South Carolina has decided to deviate from precedent, once again, overruling the famous Century Indemnity opinion which placed a multiple progressive stream of insurers jointly and severally liable for damages alleged in a “continuous trigger” environment.  Construction defect cases thrive on legal fiction such as that which was advanced by the Joe Harden case immediately preceding Century Indemnity.  There are other theories of apportionment, of course, and the court has now decided that allocation among the insuring parties on a “pro-rata” basis is the proper method.

The approach taken by the court actually seeks to make each insurer liable for its portion of the damage occurring during the policy year.  Therefore, each insurer is liable for the actual damages that occurred during its policy period, and nothing more or less. Since the exact measure of damages is not provable in most progressive damages cases, each insurer will typically be required to cover a portion of the insured’s liability directly proportionate to the length of that insurer’s policy in relation to the total period over which damages occurred.

“We overrule Century Indemnity and impose a “time on risk” approach to defining the scope of each CGL insurer’s obligation to its insured in a progressive damage case.  This equitable approach best harmonizes with policy language limiting coverage to the “policy period.”  Moreover, the “time on risk” framework lends itself to a logical default formula that is easily applied when the actual quantum of damage incurred during each policy period is not known. “

Because all construction defect suits have different facts and circumstances which make them unique, it is hard to draw any hard conclusions from this result other than the fact that a jury will award a verdict of severe magnitude under some circumstances. 

Article link:  http://www.postandcourier.com/news/2011/may/21/condo-owners-awarded-77m/

We have not covered the Crossman decision with as much vigor as one might expect here at the South Carolina Construction Defect Blog.  This decision has been widely reported across state lines and, to many, it represented one of the most significant court decisions affecting the construction industry and Commercial General Liability policies of insurance.  http://www.judicial.state.sc.us/opinions/advSheets/no12011.pdf  The question presented in Crossman sought to address an issue we thought to be fully decided.  Specifically, when faulty workmanship directly causes further damage to non-defective materials or areas of an insured’s project (non “your work”)  (work of others), is this an occurrence.  Moreover, in a situation where the faulty work of a contractor causes damage to the work or materials of another trade, is the first prong (“occurrence”) of an insuring agreement satisfied such that the second prong (“Property Damage or Bodily Injury”) may be considered.  The Crossman decision was a deviation from “occurrence friendly” decisions in South Carolina (“Auto Owners v. Newman”) and other states (“ Lamar Homes v. Mid-Continent Cas. Co., 242 S.W.3d 1, 8 (Tex. 2007).  In Auto Owners v. Newman, the court followed the Lamar Homes logic which reasoned that faulty work is not “intentional”, and must be an accident which, therefore, constitutes an occurrence. 

Most construction lawyers thought defective work and the damage caused to the work product of others was a moot point.  Crossman surprised some, while shocking many into action as the decision appeared to come out of left field. 

At the beginning of this week, the South Carolina general assembly (legislature), in conjunction with Governor Haley, enacted a bill which effectively seeks to take the interpretation(s) of insurance coverage away from the courts. 

Officially, Section 38-61-70 defines “Commercial General Liability” policies of insurance as these relate to construction professionals.  Actually, the law does everything but define an “occurrence”, as it places the burden on the draftor of such policy to define an occurrence so that the purchaser and underwriter know the limits and scope of a policy.  While the legislation is a victory for contractors facing defect suits, one could argue that it is a victory for all in that it seeks to end the speculation created by constant waffling over the limits of insurance coverage pertaining to contractors in South Carolina. 

Further details state that the term “occurrence” must be either defined or, if not, deemed defined as follows: 

(1)  an accident, including continuous or repeated exposure to substantially the same general harmful conditions; and

(2)    property damage or bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself.

RETROACTIVITY

Quite possibly the most significant aspect of the bill allows for retroactivity.  “”This act takes effect upon approval by the Governor and applies to any pending or future dispute over coverage that would otherwise be affected by this section as to commercial general liability insurance policies issued in the past, currently in existence, or issued in the future.”

1. Neither the “wear and tear” or “errors, omissions, and defects” exclusion applied.

2. The “damage from smoke” exclusion did not apply. Please note that this is not a construction defect matter, and should not be confused with CGL policy interpretation.

