Century Indemnity Co. v. Stoltz ( 2001 )

FILED: April 16, 2001
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CENTURY INDEMNITY COMPANY, as 
successor to CCI Insurance
Company, as successor to Insurance
Company of North America,
Plaintiff-Appellee,
v.
PETER O. STOLTZ; BROOKE M.  No. 00-1766
STOLTZ,
Defendants-Appellants,
and
GOLDEN HILLS BUILDERS,
INCORPORATED,
Defendant.

ORDER OF CERTIFICATION
TO: THE HONORABLE CHIEF JUSTICE AND JUSTICES OF
THE SOUTH CAROLINA SUPREME COURT
Pursuant to Rule 228 of the South Carolina Appellate Court Rules,
we certify two questions that are set forth herein to the South Carolina
Supreme Court.
I.
Nature of the Controversy
This is an action by an insurance company for declaratory relief in
an insurance coverage dispute. Century Indemnity Company (Cen-
2 CENTURY INDEMNITY CO. v. STOLTZ
tury) brought this declaratory judgment action against its insured,
Golden Hills Builders, Inc. (Golden Hills Builders), a general contrac-
tor, and Peter and Brooke Stoltz (the Stoltzes), the owners of a home
constructed by Golden Hills Builders as general contractor. The
action seeks a declaration that no coverage under a standard commer-
cial general liability policy issued by Century’s predecessor to Golden
Hills Builders exists for: (1) the cost and expenses of repairs and
replacement of the synthetic stucco exterior of the Stoltzes’ home,
which exterior a subcontractor of Golden Hills Builders allegedly
constructed in a defective manner; and (2) the cost and expenses of
repairs to the properly constructed substrate and framing members of
the Stoltzes’ home necessitated by moisture damage caused by the
alleged defective manner in which a subcontractor of Golden Hills
Builders constructed the home’s synthetic stucco exterior.
II.
Relevant Facts and Procedural History
The facts relevant to the certified questions presented are not in
dispute. Golden Hills Builders is a general contractor in the business
of building residential homes. On July 29, 1988, Golden Hills Build-
ers acquired title to Lot 8, Phase I-A of Golden Hills Subdivision,
with a street address of 116 Scotland Drive, Lexington, South Caro-
lina. Golden Hills Builders began construction of a "spec home" on
Lot 8 in 1989. Golden Hills Builders hired a sub-contractor to con-
struct the synthetic stucco exterior of the home. Prior to December 7,
1990, moisture damage occurred to the substrate and framing mem-
bers of the home resulting from the alleged defective construction of
the home’s synthetic stucco exterior. The damage has been continu-
ous ever since.
On June 28, 1990, Golden Hills Builders entered into a contract
(the Purchase Contract) with the Stoltzes whereby the Stoltzes agreed
to purchase, and Golden Hills Builders agreed to sell to the Stoltzes,
Lot 8 and the yet to be completed home on that lot. Golden Hills
Builders and the Stoltzes closed on the Purchase Contract on February
22, 1991, thus causing legal title to the property to be transferred to
the Stoltzes.
CENTURY INDEMNITY CO. v. STOLTZ 3
Between December 7, 1989 and December 7, 1990, Golden Hills
Builders was insured pursuant to a standard commercial general lia-
bility policy (the Policy) issued by the Insurance Company of North
America. Century is the successor of CCI Insurance Company, which
was the successor of the Insurance Company of North America.
On July 27, 1999, the Stoltzes filed a civil action in South Carolina
state court against Golden Hills Builders and others. The primary
cause of action is for defective construction of the subject home. As
damages, the Stoltzes sought the awarding of costs and expenses in
connection with repairing and replacing the synthetic stucco exterior
of their home and all damaged parts of the home resulting from the
alleged defective construction of the home’s synthetic stucco exterior,
including the costs and expenses of repairing the home’s substrate and
framing members. The Stoltzes also sought recovery for the loss of
their home’s fair market value. Additionally, the Stoltzes have sought
punitive damages and attorneys’ fees under a cause of action for
unfair trade practices under the South Carolina Unfair Trade Practices
Act. S.C. Code Ann. §§ 39-5-10 to -160 (Law. Co-op 1985 & Supp.
2000).
