Court Opinion

ID: 1029327
Source: CourtListenerOpinion
Date Created: 2013-07-05 07:55:35.779844+00
Date Added: 2024-06-11T12:38:15.568299
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 08-1476

BREEZEWOOD    OF    WILMINGTON    CONDOMINIUMS     HOMEOWNERS’
ASSOCIATION, INCORPORATED,

                Plaintiff - Appellant,

           v.

AMERISURE MUTUAL INSURANCE COMPANY,

                Defendant - Appellee.

Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. James C. Dever III,
District Judge. (7:07-cv-00050-D)

Argued:   March 25, 2009                      Decided:   July 1, 2009

Before DUNCAN, Circuit Judge, Robert J. CONRAD, Jr., Chief
United States District Judge for the Western District of North
Carolina, sitting by designation, and Thomas D. SCHROEDER,
United States District Judge for the Middle District of North
Carolina, sitting by designation.

Affirmed by unpublished per curiam opinion.

Brian Schoolman, SAFRAN LAW OFFICES, Raleigh, North Carolina,
for Appellant. Tracy Lynn Eggleston, COZEN O’CONNOR, Charlotte,
North Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

        Breezewood          of       Wilmington        Condominiums          Homeowners’

Association,         Inc.        (“Breezewood      CHOA”)   sought      a    declaratory

judgment that Amerisure Mutual Insurance Company (“Amerisure”)

had a duty to defend and indemnify its insured, Quality Built

Construction, Inc. (“Quality Built”), in whose shoes Breezewood

CHOA stands by assignment, with respect to state court claims

arising out of the construction of a condominium development.

The     district         court     granted    Amerisure’s      motion       for   summary

judgment.          We conclude that Amerisure had no duty to defend

Quality Built and therefore affirm.

                                              I.

      Quality        Built         served     as    general     contractor         for   a

condominium         development        in    Wilmington,      North     Carolina     (the

“Condominium Development”).                  On May 28, 2004, Breezewood CHOA

filed a complaint in North Carolina state court against Quality

Built       and    the    Condominium        Development      developers, 1       alleging

defects       in     construction           and    design     of   the       Condominium

Development buildings that necessitated “extraordinary repairs

and reconstruction of major portions of the common elements”

(the “Underlying Complaint”).                     (J.A. 38-39.)       Approximately a

        1
       Breezewood of Wilmington, Inc., and Breezewood of Raleigh,
Inc., were the developers for the Condominium Development.

                                              2
year later, in May 2005, Quality Built notified Amerisure of the

Underlying Complaint and submitted a claim under its commercial

general liability insurance (the “CGL policy”) for damage to the

building components and resulting loss of use.                     Amerisure denied

coverage on May 25, 2005, on the ground that the Underlying

Complaint     did    not     allege    “property        damage”      caused   by    an

“occurrence.” 2       (J.A.    231-33.)           Breezewood      CHOA   subsequently

settled with Quality Built and one of the developers, accepting

a   $2,000,000      judgment    and    an       assignment   of    Quality    Built’s

rights against Amerisure.

      Breezewood      CHOA     initiated         the   present     lawsuit    in   the

district court, seeking a declaratory judgment that Amerisure

breached its duty to defend Quality Built against the Underlying

Complaint.        Amerisure     counterclaimed,          seeking     a    declaratory

judgment that Amerisure had no duty to defend Quality Built.                        On

cross-motions for summary judgment, the district court granted

Amerisure’s      motion       and     denied       Breezewood       CHOA’s    motion.

Breezewood CHOA timely appeals the district court’s decision.

      2
       Amerisure also declined coverage and defense based on late
notice, but that issue is not before us inasmuch as the district
court did not reach it.

                                            3
                                              II

       We exercise jurisdiction over this appeal under 28 U.S.C.

§   1291.        A    district      court’s        grant    of    summary      judgment    is

reviewed de novo.            Jennings v. Univ. of N.C. at Chapel Hill, 482

F.3d 686, 694 (4th Cir. 2007) (en banc).                            Because this is a

diversity    action,         we    apply   the     law     of    North   Carolina,      which

treats the interpretation of insurance policy provisions as a

question of law.              ABT Bldg. Prods. Corp. v. Nat’l Union Fire

Ins. Co., 472 F.3d 99, 115 (4th Cir. 2006); N.C. Farm Bureau

Mut. Ins. Co. v. Briley, 127 N.C. App. 442, 444, 491 S.E.2d 656,

658 (1997).          Insurance policies are construed in accordance with

traditional          rules    of    contract       interpretation,        so    where     the

meaning     of       the     policy   is    clear        and     only    one    reasonable

interpretation exists the courts must enforce the contract as

written.    Patrick v. Wake County Dep’t of Human Servs., 188 N.C.

