                             UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                             No. 10-1215


JESSCO, INC.,

                Plaintiff - Appellee,

           v.

BUILDERS MUTUAL INSURANCE COMPANY,

                Defendant - Appellant.



Appeal from the United States District Court for the District of
South Carolina, at Charleston.    Patrick Michael Duffy, Senior
District Judge. (2:08-cv-01759-PMD)


Argued:   January 25, 2012                 Decided:   March 29, 2012


Before TRAXLER, Chief Judge, and AGEE and DIAZ, Circuit Judges.


Affirmed in part, reversed in part, and remanded by unpublished
per curiam opinion.


Stephen Peterson Groves, Sr., NEXSEN PRUET, Charleston, South
Carolina, for Appellant.    Steven Lewis Smith, SMITH & KOONTZ,
PA, Charleston, South Carolina, for Appellee.


Unpublished opinions are not binding precedent in this circuit.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

       In   this    declaratory         judgment      action,     Builders       Mutual

Insurance     Company        (“BMIC”)       appeals     the     district       court’s

determination      that     it    had   a   duty   to   defend     and    a    duty   to

indemnify under an insurance                policy (the “Policy”) issued by

BMIC to Jessco, Inc.          We conclude that BMIC had a duty to defend

Jessco, but we also conclude that the policy did not provide

coverage for the $10,000 re-grading allowance paid by Jessco to

the homeowners in the underlying construction-defect action.                          We

therefore affirm in part, reverse in part, and remand.



                                            I.

       Glenn and Tracie Mazyck hired Jessco to build a house for

them in North Charleston’s Coosaw Creek subdivision.                            Shortly

after    moving    into     the    house    in   September      2004,    the   Mazycks

provided Jessco with a punch list of mostly minor items to be

completed or repaired.            The punch list matters were not resolved

to the Mazycks’ satisfaction, and in February 2005, they filed

suit    against    Jessco    in    state    court.      The   complaint        alleged,

among other things, that the lot flooded because it was not

graded properly to direct surface water into the wetlands area

adjacent to the lot.              In May 2006, the state-court action was

stayed so the claims could be pursued through arbitration, as

required by the contract.            In the fall of 2007, experts hired by

                                            2
the Mazycks identified substantial water damage to the house

caused by the flooding of the property.                       The experts believed

the   problems      were    so   severe    that        the   best   solution    was    to

demolish the house and re-build on a re-graded lot.

      In    October    2007,     after     the        escalation    in   the   Mazycks’

demands, Jessco finally notified BMIC of the underlying claims.

BMIC concluded that the Mazycks’ claims were not covered by the

Policy and that Jessco failed to promptly notify BMIC of the

lawsuit, and BMIC therefore refused to defend Jessco against the

Mazycks’ claims or to indemnify Jessco for any damages paid to

the Mazycks.          Jessco thereafter filed a declaratory judgment

action in state court seeking a declaration that the claims in

the underlying action were covered by the Policy.                        BMIC removed

the   action     to    federal     court        and    counterclaimed,       seeking    a

declaration that it was not obligated under the Policy to defend

or indemnify Jessco.

      The    arbitration         hearing        on     the   Mazycks’     claims       was

conducted over several days in October and December 2008.                             The

arbitrator issued his award in April 2009, ordering Jessco to

pay almost $55,000 in damages for various items that were in

need of repair or completion.                   As to the flooding issue, the

arbitrator relied on the testimony of the Mazycks’ experts to

conclude     that     the   flooding       was       proximately    caused     by   “the

overcapacitation of the wetlands, caused by the overall design

                                            3
and development of the surrounding neighborhood.”                                    J.A. 265.

Although the arbitrator specifically found that Jessco’s work

was    “not    the    legal      proximate       cause      of     the    flooding       of   [the

Mazycks’]      property,”        J.A.    265,       the     award     included       a    $10,000

allowance       for    re-grading        of     the       lot,     which     the    arbitrator

indicated would provide better surface-water management.

