In Bennett & Bennett Construction, Inc. v. Auto Owners Insurance Company, No. 27284 _ S.E.2d. _ 2013 S.C. LEXIS 170 (S.C. July 17, 2013) the Supreme Court of South Carolina, applying South Carolina law, held that that two exclusions barred coverage for a construction company’s defective work suit against its subcontractor.
The plaintiff, Bennett & Bennett Construction (B&B) was the general contractor on a construction site. It hired M & M Construction (M&M) as a subcontractor to install the brickwork. When Bennett & Bennett inspected M&M’s work, it discovered mortar and slurry dried onto the face of the brick. Thereafter, M&M hired a subcontractor to clean the brick. The subcontractor’s efforts exacerbated the problem by discoloring some bricks and degrading their finish. M&M failed to respond to demands for further remedial action. B&B then replaced the brick face at its own expense.
B&B sued M&M for breach of contract, breach of warranty and negligence. Neither M&M nor its insurer, Auto Owners Insurance Company, defended the suit. Accordingly, B&B ultimately obtained a default judgment against M&M. B&B then sued Auto Owners for a declaratory judgment that its CGL policy issued to M&M provided coverage for the damages to M&M’s brickwork that was caused by M&M’s subcontractor. After a bench trial, the trial court ruled that there was an occurrence under the subject policy and that coverage was not otherwise excluded. The South Carolina Supreme Court reversed. It held that coverage was excluded under two policy exclusions.
Exclusion j(5) of the policy bars coverage for property damage to “That particular part of real property on which [the insured] or any contractors or subcontractors working directly or indirectly on the [insured’s] behalf are performing operations, if the ‘property damage’ arises out of those operations . . . .” The South Carolina Supreme Court explained that Exclusion j(5) “unambiguously excludes coverage wherever the insured or an person acting on the insured’s behalf causes damages in the course of working on the property, regardless of whether the insured’s work has been completed.” 2013 S.C. LEXIS 170 at * 4. Accordingly, the Court explained, the exclusion “removes coverage when a subcontractor working on the insured’s behalf [is] performing operations, if the ‘property damage’ arises out of those operations.” Id. at *4 - *5. It was undisputed that the claimed property damage was caused by M&M’s subcontractor. Additionally, the Court found that the subcontractor was “performing operations” out of which the property damage arose. On that basis, the Supreme Court held that Exclusion j.(5) barred coverage for B&B’s claim for the damage caused to the brickwork by M&M’s subcontractor, regardless of whether M&M’s work was completed or not. Id. at *9 - *10.
Second, the Court held that the policy’s Exclusion n also precluded coverage. That exclusion bars coverage for “Damages claimed for any loss, cost or expense . . . incurred . . . for the . . . repair, replacement, adjustment, removal or disposal of . . . ‘Your Work’” if such work is withdrawn from use “because of a known or suspected defect, deficiency [or] inadequacy.” The Court noted that M&M had contracted to install a decorative brick face and M&M’s work – the brick face – had to be replaced because of a deficiency or inadequacy in M&M’s work. Id. at * 10. Consequently, the Court held that Exclusion n also barred coverage for the claim against M&M.
This case is consistent with rulings in other jurisdictions based on plain and unambiguous policy language and shows the court’s willingness to apply exclusionary language to bar coverage.