App. 592, 596, 655 S.E.2d 920, 924 (2008) (citing Dawes v. Nash

County, 357 N.C. 442, 448, 584 S.E.2d 760, 764 (2003)).                                   The

party seeking benefits under an insurance contract bears the

burden of showing coverage for its claim.                          Fortune Ins. Co. v.

Owens, 351 N.C. 424, 430, 526 S.E.2d 463, 467 (2000).                            Until the

insured makes a prima facie case of coverage, the insurer has no

burden to prove the applicability of any policy exclusion.                                Id.

at 430, 526 S.E.2d at 467.

                                               4
       An insurer’s duty to defend is broader than its duty to

indemnify -- the former ordinarily being measured by the facts

as alleged in the pleadings while the latter by facts ultimately

determined at trial.               Waste Mgmt. of Carolinas, Inc. v. Peerless

Ins. Co., 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986).                                 North

Carolina applies the “comparison test” to determine whether the

damage    alleged       by    the       insured       is    covered      by    the    insurer’s

policy.       Id. at 693, 340 S.E.2d at 378.                       Under the comparison

test, “the pleadings are read side-by-side with the policy to

determine       whether       the       events        as    alleged       are    covered      or

excluded.”       Id. at 693, 340 S.E.2d at 378; Harleysville Mut.

Ins. Co. v. Buzz Off Insect Shield, L.L.C., ___ N.C. App. ___,

664    S.E.2d    317,    320       (2008).          If     the   pleadings      “state   facts

demonstrating that the alleged injury is covered by the policy,

then    the   insurer        has    a    duty    to      defend,    whether      or    not   the

insured is ultimately liable.”                      Waste Mgmt., 315 N.C. at 391,

340 S.E.2d at 377.            This is true even if the pleadings describe

a hybrid of covered and excluded events or “disclose a mere

possibility that the insured is covered.”                          Id.        at 391 n.2, 340

S.E.2d at 377 n.2.            On the other hand, if the pleadings “allege

facts indicating that the event in question is not covered, and

the insurer has no knowledge that the facts are otherwise, then

it is not bound to defend.”                Id. at 391, 340 S.E.2d at 377.

                                                5
     However,   once   “the      insurer     knows    or    could   reasonably

ascertain   facts   that,   if    proven,     would    be    covered   by   its

policy,” the duty to defend is not dismissed simply because the

facts alleged in the complaint appear to be outside coverage.

Waste Mgmt., 315 N.C. at 691, 340 S.E.2d at 377-78.                  Thus, the

insurer has a “duty to investigate and evaluate facts expressed

or implied in the []complaint as well as facts learned from the

insured and from other sources.”           Id. at 691; 340 S.E.2d at 378;

accord Duke Univ. v. St. Paul Fire and Marine Ins. Co., 96 N.C.

App. 635, 638, 386 S.E.2d 762, 764 (1990).                  Any doubt as to

coverage is resolved in favor of the insured.               Waste Mgmt., 315

N.C. at 693, 340 S.E.2d at 378.          If it is later determined that

an insurer breached its duty to defend, “the insurer is estopped

from denying coverage and is obligated to pay the amount of any

reasonable settlement made in good faith by the insured of the

action brought against him by the injured party.”                   Pulte Home

Corp. v. Am. S. Ins. Co., 185 N.C. App. 162, 165, 647 S.E.2d

614, 617 (2007) (citation omitted).

                                     6
                                        III.

     With        these     principles        in    mind,   we     turn    to    the

interpretation of the terms of the CGL policy in this case. 3                   The

CGL policy requires Amerisure to pay those sums Quality Built

becomes legally obligated to pay because of “property damage”

“caused by an ‘occurrence’ that takes place in the ‘coverage

territory’ and . . . during the policy period.”                   (J.A. 79.)    The

dispute     in    this     case   is    whether      Breezewood    CHOA   alleged

“‘property       damage’    caused     by   an    ‘occurrence.’”      Because    we

conclude that the allegations do not allege “property damage”

covered by the CGL policy, we do not address whether Breezewood

CHOA alleged the existence of an “occurrence.”

                                            A.

     Where an insurance policy defines a term, that definition

is to be used in interpreting the pertinent provision.                         C.D.

