Appeal by plaintiff from order entered 29 March 2004 by Judge
Anderson D. Cromer in Guilford County Superior Court. Heard in the
Court of Appeals 10 March 2005.
PINTO COATES KYRE & BROWN, P.L.L.C., by David L. Brown and
Deborah J. Bowers, for plaintiff-appellant.
CARRUTHERS & ROTH, P.A., by Kenneth R. Keller, for defendant-
appellee.
TIMMONS-GOODSON, Judge.
Harleysville Mutual Insurance Company (“plaintiff”) appeals
the trial court order granting summary judgment in favor of Berkley
Insurance Company of the Carolinas (“defendant”). Because we
conclude that defendant was neither required to extend liability
coverage nor defend a suit, we affirm the trial court order.
The facts and procedural history pertinent to the instant
appeal are as follows: On 11 April 1993, RGS Builders, Inc.
(“RGS”) entered into a contract with Mr. and Mrs. K.C. Desai
(collectively, “the Desais”), whereby RGS was to serve as
contractor during the construction of the Desais' residence. Construction of the residence was completed in 1994, and the Desais
were issued a certificate of occupancy on 15 December 1994. The
residence included an exterior insulation finish system (“EIFS”)
commonly known as “synthetic stucco.”
In May 1996, the Desais' residence was inspected by Prime
South Construction (“Prime South”). Prime South found that
portions of the residence contained medium and high moisture levels
that should be further investigated by the Desais. As a result of
Prime South's investigation, and in an effort to correct the water
intrusion, RGS subsequently performed repairs to the residence. In
May 1997, the Desais hired B.B. & Associates (“B.B.”) to conduct
another inspection of their residence. In a report dated 4 June
1997, B.B. recommended that the Desais “[s]eal all penetrations
through the stucco system, including but not limited to
receptacles, light fixtures, vents, [and] pipes[,]” as well as
“[c]ontinue to seal and maintain jamb/sill connection of windows.”
B.B. noted that “[t]he kick outs do not have sealant where the
flashing meets the stucco system[,]” and B.B. instructed the Desais
to correct this problem.
On 6 April 2000, Criterium-McClancy Engineers (“McClancy
Engineers”) performed a third inspection of the residence. In a
report dated 5 May 2000, McClancy Engineers summarized its findings
as follows:
We observed numerous examples of improper
installation details of the EIFS cladding and
violations of applicable building codes.
In addition, we measured elevated moisture
levels in many areas, which we attribute tothe improper installation of the system.
Because of the widespread incidence of
improper installation details, the evidence of
generally elevated moisture levels and the
potential for further moisture penetration and
subsequent structural damages, we conclude the
overall installation is defective. Because of
technical problems associated with the
critical construction details, we do not
believe the system can be repaired and we
recommend that the EIFS synthetic stucco
surface be removed and replaced.
On 16 May 2000, the Desais filed a complaint against RGS,
alleging negligence, negligent misrepresentation, breach of implied
warranty, breach of contract, and unfair and deceptive trade
practices with respect to the installation of the synthetic stucco.
RGS subsequently forwarded the complaint to both plaintiff and
defendant as potential insurers. Plaintiff had previously provided
RGS with commercial general liability coverage, and, by virtue of
a policy effective 1 May 1997, defendant was currently providing
commercial general liability coverage to RGS. Plaintiff agreed to
aid in RGS's defense and to provide RGS with insurance coverage.
By way of a letter dated 21 June 2000, defendant declined to
provide RGS with insurance coverage related to the suit, stating
that the property damage and the Desais' discovery of it occurred
prior to 1 May 1997, the date defendant's coverage of RGS began.
On 15 August 2001, plaintiff sent a letter to defendant asking
defendant to reconsider its position on the suit in light of the
allegations of the Desais' complaint and this Court's decision in
Bruce-Terminex Co. v. Zurich Ins. Co., 130 N.C. App. 729, 504
S.E.2d 574 (1998). In response, defendant sent plaintiff a letterdated 4 September 2001, in which defendant again declined to
provide RGS with insurance coverage related to the suit, citing the
language of its policy with RGS as well as the Supreme Court's
decision in Gaston County Dyeing Machine Co. v. Northfield Ins.