       After    the     arbitrator           issued       his    award,     BMIC     moved    for

summary       judgment      in    the    declaratory             judgment     action.          The

district court concluded that while most of the Mazycks’ claims

did    not    fall    within     the     scope       of    the     Policy,    the    flooding-

related claims were covered by the Policy.                               The court rejected

BMIC’s assertion that Jessco’s untimely notice barred recovery

under the Policy, and the court therefore concluded that BMIC

breached its duty to defend Jessco against the claims.                                        The

district       court     ordered        BMIC     to       pay    more     than     $68,000     in

attorney’s      fees     incurred       by     Jessco       in     defending       against    the

Mazycks’      claims     and     to   reimburse           Jessco    for    the     $10,000    re-

grading allowance ordered by the arbitrator.



                                               II.

       Commercial       general        liability          (“CGL”)        insurance       policies

like    the    one     at   issue       in     this       case    generally        contain    two

significant coverage provisions: “one, providing for the payment

by the insurer of sums the insured shall become obligated to

                                                4
pay, the other providing, in substance, for the defense of any

suit       alleging     bodily   injury       or     property       damage     and   seeking

damages payable under the terms of the policy.”                               Sloan Constr.

Co. v. Central Nat’l Ins. Co. of Omaha, 236 S.E.2d 818, 820

(S.C. 1977). *          “Although these duties are related in the sense

that       the   duty   to    defend       depends      on   an     initial    or    apparent

potential liability to satisfy the judgment, the duty to defend

exists regardless of the insurer’s ultimate liability to the

insured.”         Id.     BMIC’s challenges on appeal involve both the

duty to defend and the duty to indemnify Jessco.

                                 A.        Duty to Defend

       Under South Carolina law, questions of coverage and the

duty       to    defend      under    an     insurance        policy      generally       “are

determined        by    the    allegations         of    the      complaint.         If    the

underlying complaint creates a possibility of coverage under an

insurance policy, the insurer is obligated to defend.”                               City of

Hartsville v. South Carolina Mun. Ins. & Risk Fin. Fund, 677

S.E.2d 574, 578 (S.C. 2009) (citation omitted).                               Although the

duty to defend typically is determined by the allegations of the

underlying        complaint,         “an    insurer’s        duty    to   defend     is   not


       *
       A federal court sitting in diversity must apply the
choice-of-law rules of the forum state.       See Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941).        The
parties agree that South Carolina law governs this dispute.



                                               5
strictly    controlled       by   the    allegations       in     [the    c]omplaint.

Instead, the duty to defend may also be determined by facts

outside of the complaint that are known by the insurer.”                          USAA

Prop. & Cas. Ins. Co. v. Clegg, 661 S.E.2d 791, 798 (S.C. 2008).

                                         (1)

      The    Policy    provides     coverage    for        sums    Jessco     becomes

legally obligated to pay as damages because of “property damage”

caused by an “occurrence” to which the insurance applies.                         J.A.

75.   The Policy defines “property damage” as “[p]hysical injury

to tangible property, including all resulting loss of use of

that property,” and as “[l]oss of use of tangible property that

is not physically injured.”             J.A. 87. “Occurrence” is defined as

“an   accident,      including    continuous     or    repeated          exposure    to

substantially the same general harmful conditions.”                      J.A. 87.

      BMIC does not dispute on appeal that the allegations of the

Mazycks’ complaint raised the possibility of “property damage”

caused by an “occurrence” within the meaning of the Policy.                         See

Horry Cnty. v. Insurance Reserve Fund, 544 S.E.2d 637, 641 (S.C.

Ct. App. 2001) (concluding that flooding of land was “within the

ordinary    meaning     of    physical     injury     to    property”       and     that

damages     caused    by     flooding    were   thus       “clearly      within     the

definition of property damage”); Auto Owners Ins. Co. v. Newman,

684 S.E.2d 541, 544-45 (S.C. 2009) (concluding that “continuous

moisture intrusion” causing damage to property other than the

                                          6
insured’s        work    constitutes          an     occurrence).           Instead,      BMIC

contends that it had no duty to defend because coverage for the

Mazycks’        claims       was    excluded        by   the     Policy’s      “your     work”

exclusion.           See Clegg, 661 S.E.2d at 797 (“[A]n insurer has no

duty to defend an insured where the damage was caused for a

reason        unambiguously         excluded        under      the   policy.”      (internal

quotation marks omitted)).

