UNPUBLISHED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Affirmed by unpublished per curiam opinion.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-