CAMERON McGOWAN CURRIE, District Judge.
Through this declaratory judgment action, Plaintiff, Builders Mutual Insurance Company ("Builders Mutual"), seeks a determination of the extent of its liability for damages which may be awarded in a lawsuit currently pending against its insureds, Defendants Lacey Construction Co., Inc., Lacey & Associates, LLC, and Gary Burch (collectively "Lacey Defendants"). The underlying lawsuit ("State Action") was filed by Defendants Waverly Place Phase II Homeowners Association ("Waverly HOA") and L. Michael Brown ("Brown") (collectively "Waverly Defendants") and alleges, inter alia, that the Lacey Defendants are responsible for construction defects in the common elements and townhomes in the Waverly Place Phase II Development ("Waverly Place").
The matter is before the court on Builders Mutual's motion for summary judgment as to the extent of its duty of indemnification.
For the reasons set forth below. Builders Mutual's motion is granted in part and denied in part. More particularly, the court grants Builders Mutual's motion except as it relates to any damages which may be awarded to replace and pack certain areas of eroded soil.
In moving for summary judgment, Builders Mutual focuses on the factual record in the still-pending State Action. It notes that, unlike its duty to defend, its duty to indemnify turns on what is proven at trial. Dkt. No. 44-1 at 9. Builders Mutual attaches substantial evidentiary support for its position as to what evidence has been adduced through discovery in the State Action. It also attaches the Waverly Defendants' interrogatory responses in this action which delineate the categories of damages sought in the State Action. Dkt. No. 59. This evidentiary record is discussed in Background § II below.
In opposing Builders Mutual's motion, the Lacey Defendants focus, primarily, on allegations of the State Action Amended Complaint, rather than pointing to the factual record. See, e.g., Dkt. No 48 at 1-3. These allegations are discussed in Background § I below. Defendants also include some references to Brown's affidavit and the CGL policy and attach a "Supplemental Report" of a law professor who offers an opinion as to "[w]hether the allegations in the underlying complaint are sufficient to raise questions of fact and therefore Summary Judgment is not appropriate." Dkt. No. 48-1at 1; but see Discussion § I (declining to consider expert report).
The Waverly Defendants' only response is a blanket adoption of the Lacey Defendants' responsive memorandum. Dkt. No. 56. The court will, therefore, refer to the sole response as "Defendants' Response" in the remainder of this order.
The Waverly Defendants filed their State Action Complaint on June 9, 2008. The original complaint was superceded by an Amended Complaint filed on February 10, 2010. Dkt. No. 44-2, 44-3 (State Action Complaint and Amended Complaint). At some point, the action was dismissed but was restored to the active docket on December 10, 2010. See Dkt. No. 44-5 (order restoring action to the active docket).
Waverly HOA's claims in the State Action relate to alleged defects in certain common areas, primarily relating to two retaining walls. Waverly HOA also refers to unspecified drainage problems in the Amended Complaint. Brown's claims relate to his individual unit, number 132, and focus on cracks in his concrete foundation slab and erosion above one of the two retaining walls (located immediately behind Brown's unit).
The State Action Amended Complaint alleges that Defendant Lacey & Associates acted as developer and Lacey Construction acted as builder for Waverly Place. Dkt. No. 44-3 at ¶¶ 6, 7. It further alleges that Defendant Gary Burch was affiliated with both the developer and the builder. Id. at ¶¶ 9, 15. In these roles, Burch allegedly supervised the construction of the common elements and homes and personally constructed the retaining walls. Id. at ¶¶ 15, 18.
It appears that substantial discovery has been conducted in the State Action including the taking of various depositions and exchange of written discovery and documents.
While it is not entirely clear whether discovery has been completed in the State Action, the presence of all of the same parties in this action has provided all Defendants an opportunity to present any additional evidence relevant to the issue of coverage. While Defendants have pointed to a few specific passages from Brown's deposition, which was attached to Builders Mutual's motion, they have not proffered any additional evidence or suggested any reason the factual record here is not complete.
There are two retaining walls at issue. One, to the south of the development ("South Retaining Wall"), retains soil from a higher elevation, preventing it from falling or washing onto Waverly Place common areas. See generally Dkt. No. 58 at 8 (Builders Mutual Reply discussing report of Waverly Defendants' expert).