Spangler Constr. Co. v. Indus. Crankshaft and Eng’g Co., 326

N.C. 133, 142, 388 S.E.2d 557, 563 (1990).                        The CGL policy

defines “property damage” 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

     3
       Amerisure issued both an Umbrella Liability Policy and the
CGL policy in favor of Quality Built, and the pertinent insuring
provisions and definitions contained in both are identical.
Because Breezewood CHOA addresses only the CGL policy on appeal
our analysis involves only the provisions of that policy.

                                            7
      (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.

(J.A. 91.)

      North Carolina state courts and federal courts sitting in

diversity have consistently held that “property damage” in the

context of commercial general liability policies means “damage

to property that was previously undamaged” and does not include

“the expense of repairing property or completing a project that

was not done correctly or according to contract in the first

instance” by the insured.          Prod. Sys., Inc. v. Amerisure Ins.

Co., 167 N.C. App. 601, 606, 605 S.E.2d 663, 666 (2004) (citing

Hobson Constr. Co. v. Great Am. Ins. Co., 71 N.C. App. 586, 590,

322   S.E.2d    632,   635    (1984));       accord    W.    World    Ins.   Co.    v.

Carrington, 90 N.C. App. 520, 524-25, 369 S.E.2d 128, 130-31

(1998); Wm. C. Vick Constr. Co. v. Penn Nat’l Mut. Cas. Ins.

Co., 52 F. Supp. 2d 569, 581 (E.D.N.C. 1999), aff’d per curiam,

213 F.3d 634 (4th Cir. 2000).                 The rationale underlying this

view is that “the quality of the insured’s work is a ‘business

risk’   which    is    solely    within       his     own    control,”   and     that

“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.”                   W. World, 90 N.C. App.

                                         8
at 523, 369 S.E.2d at 130.               Rather, such business risks are the

purpose of performance bonds, not liability insurance policies.

Id.; see also 9A Lee R. Russ & Thomas F. Segalla, Couch on

Insurance,    §    129.1    (3rd       ed.    2008)    (explaining         that    general

commercial liability policies do not cover business risks that

“occur as a consequence of the insured not performing well and

[are]    a   component      of    every        business      relationship         that    is

necessarily       borne    by    the     insured      in     order    to   satisfy       its

customers”).

     This view was also recognized in Travelers Indemnity Co. v.

Miller Building Corp., 97 F. App’x 431, 434 (4th Cir. 2004)

(unpublished) (“Miller I”), a case upon which both parties rely

heavily.     In Miller I, this Court addressed the definition of

“property    damage”      under    North          Carolina    law     in   a   commercial

general liability insurance policy containing insuring language

equivalent    to    that    in     the       Amerisure     policy. 4       The     general

contractor    was    insured      under       a    commercial        general    liability

policy and constructed a hotel that suffered damage after its

completion.       Id. at 432.          Due to the damage to the hotel, the

     4
        Although   Miller  I   was  unpublished  and  holds   no
precedential authority, its factual scenario renders it worthy
of consideration given the facts before us. See Collins v. Pond
Creek Mining Co., 468 F.3d 213, 219 (4th Cir. 2006) (recognizing
that “we ordinarily do not accord precedential value to our
unpublished decisions” and that such decisions “are entitled
only to the weight they generate by the persuasiveness of their
reasoning” (citation omitted)).

                                              9
developer      refused    to    pay   the     general      contractor.          Id.       The

general contractor initiated arbitration proceedings against the

developer,      who    counterclaimed        for     the    cost    of    repairing      the

construction      defects       and   the    damage.         Id.    at    432-33.         The

insurer sought a declaratory judgment that it was not obligated

to    defend     the     general      contractor          against      the     developer’s

counterclaims.         Id. at 433.

      In   construing         the   definition       of    “property      damage,”       this

Court recognized that under North Carolina law “to fall within

the scope of a general liability policy, the property allegedly

damaged has to have been undamaged or uninjured at some previous

point in time.”          Id. at 433-34 (citation omitted).                      The Court

concluded       that    the    underlying         allegations       were       claims    for

defective       construction        and    that    “property        damage”      does    not

contemplate      faulty       workmanship.         Id.     at   434.         However,    the

general contractor’s faulty installation of windows and sliding

glass doors caused water damage to guest-room carpet that had

been provided (undamaged) by the hotel owner.                       Id.        The insurer

argued that such damage was not covered because the carpet was a

component of the “defective-from-the-beginning hotel,” which was

not   “previously       undamaged.”          Id.      This      Court    held    that     the

damage to the carpet fell within the scope of “property damage”

because    it    was    “separate         tangible    property”         from    the     hotel

inasmuch as it had been supplied by the owner, not the general

                                             10
contractor.        Id.    While the insurer’s argument “might have some

force . . . as to another component of the hotel,” the opinion

noted, the owner-provided guest-room carpet must be viewed as

“separate from the hotel, not an undifferentiated component of

the hotel, and the damage to that carpet as a discrete form of

property damage.”          Id.        The district court’s grant of summary

judgment      to   the   insurance        company    was     vacated     and   the   case

remanded.      Id. at 437.