        The     exclusion          upon   which      BMIC      relies    is    a   standard

exclusion in CGL policies that excludes from coverage any claims

for “‘[p]roperty damage’ to ‘your work’ arising out of it or any

part    of     it.”      J.A.      78.    The       Policy     defines     “your   work”    as

“[w]ork or operations performed by you or on your behalf,” J.A.

88, a definition broad enough to encompass and thus preclude

coverage for work done by the insured’s subcontractors.                                    See

French v. Assurance Co. of Am., 448 F.3d 693, 700-01 (4th Cir.

2006).         Many CGL policies have an exception to the your-work

exclusion that restores coverage for damage to work performed by

a subcontractor.             See id. at 701; see also Newman, 684 S.E.2d at

546     (“[T]he       subcontractor        exception           preserves      coverage     for

property damage that would otherwise be excluded as ‘your work’

.   .   .     .”).      In   this     case,    however,        the   Policy    contains     an

endorsement that removes the subcontractor exception.                              According

to BMIC, that endorsement “completely eliminated all liability

insurance coverage to Jessco for any work done by or on its

                                                7
behalf by one or more of Jessco’s subcontractors.”          Brief of

Appellant at 14.      BMIC contends that all of the work on the

property was done by subcontractors on Jessco’s behalf and that

the your-work exclusion therefore bars coverage for all of the

claims asserted by the Mazycks.       We disagree, albeit for reasons

other than those set out by the district court.       See McMahan v.

Iron Workers Union Local 601, 964 F.2d 1462, 1467 (4th Cir.

1992) (“We of course have the power to affirm a judgment for any

reason appearing on the record, notwithstanding that the reason

was not addressed below.”).

     “The primary purpose of [the your-work] exclusion is to

prevent liability policies from insuring against an insured’s

own faulty workmanship, which is a normal risk associated with

operating a business.”    Lee R. Russ & Thomas F. Segalla, Couch

on Insurance § 129:17 (3d ed.).         Contrary to BMIC’s argument,

however, the exclusion does not withdraw coverage for any and

all work done by the insured or its subcontractors; it withdraws

coverage in cases where the insured causes property damage to

work done by the insured or its subcontractors: “By its plain

language, the ‘your work’ exclusion only excludes coverage for

damage to an insured’s work that arises out of the insured’s

faulty workmanship.    It does not exclude coverage for damage to

a third party’s work.”    Limbach Co. v. Zurich Am. Ins. Co., 396

F.3d 358, 365 (4th Cir. 2005) (per curiam); see also Couch on

                                  8
Insurance § 129:17 (“[W]here all of the damage that is being

claimed is damage to the work of the insured which is caused by

the work of the insured, the ‘your work’ exclusion will apply to

preclude coverage.”).            Accordingly, the Policy’s elimination of

the subcontractor’s exception means that Jessco’s subcontractors

will not be viewed as third-parties for purposes of determining

whose “work” was damaged, but the elimination of the exception

does not, as BMIC contends, preclude coverage if Jessco’s work

in fact damages the work of a third party.

     The question, then, is whether the Mazycks’ claims against

Jessco     created     a     possibility      that      a    third-party’s          work     or

property was damaged by the faulty workmanship of Jessco or its

subcontractors.         We believe that question must be answered in

the affirmative.             The contract between Jessco and the Mazycks

specifically contemplated that Glenn Mazyck would perform some

of   the    work,      and     Mazyck     himself           installed       (or     hired      a

subcontractor to install) the flooring and landscaping.                                      The

lot-flooding claim first asserted by the Mazycks thus created a

possibility      of    damage     to    the       landscaping,        which       was    Glenn