Please note that this is not a construction defect matter, and should not be confused with CGL policy interpretation. 

I will post a link to the decision later today.

The centers for disease control have released some findings which are attached for your review.  The attorneys at Olson & Good make no representations and have formed no opinions regarding the health and safety issues that may or may not exist as we are not health professionals.  It is worthy of mention, however, as this is one of the issues we have focused significant attention to over the past 18 months.

In taking steps which suggest that the much maligned LJ opinion was the prevailing wisdom, South Carolina’s Supreme Court has made a loud statement which will certainly cause controversy within our borders as homeowners and builders will be affected directly by this decision.  In pertinent part, the court reasoned that the natural consequence of faulty construction is property damage and this is, therefore, not an accident.  There is no “fortuitous event” as property damage is a natural result of faulty workmanship.

While the court’s opinion is based on sound reasoning, it would appear that the consequences have the possibility to be very far reaching and should be considered by the legislature, if not the courts.  To be continued.

The Blog-Health-o-Meter™ reads Fresher than ever.

Crunchy numbers

A Boeing 747-400 passenger jet can hold 416 passengers. This blog was viewed about 6,000 times in 2010. That’s about 14 full 747s.

In 2010, there were 23 new posts, growing the total archive of this blog to 27 posts. There were 11 pictures uploaded, taking up a total of 316kb. That’s about a picture per month.

The busiest day of the year was February 8th with 136 views. The most popular post that day was Insurance Coverage Repair Reimbursement not covered under Indiana law.

Where did they come from?

The top referring sites in 2010 were linkedin.com, chinesedrywall.com, counter.bestproceed.com, search.aol.com, and constructionlawnc.com.

Some visitors came searching, mostly for motion to compel arbitration, what is insurance policy scope of indemnity, south carolina construction defect law, green movement environment, and indemnity clauses.

Attractions in 2010

These are the posts and pages that got the most views in 2010.

Insurance Coverage Repair Reimbursement not covered under Indiana law February 2010
2 comments

Construction Contracts and Limits on Indemnity Clauses in South Carolina April 2010

Chinese Drywall Claims and Insurance Coverage: Will Non-Specific Exclusions or Endorsements Curtail Coverage? March 2010
1 comment

FLORIDA RULES DAMAGE TO FAULTY WORKMANSHIP NOT COVERED (AMERISURE V. AUCHTER) March 2010
1 comment

Mechanic Liens and Payment Disputes Lead to Construction Defect Litigation April 2010
3 comments

Additional insured policy endorsements are a powerful weapon, in theory. The concept known as an “additional insured” refers to a person or organization that enjoys the benefits of being insured under an insurance policy, in addition to whoever originally purchased the insurance policy. Typical language within insurance policies seeks to limit the subject matter that can be “additionally insured.” Standard policy language providing for additional insured treatment states something similar to the following: “any person or organization whom you (the named insured) are required to add as an additional insured on this policy under a written contract … that person is only an additional insured with respect to liability arising out of ‘your work’ for that additional insured.” The limits of this coverage is still being tested, defined, and applied within the contract law(s) of individual states.
In New York, the Court of Appeals ruled that a subcontractor had a duty to defend and indemnify an upstream contractor based upon the language of the additional insured endorsement, which provided coverage to the superior contractor for claims “arising out of” the operations of a subcontractor. The court rationalized that the additional insured coverage need not be restricted to actions or omissions limited to the scope of the subcontract duties as the only requirement is that “there be some causal relationship between the injury and the risk for which coverage is provided.”
The scope of coverage “is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained.”
Although this site attempts to address South Carolina precedent, trends, and other events which might impact the construction and insurance industries in South Carolina only, our blog tracks cases in other jurisdictions these are indicative of how the courts in Columbia might treat a similar factual scenario. The impact of the decision is potentially significant in that insurers will have an obligation to provide coverage for additional insured(s) for activities that do not necessarily involve negligence on the part of their named insured, and where there may be negligence on the part of the additional insured. There need only be a logical connection between the work being performed by the named insured and the accident giving rise to a personal injury claim. The potential negligence of the additional insured, even if it contributes to the injury, will not serve as a basis for disclaiming coverage to the additional insured.