       On   remand,      the    district     court       determined    that     coverage

under the commercial general liability policy “extends to damage

to property separate from the hotel that was not subjectively

foreseeable” to the general contractor (i.e., an “occurrence”).

Travelers Indem. Co. v. Miller Bldg. Co., 221 F. App’x 265, 267

(4th Cir. 2007) (unpublished) (“Miller II”).                         In affirming the

district court’s decision, this Court restated that “the only

claims      that   could       fall     within    the    definition      of    ‘property

damage,’ as we construed North Carolina law, were those that

alleged damages to the owner’s own property that was separate

from the hotel.”           Id. at 269.           The opinion specifically noted

that between Miller I and Miller II, the North Carolina Court of

Appeals      clarified      the       definition        of   “property     damage”     in

Production Systems Inc. v. Amerisure Insurance Co., 167 N.C.

App.   601,    605    S.E.2d      663    (2004),    and      its   interpretation     was

                                            11
consistent with the Miller I analysis.                     Miller II, 221 F. App’x

at 269.

      Production    Systems      involved       a    contractor       who    defectively

installed conveyor belts in two oven feed line systems.                                    167

N.C. App. 602-603, 605 S.E.2d at 664.                         The insured-contractor

was responsible for “designing, building and installing the two

line systems.”         Id. at 603, 605 S.E.2d at 664.                       “[D]efective

conveyor     belt   assemblies      caused      damage         to   other        [correctly

installed] parts of the oven line system” resulting in loss of

use of the line system.            Id. at 603, 605 S.E.2d at 664.                          The

trial   court   concluded        there    was       no    “property     damage”          under

virtually identical insuring provisions.                        Id. at 605-07, 605

S.E.2d at 666-67.       The North Carolina Court of Appeals affirmed,

reiterating     that    “property        damage”         contemplates       coverage        of

“damage to property that was previously undamaged, and not the

expense of repairing property or completing a project that was

not   done    correctly    or     according         to     contract     in       the     first

instance.”      Id. at 606, 605 S.E.2d at 666.                        The court then

stated:      “We    conclude     that     under      the      precedent      of        Hobson,

‘property     damage’     does     not    refer          to   repairs       to    property

necessitated by an insured’s failure to properly construct the

property to begin with.”           Id. at 607, 605 S.E.2d at 666 (citing

Hobson Constr. Co., Inc. v. Great Am. Ins. Co., 71 N.C. App.

586, 322 S.E.2d 632). The North Carolina Court of Appeals then

                                          12
applied this conclusion to the facts and held that “there was no

‘property damage’ to the oven feed line systems because the only

‘damage’ was repair of defects in, or caused by, the faulty

workmanship   in   the   initial   construction.”       Id.   at   607,   605

S.E.2d at 667 (emphasis added).            The trial court’s grant of

summary judgment dismissing the case was affirmed.             Id. at 607,

605 S.E.2d at 667.

     With this outline of the case law in mind, we turn to the

issues in this case.

                                      B.

     The insured, in this case Breezewood CHOA standing in the

shoes of Quality Built, bears the burden of proving coverage

under the CGL policy.      Fortune Ins. Co. v. Owens, 351 N.C. 424,

430, 526 S.E.2d 463, 467 (2000).            Breezewood CHOA makes the

following arguments: (1) the Underlying Complaint alleges events

covered by the CGL policy; (2) if it does not, sufficient facts

were discoverable so as to warrant coverage; and (3) loss of use

resulting from the damage should be covered.

                                      1.

    The   Underlying      Complaint    charges   that    “[p]roblems      and

defects have been discovered as a result of defective design

and/or construction.”      (J.A. 38.)      It provides a non-exhaustive

list of fourteen “defects in construction and design complained

of,” and alleges that “[a]s a direct and proximate result of the

                                      13
above-referenced           design        and         construction          deficiencies,

Breezewood     [C]HOA      has     [spent]        and       will   continue      to    spend

substantial    sums       of   money    for       the    extraordinary        repairs      and

reconstruction of major portions of the common elements.”                              (J.A.

