Precision Walls, Inc. v. Liberty Mutual Fire Insurance

Citations: 410 S.C. 175; 763 S.E.2d 598; 2014 WL 3610895; 2014 S.C. App. LEXIS 197Docket: Appellate Case No. 2013-000787; No. 5250

Court: Court of Appeals of South Carolina; July 23, 2014; South Carolina; State Appellate Court

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Precision Walls, Inc. (Precision) appealed a trial court ruling that denied coverage under its commercial general liability (CGL) policy from Liberty Mutual Fire Insurance Co. (Liberty Mutual). The court's decision found no 'property damage' or 'occurrence' as defined in the policy and broadly interpreted an exclusion that limited coverage. Precision, as a subcontractor, was engaged in a construction project and had a contract with SYS Constructors, Inc. (SYS) that detailed their scope of work and included a warranty for the quality of materials and workmanship. After the installation of insulation, issues arose with the tape sealing the joints, leading SYS to direct Precision to correct the problem, which involved removing and rebuilding a brick wall. SYS deducted $97,500 from Precision's contract to cover these costs. The CGL policy defined 'property damage' as physical injury to tangible property and outlined that coverage applied only if such damage was caused by an 'occurrence,' described as an accident or repeated harmful conditions. The policy excluded coverage for damage to property that required repair due to improperly performed work by Precision.

Precision sought coverage under its insurance Policy from Liberty Mutual, which was denied. In response, Precision initiated a declaratory judgment action. The trial court determined that the only loss claimed by Precision was related to the costs incurred when SYS dismantled and rebuilt an undamaged brick veneer wall to comply with their contract. The court ruled that this loss did not qualify as 'property damage' under the Policy's definition, as it stemmed from Precision’s nonconforming work. Additionally, the court concluded that costs associated with faulty workmanship and repairs did not constitute an 'occurrence' under the Policy. Even if the losses were within the Policy's scope, they would still be excluded by the 'your work' exclusion. Consequently, the court found that the Policy did not cover Precision’s claims, leading to the current appeal.

The issues on appeal are: 1) whether the circuit court erred in determining no 'property damage' existed; 2) whether there was an error in failing to find an 'occurrence'; 3) whether the 'your work' exclusion was misinterpreted to deny coverage; and 4) whether the policy was narrowly construed against coverage.

Regarding the standard of review, the appellate court will not overturn the trial court’s factual findings unless unsupported by evidence, following the precedent set in Nationwide Mut. Ins. Co. v. Rhoden.

In its analysis of the 'your work' exclusion, Precision contends that the trial court wrongly applied this exclusion to deny coverage. The court noted that even if there was 'property damage' resulting from an 'occurrence,' coverage would still be barred by the 'your work' exclusion. Citing case law, the court highlighted that CGL policies provide extensive coverage for property damage and bodily injury, but this coverage is limited by specific exclusions that must be interpreted independently. The trial court's reliance on the precedent from Century Indemnity Co. v. Golden Hills Builders, Inc. was crucial, as it addressed similar circumstances regarding the applicability of the 'your work' exclusion in the context of defective workmanship leading to damage.

Homeowners contended that an exclusion in their insurance policy should apply only to repairs of improperly installed stucco, asserting that repairs to other components, such as the substrate and substructure, should be covered. The court rejected this interpretation, determining that the "your work" exclusion is applicable, as it aligns with the intent of Commercial General Liability (CGL) policies to cover liability risks but not routine outcomes of business operations. The court referenced a precedent, Walde v. Association Insurance Co., where coverage was denied for economic losses and loss of use following a builder's negligence regarding zoning permits. In that case, despite the potential for "property damage" under the policy, the exclusion applied to losses related to defective work. The court also cited the case of Bennett Construction, Inc. v. Auto Owners Insurance Co., where a contractor sought coverage after damages occurred during brick installation. In this instance, the supreme court upheld the exclusion that barred coverage for damage to property under direct construction operations, reinforcing the principle that "your work" exclusions are broadly interpreted to deny coverage for damages resulting from defective workmanship.

The supreme court determined that the damages in question stemmed from operations executed by the insured or its subcontractor, leading to the conclusion that exclusion j(5) clearly denied coverage for damages caused by a subcontractor during operations, regardless of the completion status of 'your work' under the policy. The court additionally noted that exclusion n, related to 'your work,' also applied, denying coverage for damages associated with repairing or replacing work withdrawn due to known defects. Specifically, the court ruled that the replacement of the brick face was due to a deficiency, thus barring coverage under exclusion n. 

The court emphasized that a Commercial General Liability (CGL) policy does not cover the insured's work itself but rather the consequential risks arising from it. The 'your work' exclusion encompasses property requiring restoration, repair, or replacement, including materials connected to such work. The contract between SYS and Precision mandated Precision to correct affected work and cover costs from warranty breaches, which included the defective tape and its replacement costs, falling under the exclusion.

Precision's argument that the trial court improperly construed the policy was rejected. The court stated that insurance policies are contracts and should be interpreted according to contract law, giving plain meaning to the language and favoring the insured in cases of ambiguity. The court found no ambiguity in the terms of the policy and concluded that the trial court's interpretation was appropriate and consistent with the policy's plain meaning, affirming the trial court's decision. Consequently, there was no need to address other challenges raised by Precision regarding 'property damage' and 'occurrence,' as the resolution of the exclusion issues was sufficient to dispose of the appeal. The order was affirmed.