                            UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                            No. 07-1528



RACE CITY FASTENERS, INCORPORATED,

                Plaintiff - Appellee,

           v.


SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA,

                Defendant - Appellant.



Appeal from the United States District Court for the Western
District of North Carolina, at Statesville. Richard L. Voorhees,
District Judge. (5:05!cv-00009)


Argued:   March 20, 2008                      Decided:   May 21, 2008


Before TRAXLER, Circuit Judge, HAMILTON, Senior Circuit Judge, and
David R. HANSEN, Senior Circuit Judge of the United States Court of
Appeals for the Eighth Circuit, sitting by designation.


Affirmed by unpublished per curiam opinion.


ARGUED: Susan K. Burkhart, CRANFILL, SUMNER & HARTZOG, L.L.P.,
Raleigh, North Carolina, for Appellant.          Mark A. Michael,
Charlotte, North Carolina, for Appellee.      ON BRIEF: Robert C.
Gunst, Sr., GUNST & GUNST, Charlotte, North Carolina, for Appellee.


Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

     Race City Fasteners, Inc. (Race City) filed this declaratory

judgment action seeking a declaration that Selective Insurance

Company of South Carolina (Selective) is required to pay it damages

under a Commercial General Liability Policy (the Selective CGL

Policy or the Policy) issued to Plasfab, Inc. (Plasfab), for a

default judgment in the amount of $714,414.96 obtained by Race City

against Plasfab.     On cross-motions for summary judgment, the

district court granted summary judgment in toto in favor of Race

City.    This timely appeal followed.   We affirm.



                                 I.

     Race City, a North Carolina corporation, was formerly in the

business of anodizing engine parts especially designed for Nascar

racing.1    Plasfab is a Rhode Island corporation, which prior to

filing Chapter 7 bankruptcy in February 2004, was in the business

of the design, development, fabrication, and installation of manual

and automated metal finishing systems.      Relevant to the present

appeal, Race City purchased an anodizing line from Plasfab to

anodize metal pistons on a mass basis, i.e., at least 1000 per

week, and to certain specifications that would allow the pistons to




     1
      Although Race City maintains its corporate status, it no
longer operates as an active business.

                                - 2 -
be used in racing engines.2            Plasfab installed the anodizing line

in   June   2001,      at   Race   City’s    facility    in   Mooresville,   North

Carolina.        Race       City   paid     Plasfab    the    contract   price   of

$290,000.00.

      On January 9, 2003, Race City filed a complaint against

Plasfab     in   the    United     States   District    Court   for   the   Western

District of North Carolina (the Underlying Complaint). Relevant to

the issues on appeal, the Underlying Complaint alleged as follows:

      6.     During the course of discussions and negotiations
             which led to Race City’s purchase of an anodizing
             line from Plasfab, Race City specifically advised
             Plasfab of its requirements for such a line. In
             particular, Race City specifically advised Plasfab
             that it needed a line to mass produce anodized
             pistons, at least 1000 per week, that such pistons
             would have to be anodized to specifications such
             that they could be used in racing engines and that
             any line it purchased would need to be compatible
             with a computerized control system offered by
             Metalast, a Nevada corporation with which Race City
             had ongoing discussions as to the project.



      2
             “According to testimony provided in the
             underlying action by Ron Anderson, consultant
             for    Race    City,   ‘Anodizing    is    an
             electrochemical process by which we apply
             electricity   to   an   acid  bath   and   it
             deliberately rusts the aluminum, changing it
             from aluminum to aluminum oxide.’    (8/19/03
             Hr’g Tr. at 3.) The [a]nodizing process was
             used by Race City to harden the area of the
             piston exposed to the most temperature and
             heat for engine combustion processes so that
             the aluminum of the piston does not stick to
             the ring. (Hr’g Tr. at 4-5.).”

(J.A. 626 n.2, District Court’s final Memorandum Opinion and
Order).

                                          - 3 -
                        *     *     *

9.    The anodizing line was designed, manufactured and
      installed by Plasfab.   Race City relied entirely
      and specifically on the expertise of Plasfab to
      produce a line which would work as specified.

10.   The line was installed in June of 2001 by Plasfab
      at the Race City facility in Mooresville, North
      Carolina, and Race City paid the contract price.

11.   Based on the specific representation of Plasfab
      that its line would work as required with the
      Metalast control system, and in reliance thereon,
      Race City entered into a License Agreement with
      Metalast for the use of its proprietary control
      system.