Gary Burch ("Burch") personally built the retaining walls. Deposition of Gary Burch ("Burch dep.") at 12, 27-28 (Dkt. No. 44-6). Burch is a member in Lacey & Associates and an employee of Lacey Construction. Id. at 17-19, 54-55).
No evidence has been proffered that the South Retaining Wall has actually failed resulting in any damage to any other property at issue in this action (i.e., common areas owned by Waverly HOA or the individual unit owned by Brown, which is located on the opposite side of Waverly Place). At most, there is evidence that there is sometimes flooding below the South Retaining Wall during heavy rains which may have caused damage to individual units other than Brown's.
This evidence suggests that whatever defects exist in the North Retaining Wall are not only the result of deficiencies in the initial construction of the wall, but also remain unchanged from the time of construction. No contrary evidence has been presented. Thus, any "damage" to the North Retaining Wall itself is not the result of some independent event or even damage which has developed over time due to "exposure" to some harmful condition. See infra at 13 (policy definition of "occurrence").
As noted above, Brown's unit, number 132, is on the north side of the development and adjoins the North Retaining Wall. See Dkt. No. 58-1 at 4 (Applied Building Sciences, Inc., Engineering Report ("ABS Report")); Dkt. No. 59-2 at 5-6 (Geo-Systems Design & Testing Inc. Report dated September 16, 2009 ("Geo-Systems Second Report")). Soil behind Brown's unit has eroded, leaving sink holes. Id. This erosion has been attributed to deficiencies in the retaining wall by at least two engineering reports and by Brown himself. Id.; see also Brown dep. at 41-42, 54-44. The North Retaining Wall is at a lower elevation than Brown's unit. Consequently, the erosion is washing soil away from Brown's property. Brown dep. at 39; see also Dkt. No. 44-10 (photos produced by Brown). Neither Brown nor Waverly HOA has expended any funds to repair the retaining wall. Brown dep. at 59-60, 62-63.
Brown, who was deposed on September 18, 2009, testified he discovered cracks in his concrete foundation slab when he was replacing carpet, approximately two years before his deposition. Dkt. No. 44-7 at 24-25. This suggests the cracks were first discovered in mid to late 2007, not long after the period covered by Builders Mutual's policies (November 22, 2002, through April 6, 2007). Brown observed some discoloration around the cracks, which he assumes might have been due to moisture. He did not, however, notice any water intrusion at the time, had experienced no related problems prior to pulling up the carpet, and has not experienced any subsequent problems with the replacement (laminate) flooring. Id. at 25-27, 31-32. Brown did not report the cracks to the builder when they were discovered. Id. at 29.
Roughly six months before his deposition (approximately March 2009), Brown's unit developed a leak in the closet of the master bedroom. Id. at 32. Brown eventually determined that the leak was related to a leak in a water line outside his unit. Id. at 33. Although Brown surmises that the leak in his closet is related to the cracks in his foundation (which he discovered under a different area of the floor when he replaced flooring in 2007), he has not proffered any evidence of a causative link.
In their opposition memorandum, Defendants include a block quotation from the Amended Complaint which includes a single reference to drainage problems but does not otherwise address this category of alleged defect or damages. See Dkt. No. 48 at 8. It would not, therefore, appear that Defendants are claiming coverage for any damages which might be awarded relating to defective drainage. No party has, in any event, directed the court to any evidence that either of the Waverly Defendants has suffered an injury to themselves or their property because of any drainage problem. It further appears from Builders Mutual's reply that some or all of the work necessary to cure the alleged drainage problem would be performed on "downstream" property which is not owned by either of the Waverly Defendants and is, instead, owned by one or more of the Lacey Defendants.
Builders Mutual insured Lacey Construction through commercial general liability (CGL) policy number CPP 0013265. Dkt. No. 44-11 ("Initial policy"). The Initial Policy covered a period of one year beginning on November 22, 2002. Id. It was renewed annually until it was cancelled on April 6, 2007. Dkt. No. 44-12 ("Final Policy"). Lacey & Associates was added to the policy as an insured effective August 1, 2005. Dkt. No. 44-13 (Amended Declarations).
The series of policies beginning with the Initial Policy and ending with the Final Policy contain the following relevant provisions:
Dkt. No. 44-11; see also Dkt. No. 44-14 (modified "your work" exclusion from 2004-05 policy year forward).
Summary judgment should be granted if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) (as amended December 1, 2010). It is well established that summary judgment should be granted "only when it is clear that there is no dispute concerning either the facts of the controversy or the inferences to be drawn from those facts." Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir. 1987).
