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.
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