12.   Race City also incurred substantial other expenses
      in connection with the line, including the salary
      of an employee hired to operate the line, the cost
      of chemicals and other supplies, the cost of
      unfinished pistons purchased to be anodized, and
      various other items as the evidence will show.

13.   While the line was being developed, manufactured,
      installed and tested, Race City contacted numerous
      prospective customers for the piston anodizing
      services.    The response of these prospective
      customers was uniformly positive, and some of these
      prospective customers actually sent pistons to Race
      City to be anodized on a test basis. . . .

14.   All of these efforts and expenses came to nothing.
      The line furnished by Plasfab does not work as
      promised and, on information and belief, cannot be
      made to work as promised.    Although the line is
      capable of anodizing pistons, it can do so only on
      an extremely limited basis.

15.   After the line was installed and set up, Race City
      employees, working with Metalast and Plasfab
      personnel, spent months attempting to make the line
      work as promised. Despite all these efforts, the
      line has never successfully mass produced anodized
      pistons.   In fact, the highest number of pistons
      which met specifications for any one anodizing


                            - 4 -
            cycle and which could be sold by Race City has been
            two, as opposed to the promised 1000 per week.

(J.A. 319-21).

     Based upon these allegations, Race City alleged four claims in

the Underlying Complaint:        (1) breach of contract; (2) breach of

express    warranty;   (3)   breach    of     implied   warranties;   and    (4)

negligent design and manufacture.            With respect to the negligence

claim, the Underlying Complaint alleged:

     As a direct and proximate result of this negligence, Race
     City has suffered damages including the contract price,
     installation and operating expenses and the cost of
     supplies and unfinished pistons. As noted above, pistons
     furnished by third parties were anodized and made useless
     and of no value using the Plasfab line.

(J.A. 321) (emphasis added).

     On the afternoon of February 24, 2003, Plasfab tendered the

Underlying Complaint to Selective for defense under the Selective

CGL Policy.   On the morning of February 26, 2003, Selective denied

Plasfab a defense and disclaimed any coverage under the Policy. At

the conclusion of default judgment proceedings before the district

court, on August 26, 2003, the district court entered a default

judgment    against    Plasfab   in    the    amount    of   $714,414.96    (the

Underlying Action).3

     Plasfab filed for Chapter 7 bankruptcy in February 2004. Race

City, standing in the shoes of Plasfab, subsequently filed the



     3
      The same district court judge who presided in the Underlying
Action also presided over the present declaratory judgment action.

                                      - 5 -
present declaratory judgment action against Selective, seeking a

declaration that Selective is required to satisfy the $714,414.96

default judgment pursuant to the Selective CGL Policy.

     At this point, we set forth certain language of the Selective

CGL Policy, which is at issue on appeal.4                The initial coverage

clause provides, in relevant part:

     We will pay those sums that the insured becomes legally
     obligated to pay as damages because of . . . “property
     damage” to which this insurance applies. We will have
     the right and duty to defend the insured against any
     “suit” seeking those damages. However, we will have no
     duty to defend the insured against any “suit” seeking
     damages for . . . “property damage” to which this
     insurance does not apply.

(J.A. 210).       The Policy only affords coverage for property damage

caused    by    an   “occurrence”   that   takes   place    in   the   coverage

territory and during the policy period.            Id.

     The Policy defines “occurrence” as “an accident, including

continuous or repeated exposure to substantially the same general

harmful conditions.”        (J.A. 222).     The Policy Defines “property

damage” as:

     a.        Physical injury to tangible property, including all
               resulting loss of use of that property. All such
               loss of use shall be deemed to occur at the time of
               the physical injury that caused it; or




     4
      The Selective CGL Policy is a standard 1994 commercial
general liability policy form drafted by the Insurance Services
Office, Incorporated (ISO).   ISO forms are widely used in the
insurance industry. See French v. Assurance Co. of Am., 448 F.3d
693, 697 (4th Cir. 2006).

                                    - 6 -
     b.    Loss of use of tangible property that is not
           physically injured. All such loss of use shall be
           deemed to occur at the time of the “occurrence”
           that caused it.

(J.A. 223).