The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact, and the court must view the evidence before it and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). When the nonmoving party has the ultimate burden of proof on an issue, the moving party must identify the parts of the record that demonstrate the nonmoving party lacks sufficient evidence. The nonmoving party must then go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986).
A party "cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another." Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985). Therefore, "[m]ere unsupported speculation . . . is not enough to defeat a summary judgment motion." Ennis v. National Ass'n of Bus. & Educ. Radio, Inc., 53 F.3d 55, 62 (4th Cir. 1995).
Before addressing the parties' substantive arguments, the court addresses one evidentiary issue: admissibility of the supplemental report of the Lacey Defendants' proffered expert Constance Anastopoula, Esquire ("Anastopoula"). Anastopoula's supplemental report, which is cited only once in Defendants' response, consists of a discussion of legal principles drawn primarily from Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual Ins. Co., 717 S.E.2d 589 (S.C. 2011) which Anastopoula purports to apply to the "facts" of this case. As to each covered subject matter, Anastopoula concludes that the court should deny summary judgment because there are "questions of fact." Anastopoula supports her conclusions that there are "questions of fact" by referring to allegations in the "underlying complaint." She neither mentions nor discusses a single item of evidence.
It is doubtful that Anastopoula's supplemental report (or related testimony) would be admissible under any circumstances. This is because it improperly invades the province of the court by advising the court how it should apply the law. See U.S. v. McIver, 470 F.3d 550, 561-62 (4th Cir. 2006) ("opinion testimony that states a legal standard or draws a legal conclusion by applying the law to the facts is generally inadmissible").
Even without this fundamental difficulty, the court would not find Anastopoula's supplemental report helpful for three reasons. First, the supplemental report confuses the standard applied to motions to dismiss (which considers allegations of the complaint) with the standard applied to motions for summary judgment (which considers the evidentiary record). See, e.g., Dkt. No. 48-1 at 3 ¶ 5.a. (suggesting that "allegations in the underlying complaint" constitute "evidence presented" as to defects in retaining walls); id. ¶ 5.d. (concluding that the allegations raise "a question of fact [which is] not appropriate for Summary Judgment"); id. ¶¶ 6.a., 6.d. (same erroneous pairing of concepts as to cracks in the foundation slab).
For all of the reasons indicated above, the court will not consider the expert report offered by Defendants in opposition to Builders Mutual's motion.
Under South Carolina law, insurance policies are interpreted according to the same rules of construction applicable to other types of contracts. Auto-Owners Ins. Co. v. Carl Brazell Builders, Inc., 588 S.E.2d 112, 115 (S.C. 2003) ("Brazell"). Thus, the court "must give policy language its plain, ordinary and popular meaning. . . . When a contract is unambiguous, clear, and explicit, it must be construed according to the terms the parties have used." Id.; see also B.L.G. Enterprises, Inc. v. First Fin. Ins. Co., 491 S.E.2d 695, 697 (S.C. Ct. App. 1997) ("The construction of a clear and unambiguous contract is a question of law for the court."), aff'd, 514 S.E.2d 327 (S.C. 1999). The court's "duty is limited to the interpretation of the contract made by the parties, regardless of its wisdom or folly, apparent unreasonableness, or failure [of the parties] to guard their interests carefully." B.L.G. Enterprises, 514 S.E.2d at 330 (internal quotation marks omitted).
Exclusions in insurance policies are generally narrowly construed in favor of coverage. However, "[c]ourts may not torture the ordinary meaning of language to extend coverage expressly excluded by the terms of the policy." S.C. Mun. Ins. & Risk Fund v. City of Myrtle Beach, 628 S.E.2d 276, 278 (S.C. Ct. App. 2006). Moreover, "insurers have a right to limit their liability and to impose conditions on their obligations provided they are not in contravention of public policy or a statutory prohibition." S.C. Farm Bureau Mut. Ins. Co. v. Dawsey, 638 S.E.2d 103, 104-05 (S.C. Ct. App. 2006).
The present action addresses only Builders Mutual's duty of indemnification, not its duty to defend. Under South Carolina law, a liability insurer's duty to indemnify is determined by the findings of the fact finder in the underlying case. Ellett Bros., Inc. v. U.S. Fid. & Guar. Co., 275 F.3d 384, 388-89 (4th Cir. 2001) (citing Jourdan v. Boggs/Vaughn Contracting, Inc., 476 S.E.2d 708, 711 (S.C. Ct. App. 1996)).