38-39.)    The Underlying Complaint alleges causes of action for,

among other things, construction negligence (failure to “deliver

the project free of construction defects and design and built in

conformity    with    the      customary       and      ordinary    standards         of   the

building     and    construction          industry”),           breach     of   duty        (to

“supervise    and     review     the     design         and    otherwise      deliver      the

project free of construction defects and design”), breach of

express    warranty       (“that       the    buildings         would    be     free       from

construction defects”), breach of implied warranty (that “the

project    would     be    constructed         in       a     careful,   diligent,         and

workmanlike manner, free of construction defects”), unfair and

deceptive trade practices (failure to “disclose design and/or

construction       defects”),       and       fraud.            (J.A.    39-45.)            The

Underlying Complaint seeks compensatory and punitive damages for

“extraordinary repairs, maintenance and reconstruction costs.”

(J.A. 40-41, 44, 46.)

     Breezewood CHOA’s allegations in the Underlying Complaint

squarely allege faulty workmanship by the insured and damages

associated    with    repairing        the     deficient        construction.          Under

North Carolina law, such allegations do not constitute property

                                             14
damage.     Prod. Sys. Inc. v. Amerisure Ins. Co., 167 N.C. App.

601, 607, 605 S.E.2d 663, 667 (2004) (holding “property damage”

does not include “repair of defects in, or caused by, the faulty

workmanship in the initial construction”).                   Breezewood CHOA also

charges that Quality Built did not construct the Condominium

Development according to contract in the first instance.                           Costs

associated      with     bringing    the        project    into    compliance       with

Breezewood      CHOA’s    contractual        expectations         is    not    “property

damage” covered by a CGL policy.                 Id. at 606, 605 S.E.2d at 666

(holding “property damage” does not include “the expense of . .

. completing a project that was not done correctly or according

to contract in the first instance”); Wm. C. Vick Constr. v. Penn

Nat’l Mut. Cas. Ins. Co., 52 F. Supp. 2d 569, 582 (E.D.N.C.

1999), aff’d per curiam, 213 F.3d 634 (4th Cir. 2000).                             Thus,

the   district     court       properly     concluded       that       the    Underlying

Complaint     failed      to    allege     “property       damage”       under     North

Carolina law.

                                           2.

      Breezewood CHOA contends next that, even if the Underlying

Complaint    did   not     establish      “property       damage,”       coverage       was

established     when     Amerisure     was      apprised    of     sufficient      facts

through   two    other    sources:     investigative        reports          prepared    by

R.V. Buric Construction Consultants (“Buric”), and a letter from

                                           15
Breezewood     CHOA        to    Quality   Built        dated   July   25,    2006.     We

disagree.

      In pursuing the allegations in its Underlying Complaint,

Breezewood     CHOA    retained         Buric      to    investigate   the     cause   and

extent    of   the    damage       to   the    Condominium      Development.          Buric

prepared two reports, a preliminary report dated January 14,

2005 (the “Buric preliminary report”), and a full report dated

May 26, 2006 (the “Buric full report”).                     It is apparent that the

Buric preliminary report was delivered to Amerisure no earlier

than Breezewood CHOA’s initial notice to Amerisure in May 2005.

However, the record is unclear as to whether the Buric full

report was provided to Amerisure. 5                 Nevertheless, because neither

report    contains     allegations         of      damage   that   would      be   covered

under the CGL policy, as noted below, their receipt by Amerisure

does not impact our conclusion.

      The Buric preliminary report reveals a non-exhaustive list

of “exterior building deficiencies and damages,” “exterior site

and   parking        lot        deficiencies       and    damages,”     and    “interior

building deficiencies and damages” which constitute “violations

      5
         Breezewood   CHOA’s   counsel    could   not   represent
affirmatively at oral argument that the Buric full report had
been shared with Amerisure.     However, he did point out that
Quality Built’s counsel testified by affidavit that it would
have been his standard practice to forward such documents to
Amerisure.   Breezewood CHOA’s counsel further noted that this
assertion by Quality Built’s counsel was not contested.

                                              16
of building code or failure to comply with appropriate industry

standards.”        (J.A. 278-79.)         It also indicates, however, that

“excessive moisture is being introduced into the wood products

and may be causing damage.”               (J.A. 279.)       The reported water-

related damage was to a “wood rail” and “interior finishes” of

the Condominium Development.              (Id.)     The report concludes that

further investigation and testing is needed with respect to “the

necessary repairs and the cost for such repairs.”                (Id.)

