In a declaratory judgment action regarding the availability of coverage under a commercial general liability policy, the United States District Court for the District of South Carolina, applying South Carolina law, held that a Contractor Limitation Endorsement unambiguously excluded coverage for all property damage caused by water and was “not susceptible to more than one reasonable interpretation.” Evanston Insurance Company v. R&L Development Corporation, LLC, et al., No. 5:12-02750-JMC, 2014 U.S. Dist. LEXIS 48784, at *26 (D.S.C. Apr. 9, 2014). Accordingly, the court granted the insurer’s and denied the policyholder’s respective motions for summary judgment. Id.at *27.
Evanston Insurance Company (“Evanston”) issued a commercial general liability policy to R&L Development Corporation (R&L), a company that had contracted to perform work for Claflin University (“Claflin”), the General Board of Higher Education and Ministry (GBHEM), and/or Claflin’s regular maintenance contractor to remove metal partitions from all bathrooms in a building. Id. at *2. While performing that work, two workers lost control of a partition, which hit and broke a water supply valve, unleashing gushing water that spread throughout multiple floors in the building and damaged “ceiling tiles, computers, and laboratory equipment among other things.” Id. at *3-4.
Clafin and GBHEM sued R&L, and Evanston provided R&L’s defense subject to a full reservation of rights. Id. at *4-5. Evanston’s policy with R&L contained a Contractor Limitation Endorsement, which provided in relevant part: “The coverage under this policy does not apply to . . . ‘property damage,’ . . . [c]aused by, arising out of, resulting from, or in any way related to the invasion or existence of water or moisture including but not limited to mold, mildew, rot, or related deterioration of any property.” Id. at *5. Evanston then filed a declaratory judgment action on the scope of coverage available under its policy, and all parties, including Evanston, subsequently mediated their dispute. Id. at *5-6. The parties agreed to certain conditional settlement terms, depending on the outcome of the declaratory judgment action, and R&L assigned its rights under the policy to Clafin and GBHEM (collectively, the “University Defendants”). Id. at *5-6.
In connection with the declaratory judgment action, Evanston and the University Defendants filed cross-motions for summary judgment. Evanston argued that its policy language unambiguously excluded the damages at issue because they were caused by “the invasion or existence of water or moisture” and thus fell within the scope of the Contractor Limitation Endorsement. Id. at *13. It asserted that the “‘incoming’ of the water [from a pressurized piping system] to the dry spaces constitutes an ‘invasion’ within the plain and ordinary meaning of the word” as used in the exclusion. Id. at *14. And it further asserted that the presence of mold, rot, or related deterioration were but examples of property damage encompassed by the exclusion – not requirements under the policy. Id. Finally, Evanston relied on a decision from the federal district court in the Western District of Texas, in which the court denied coverage upon examining the same exclusionary language. Id. at *14-15 (discussing Charlton v. Evanston Ins. Company, 502 F. Supp. 2d 553 (W.D. Tex. 2007)).
The University Defendants presented a variety of arguments in opposing Evanston’s motion and in supporting their own motion for summary judgment. See generally id. at *16-21. Of key significance, they contended that the exclusionary language was ambiguous and should therefore be construed against Evanston. Id. at *16-17. Specifically, they argued that while the language could mean that all water damage is excluded under the policy, it could also mean that “only long-term, invasive water damage, like mold is excluded from the policy.” Id. at *20 (citations omitted). Accordingly, the University Defendants argued that the exclusion is subject to two different interpretations, and therefore must be construed in favor of the policyholder and against the insurer. Id. at *20-21. In addition, the University Defendants argued that the principle of ejusdem generis supported their argument that the policy only excluded long-term water damage, because the examples of damage cited by the policy – mold, mildew, rot or related deterioration – are all long term in nature. Id. at *19.
In reviewing the parties’ respective motions, the court held that the “plain language of the Contract Limitation Endorsement excludes all property damage caused by water and only identifies mold, mildew, and rot as examples of the types of property damage that are excluded.” Id. at *26. The court found that Charlton v. Evanston Ins. Company, 502 F. Supp. 2d 553 (W.D. Tex. 2007), persuasively supported this interpretation and that, as a result, Evanston owed no duty to indemnify under the policy. Id. at *26-27.