North Carolina “property damage” caused by an “occurrence,” exclusions j(5) and j(6) “that particular part,” and duty to defend.

In Builders Mut. Ins. Co. v. Mitchell, No. 08 CVS 002340 (N.C. Ct. App. April 5, 2011), claimant McKinney hired insured general contractor Umstead to perform repairs to portions of McKinney’s house.  Umstead performed the repairs over a five year period before McKinney fired Umstead based on alleged improper work.  McKinney hired a third party to complete the repairs.  McKinney then filed suit against Umstead in contract, tort, and statutory violations, seeking damages resulting from Umstead’s alleged defective work.  During the five years that it was performing work on the McKinney home, Umstead was insured first by Maryland Casualty and then Builders Mutual.  Builders Mutual defended Umstead against the McKinney suit, but Maryland Casualty denied a defense.  Builders Mutual filed a declaratory judgment action against Maryland Casualty.  Builders Mutual then settled the McKinney suit and sought reimbursement from Maryland Casualty for one half of Builders Mutual’s defense costs and settlement payment.  The state trial court granted Maryland Casualty’s motion for summary judgment.  On appeal, the intermediate appellate court reversed.  Applying North Carolina law, the court first held that Maryland Casualty had a duty to defend Umstead against the McKinney complaint. The court states that, while Umstead’s defective workmanship, but itself, would not constitute “property damage” caused by an “occurrence” damage to parts of the McKinney home other than what McKinney was hired to repair would.  Here, the McKinney complaint alleged that Umstead defectively installed roofing materials and the McKinney home suffered interior and landscaping damages.  The court states this sufficiently alleged damage to previously undamaged portions of the home and thus constituted “property damage” caused by an “occurrence.”  Additionally, exclusions j(5) and j(6) did not eliminate a defense obligation because they only applied to property damage to “that particular part” on which Umstead was working which included only that part of the McKinney home on which Umstead was working, and did not include damage to other parts of the McKinney home.   Finally, extrinsic evidence that Maryland Casualty knew or should have known indicated that the property damage may have occurred during the Maryland Casualty policy period.   As to Maryland Casualty’s duty to indemnify, the court held that summary judgment was improper because there were genuine issues of material fact as to whether there was in fact “property damage” caused by an “occurrence” and not falling within the “your work” exclusion.