Exclusion j.(5) Means What It Says and Says What It Means
January 13, 2014
In a heated opinion from the state's Supreme Court, South Carolina recently reiterated what it has “repeatedly explained” in regards to a commercial general liability policy: that the CGL does not insure “your” work itself, but the subsequent risks that stem from “your” work. The issue before the court in Bennett & Bennett Const., Inc. v. Auto Owners Ins. Co., 405 S.C. 1 (2013) was whether or not Exclusion j.(5) removes coverage when the insured's subcontractor damages the work product while performing operations, even though your work is complete under the policy.
Homeowners hired general contractor, Bennett & Bennett, to remove stucco cladding from the exterior of her home and install a decorative brick face in its place. Bennett & Bennett then engaged M & M Construction, a subcontractor, for the installation of the brick, which featured a sandy finish. Sometime after M&M had completed the installation, Bennett & Bennett discovered mortar and slurry impediments on the face of the brick. M & M consequently hired a third subcontractor, who mistakenly used a pressure washer and acid mixture to clean the brick. The subcontractor's cleaning treatment discolored some of the brick faces and removed their decorative finish, causing all of the brick to be removed and the entirety of the brick face to be replaced. Bennett & Bennett filed suit against M&M and its CGL insurer. Seeking a declaratory judgment that M&M's policy provided coverage for the damages caused by its subcontractor, Bennett & Bennett asked the court for damages in replacement costs. The circuit court reasoned that exclusion j.(5) was not applicable to operations that occur after the insured's work has been completed and ruled in favor of coverage. This appeal followed.
Siding with M&M's CGL insurer, the court stated that the exclusion by its own plain language excludes coverage whenever the insured or a person acting on the insured's behalf causes damage to the work product while working on the property. The opinion admonished the circuit court's inquiry into the timing of the occurrence, stating that for the purpose of the policy, the only question was whether or not the subcontractor was performing operations – regardless of whether the insured's work has been completed. Because it was undisputed that the property damage in question arose from M&M's subcontractor improperly cleaning the brick face on behalf of M&M, the Court reversed the circuit court's decision and held that exclusion j.(5) barred coverage. The Court concluded by restating its understanding of the CGL and its application in South Carolina construction litigation by stating, “CGL coverage is for tort liability for injury to persons and damage to other property and not for contractual liability of the insured for economic loss because the completed work is not that which the damaged person bargained.”
Editor's Note: This case codifies the interpretation of exclusion j.(5) Damage To Property in South Carolina and puts its lower courts on notice that its decisions shall turn upon whether or not property damage arose from performing operations rather than whether or not the insured's work product was complete.