     In its Memorandum Opinion and Order granting summary judgment

in favor of Race City, the district court’s analysis went as

follows:   (1) Rhode Island law applied to resolve the substantive

legal   issues   in   the   case;   (2)   along   with   other    allegations

providing context, the allegation of the negligence claim set forth

in the Underlying Complaint that “pistons furnished by third

parties were anodized and made useless and of no value using the

Plasfab line,” (J.A. 321), alleged property damage, specifically

physical   injury,    caused   by   an    occurrence     within   the   Policy

language; (3) because the Underlying Complaint included allegations

that alerted Selective that one of the claims asserted might

potentially fall within the Policy coverage, Selective breached its

duty under the Policy to defend Plasfab in the Underlying Action;

(4) under Conanicut Marine Servs., Inc. v. Ins. Co. of North Am.,

511 A.2d 967 (R.I. 1986), Selective’s breach of its duty to defend

makes it liable for the full amount of the default judgment; and

(5) under Lavender v. State Farm Mut. Auto. Ins. Co., 450 S.E.2d 34

(N.C. Ct. App. 1994), and the third-party beneficiary doctrine,

Race City possessed the very same rights under the Policy as

Plasfab, and therefore, Race City may assert an estoppel defense

against Selective.      Although the district court held that Rhode

                                    - 7 -
Island law governed the substantive legal issues in the case, it

stated that “[i]t appears there is no difference on any substantive

point of law between North Carolina and Rhode Island law.      The

Court also looks to North Carolina law for guidance.”    (J.A. 629

n.3, District Court’s final Memorandum Opinion and Order).

     This timely appeal by Selective followed.



                               II.

     We review de novo the district court’s grant of summary

judgment in favor of Race City, applying the same standard as did

the district court and construing the facts in the light most

favorable to Selective, the nonmoving party.       See Holland v.

Washington Homes, Inc., 487 F.3d 208, 213 (4th Cir. 2007). Summary

judgment   is appropriate when the evidence demonstrates that no

genuine issue of material fact exists and that the moving party is

entitled to judgment as a matter of law.   Fed. R. Civ. P. 56(c).



                               III.

     The first issue on appeal is whether the Underlying Complaint

contained allegations triggering a duty to defend on the part of

Selective under the Policy.   The parties agree that Rhode Island

law controls the substantive legal issues in this case.      Under

Rhode Island law, an insurer’s duty to defend under a liability

policy is broader than its duty to indemnify.    Mellow v. Medical


                              - 8 -
Malpractice Joint Underwriting Assn. of R.I., 567 A.2d 367, 368

(R.I. 1989).   Under Rhode Island law, it is well established that

an insurer’s duty to defend under a liability policy is triggered

when factual allegations contained in the underlying complaint

raise a reasonable possibility of coverage, regardless of whether

the plaintiff in the underlying tort action prevails on the merits.

Hingham Mut. Fire Ins. Co. v. Heroux, 549 A.2d 265, 266 (R.I. 1988)

(“As a general principle, this court will find that a duty to

defend arises when the complaint in the underlying tort action

contains facts sufficient to bring the case within or potentially

within the coverage of the policy, regardless of whether the

plaintiffs in the tort action will prevail on the merits.”).                 Any

doubts as to whether the underlying complaint alleges an event

covered under the policy must be resolved in favor of the insured.

Allstate Ins. Co. v. Russo, 641 A.2d 1304, 1306 (R.I. 1994).

     As previously stated, the district court held that along with

other   allegations    providing     context,       the   allegation    of   the

negligence   claim    set   forth   in    the   Underlying    Complaint      that

“pistons furnished by third parties were anodized and made useless

and of no value using the Plasfab line,” (J.A. 321), alleged

property   damage    (specifically       physical   injury   to   the   pistons

furnished by the third parties) caused by an occurrence, within the

Policy language.




                                    - 9 -
     In challenge to this holding, Selective primarily argues that,

while the Underlying Complaint alleged that the customers’ pistons

were made useless, the Underlying Complaint never directly alleges

that the customers’ pistons were physically damaged nor that the

pistons failed to meet contract specifications. Race City responds

that anodizing metal is a physical process, and therefore, when the

Underlying Complaint alleges that the “pistons furnished by third

parties were anodized and made useless and of no value using the

Plasfab line,” (J.A. 321), the Underlying Complaint is alleging

physical injury to tangible property of third parties.

