FIRST DIVISION
DOYLE, C. J.,
PHIPPS, P. J, and BOGGS, J.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules/
July 6, 2015
In the Court of Appeals of Georgia
A15A0145. AUTO OWNERS INSURANCE COMPANY v. GAY DO-007
CONSTRUCTION COMPANY.
DOYLE, Chief Judge.
Gay Construction Company (“GCC”), a general contractor, filed suit against
Auto Owners Insurance Company to recover directly as an additional insured under
the commercial liability (“CGL”) policy issued by Auto Owners to Dai-Cole
Waterproofing Company, Inc. (“Dai-Cole”), GCC’s subcontractor on a project.
Specifically, GCC sought to recover from Auto Owners for costs associated with
allegedly faulty workmanship by Dai-Cole. Auto Owners filed a motion for summary
judgment, and the trial court denied the motion. Auto Owners filed an application for
interlocutory review, which this Court granted. For the reasons that follow, we
reverse.
To prevail at summary judgment under OCGA § 9-11-56, the
moving party must demonstrate that there is no genuine issue of material
fact and that the undisputed facts, viewed in the light most favorable to
the nonmoving party, warrant judgment as a matter of law. On appeal
from the grant of summary judgment this Court conducts a de novo
review of the evidence to determine whether there is a genuine issue of
material fact and whether the undisputed facts, viewed in the light most
favorable to the nonmoving party, warrant judgment as a matter of law.1
So viewed, the record shows that GCC was the general contractor on a project
involving the reconstruction of a swimming pool and associated buildings for the
Piedmont Park Conservancy. As part of this project, GCC was tasked with
constructing a terrace above a newly constructed restroom and other areas. GCC sub-
contracted the pouring of concrete for the terrace floor to Gunby Construction, and
it subcontracted with Dai-Cole to install a waterproofing membrane and a drainage
mat to prevent leakage into the restrooms under the terrace. In early 2009, Gunby
poured the concrete bottom slab for the terrace, and Dai-Cole, or its own
subcontractor, installed the waterproofing membrane and drainage mat. A certificate
of occupancy was issued in May 2009.
1
(Citation and punctuation omitted.) Home Builders Assn. of Savannah v.
Chatham County, 276 Ga. 243, 245 (1) (577 SE2d 564) (2003).
2
In mid-2009, Piedmont Park officials complained that water was leaking into
the space below the terrace during and after heavy rain. GCC investigated and
determined that the leak was caused by an allegedly improper application of the
waterproofing membrane. After unsuccessful attempts to have Dai-Cole repair the
membrane, GCC performed the work itself. To accomplish the repair, GCC removed
the terrace’s top concrete slab and drainage mat, repaired and replaced the
waterproofing membrane, replaced the top concrete slab, and repaired the underside
of the slab. GCC also repainted the underside of the slab to cover water stains and
replaced a light fixture that was damaged as a result of the water infiltration. In all,
GCC spent more than $126,000 to accomplish these repairs.
As required by GCC and the Piedmont Park Conservancy, Dai-Cole had
obtained a CGL policy from Auto Owners. The policy provides that the term
“‘insured’ means any person or organization qualifying as such under Section II, Who
Is An Insured,” which provides:
A person or organization is an Additional Insured only with respect to
liability arising out of “your work” for that Additional Insured by or for
you: (1) [i]f required in a written contract or agreement; or (2) [i]f
required by an oral contract or agreement only if a Certificate of
3
Insurance was issued prior to the loss indicating that the person or
organization was an Additional Insured.2
The terms “‘you’ and ‘your’ refer to the Named Insured shown in the Declarations.”
The policy also contemplates, however, that “other persons and organizations” may
“qualify[] as a Named Insured under this policy.”
As in the standard CGL policy, Auto Owners agreed to “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.” The policy provides that
“[t]his insurance applies to ‘bodily injury’ and ‘property damage’ only if . . . [such]
is caused by an ‘occurrence’ that takes place in the ‘coverage territory.’” The policy
defines “property damage” as “[p]hysical injury to tangible property” or “[l]oss of use
of tangible property that is not physically injured.” “Occurrence” is defined as “an
accident, including continuous or repeated exposure to substantially the same general
harmful conditions.”3
2
The trial court assumed and the parties assume for purposes of this appeal that
GCC is an additional insured under the terms of the policy.
3
“Accident” is not defined in the policy.
4
The policy contains multiple business risk exclusions. One excludes “loss or
damage caused by . . . [f]aulty, inadequate[,] or defective . . . [d]esign, specifications,
workmanship, repair, construction, [or] renovation. . . .” Another provision excludes
“Damage to Your Work” – that is, “‘[p]roperty damage’ to ‘your work’ arising out of
it or any part of it and included within the products-completed operations hazard.”