Mazyck’s    work,      not    Jessco’s.           See   Limbach,      396    F.3d       at   365

(“Since    the   landscaping       and     concrete         work    were    performed         by

third    parties,      the     ‘your    work’      exclusion        does    not     preclude

coverage     for       the     costs    of        repairing        and     replacing         the

landscaping      and    concrete.”).              And   when    the      Mazycks’       claims

                                              9
expanded      to     include   water   damage      to    the    house       itself,    those

claims       likewise    raised     the     possibility         of    damage      to   Glenn

Mazyck’s work.           Accordingly, we reject BMIC’s claim that the

your-work exclusion barred coverage for the claims asserted by

the Mazycks.

                                            (2)

       The    Policy     requires     Jessco      to   notify        BMIC   of    claims   or

lawsuits brought against it “as soon as practicable.”                              J.A. 83.

BMIC     contends       that   even    if    the       Policy    otherwise         provided

coverage, Jessco lost its right to coverage by waiting more than

two years to give notice of the Mazycks’ lawsuit.

       Although Jessco contends that it notified BMIC as soon as

it became apparent that the Mazycks’ claims might be covered, we

will assume for purposes of this opinion that the notice was

untimely.       Under South Carolina law, however, recovery under the

Policy is barred only if BMIC proves that it was substantially

prejudiced by the late notice.                    See Vermont Mut. Ins. Co. v.

Singleton, 446 S.E.2d 417, 421 (S.C. 1994) (“Where the rights of

innocent parties are jeopardized by a failure of the insured to

comply with the notice requirements of an insurance policy, the

insurer       must     show    substantial        prejudice          to     the   insurer’s

rights.”); Squires v. National Grange Mut. Ins. Co., 145 S.E.2d

673, 677 (S.C. 1965) (“The burden of proof is upon the insurer

to show not only that the insured has failed to perform the

                                            10
terms and conditions invoked upon him by the policy contract but

in addition that it was substantially prejudiced thereby.”).

       On    appeal,    BMIC     asserts      that       the   delay    in    notification

“substantially prejudiced [its] ability to investigate, manage,

handle, and/or settle the Mazycks’ claims.”                          Brief of Appellant

at 27.       BMIC, however, presented no evidence of prejudice to the

district court, and it makes no effort to even explain to this

court how it was prejudiced by the delay even though it had

notice of the claims more than a year before the arbitration

hearing took place.         Because prejudice to the insurer may not be

presumed,       see     Vermont       Mut.,        446    S.E.2d       at     422,   BMIC’s

unsupported assertion of prejudice is insufficient to establish

that    it    was     substantially      prejudiced            by   Jessco’s     delay    in

notification.          The district court therefore properly rejected

BMIC’s assertion that Jessco’s delay in notification precluded

recovery under the Policy.

                                            (3)

       We    turn     briefly    to   the     question         of   damages    for   BMIC’s

breach of its duty to defend.                  The district court ordered BMIC

to pay more than $68,000 in legal fees incurred by Jessco in

defending itself against the Mazycks’ claims and in prosecuting

the declaratory judgment action.                    See Unisun Ins. Co. v. Hertz

Rental Corp., 436 S.E.2d 182, 186 (S.C. Ct. App. 1993) (“An

insurer      that     breaches    its   duty       to    defend      and    indemnify    the

                                              11
insured may be held liable for the expenses the insured incurs

in providing for his own defense.”).

      In the statement of the issues on appeal included in its

brief, BMIC lists ten issues, including two challenges to the

attorney’s fee award.          In the body of its brief, however, BMIC

substantively addresses only three issues, none of which include

a challenge to the fee award independent from the merits of the

underlying duty-to-defend issue.                  That is, while BMIC argues

that the entire damage award must be set aside because the your-

work exclusion precluded coverage for all claims, BMIC does not

alternatively argue that, even if it had a duty to defend, the

award of fees as damages, or the amount of fees awarded, was

improper.     Under these circumstances, BMIC has abandoned any

challenge     to     the      attorney’s        fee   award       by   failing     to

substantively       address      it   in    brief.         See,    e.g.,   Wahi    v.

