North Carolina “property damage,” “occurrence,” and “your work” and “impaired property” exclusions.

In Wayne Bros., Inc. v. N. River Ins. Co., No. 1:01CV00842 (M.D. N.C. Aug. 20, 2003), insured Wayne was the concrete floor subcontractor on a construction project.  Following completion, surface delamination developed in the floor.  The insured was sued for damages for the costs to repair the delamination, loss of use of the facility, business disruption, and damage to equipment.  Wayne’s CGL insurers denied a defense and Wayne filed suit against the insurers seeking a judicial declaration of the insurers’ duties to defend and indemnify.  The federal district trial court, applying North Carolina law, denied the insurers’ motion for summary judgment, declaring that the underlying suit gave rise to a duty to defend.   The court first held that, because it was unclear whether Wayne’s work was defective at the time it was performed or was subsequently damaged by the actions or omissions of other parties, such as the concrete floor joint filler subcontractor, and damages for loss of use and damage to equipment were also sought, the underlying complaint sufficiently alleged “property damage.”  The court next held that, because the underlying complaint alleged that the faulty workmanship of others, such as the designer of the concrete mix or the supplier of the concrete surface hardener, which would not necessarily have been foreseeable to Wayne, the underlying complaint sufficiently alleged an “occurrence.”  The court next held that exclusion l. “damage to your work” did not eliminate a duty to defend because it applies only to damages for the repair or replacement of the insured’s defective work and does not apply to damages for loss of use of the facility and damage to other equipment that were also sought in the underlying complaint.  Finally, the court held that exclusion m. for “damage to impaired property or property not physically injured” did not eliminate a duty to defend because the underlying complaint did not allege that all of the damages would be remedied by the repair or replacement of the insured’s work.