     We agree with Race City.      Under a reasonable reading of the

entire Underlying Complaint, and in particular the allegation just

quoted regarding the pistons having no value, the Underlying

Complaint alleged physical injury to tangible property of third

parties within the language of the Policy.          The import of the

allegations is that the anodizing process applied to the pistons

supplied   by   Race   City’s   customers   was   not   successful,   and

therefore, physically damaged such pistons.        The pistons were no

longer in their unanodized state such that they could still be

properly anodized, nor were they in an anodized state to the degree

necessary to be useful.    The situation is analogous to the botched

carving of a person’s name and address in a piece of wood intended

to be a sign.   If the person’s name is misspelled or the address is

incorrectly stated, the wood is physically damaged and of no use


                                 - 10 -
for its intended purpose of correctly displaying the person’s name

and address.

     Selective   also   argues      that   from    a   fair    reading    of   the

Underlying Complaint, it would have no reason to believe that Race

City had reimbursed its customers for their damaged pistons in the

care, custody and control of Race City, thereby suffering actual

damage itself, since recovery of such reimbursement should be

alleged as a claim for indemnity or contribution.                   In support,

Selective relies on an unpublished Ninth Circuit case, Seagate

Technology, Inc. v. St. Paul Fire & Marine Ins. Co., 1995 WL 759217

(9th Cir. Dec. 22, 1995) (unpublished).

     Selective’s    argument   is    without      merit.      As   long   as   the

allegations in the Underlying Complaint recite facts bringing the

damages alleged within the coverage of the Policy, Selective had a

duty to defend Plasfab regardless of Plasfab’s ultimate liability

to Race City.      Progressive Cas. Ins. Co. v. Narragansett Auto

Sales, 764 A.2d 722, 724 (R.I. 2001) (pleadings test “requires the

trial court to look at the allegations contained in the complaint

and if the pleadings recite facts bringing the injury complained of

within the coverage of the insurance policy, the insurer must

defend irrespective of the insured’s ultimate liability to the

plaintiff”) (internal quotation marks omitted).               Cf. American Fam.

Mut. Ins. Co. v. American Girl, Inc., 673 N.W.2d 65, 77 (Wis. 2004)




                                    - 11 -
(standard CGL policy’s basic coverage language does not distinguish

between losses actionable in tort or actionable in contract).

     Of relevance, the negligence claim in the Underlying Complaint

alleged:

     As a direct and proximate result of this negligence, Race
     City has suffered damages including the contract price,
     installation and operating expenses and the cost of
     supplies and unfinished pistons. As noted above, pistons
     furnished by third parties were anodized and made useless
     and of no value using the Plasfab line.

(J.A. 321) (emphasis added).       Contrary to Plasfab’s position, from

a fair reading of these allegations, along with other allegations

in the Underlying Complaint, one can reasonably infer that Race

City incurred expenses proximately caused by Plasfab’s negligence

in the form of reimbursing its customers for the cost of the

pistons such customers had put in Race City’s care, custody, and

control for the purpose of being anodized by the new Plasfab

anodizing line, but were nonetheless improperly anodized.              This

circumstance   materially    distinguishes      the   present   case   from

Seagate, in which the underlying complaint could not be fairly read

to allege that the underlying plaintiff had actually incurred

expenses in the form of reimbursement to its customers for property

damage caused by the insured.       Seagate, 1995 WL 759217 at *2.

     In sum, the district court correctly held that, along with

other allegations that provided context, the allegations of the

negligence   claim   set   forth   in   the   Underlying   Complaint   that

“pistons furnished by third parties were anodized and made useless

                                   - 12 -
and of no value using the Plasfab line,” (J.A. 321), alleged

property     damage   caused   by   an   occurrence,   within   the   Policy

language.5



                                     IV.

     In the next and final issue on appeal, Selective argues that,

assuming     arguendo Plasfab was liable to Race City for its costs in

reimbursing its customers for their damaged pistons used in the

testing process, its (Selective’s) liability should be limited to

$11,601.40.6     In its opening brief “Selective acknowledges that,”

under Conanicut, 511 A.2d at 967, “if an insurer improperly denies

a defense to an insured[,] an insured can recover the costs of a

settlement or judgment as damages for the insurer’s breach of

contract in failing to defend the insured,” but argues that this



     5
      In its appellate briefing, Selective argued that five
separate coverage exclusions in the Policy independently applied to
bar coverage of any damage to the test pistons provided to Race
City by third parties, and therefore, operated to defeat any duty
to defend Plasfab under the Policy in connection with such
allegedly damaged pistons.     However, in response to specific
questioning from the bench at oral argument, counsel for Selective
expressly stated that Selective was only arguing that Exclusion b.,
which excludes coverage for damages “for which the insured is
obligated to pay damages by reason of the assumption of liability
in a contract agreement,” applied to defeat its duty to defend
Plasfab in connection with damage to the test pistons provided to
Race City by its customers. Selective’s argument regarding the
application of Exclusion b. is without merit.
     6
      Race City does not dispute Selective’s assertion that its
costs in reimbursing its customers for their damaged pistons used
in the testing process amounted to $11,601.40.