Because the State Action has not yet been tried, the court applies here something of a double summary judgment standard. That is, in deciding whether Builders Mutual is entitled to summary judgment that it owes no duty of indemnification in the State Action, the court considers whether there is evidence from which a reasonable jury in the State Action could find in favor of the Waverly Defendants on any claim which the court in this action could find entitles the Lacey Defendants to indemnification under Builders Mutual's policy.
Builders Mutual's policies require it to indemnify the Lacey Defendants for damages the insureds are legally obligated to pay because of "`property damage' . . . caused by an `occurrence'. . . [which] occurs during the policy period[.]" Policy § I.A.1.a.,b. "Property damage" is defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property." Id. § V.17. "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."" Id. § V.13. Property damage caused by an occurrence is covered unless it is subject to one or more exclusions.
Several of the causes of action in the State Action are founded on contractual or statutory trade practices theories. These include causes of action for breach of contract, breach of warranty, and unfair trade practices. Through these causes of action, the State-Action plaintiffs seek economic damages for deficiencies in the quality of the Lacey Defendants' work or for their failure to meet other contractual obligations (such as by establishing adequate reserves).
To the extent damages sought in the State Action are for inadequate reserves or failure to record a deed, they do not involve physical injury and, consequently, cannot satisfy the definition of property damage. The same is true as to other purely economic damages such as for the reduced value of the product or insured's workmanship. See Brazell, 588 S.E.2d at 115-16 (holding allegations of purely economic losses, including some relating to diminution in value of homes flowing from presence of undisclosed hazardous materials did not constitute "property damage" under a CGL policy); see also Isle of Palms Pest Control Co. v. Monticello Ins. Co., 459 S.E.2d 318, 320 (S. C. Ct. App. 1994) ("A general liability policy is intended to provide coverage for tort liability for physical damage to the property of others; it is not intended to provide coverage for the insured's contractual liability which causes economic losses.").
Builders Mutual is not, therefore, obligated to indemnify the Lacey Defendants for any relief awarded under the breach of contract, breach of warranty, or unfair trade practices claims to the extent damages are awarded for the difference between what was promised and what was delivered. This would include, for example, any claim for diminution in value, failure to deliver deeds, or failure to establish adequate reserves.
Even if obtained under a tort-based theory, damages for defective work are not covered under a CGL policy except to the extent the defective work caused physical injury to some other property. This conclusion follows the line of South Carolina cases discussed below, which have relied either on the definition of "occurrence" (earlier cases) or on the definition of "property damage" (later case) in concluding that CGL policies do not provide coverage for damage to the defective work itself.
In one of the earlier cases, L-J, Inc. v. Bituminous Fire and Marine Ins. Co., 621 S.E.2d 33 (S.C. 2005), the court held that premature deterioration of roads which resulted from the insured contractor's faulty workmanship was not covered because it was not the result of an "occurrence." As explained in L-J, which adopted the majority rule that defective workmanship which damages only the product itself is not an occurrence, "If [the court] were to hold otherwise, the CGL policy would be more like a performance bond, which guarantees the work, rather than like an insurance policy, which is intended to insure against accidents." Id. at 36.
The rule adopted in L-J was applied to a case involving defective construction of homes in Auto-Owners Ins. Co., Inc. v. Newman, 684 S.E.2d 541 (S.C. 2009) ("Newman"). In Newman, the court was faced with claims for defective application of stucco by a subcontractor and related damage to the home's framing and exterior sheathing. Critically, the framing and sheathing were not part of the subcontractor's work. The court held that the "negligent application of the stucco [did] not on its own constitute an `occurrence[.]'" Id. at 544. By contrast, "the continuous moisture intrusion resulting from the [negligent application of the stucco was] an occurrence" because it was an unexpected and unintended "`accident' — involving `continuous or repeated exposure to substantially the same harmful conditions.'" Id. at 545. Because the policy included a subcontractor exception from the "your work" exclusion, these combined rulings resulted in coverage for the damage to the framing and exterior sheathing, but not for the defective stucco work itself. See id. at 545-46 (also holding replacement of the stucco could not be covered as "an incidental cost to repairing the damage to other property").