       The Buric full report specifically attributes “damages to

building        components”      to     “Code      violations    and      improper

workmanship.”       (J.A. 348-49.)        The report groups the damage into

four categories of deficiencies 6 and concludes that “[d]ue to

Code       violations    and   improper      workmanship,    water     damage    has

occurred      to   the   exterior     wall     sheathing,   framing,    and     other

building components at the Breezewood Condominiums.”                   (J.A. 348-

49.)         The   report      prefaces      its   recommendations      with     the

following:

       Construction deficiencies from original construction
       are causing building problems and damages to the
       buildings at Breezewood Condominiums. Water intrusion
       must be stopped and water-damaged and incorrectly
       installed building components repaired or replaced.

(J.A. 350.)

       6
         The deficiencies are categorized as “Cladding Systems
Installation      Deficiencies”,      “Flashing      Installation
Deficiencies”,   “Grading   and   Drainage   Deficiencies”,   and
“Additional Building Deficiencies.” (J.A. 348-49.)

                                          17
     On    July   25,   2006,    Breezewood    CHOA   addressed       Amerisure’s

denial of coverage in a letter to Quality Built, which Quality

Built forwarded to Amerisure. 7         The letter states that Breezewood

CHOA’s claim was “not limited to the correction of defective

work, but also includes costs for water damage to other building

components     which    were    previously     undamaged”      when   installed,

including wall sheathing, framing, hand rails, and metal stairs.

(J.A. 236.)        The letter concludes that “as a result of the

construction      performed     by   Quality   Built,    water      was   able   to

penetrate the exterior of the condominium buildings” and “was a

cause of at least some of the damage to the buildings.”                     (J.A.

235.)     To be sure, Breezewood CHOA clearly continued to contend

that the water damage to the Condominium Development arose out

of or was caused by Quality Built’s deficient construction.

     Based on both Buric reports and the letter, Breezewood CHOA

now argues that, even if the faulty workmanship is considered

previously damaged property, proper notice was provided that the

resulting water damage occurred in previously undamaged property

and is therefore covered by the CGL policy.                  Amerisure responds

that Quality Built’s product is the Condominium Development as a

whole.     As such, Breezewood CHOA’s allegations of defect, it

contends, relate to tangible property which is not separate from

     7
        Amerisure   acknowledged   receipt              of    the     letter     in
correspondence dated October 23, 2006.

                                       18
the   Condominium      Development   itself.   Because   the   Condominium

Development was “defective-from-the-beginning,” it reasons, the

analysis of Miller I leads to the conclusion that the water-

damaged property is not covered “property damage.”                Travelers

Indem. Co. v. Miller Bldg. Corp., 97 F. App’x 431, 434 (4th Cir.

2004) (unpublished).

      We do not need to decide whether Quality Built’s product is

the   entire    Condominium     Development    (including   all   separate

buildings)     under     the   “defective-from-the-beginning”     argument

advanced by Amerisure, 8 because under North Carolina law, not

only is the cost of repair or replacement of faulty workmanship

not “property damage,” but neither is damage to the insured’s

      8
       Miller I supports the inference that, had the carpet been
supplied by the insured-general contractor rather than the hotel
owner, it would have been considered an undifferentiated
component of the hotel and any damage to it would not have
constituted covered “property damage.”   97 F. App’x at 434-35.
Miller I did not so hold, however, merely stating that this
argument was “unavailing” with respect to this case because the
carpet was supplied by the owner. Id. As an unpublished case,
it also lacks precedential authority.        However, the same
inference can be drawn from Production Systems, where the North
Carolina Court of Appeals denied coverage for damage to
previously undamaged components of the insured’s work resulting
from the insured’s faulty workmanship.    167 N.C. App. at 603,
605 S.E. 2d at 664 (where the ovens as a whole may have been
deemed previously undamaged). This logic also finds support in
cases from other jurisdictions.   See, e.g., Westfield Ins. Co.
v. Sheehan Constr. Co., Inc., 580 F. Supp. 2d 701, 711 (S.D.
Ind. 2008) (refusing to treat damage to non-faulty portions of a
house as distinct from the faulty workmanship itself and holding
under Indiana law that “a general contractor’s product is the
entire project or house which he built and sold, including
components”).

                                      19
own work that is “caused by” such faulty workmanship.                                Prod.