Co., 351 N.C. 293, 524 S.E.2d 558 (2000). Plaintiff and defendant
exchanged similar correspondence in February 2002, with defendant
continuing to maintain its position of denying RGS coverage related
to the suit.
On 7 June 2002, the Desais settled their suit against RGS for
the sum of $87,500.00. On 13 June 2002, the Desais dismissed their
claim against RGS with prejudice. Plaintiff subsequently made
payment on behalf of RGS in the full amount of settlement, and, on
24 January 2003, plaintiff filed a declaratory judgment complaint
against defendant. In its complaint, plaintiff alleged that
defendant's insurance policy with RGS was triggered by the Desais'
suit, and that therefore, plaintiff was entitled to payment from
defendant for the settlement amount as well as any costs and
expenses related to the settlement. On 13 March 2003, defendant
filed an answer denying the allegations of plaintiff's complaint.
Both parties subsequently moved the trial court for summary
judgment in their favor. On 29 March 2004, the trial court granted
summary judgment in favor of defendant, concluding that defendant
“provides no coverage and owes no duty to defend the claim against
RGS Builders,” and that plaintiff is entitled to recover nothing
from defendant. Plaintiff appeals.
The issue on appeal is whether the trial court erred by
granting summary judgment in favor of defendant. Plaintiff argues
that defendant was required to extend coverage to RGS because the
Desais discovered the damage to their residence while defendant was
insuring RGS. We disagree.
When reviewing a motion for summary judgment, this Court
considers whether “(1) the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, show that there is no genuine issue as to any material
fact; and (2) the moving party is entitled to judgment as a matter
of law.”
Gaunt v. Pittaway, 139 N.C. App. 778, 784, 534 S.E.2d
660, 664,
disc. review denied and appeal dismissed, 353 N.C. 262,
546 S.E.2d 401 (2000),
cert. denied, 534 U.S. 950, 151 L. Ed. 2d
261 (2001);
see N.C. Gen. Stat. § 1A-1, Rule 56(c) (2003).
In
Gaston County Dyeing Machine Co. v. Northfield Ins. Co.,
351 N.C. 293, 524 S.E.2d 558 (2000), our Supreme Court overruled
this Court's opinion in
West American Insurance Co. v. Tufco
Flooring East, which held that “for insurance purposes, property
damage 'occurs' when it is manifested or discovered.” 104 N.C.
App. 312, 317, 409 S.E.2d 692, 695 (1991). In
Gaston County, the
Court concluded that, for the purposes of determining insurance
liability, there is no “bright-line rule” that property damage
occurs at the time of manifestation or upon the date of discovery.
351 N.C. at 303, 524 S.E.2d at 565. Instead, the Court held,
“where the date of the injury-in-fact can be known with certainty,
the insurance policy or policies on the risk on that date aretriggered.”
Id. at 303, 524 S.E.2d at 564. Following
Gaston
County, this Court has held that if we “can determine when the
injury-in-fact occurred, the insurance policy available at the time
of the injury controls.”
Hutchinson v. Nationwide Mut. Fire Ins.
Co., 163 N.C. App. 601, 604, 594 S.E.2d 61, 63 (2004). Therefore,
“even in situations where damage continues over time, if the court
can determine when the defect occurred from which all subsequent
damages flow, the court must use the date of the defect and trigger
the coverage applicable on that date.”
Id. at 605, 594 S.E.2d at
64.
In
Hutchinson, the plaintiffs sought damages arising from the
continual entry of water into a retaining wall built by the
contractor. The plaintiffs argued that, as the contractor's
current insurer, the defendant was responsible for damages which,
although resulting from the negligent construction of the wall,
were discovered after the wall's construction and while the
defendant's policy was in effect. The defendant denied coverage
for the claim, contending that because the alleged negligent
construction occurred while the defendant was not insuring the
contractor, the defendant's insurance policy was not triggered.