As previously stated, Century brought this declaratory judgment
action against Golden Hills Builders and the Stoltzes in the United
States District Court for the District of South Carolina, Columbia
Division, seeking a declaration that no coverage exists under the Pol-
icy for: (1) the cost and expenses of repairs and replacement of the
synthetic stucco exterior of the Stoltzes’ home, which exterior a sub-
contractor of Golden Hills Builders allegedly constructed in a defec-
tive manner; and (2) the cost and expenses of repairs to the properly
constructed substrate and framing members of the Stoltzes’ home
necessitated by moisture damage caused by the alleged defective
manner in which a subcontractor of Golden Hills Builders constructed
the home’s synthetic stucco exterior. Century premised subject matter
jurisdiction upon diversity jurisdiction pursuant to 28 U.S.C. § 1332.
Century subsequently made a motion for summary judgment, which
the district court granted in toto. The Stoltzes then noted a timely
appeal, which Golden Hills Builders did not join. On appeal, the
Stoltzes only seek reversal of that portion of the district court’s order
granting summary judgment in favor of Century with respect to Cen-
tury’s request for a declaration that the Policy provides no coverage
4 CENTURY INDEMNITY CO. v. STOLTZ
for the costs and expenses of repairs to the properly constructed sub-
strate and framing members of the Stoltzes’ home necessitated by
moisture damage caused by the alleged defective manner in which a
subcontractor of Golden Hills Builders constructed the home’s syn-
thetic stucco exterior.
We now set forth the provisions of the Policy relevant to the certi-
fied questions presented.
LANGUAGE INITIALLY PROVIDING COVERAGE.
Section I.A.1.a. of the Policy provides that Century "will pay those
sums that the insured becomes legally obligated to pay as damages
because of . . . ‘property damage’ to which this insurance applies."
(Joint Appendix (J.A.) 32). Section I.A.1.b. of the Policy provides
that the Policy will apply to property damage only if:
(1) The . . . "property damage" is caused by an "occurrence"
that takes place in the "coverage territory"; and
(2) The . . . "property damage" occurs during the policy
period.
Id. The definition section of the Policy defines the term "occurrence"
as "an accident, including continuous or repeated exposure to substan-
tially the same general harmful conditions." (J.A. 42).
THE j.(1) EXCLUSION.
Section I.A.2.j.(1) of the Policy (the j.(1) Exclusion) states that the
Policy does not apply to property damage "to: (1) Property you own,
rent, or occupy . . . ." (J.A. 34).
THE j.(6) EXCLUSION.
Section I.A.2.j.(6) of the Policy (the j.(6) Exclusion) states that the
Policy does not apply to property damage to "[t]hat particular part of
any property that must be restored, repaired or replaced because ‘your
work’ was incorrectly performed on it." (J.A. 34). However, the same
CENTURY INDEMNITY CO. v. STOLTZ 5
section subsequently states that the j.(6) Exclusion "does not apply to
‘property damage’ included in the ‘products-completed operations
hazard.’" Id. According to the definition section of the Policy, the
term "products-completed operations hazard":
includes all . . . "property damage" occurring away from
premises you own or rent and arising out of "your product"
or "your work" except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned.
(J.A. 42).
The definition section of the Policy defines the term "your product"
as:
a. Any goods or products, other than real property, manu-
factured, sold, handled, distributed or disposed of by:
(1) You;
(2) Others trading under your name; or
(3) A person or organization whose business or
assets you have acquired; and
b. Containers (other than vehicles), materials, parts or
equipment furnished in connection with such goods or
products.
(J.A. 43). The definition section of the Policy further provides that the
term "your product" "includes":
a. Warranties or representations made at any time with
respect to the fitness, quality, durability, performance or
use of "your product";
6 CENTURY INDEMNITY CO. v. STOLTZ
b. The providing of or failure to provide warnings or
instructions.
"Your product" does not include vending machines or other
property rented to or located for the use of others but not
sold.
Id.
The definition section of the Policy defines the term "your work"
as:
a. Work or operations performed by you or on your behalf;
and
b. Materials, parts or equipment furnished in connection
with such work or operations.
Id. The definition section of the Policy further states that the term
"your work" "includes":
a. Warranties or representations made at any time with
respect to the fitness, quality, durability, performance or
use of "your work"; and
b. The providing of or failure to provide warnings or
instructions.