Similarly, the policy excludes “‘[p]roperty damage’ to ‘impaired property’ or property
that has not been physically injured arising out of . . . [a] defect, deficiency,
inadequacy[,] or dangerous condition in ‘your product’ or ‘your work.’”
Believing itself to be an additional insured under Dai-Cole’s policy, GCC filed
a first-party claim, seeking reimbursement for the costs of repairing and replacing the
defective terrace. After Auto Owners ultimately denied GCC’s claim, GCC filed this
lawsuit against Auto Owners, claiming breach of contract and seeking reimbursement
of the monies spent repairing the faulty waterproofing, as well as attorney fees and
bad faith damages pursuant to OCGA § 33-4-6.4 Auto Owners moved for summary
judgment. The trial court denied its motion, concluding that GCC’s claim was for
property damage and therefore covered by the policy. The court also determined that
4
GCC also named Dai-Cole as a defendant in the lawsuit, but those claims are
not at issue on appeal.
5
the claim did not fall under the policy’s business risk exclusions. In doing so, the
court interpreted the business risk exclusions to encompass only the work that was
tasked to Dai-Cole and expressly rejected Auto Owners’s argument that the
exclusions apply to all the work that was charged to GCC. The trial court certified its
order for immediate review, and this Court granted Auto Owners’s application for
interlocutory appeal.
1. Auto Owners argues that the trial court erred by denying its motion for
summary judgment on the grounds that (a) GCC’s claims failed to seek damages
resulting from “property damage” as defined by the policy, and (b) the damages
sought by GCC in its first-party claim are excluded by the business risk exclusions
contained in the contract.
In Georgia,
[t]he construction of contracts involves three steps. At least initially,
construction is a matter of law for the court. First, the trial court must
decide whether the language is clear and unambiguous. If it is, the court
simply enforces the contract according to its clear terms; the contract
alone is looked to for its meaning. Next, if the contract is ambiguous in
some respect, the court must apply the rules of contract construction to
resolve the ambiguity. Finally, if the ambiguity remains after applying
6
the rules of construction, the issue of what the ambiguous language
means and what the parties intended must be resolved by a jury.5
Here, GCC filed a first-party claim seeking reimbursement of costs associated
solely with the repair and correction of faulty workmanship by Dai-Cole; there was
no claim for damage to nondefective property not covered by GCC’s or Dai-Cole’s
scope of work.6 This claim is barred by the business risk exclusions in the Auto-
Owners policy.
Generally, “business risk exclusions of a CGL policy . . . exclude liabilities for
the repair or correction of defective work from the scope of coverage.”7
Georgia courts have clearly defined the risks that business-risk
exclusions are intended to remove from coverage[,] . . . typically
examin[ing] the following facts of each case when reviewing business-
risk exclusions: First, the type and extent of construction work that the
contractor is performing at the time of the accident and, second, the
extent that the damages resulting from the contractor’s accident may
5
Schwartz v. Harris Waste Mgmt. Group, 237 Ga. App. 656, 660 (2) (516
SE2d 371) (1999).
6
GCC did have to repaint and repair lighting caused by Dai-Cole’s faulty
workmanship, but such repairs came within GCC’s scope of work for the entire
project.
7
(Punctuation omitted.) Taylor Morrison Svcs., Inc. v. HDI-Gerling America
Ins. Co., 293 Ga. 456, 461-462 (1) (746 SE2d 587) (2013).
7
exceed the contractor’s contractual duties. In short, the court asks itself,
“Will the payment of insurance proceeds effectively cause an insurance
company to guarantee the contractor’s work?” If the answer is yes, the
business-risk exclusions apply and the claim is denied. However, if the
court finds that the payment of proceeds results from a negligent act
causing damage above and beyond the original contractual obligations
or to other property, the business-risk exclusions do not apply. . . .8
Business risk exclusions are designed to exclude coverage for defective
workmanship by the insured builder causing damage to the construction
project itself. There are two kinds of risks that are incurred by a
contractor. The first is the business risk borne by the contractor to
replace or repair defective work to make the building project conform
to the agreed contractual requirements. This type of risk is not covered
by the [CGL] policy, and the business risk exclusions in the policy make
this clear. The second is the risk that the defective or faulty
workmanship will cause injury to people or damage to other property.
Because of the potentially limitless liability associated with this risk, it
is the type for which commercial general liability coverage is
contemplated. The risk intended to be insured is the possibility that the
work of the insured, once relinquished or completed, will cause bodily
8
(Punctuation omitted.) Transp. Ins. Co. v. Piedmont Constr. Group, LLC, 301
Ga. App. 17, 19 (1) (686 SE2d 824) (2009).