The trial court agreed with the defendant and granted summary
judgment in its favor. On appeal, we agreed with the plaintiffs'
theory of the injury, but we noted that “the evidence is clear that
the damage to [the] plaintiffs' retaining wall occurred outside of
the period in which [the] defendant insured [the contractor].”
Id.
at 605, 594 S.E.2d at 64. Accordingly, we held that “[w]ithout anyadditional information suggesting that the damage was caused during
the three days of coverage prior to discovery, we affirm the trial
court's order granting summary judgment to defendant.”
Id. at 605-
06, 594 S.E.2d at 64.
In the instant case, the Desais' damages arose from the
continual entry of moisture into their residence through the
synthetic stucco. Plaintiff contends that the source of the
property damage, RGS's negligent installation of the synthetic
stucco, was not “determined with certainty” until 5 May 2000, the
date in which McClancy Engineers provided its report to the Desais.
Thus, plaintiff asserts, because RGS was insured by defendant on
the date of discovery, defendant was required to extend general
commercial liability coverage to RGS and to defend the suit. We
cannot agree.
We note that defendant's insurance policy with RGS contains
the following pertinent provisions:
A. COVERAGES
1. Business Liability
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.
. . . .
b. This insurance applies:
(1) To “bodily injury” and
“property damage” only
if:
. . . .
(b) The “bodily injury” or
“property damage” occurs
during the policy period.
Thus, as in
Hutchinson, “[u]nder the insurance policy in this case,
coverage is triggered by 'property damage' when the property damage
is caused by an 'occurrence' and when the property damage occurs
within the policy period.”
Id. at 604, 594 S.E.2d at 63.
Accordingly, “[t]he issue for this Court to determine is whether
the property damage occurred within the policy period.”
Id.
The record in the instant case establishes that defendant was
not insuring RGS on the dates the Desais' residence was
constructed, nor was defendant insuring RGS on the dates RGS
attempted to repair its previous construction efforts. RGS began
construction of the residence in 1993 and completed it in 1994.
The repairs took place following Prime South's inspection of the
residence in 1996. Defendant's policy with RGS began on 1 May
1997, and it was effective until 1 January 2003. In its 5 May 2000
report, McClancy Engineers specifically found that the “overall
installation” of the synthetic stucco was defective. The Desais'
complaint against RGS alleged that, as a result of Prime South's
inspection, in May 1996, RGS, “by and through agents or employees,
investigated, performed repairs, and told [the Desais] that the
source of the water intrusion had been corrected.” The Desais
further alleged in their complaint that, when the repairs were
later inspected in May 1997, they discovered that “the repair
efforts undertaken by or on behalf of [RGS] in 1996 were inadequate
and . . . failed to correct the problem, and from said inspection,[the Desais] discovered the existence of a latent defect associated
with the manner in which the property was constructed” by RGS. In
light of the foregoing, it is clear that the Desais' property
damage was caused by RGS's actions or inactions prior to the
effective date of its policy with defendant. Therefore, without
any additional information suggesting that the damage was caused
during the dates of its coverage, we conclude that defendant bears
no general commercial liability for the damages caused to the
Desais by RGS.
Plaintiff argues in the alternative that defendant had a
general duty to defend the suit against RGS by virtue of the terms
of its insurance policy. Plaintiff asserts that the facts of the
Desais' pleadings triggered defendant's contractual duty to defend.
We disagree.
“The duty of an insurer to defend its insured is based on the
coverage contracted for in the insurance policy.”
Mastrom, Inc.,
v. Continental Casualty Co., 78 N.C. App. 483, 484, 337 S.E.2d 162,
163 (1985). “An insurer has a duty to defend when the pleadings
state facts demonstrating that the alleged injury is covered by the
policy.”
