence

was defined as it is in the instant policies); see also Isle of

Palms,   459   S.E.2d    at   319   (holding   that   a   negligent   termite

inspection was an “occurrence” as that term is defined in a CGL

policy).

     Although the district court erred when it determined that the

complaint did not allege an occurrence that caused loss of use, it

nonetheless reached the correct result.         Appellees’ duty to defend

is relieved by the policy’s exclusion “m,” which provides:

     This insurance does not apply to “property damage” to
     “impaired property” or property that has not been
     physically injured, arising out of: (1) a defect,
     deficiency, inadequacy or dangerous condition in “your
     product” or “your work”; or (2) a delay or failure by you
     or anyone acting on your behalf to perform a contract or
     agreement in accordance with its terms.

The policy goes on to define “your work” as “work or operations

                                      -9-
performed by you or on your behalf,” including “warranties or

representations made at any time with respect to the fitness,

quality, durability, performance or use of ‘your work,’” and “the

providing or failure to provide warnings or instructions.”

      By its terms, exclusion “m” is applicable to the allegations

in the underlying complaint.         As noted above, any duty to defend

can only be based on the third-party claimants’ alleged loss of

use; the South Carolina Supreme Court has already determined that

appellees do not have a duty to defend against claims pertaining to

physical property damage.        See Auto-Owners, 588 S.E.2d at 115-16.

Thus, the damaged property in this case is, as the exclusion

requires, “property not physically injured.” And, according to the

allegations in the underlying complaint, all of the property damage

was caused by defects, deficiencies, or inadequacies in appellants’

work.        As    an   initial      matter,    any     representations      or

misrepresentations pertaining to the presence of OEW are covered

because “your work” includes “representations” and the “failure to

provide warnings.” Additionally, appellants’ decision to “design[]

and construct[]” the Summit Development on a “former bombing site”

is work performed by appellant.

      Appellants nonetheless maintain that the exclusion does not

apply   to   the   allegations      that   appellants   failed     to   conduct

geographic and environmental surveys and failed to remove the OEW,

see   J.A.   67,   because   such    failures   do    not   fall   within   the

                                      -10-
definition of “your work” because no “work [was] performed.”           But

appellants’ “work” was the development of the site, including

subdividing the lots and building the homes.         Appellants’ alleged

failures to investigate and remove the OEW constitute defects,

deficiencies, or inadequacies in their development of the site,

i.e., in the performance of their work.        Accordingly, there is no

possibility that appellees will be obligated to cover losses

suffered by appellants in the underlying litigation and appellees

are   therefore   not   obligated    to    defend   appellants   in   that

litigation.

                              CONCLUSION

      For the reasons set forth above, the judgment of the district

court is affirmed.

                                                                 AFFIRMED

                                    -11-