The South Carolina Supreme Court recently reaffirmed the result in Newman, albeit based on modified reasoning. See Crossmann Communities of N.C., Inc. v. Harleysville Mut. Ins. Co., 717 S.E.2d 589, 593 (S.C. 2011) (noting continued "adher[ence] to the result in Newman," which relied on interpretation of the term "occurrence" to hold "that the costs of replacing the defective application of the stucco were not covered . . . but the damage caused by the continuous moisture intrusion resulting from the [defective application was covered]"). The analysis in Crossman differed from that in Newman and L-J because it focused on whether there was "property damage" rather than whether there was an "occurrence." Id. As the court explained:
Id. at 593-94.
Defendants argue that Crossman is no longer good law in light of a May 17, 2011 amendment to South Carolina's insurance law which provides that "occurrence" must be defined to include "property damage . . . resulting from faulty workmanship, exclusive of the faulty workmanship itself." See Dkt. No. 48 at 9 (characterizing Crossman as holding "that damages resulting from an insured's faulty workmanship did not qualify as an occurrence" (emphasis added) and arguing that S.C. Code Ann. § 38-61-70 (2011) was enacted specifically to overrule Crossman).
This argument is curious on several levels. First, the particular Crossman decision on which Builders Mutual relies and which Defendants cite in their opposition memorandum is the final version after rehearing, issued on August 22, 2011. This decision was not only issued two months after adoption of the referenced statute, but refers to the statute in a footnote. See Crossman, 717 S.E.2d at 594 n.6 (declining to "address recent legislation that seeks in part to impose a construction on existing insurance policies in pending actions," and identifying the Act which was codified as Section 38-61-70). Second, the final Crossman decision reversed the position taken in the South Carolina Supreme Court's earlier opinion in the same case (which, presumably, motivated the adoption of Section 38-61-70). Third, the final Crossman decision is consistent with the critical portion of Section 38-61-70 which would exclude "the faulty workmanship itself" from the definition of "occurrence" (likely mooting any argument that the statute impermissibly impairs existing contracts). Finally, the Lacey Defendants' own expert relies extensively on the final decision in Crossman without any reference to Section 38-61-70.
For all of these reasons, the court concludes that Section 38-61-70 does not modify the rule set down in Crossman which clarified the reasoning but did not change the result in Newman and L-J. It follows that Builders Mutual is not obligated to indemnify the Lacey Defendants for any damages which a jury in the State Action may award for repair or reconstruction of defectively constructed components at Waverly Place. By contrast, Builders Mutual may be obligated to indemnify the Lacey Defendants to the extent there is a finding that some defectively constructed component at Waverly Place caused injury to some other component. For reasons explained below, when applied to the evidence presented to this court, this conclusion establishes that, at most, Builders Mutual may be obligated to indemnify the Lacey Defendants for replacing and packing eroded soil above the North Retaining Wall.
The court will assume for purposes of this order that the evidence in the State Action is sufficient to establish that both of the retaining walls built by Burch, working on behalf of the Lacey entities, are defective in one or more respects and that the Lacey Defendants may be held liable for the cost of replacing or repairing those walls either on a contract or negligence theory. Regardless of the theory of recovery, Builders Mutual would not be obligated to indemnify the Lacey Defendants for the cost of repairing or rebuilding the walls, or any incidental demolition or reconstruction necessitated by the repair, as this does not qualify as "property damage" under Crossman.
Despite significant discovery in the State Action, and their own control over the relevant evidence, Defendants fail to direct the court to any evidence that the alleged defective condition of the retaining walls has injured any other property belonging to the Waverly Defendants. The only exception is evidence of soil erosion which has caused sink holes on Brown's property immediately above the North Retaining Wall. The erosion and sink holes are arguably "property damage" caused by the defective condition of the North Retaining Wall. Thus, they may constitute property damage caused by an occurrence falling within the coverage definition of the policy.
The court, therefore, concludes that, as a matter of law, Builders Mutual has no obligation to indemnify the Lacey Defendants for damages measured by the cost to repair either retaining wall or any incidental costs including for removal or replacement of soil, patios, fences or other property which must be moved in order to make the repairs. This ruling does not, however, reach the costs which might be incurred to replace or repack eroded soil above the North Retaining Wall to the extent the erosion occurred during Builders Mutual's time-on-risk and is located on Brown's individual property or property owned by Waverly HOA (if any). See Crossmann, 717 S.E.2d at 603 ("In sum, we construe the standard CGL policy to require that each insurer cover only that portion of a loss attributable to property damage that occurred during its policy period.").