8
injury or damage to property other than to the completed work itself, and
for which the insured may be found liable.9
Here, the claim asserted by GCC involved only corrections to and resulting
repairs for faulty workmanship, which is precisely the type of claim generally barred
by business risk exclusions. The only question, therefore, is whether the business risk
exclusions contained in Dai-Cole’s Auto Owners policy applied to GCC’s claim in
this case.
As in many CGL policies, the business risk exclusions here barred coverage
for property damage to “your work.” In previous cases, this Court has looked to the
general contractor’s scope of work when determining whether certain exclusions in
a CGL policy apply to a general contractor’s claim against its own insurer.10 And
when a subcontractor seeks first-party coverage under a CGL, courts consider the
9
(Punctuation omitted; emphasis supplied.) QBE Ins. Co. v. Couch Pipeline &
Grading, Inc., 303 Ga. App. 196, 199-200 (2) (692 SE2d 795) (2010), quoting
SawHorse, Inc. v. Southern Guar. Ins. Co. of Ga., 269 Ga. App. 493, 495-496 (1)
(604 SE2d 541) (2004).
10
See, e.g., Bituminous Cas. Corp. v. Northern Ins. Co. of New York, 249 Ga.
App. 532, 533-534 (548 SE2d 495) (2001), citing Sapp v. State Farm Fire & Cas.
Co., 226 Ga. App. 200, 203-204 (b) (486 SE2d 71) (1997).
9
subcontractor’s scope of work.11 Georgia courts have not, however, considered which
party’s scope of work should be considered when determining whether a business risk
exclusion applies to a general contractor’s claim for first-party coverage as an
additional insured under its subcontractor’s CGL policy.12
Here, Auto Owners did not guarantee the work of Dai-Cole, and the business
risk exclusions in the policy removed from coverage the defective workmanship by
Dai-Cole that caused damage to the project. GCC, as the general contractor, was
responsible for all work done within the scope of work which it contracted to perform
11
See, e.g., SawHorse, 269 Ga. App. at 495 (1); Canal Indem. Co. v.
Blackshear Farmers Tobacco Warehouse, Inc., 227 Ga. App. 637, 639-640 (2) (490
SE2d 129) (1997).
12
In denying summary judgment to Auto Owners, the trial court relied upon
Hathaway Dev. Co., Inc. v. American Empire Surplus Lines Ins. Co., 301 Ga. App.
65 (686 SE2d 855) (2009), in which this Court held that a general contractor may
recover a judgment against a subcontractor from the insurance company that issued
the subcontractor’s CGL policy. The trial court’s reliance is misplaced. Although the
general contractor in Hathaway initially filed a direct claim against the insurance
company as an additional insured, the general contractor abandoned that argument on
appeal. See id. at 66, n.1. Thus, the sole issue on appeal was whether the general
contractor could recover a default judgment against the subcontractor from the
subcontractor’s insurance company for defective plumbing work by the subcontractor
that damaged other portions of the apartment building projects. See id. at 65-66. A
general contractor’s first-party claims against an insurance company as an additional
insured are not equivalent to a general contractor’s claims as a judgment creditor
against its debtor’s insurer.
10
for the Piedmont Park Conservancy. To limit the business risk exclusions to only that
work performed by Dai-Cole would permit GCC more coverage as an additional
insured than that granted to Dai-Cole as policy-holder and would effectively require
Auto Owners to financially guarantee Dai-Cole’s work. Further, the business risk
exclusions expressly excluded property damage to the work of a named insured
arising out of the work, and the policy contemplated the possibility of qualifying an
additional insured as a named insured under the policy.
Under these circumstances, the business risk exclusions in the Auto Owners
policy exclude coverage for GCC’s first-party claim for reimbursement for damages
caused by Dai-Cole’s faulty workmanship.13 The trial court erred by denying
summary judgment on this issue.
2. The trial court further erred by denying Auto Owners’s motion for summary
judgment as to GCC’s claim for bad faith penalties and attorney fees. Under OCGA
§ 33-4-6, an award of attorney fees and a bad faith penalty is not authorized if the
insurer “had any reasonable ground to contest the claim.”14 Based on our holding in
13
See Taylor Morrison Svcs., 293 Ga. at 461-462 (1). See also SawHorse, Inc.,
269 Ga. App. at 496-497 (1) (a); Sapp, 226 Ga. App. at 203-204 (b).
14
(Punctuation omitted.) Grange Mut. Cas. Co. v. Law, 223 Ga. App. 748, 750
(2) (479 SE2d 357) (1996).
11
Division 1, Auto Owners had a reasonable ground to contest GCC’s claim. Thus,
penalties and fees under OCGA § 33-4-6 are not authorized.
Judgment reversed. Phipps, P. J., and Boggs, J., concur.
12