North Carolina “property damage” and duty to defend.

In Amerisure Mut. Ins. Co. v. Superior Construction Corp., No. 3:07-CR-00276-W (W.D. N.C. Aug. 15, 2008), insured Superior was the general contractor for the Richmond Hills Condominiums.  Following completion, Richmond Hills sued Superior seeking damages for the costs to repair construction defects.  Superiors’s CGL insurer, Amerisure, denied a defense and filed suit seeking judicial declarations of no duty to defend or indemnify.  The federal district trial court, applying North Carolina law, denied Amerisure’s motion for summary judgment, holding that Amerisure may have a duty to defend the underlying complaint.   The court determined that, while the underlying complaint’s allegations of damage which arose out of the scope of Superior’s work did not constitute “property damage” and thus the complaint in and of itself did not give rise to a duty to defend, Superior provided extrinsic evidence that some of the damages may have occurred as a result of upgrade work performed by others after Superior had completed its work and thus would constitute “property damage.”   The remaining factual issue to be resolved on Amerisure’s duty to defend is whether Amerisure would have learned of this extrinsic evidence by conducting a reasonable investigation.