Builders Mutual argues that the sink holes themselves are not covered property damage because the sink holes are "incidental to the repair or replacement of the retaining walls, since the soil will have to be removed in order to replace the retaining walls." Dkt. No. 58 at 10-11 (citing OneBeacon Ins. Co. v. Metro Ready-Mix, Inc., 242 Fed. Appx. 936, 940-41 (4th Cir. 2007). This argument takes the ruling in OneBeacon too far as that case addressed damage which would be caused by the repairs. Here, the damage exists prior to the repairs, even though replacing the currently missing soil may be something of a redundant exercise as the same areas may need to be removed and replaced in conjunction with the repair of the North Retaining Wall.
To the extent the State Action seeks relief for cracked slabs, it seeks relief on behalf of individual unit owners. Because the state court denied class certification, the only individual unit owner in this action is Brown. Thus, for purposes of this motion, the court considers the testimony relating to the cracked concrete foundation slab in Brown's unit.
Brown testified that he found cracks in his slab when he replaced the carpet approximately two years prior to his September 2009 deposition. The court, therefore, assumes that there is evidence the cracks existed no later than September 2007. The only damage Brown observed at that time was limited to the cracks in the slab itself which had not, at that point, caused any further damage such as injury to carpet or flooring materials due to water intrusion through the cracks. Thus, the only damage relating to the slab identified as of mid to late 2007 falls into the category of damages excluded from coverage under Crossman (defects in the work product itself). It follows that Builders Mutual is not obligated to indemnify the Lacey Defendants for any damages relating to repair or replacement of the concrete foundation slab including any incidental costs such as removing and replacing flooring or plumbing.
The date Brown recalled discovering the cracks, roughly two years before September 2009, would fall shortly after the last date covered by Builders Mutual's insurance policies (which expired or were cancelled on April 6, 2007). If the foundation cracks subsequently caused injury to other property, including due to water leaks which entered the home because of the cracks, that injury would not be covered by Builders Mutual because it no longer had a policy in place. See generally Crossmann, 717 S.E.2d at 603 (quoted supra at 24). In sum, we construe the standard CGL policy to require that each insurer cover only that portion of a loss attributable to property damage that occurred during its policy period.").
Builders Mutual also relies on a policy exclusion for "property damage to property you own, rent, or occupy." Dkt. No.44-10 §I.A.2.j.(1). This exclusion prevents a CGL (liability) policy from providing first-party benefits to the insured. See Isle of Palms, 459 S.E.2d at 320 ("A general liability policy is intended to provide coverage for tort liability for physical damage to the property of others."); see also State Farm Fire & Cas. Co. v. English Cove Ass'n, Inc., 88 P.3d 986, 988, 992 (Wash. Ct. App. 2004) (noting "owned property" exclusion bars coverage to the extent of losses to the insured's own property").
To the extent either retaining wall is, in fact, owned by one of the Lacey Defendants, this exclusion would also preclude coverage of repairs. The same holds true for any grading or other work which might be required on separate property belonging to the Lacey Defendants in order to improve drainage on property belonging to the Waverly Defendants. This is both because of the owned property exclusion and because any "defect" in the drainage areas would not be "property damage" with respect to the Waverly Defendants.
Builders Mutual raises additional arguments against coverage. The court declines to reach these arguments as they would not modify the result here.
For the reasons set forth above, the court concludes that Builders Mutual has no obligation to indemnify the Lacey Defendants for any damages which may be awarded in the State Action for evaluating, repairing, or rebuilding concrete foundation slabs and retaining walls or for related diminution in value of Waverly Place or Brown's unit. This includes damages attributable to incidental work such as removal and replacement of flooring, soil, patios, or fences. The court reaches the same conclusion as to any damages which may be awarded to correct drainage problems or for any failure to deed property or establish adequate reserves. Builders Mutual may, by contrast, be required to indemnify the Lacey Defendants for damages relating to erosion above the North Retaining Wall, limited to those damages attributable to erosion which (1) occurred during Builders Mutual's time-on-risk and (2) is present on property owned by Brown or Waverly HOA.
These rulings resolve the declaratory judgment issues before this court. The matter is, therefore, dismissed with prejudice as to all coverage issues addressed herein.
IT IS SO ORDERED.