Id.*
*Century also relies upon two other specific exclusions under the Pol-
icy (exclusions I.A.2.k. and I.A.2.l.) as alternative bases for affirming the
district court. The district court relied upon neither in granting Century’s
motion for summary judgment. The questions certified herein do not
involve exclusion I.A.2.k. or exclusion I.A.2.l.
CENTURY INDEMNITY CO. v. STOLTZ 7
III.
Contentions of the Parties
We begin our discussion of the parties’ contentions by noting that
the parties have stipulated that the moisture damage to the substrate
and framing members of the Stoltzes’ home occurred during the pol-
icy period (December 7, 1989 to December 7, 1990), and that such
damage has been continuous since that time. Century contends that
denial of coverage is supported by the description of the scope of
commercial general liability policies in C.D. Walters Construction
Co. v. Fireman’s Insurance Co. of Newark, N.J., 316 S.E.2d 709 (S.C.
Ct. App. 1984), wherein the South Carolina Court of Appeals stated:
The insured, as a source of goods or services, may be liable
as a matter of contract law to make good on products or
work which is defective or otherwise unsuitable because it
is lacking in come capacity. This may even extend to an
obligation to completely replace or rebuild the deficient
product or work. This liability, however, is not what the
coverages in question are designed to protect against. The
coverage is for tort liability for physical damages to others
and not for contractual liability of the insured for economic
loss because the product or completed work is not that for
which the damaged person bargained.
Id. at 712 (internal quotation marks omitted). Regarding the parties’
specific arguments in the present appeal, Century first contends the
Policy does not afford Golden Hills Builders liability coverage for the
cost and expenses of repairs to the substrate and framing members of
the Stoltzes’ home necessitated by moisture damage caused by the
alleged defective manner in which a subcontractor of Golden Hills
Builders constructed the home’s synthetic stucco exterior because the
bulk of the damage occurred after expiration of the policy period.
More specifically, Century contends that coverage is not afforded
because Golden Hills Builders owned the home throughout the policy
period, and therefore, no damage occurred to the Stoltzes during the
policy period. In this regard, Century relies upon the Policy’s lan-
guage providing that the Policy will apply to property damage only
if "[t]he . . . ‘property damage’ occurs during the policy period." (J.A.
8 CENTURY INDEMNITY CO. v. STOLTZ
32). Century primarily relies upon Browder v. USF&G, 893 P.2d 132
(Col. 1995) (en banc) in support of its contention.
In response, the Stoltzes contend that, at least for the full time
period of their legal ownership of the home (beginning February 22,
1991), the continuous trigger of coverage theory first adopted by the
South Carolina Supreme Court in Joe Harden Builders, Inc. v. Aetna
Casualty and Surety Co., 486 S.E.2d 89 (1997), with respect to cases
involving progressive property damage that is not apparent at the time
of the underlying injury-causing event, applies to provide coverage.
In Joe Harden Builders, the South Carolina Supreme Court held with
respect to "a standard occurrence insurance policy," id. at 89, that pro-
vided "coverage for an occurrence that causes property damage
‘which occurs during the policy period,’" id. at 90, that "coverage is
triggered whenever the damage can be shown in fact to have first
occurred, even if it is before the damage became apparent, and the
policy in effect at the time of the injury-in-fact covers all the ensuing
damages," id. at 91 (emphasis added). No controlling precedent from
the South Carolina Supreme Court or the South Carolina Court of
Appeals exists to resolve the issues created by these conflicting con-
tentions of the parties.
Century next contends that even if coverage exists under the initial
language of the Policy, coverage is ultimately defeated by the j.(1)
exclusion, which excludes coverage for property damage to property
owned by the insured, because Golden Hills Builders owned the home
during the entire policy period. In support of this contention, Century
again relies upon Browder, 893 P.2d at 132. The Stoltzes counter that
they held equitable title to the home as of June 28, 1990, pursuant to
the Purchase Contract. Furthermore, the Stoltzes again rely upon Joe
Harden Builders. Specifically, they argue that, at least for the full
time period of their legal ownership of the home (beginning February
22, 1991), the continuous trigger of coverage theory first adopted by
the South Carolina Supreme Court in Joe Harden Builders applies to
provide coverage. No controlling precedent from the South Carolina
Supreme Court or the South Carolina Court of Appeals exists to
resolve the issues created by these conflicting contentions of the par-
ties.
