North Carolina “property damage” and “occurrence.”

In Travelers Indemnity Co. v. Miller Building Corp., claimant PVC hired insured Miller to serve as general contractor for the construction of a hotel.  Following completion, asserting defective construction, PVC refused pay Miller.  Miller initiated arbitration proceedings and PVC counterclaimed for defective construction; specifically, an improperly installed post-tensioning cable system resulted in structural cracking and buckling, and improperly installed windows, doors, and exterior wall finish which allowed moisture penetration damaging guest room walls and carpets. Miller’s CGL insurer, Travelers, defended under a reservation of rights and filed suit, seeking a declaration of no duty to defend.  The federal district trial court entered summary judgment for Travelers, finding no duty to defend.   On appeal, the U.S. Court of Appeals for the Fourth Circuit reversed.  The court first held that, although the carpet was installed by Miller, because it was supplied by PVC in an undamaged condition and subsequently damaged by another construction defect, the damage to the carpet was separate from hotel and thus constituted “property damage” for purposes of a duty to defend.  The court then held that, although the carpet damage may have been foreseeable to Miller, absent an allegation that Miller subjectively intended the carpet damage, the underlying complaint sufficiently alleged an “occurrence.”  Travelers Indem. Co. v. Miller Bldg. Corp., No. 03-1510 (4th Cir. May 20, 2004)(unpublished)(“PVC I”).   The case returned to the district court where Travelers filed another motion for summary judgment on its indemnity obligation, which the trial court granted, holding that Travelers’ potential indemnity obligation was limited to damage to property separate from the hotel that was not subjectively intended by Miller, including any loss of use of that property, but not for damages for any delay in opening the hotel.  On appeal, the Fourth Circuit affirmed, holding that, consistent with its decision in PVC I, “the only claims that could fall within the definition of ‘property damage’ … were those that alleged damages to the owner’s own property that was separate from the hotel.”  Travelers Indem. Co. v. Miller Bldg. Corp., No. 05-2235  (4th Cir. March 7, 2007)(unpublished)(“PVC II”).