                                    - 13 -
rule does not operate in favor of a stranger to the Policy, such as

Race City.7   (Selective’s Opening Br. at 25).   The rationale for

the rule in Conanicut is that the insurance company could have

avoided the entire problem simply by defending its insured under a

reservation of rights or by bringing a declaratory judgment action

against its insured on the question of coverage.    Conanicut, 511

A.2d at 971 n.10.

     The fatal problem with Selective’s argument that Race City, as

a stranger to the Policy, cannot avail itself of the rule in

Conanicut, is that a specific Rhode Island statute, as construed by

the Rhode Island Supreme Court, grants Race City the right to

proceed directly against Selective as if standing in the shoes of


     7
      We note that Selective, in its Reply Brief, relies upon
Emhart Indus., Inc. v. Home Ins. Co., 515 F. Supp. 2d 228 (D.R.I.
Sept. 26, 2007), to argue that Conanicut is no longer good law.
Having already expressly acknowledged the continued vitality of
Conanicut in its Opening Brief, Selective cannot be heard to argue
otherwise by raising such argument for the first time in its Reply
Brief. See Fed. R. App. P. 28(a)(9)(“[T]he argument [section of
appellant’s brief] . . . must contain . . . appellant’s contentions
and the reasons for them, with citations to the authorities and
parts of the record on which the appellant relies.”); Yousefi v.
INS, 260 F.3d 318, 326 (4th Cir. 2001) (alien petitioner waived
argument on appeal raised for the first time in his reply brief by
failing to raise it in his opening brief). This is so despite the
fact that Emhart was issued after Selective filed its Opening
Brief, because all of the cases and rationales that the district
court in Emhart relied upon to predict that the Rhode Island
Supreme Court would not apply Conanicut to the facts before it were
available to Selective at the time that Selective filed its Opening
Brief. Accordingly, this is not a situation where a Rhode Island
appellate court cast doubt upon the continued validity of Conanicut
after Selective had filed its opening brief. Moreover, without
going into detail, we note that the facts of Emhart are quite
distinguishable from the case at hand.

                              - 14 -
Plasfab.   Rhode Island General Laws § 27-7-2 provides, in relevant

part:   “The injured party, . . . after having obtained judgment

against the insured alone, may proceed on that judgment in a

separate action against the insurer . . . .”   R. I. Gen. L. § 27-7-

2.   The Rhode Island Supreme Court has held that, for purposes of

this statute, the injured party (i.e., judgment creditor) stands in

the shoes of the insured (i.e., judgment debtor).      Ogunsuada v.

General Acc. Ins. Co. of Am., 695 A.2d 996, 1000 (R.I. 1997).

     While Selective argues that Race City, as a third-party

beneficiary of the Policy, is not able to assert any estoppel

rights that Plasfab may have against it (i.e., Selective) and

argues that an antiassignment clause in the Policy operates to

limit Race City to a third-party beneficiary status, the bottom

line is that § 27-7-2 is dispositive on the matter.    Rhode Island

General Laws § 27-7-2, as interpreted by the Rhode Island Supreme

Court in Ogunsuada, permits Race City to sue Selective in a

derivative capacity, which means that Race City stands in the shoes

of Plasfab for purposes of the present declaratory judgment action

against Selective.    We note that the district court did not rely

upon § 27–7-2 in rejecting Selective’s arguments on this issue, but

instead, relied upon North Carolina case law regarding third-party

beneficiary status.   This fact is of no moment, because Selective

expressly agrees that Rhode Island law governs all substantive

legal issues in this case.


                               - 15 -
     In sum, the district court did not err in granting summary

judgment in favor of Race City.8



                                      V.

     In   conclusion,   we   affirm    the   district   court’s   entry   of

judgment in favor of Race City.

                                                                  AFFIRMED




     8
      We note that Selective does not dispute that the default
judgment award of $714,414.96 is within the Policy’s property
damage limit.

                                 - 16 -