Century also contends that coverage is ultimately defeated by the
j.(6) Exclusion, which is commonly known as the "‘faulty workman-
CENTURY INDEMNITY CO. v. STOLTZ 9
ship’" exclusion. Patrick J. O’Connor, Commercial General Liability
Coverage, 19-APR Construction Lawyer 5, 8 (April 1999). Century
contends, and the district court agreed, that the language of the j.(6)
Exclusion excluding coverage for property damage to "[t]hat particu-
lar part of any property that must be restored, repaired or replaced
because ‘your work’ was incorrectly performed on it," (J.A. 34),
should be read broadly to exclude coverage for the damage to the sub-
strate and framing members of the Stoltzes’ home. In this regard,
Century urges us to read the pronoun "it" and its antecedent ("[t]hat
particular part of any property that must be restored, repaired or
replaced") as referring to the entirety of the Stoltzes’ home, inasmuch
as Golden Hills Builders was the general contractor engaged to con-
struct the entirety of the Stoltzes’ home. In contrast, the Stoltzes urge
a narrow interpretation of the same language. Specifically, the
Stoltzes urge us to read the pronoun "it" and its antecedent as refer-
ring only to that part of Golden Hills Builders’ subcontractor’s work
that was allegedly defectively constructed, i.e., the home’s synthetic
stucco exterior. According to the Stoltzes, because they have not
alleged defective construction with respect to the substrate and fram-
ing members of their home, the j.(6) Exclusion does not apply to
exclude liability coverage for the damage to these parts of their home.
At least one court is in accord with Century’s position. George A.
Fuller Co. v. United States Fid. & Guar. Co., 613 N.Y.S.2d 152, 156
(N.Y. App. Div. 1994) (holding j.(6) Exclusion excluded liability cov-
erage for moisture damage to building caused by defective construc-
tion of curtain wall with windows where contractor was responsible
for constructing the entire building). Likewise, at least one court is in
accord with the Stoltzes’ position. Dorchester Dev. Corp. v. Safeco
Ins. Co., 737 S.W.2d 380, 382 (Tx. App. 1987) (opining in dicta in
regard to policy exclusion materially similar to the j.(6) Exclusion
that "if defective work is performed by or on behalf of the insured,
and such defective work causes damage to other work of the insured
which was not defective, then there would be coverage for repair,
replacement or restoration of the work which was not defective"). No
controlling precedent from the South Carolina Supreme Court or the
South Carolina Court of Appeals exists to resolve the issues created
by these conflicting contentions of the parties.
The Stoltzes also contend that their interpretation of the pronoun
"it" and its antecedent ("[t]hat particular part of any property that
10 CENTURY INDEMNITY CO. v. STOLTZ
must be restored, repaired or replaced") as found in the j.(6) Exclu-
sion is just as reasonable as the interpretation proposed by Century.
They argue that under South Carolina’s rules of insurance contract
interpretation, the language should, therefore, be interpreted against
Century as the drafter of the Policy. Laidlaw Envtl. Servs. v. Aetna
Cas. & Sur. Co., 524 S.E.2d 847, 849-50 (S.C. Ct. App. 1999). Cen-
tury argues the Stoltzes’ interpretation of the pronoun "it" in the j.(6)
Exclusion and the pronoun’s antecedent in that same exclusion is
unreasonable.
The Stoltzes next contend that even if coverage is initially removed
by the beginning language of the j.(6) Exclusion, the products-
completed operations hazard exception to the j.(6) Exclusion restores
coverage. As previously set forth, that exception provides that the
j.(6) Exclusion "does not apply to ‘property damage’ included in the
‘products-completed operations hazard.’" (J.A. 34). According to the
definition section of the Policy, the term "products-completed opera-
tions hazard":
includes all . . . "property damage" occurring away from
premises you own or rent and arising out of "your product"
or "your work" except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned.
(J.A. 42).
Century contends the exception does not apply because at the
inception of the moisture damage at issue, Golden Hills Builders
owned the home. The Stoltzes again counter that they held equitable
title to the home as of June 28, 1990, pursuant to the Purchase Con-
tract. Furthermore, the Stoltzes argue that, at least for the full time
period of their legal ownership (beginning February 22, 1991), the
continuous trigger of coverage theory first adopted by the South Caro-
lina Supreme Court in Joe Harden Builders, Inc., with respect to
cases involving progressive property damage, applies to allow cover-
age under the completed operations hazard exception to the j.(6)
CENTURY INDEMNITY CO. v. STOLTZ 11
Exclusion. No controlling precedent from the South Carolina
Supreme Court or the South Carolina Court of Appeals exists to
resolve the issues created by these conflicting contentions of the par-
ties.