Bruce-Terminex Co. v. Zurich Ins. Co., 130 N.C. App. 729,
735, 504 S.E.2d 574, 578 (1998). “Provisions of insurance policies
are generally to be construed in favor of coverage and against the
insurer. This principle applies, however, only when the terms of
the policy are ambiguous.”
Mastrom, 78 N.C. App. at 484, 337
S.E.2d at 163 (citations omitted).
In
Waste Management of the Carolinas, Inc. v. Peerless Ins.Co., 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986), our Supreme
Court distinguished an insurer's duty to indemnify an insured from
its duty to defend an insured as follows:
Generally speaking, the insurer's duty to
defend the insured is broader than its
obligation to pay damages incurred by events
covered by a particular policy. An insurer's
duty to defend is ordinarily measured by the
facts as alleged in the pleadings; its duty to
pay is measured by the facts ultimately
determined at trial. When the pleadings state
facts demonstrating that the alleged injury is
covered by the policy, then the insurer has a
duty to defend, whether or not the insured is
ultimately liable. Conversely, when the
pleadings allege facts indicating that the
event in question is not covered, and the
insurer has no knowledge that the facts are
otherwise, then it is not bound to defend.
Where the insurer knows or could reasonably
ascertain facts that, if proven, would be
covered by its policy, the duty to defend is
not dismissed because the facts alleged in a
third-party complaint appear to be outside
coverage, or within a policy exception to
coverage. In this event, the insurer's
refusal to defend is at his own peril: if the
evidence subsequently presented at trial
reveals that the events are covered, the
insurer will be responsible for the cost of
the defense.
(citations and footnote omitted).
In the instant case, defendant's insurance policy with RGS
provides that defendant “will have the right and duty to defend any
'suit' seeking those damages” to which the policy applies. As
discussed above, under the terms of the insurance policy,
defendant's coverage is triggered by “property damage” only when
the “'property damage' occurs during the policy period.” The
Desais' complaint against RGS alleged that the synthetic stucco was“improperly installed,” that RGS “failed to adequately supervise
the activities of their subcontractors” during the installation of
the synthetic stucco, and that RGS “failed to promptly discover the
improper method” by which the synthetic stucco was installed. The
Desais' complaint referenced RGS's initial acts in constructing
their residence as well as RGS's repairs and assurances following
the May 1996 inspection. The complaint alleged no actions or
inactions by RGS following 1 May 1997, the effective date of
defendant's policy with RGS. Therefore, in light of the foregoing,
we conclude that defendant did not have a general duty under its
policy to defend RGS from the Desais' suit.
Plaintiff maintains that RGS was provided coverage by
defendant by virtue of the “Contractors Extension Endorsement”
provision contained within its insurance policy. However, we note
that although the “Contractors Extension Endorsement” provides that
defendant will pay those sums “to which this insurance applies” and
also places upon defendant a “duty to defend any suit seeking these
damages[,]” the endorsement expressly states that defendant has “no
duty to defend suits for damages not covered by th[e] policy.” The
endorsement further provides that
[n]egligent acts, errors, omissions or defects
occurring prior to the effective date of the
first consecutive errors and omissions policy
. . . are excluded if there is other insurance
applicable or if the “insured” knew or could
have reasonably foreseen that such act, error,
omission or defect might be the basis of a
claim or suit.
In the instant case, as discussed above, RGS's insurance
policy with defendant was effective on 1 May 1997. Prior to thatdate, RGS had an insurance policy with plaintiff. The Desais'
complaint contained allegations of acts and omissions occurring
prior to the effective date of RGS's insurance policy with
defendant and during RGS's insurance policy with plaintiff. Thus,
we conclude that the alleged negligent acts or omissions in the
instant case were not covered by the “Contractors Extension
Endorsement” in RGS's insurance policy with defendant, and
therefore, the “Contractors Extension Endorsement” did not require
defendant to defend RGS against the Desais' suit.
In light of the foregoing conclusions, we hold that the trial
court did not err in ordering summary judgment in favor of
defendant. Accordingly, we affirm the trial court's order.
Affirmed.
Judges CALABRIA and GEER concur.
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