Sys.,     167    N.C.   App.     at   607,    605       S.E.2d    at     667    (rejecting

coverage        as   “property    damage”         for   repair        work   and   alleged

consequential         damages     from       faulty      construction). 9            Here,

Breezewood       CHOA’s   own    evidence         charges    that       Quality    Built’s

faulty     workmanship       caused      water      damage       to    the     Condominium

Development, Quality Built’s work.                  Thus, it cannot be “property

damage” under North Carolina law.

        This conclusion is consistent with the CGL policy, read as

a whole, which contains a “your work” exclusion to coverage.

Henderson v. U.S. Fid & Guar. Co., 124 N.C. App. 103, 108-09,

476 S.E.2d 459, 462 (1996) (“The terms of an insurance policy

cannot be read in isolation but must be construed in the context

of [the] instrument as a whole.”) (citations omitted)).                              Like

most such policies, the CGL policy contains an exclusion for

“‘property damage’ to ‘your work’ arising out of it or any part

of it.” 10      (J.A. 82.)

     9
       See also Miller I, 97 F. App’x at 438 (Wilkinson, J.,
dissenting) (stating that the water damage to the owner’s carpet
was a direct consequence, and “substantively an extension,” of
the defective workmanship).
     10
        “Your work” is defined in pertinent part as “work or
operations performed by you or on your behalf.” (J.A. 91.) The
record indicates that Quality Built’s construction of the
Condominium Development falls within this definition as Quality
Built was the Condominium Development’s builder and general
contractor.    The exclusion also requires that the work be
“included in the ‘products-completed operations hazard,’” which
(Continued)
                                             20
     This Court examined the “your work” exclusion in Limbach

Co. LLC v. Zurich American Ins. Co., 396 F.3d 358 (4th Cir.

2005)   (applying   Pennsylvania    law),   where      it    was   noted   that

“[g]eneral liability insurance policies are intended to provide

coverage where the insured’s product or work causes personal

injury or damage to the person or property of another.”                 Id. at

365 (emphasis added) (quoting Ryan Homes, Inc. v. Home Indem.

Co., 436 Pa. Super. 342, 348-49, 647 A.2d 939, 942 (1994)).                 The

Court observed that the “your work” exclusion does not exclude

all property damage arising from an insured’s work but “[b]y its

plain language . . . only excludes coverage for damage to an

insured’s   work    that   arises   out     of   the        insured’s   faulty

workmanship.”   Id.   The Court thus concluded that the commercial

general liability policy covered damage to a third party’s work

includes property damage “occurring away from premises you own
or rent and arising out of ‘your product’ or ‘your work.’”
(J.A. 90.)     The record indicates that Genesis Built, Inc.
(“Genesis Built”), was the owner of the real estate and
buildings in the Condominium Development and held declarant
control over the Breezewood CHOA until approximately July 2002.
Breezewood CHOA alleged in its First Amended Complaint that
Genesis Built was the predecessor of Breezewood of Wilmington.
Thus,   the  record   indicates   that  Quality   Built,   as  the
Condominium   Development’s   builder  and   general   contractor,
neither owned nor rented the property.

                                    21
that resulted from the general contractor’s effort to repair his

faulty workmanship.       Id. 11

     Moreover, in French v. Assurance Co. of America, 448 F.3d

693 (4th Cir. 2006) (applying Maryland law), this Court examined

in depth the “your work” exclusion and its interplay with the

exception     for    damages       caused     by    the        faulty       work    of     a

subcontractor.       In French, a subcontractor negligently applied

exterior synthetic stucco to a house which otherwise had been

properly built by the general contractor.                      448 F.3d at 704-05.

The subcontractor’s faulty application caused moisture damage to

major     portions   of   the   components     of     the      house    built      by    the

general     contractor.         Id.    at    704.         There,       as    here,       the

subcontractor exception provided:             “This [‘your work’] exclusion

does not apply if the damaged work or the work out of which the

damage arises was performed on your behalf by a subcontractor.”

Id. at 698; (J.A. 82.)             The Court noted that the subcontractor

exception     restored      coverage        limited       by     the    “your        work”

     11
       Accord Missouri Terrazzo Co. v. Iowa Nat’l Mut. Ins. Co.,
740 F.2d 647, 650 (8th Cir. 1984) (holding under Missouri law
that the “your work” exclusion in a predecessor Insurance
Services Office (“ISO”) form “did not bar coverage for injury to
property other than that of the insured”);     Westfield, 580 F.
Supp. 2d at 710 (noting under Indiana law that in general two
types of risk arise from a contractor’s work: the (uncovered)
business risk that a contractor will have to pay to repair
faulty workmanship; and the (covered) risk that the completed
product of the contractor, once relinquished, will cause bodily
injury or damage “to property other than the product or
completed work itself”) (internal citations omitted)).