IV.
Questions Certified
We certify the following questions to the South Carolina Supreme
Court:
(1) In light of the parties’ stipulation that the damage to the sub-
strate and framing members of the home occurred prior to the expira-
tion of the policy period on December 7, 1990, while Golden Hills
Builders still owned the home, and that such damage has been contin-
uous since that time, including time when the Stoltzes have owned the
home, does the Policy’s language stating that "[t]his insurance applies
to . . . ‘property damage’ only if: . . . [t]he ‘property damage’ occurs
during the policy period," (J.A. 32), preclude the existence of liability
coverage in favor of Golden Hills Builders for the cost and expenses
of repairs to the properly constructed substrate and framing members
of the Stoltzes’ home necessitated by moisture damage caused by the
alleged defective manner in which a subcontractor of Golden Hills
Builders constructed the home’s synthetic stucco exterior?
(2) If the first question is answered in the affirmative, then the
remaining questions need not be reached. However, if the first ques-
tion is answered in the negative, the following question must be
reached: In light of the parties’ stipulation that the damage to the sub-
strate and framing members of the home occurred prior to the expira-
tion of the policy period on December 7, 1990, while Golden Hills
Builders still owned the home, and that such damage has been contin-
uous since that time, including time when the Stoltzes have owned the
home, does the j(1) Exclusion (excluding coverage for property dam-
age to property the insured "own[s], rent[s], or occup[ies]," (J.A. 34),
apply to deny Golden Hills Builders liability coverage for the cost and
expenses of repairs to the properly constructed substrate and framing
members of the Stoltzes’ home necessitated by moisture damage
caused by the alleged defective manner in which a subcontractor of
12 CENTURY INDEMNITY CO. v. STOLTZ
Golden Hills Builders constructed the home’s synthetic stucco exte-
rior?
(3) If the second question is answered in the affirmative, then the
remaining questions need not be reached. However, if the second
question is answered in the negative, the following question must be
reached: Without consideration of the applicability of the exception
for "products-completed operations hazard" as set forth in the j.(6)
Exclusion, does the j.(6) Exclusion apply to deny Golden Hills Build-
ers liability coverage for the cost and expenses of repairs to the prop-
erly constructed substrate and framing members of the Stoltzes’ home
necessitated by moisture damage caused by the alleged defective
manner in which a subcontractor of Golden Hills Builders constructed
the home’s synthetic stucco exterior?
(4) If the third question is answered in the negative, then this next
question need not be reached. However, if the third question is
answered in the affirmative, the answer to the following question is
dispositive of the present appeal: Does the products-completed opera-
tions hazard exception to the j.(6) Exclusion apply to restore liability
coverage for the cost and expenses of repairs to the properly con-
structed substrate and framing members of the Stoltzes’ home neces-
sitated by moisture damage caused by the alleged defective manner
in which a subcontractor of Golden Hills Builders constructed the
home’s synthetic stucco exterior?
This court acknowledges that the Supreme Court of South Carolina
may reformulate these questions.
V.
Conclusion
We conclude that there is no precedent from the South Carolina
Supreme Court or the South Carolina Court of Appeals dispositive of
the questions certified. Accordingly, pursuant to the privilege made
available by Rule 228 of the South Carolina Appellate Court Rules,
we respectfully:
CENTURY INDEMNITY CO. v. STOLTZ 13
(1) certify this matter to the South Carolina Supreme
Court for resolution of the questions presented in Part
IV of this Order of Certification;
(2) order the Clerk of this court to forward to the South
Carolina Supreme Court, under the official seal of this
court, a copy of this Order of Certification, together
with the original or copies of the record before this
court to the extent requested by the South Carolina
Supreme Court; and
(3) order that any request for all or part of the record be
fulfilled by the Clerk of this court simply upon notifi-
cation from the Clerk of the South Carolina Supreme
Court.
This Order of Certification is entered with the concurrences of
Judge Wilkins and Judge Williams, United States Circuit Judges.
Judge Clyde H. Hamilton
Senior United States Circuit Judge
April 16, 2001