Charleston Area Med. Ctr., Inc., 562 F.3d 599, 607 (4th Cir.

2009) (“Federal Rule of Appellate Procedure 28(a)(9)(A) requires

that the argument section of an appellant’s opening brief must

contain the ‘appellant’s contentions and the reasons for them,

with citations to the authorities and parts of the record on

which the appellant relies.’               Because Wahi has failed to comply

with the specific dictates of Rule 28(a)(9)(A), we conclude that

he has waived his claims . . . .”); Williams v. Giant Food Inc.,

370   F.3d   423,    430   n.4    (4th     Cir.    2004)    (“Williams     makes   no

                                           12
argument in her brief to support this assertion, and we deem it

abandoned on appeal.”).

                                  B.     Duty to Indemnify

       While    the        duty     to       defend          exists     where     there    is     a

possibility      of    a    covered          claim,      an    insurer       is   obligated      to

indemnify the insured only for claims that in fact fall within

the scope of the coverage provided by the policy.                                      On appeal,

BMIC   contends       that    the       $10,000         re-grading       allowance       was    not

compensation for loss caused by a covered risk and that the

district    court      therefore            erred       by    requiring      it   to    indemnify

Jessco for the re-grading allowance.

       Resolution of this issue requires us to determine the legal

basis for the re-grading allowance ordered by the arbitrator.

In their state-court action, the Mazycks asserted contract- and

negligence-based           claims       against         Jessco.         If    the      re-grading

allowance      was    awarded          by    the    arbitrator        as     compensation       for

negligence      by     Jessco           in     grading          the     property,        Jessco’s

negligence would constitute an “occurrence” and the Policy would

provide coverage.

       Although the arbitrator stated that Jessco and the Mazycks

both “b[ore] some responsibility for the flooding,” J.A. 262,

the    arbitrator      ultimately            determined          that      the    flooding      was

caused by “the overcapacitation of the wetlands, caused by the

overall design and development of the surrounding neighborhood,”

                                                   13
J.A. 265.          The arbitrator concluded that the development and

overcapacitation        was    “an    unforeseen    intervening        cause,”   and

Jessco’s work was “not the legal proximate cause of the flooding

of [the] property.”        J.A. 265.

      The arbitrator’s determination that Jessco’s work was not

the proximate cause of the flooding necessarily amounted to a

rejection of any negligence-based claim asserted against Jessco.

See, e.g., Hurd v. Williamsburg Cnty., 579 S.E.2d 136, 144 (S.C.

Ct.   App.    2003)    (“It    is    apodictic   that   a   plaintiff     may    only

recover      for    injuries    proximately      caused     by   the   defendant’s

negligence.”).        While there may have been some negligent conduct

by Jessco, the proximate-cause determination means that Jessco

could not have been held accountable to a third-party for that

negligence.         See, e.g., Howard v. Riddle, 221 S.E.2d 865, 866

(S.C. 1976) (“Plaintiff must show, as a matter of law, not only

that defendant was negligent but also that his negligence was a

contributing or proximate cause of the injury . . . .” (internal

quotation marks omitted)).

      Because there was no actionable negligence on the part of

Jessco, the re-grading allowance could only have been awarded as

compensation for a breach of contract.                    The Policy, however,

unambiguously excludes coverage for breach-of-contract damages,

see J.A. 76, and BMIC therefore had no obligation to indemnify

Jessco for the re-grading allowance paid to the Mazycks.

                                          14
                                III.

     For the foregoing reasons, we hereby affirm the district

court’s judgment and damages awarded with regard to the duty-to-

defend issue.   The district court erred, however, in concluding

that BMIC was obligated to indemnify Jessco for the $10,000 re-

grading allowance paid to the Mazycks.   Accordingly, we vacate

the district court’s judgment and remand for further proceedings

consistent with this opinion.

                                               AFFIRMED IN PART,
                                               REVERSED IN PART,
                                                    AND REMANDED




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