                                        22
exclusion.       French, 448 F.3d at 706.     The Court also observed

that a plain reading, along with a thorough examination of the

history of the “your work” provision, compelled the following

conclusion: the standard comprehensive general liability policy

does not provide coverage to a general contractor to correct

defective    workmanship    of   a   subcontractor       but    does   provide

coverage to the general contractor for the damages caused by the

subcontractor’s defective workmanship. 12          Id.    Thus, the damage

to the general contractor’s work was covered only because it

fell    within   the   subcontractor   exception    to    the    “your   work”

exclusion. 13

       12
         Breezewood CHOA’s argument that the CGL covers damage
caused by the insured’s faulty workmanship to the insured’s own
property would make the subcontractor exception meaningless.
The purpose of the subcontractor exception is to restore
coverage for damage to the insured’s property only to the extent
it was caused by a subcontractor’s faulty workmanship.       The
subcontractor exception thus informs the scope of the “your
work” exclusion, Stanley Martin Cos. v. Ohio Cas. Group, No. 07-
2102, 2009 WL 367589, at *11 n.2 (4th Cir. Feb. 12, 2009)
(applying Virginia law) (unpublished), and Breezewood CHOA’s
argument   is    simply    incompatible  with   any   reasonable
reconciliation of the two.
       13
         See also Stanley Martin, 2009 WL 367589, at *4 (holding
under Virginia law that the commercial general liability policy
covers mold damage to the general contractor’s work caused by a
subcontractor’s installation of defective trusses but does not
cover the replacement cost of the defective trusses).       Both
French and Stanley Martin found coverage under the subcontractor
exception to the “your work” exclusion and therefore needed to
reach the issue of whether an “occurrence” existed to decide the
issue of coverage. Here, we do not reach the “occurrence” issue
because we find there is no allegation of covered “property
damage.”

                                     23
     Our holding today that the CGL policy excludes coverage for

damage to an insured’s completed property caused by an insured’s

faulty    workmanship       is    fully    consistent     with    this     Court’s

previous interpretations of the “your work” exception inasmuch

as the alleged water damage “arises out of” Quality Built’s work

within    the    meaning    of   the    “your   work”   exclusion   and    is   not

alleged to have been performed by a subcontractor. 14

                                          3.

     Finally, Breezewood CHOA argues that Amerisure should have

defended the Underlying Complaint because it alleged “loss of

use” of the Condominium Development resulting from the damaged

property.       As noted earlier, the CGL Policy defines “property

damage” as “[p]hysical injury to tangible property, including

all resulting loss of use of that property.”                     (J.A. 91.)     In

Production Systems, the plaintiff also sought damages for loss

of use of the defective oven line systems while they were being

repaired,       yet   the   North      Carolina   Court   of     Appeals   denied

coverage when it held that all damages resulted from “faulty

     14
       At oral argument, Breezewood CHOA argued that Amerisure’s
duty to defend was triggered because some of the damage could
have been caused by a subcontractor’s faulty workmanship.    The
burden of producing such evidence rests with the party seeking
application of the exception to the exclusion – here, Breezewood
CHOA. Home Indem. Co. v. Hoechst Celanese Corp., 128 N.C. App.
189, 202, 494 S.E.2d 774, 783 (1998).     We find nothing in the
record to indicate that any of the water-damaged work at issue
was performed by a subcontractor, nor could Breezewood CHOA’s
counsel represent during oral argument that it was.

                                          24
workmanship in the initial construction.”              167 N.C. App. at 607,

605 S.E.2d at 665, 667.               Having rejected coverage for faulty

workmanship and damage it caused to undamaged property of the

insured, it was a logical conclusion to deny coverage as to any

loss     of   use   “caused     by”    the    faulty   workmanship      as   well.

Accordingly, we conclude that claims of loss of use resulting

from     Quality    Built’s     allegedly      defective   construction        fall

outside the coverage of the CGL policy.

                                        IV.

       For    the   foregoing    reasons,     we   conclude    that   Breezewood

CHOA’s    allegations     do    not    establish    coverage    under    the   CGL

policy.       Amerisure had no duty to defend and is therefore not

liable for indemnity of the loss.                  Accordingly, the district

court’s grant of Amerisure’s motion for summary judgment is

                                                                        AFFIRMED.

                                         25