A 2011 S.C. Court of Appeals decision has further clarified South Carolina’s treatment of comparative fault in construction defect suits.  http://m.sccourts.org/opinions/displayUnPubOpinion.cfm?caseNo=2011-UP-260 

An owner of a hotel located in South Carolina brought a construction defect action against the general contractor, subcontractors for damages resulting from original construction. The General Contractor responded with affirmative defenses and third-party claims against the at-fault subcontractors who provided non-conforming materials and derelict labor during the hotel’s construction.   For purposes of understanding the full facts and circumstances, assume the Owner and Developer to be one and the same.

With the exception of one subcontractor that failed to successfully resolve the case prior to trial, all parties entered into a settlement agreement which stipulated sums certain in exchange for release documents.  One remaining subcontractor failed to settle at mediation, and was cut adrift by the remaining litigants.  The General Contractor contributed settlement funds on behalf of the non-settling sub and filed a contribution action immediately afterwards.   

The Circuit Court granted summary judgment to the General Contractor in the contribution action against the subcontractor which was appealed on more than one basis.  For purposes of our discussion, the key issue(s) debated by South Carolina appellate court involved the method of allocating pro-rata shares to be paid by the appealing subcontractor.

On appeal, the subcontractor argued that the Circuit Court erred by failing to include both the project’s architect (for design defects) and the Developer as pro-rata contributors Plaintiff.  It was further argued that these two parties shared in the aggregate culpability which would act to directly reduce subcontractor’s pro-rata share as a participant during not readily divisible common liability.    

The circuit court properly considered equitable principles in calculating the common liability in determining the pro rata share.

The court also ruled it was of no consequence that HCI is now out of business and, thus, a punitive award would not serve as a deterant to future bad acts.

http://www.judicial.state.sc.us/opinions/displayOpinion.cfm?caseNo=4943

In 2005, the South Carolina legislature took matters further when joint and several liability was addressed in the context of the comparative fault logic set forth in Nelson. For all construction projects reaching substantial completion before July 1, 2005, a pro-rata theory of liability with the possibility of joint and several treatment of any defendant named. 

The South Carolina legislature included the language affecting joint and several liability in an overal “Tort Reform” act which became affective in 2005.  In the multiple party, construction defect scenario we are all used to seeing, the South Carolina Construction Defense Blog asks the question, “when, if ever, will a situation arise in which a party is found jointly and severally liable?”  In short, joint and several treatment is unlikely in most case scenarios due to a party having to be more than 50% of the aggregate fault leading to or causing damages.  Specifically, in an action to recover damages resulting from personal injury, wrongful death, or damage to property………….  if indivisible damages are determined to be proximately caused by more than one defendant, joint and several liability does not apply to any defendant whose conduct is determined to be less than 50% of the total fault for the indivisible damages as compared with the total of: (i) the fault of all the defendants; and (ii) the fault (comparative negligence), if any, of the plaintiff. A defendant whose conduct is determined to be less than 50% of the total fault shall only be liable for that percentage of the indivisible damages determined by the jury or trier of fact. A defendant shall retain the right to assert that another potential tortfeasor, whether or not a party, contributed to the alleged injury or damages and/or may be liable for any or all of the damages alleged by any other party.

Significantly, these provisions do not apply to a defendant whose conduct is determined to be wilful, wanton, reckless, grossly negligent, or intentional.  In the context of construction defect claims, most settlements are funded via CGL policies of insurance that include exclusions for such reckless or intentional conduct.

Take the following scenario in which Mr. and Mrs. Abraham file suit against Birmingham Builders (GC), Conneticut Composite Siding (Exterior Siding Sub), Washington Window and Truss (Window Installation and Framer), as well as the manufacturers of both products installed by subs Connecticut and Washington.

Assume that Birmingham Builders took full control of all site supervision while altering the architectural plans to incorporate a less expensive truss system.  Further, it is shown that Birmingham failed to purchase the specified window product, opting for a cheaper model which has been deemed incongruent with the siding material.  At all times subcontractors followed explicit instructions of Birmingham Builders which were typically provided in the form of field directives from a rookie superintendent. 

Three years after construction, suit is filed for latent defects including water intrusion caused by Birmingham’s improper sequencing of trades, purchase of non-conforming materials, and improper supervision.  As the subcontractors are bound by an implied warranty of service, these parties are not able to secure a release or dismissal as there are issues of fact which limit the power derived from summary judgment.

In the situation described above, a well-founded argument could be made supporting the fact that the general contractor was the cause in fact of all injuries to property which are the subject of this claim.  After all, the materials suffered due to cost cutting, instructions and supervision were either lacking or provided incorrectly, and these issues were part and parcel of each of the Plaintiffs’ causes of action.

A jury instruction on the issue would ask fault to be assigned on a proportionate basis so long as the causes of action seek damages which are “indivisible” such as a concentration of water intrusion which has manifested around the intersection of window units and composite siding.  An argument would be made that, despite the general contractor’s clear disregard for the plans and standard procedure, Conneticut Composite Siding (Exterior Siding Sub), Washington Window and Truss (Window Installation and Framer), as well as the manufacturers of both products would be considered with the general contractor as “indivisible units” which contributed to the damage.

As we have five tortfeasors in the situation described, a jury need only find the two subcontractors to have each contributed 15% of the indivisible damage.  Further, the manufacturers specifications might be remotely criticised, along with the architect’s failure to set forth specific instructions regarding installation sequencing (even though the design professional did not contract to provide more than was provided, nor was his architectural firm allowed onsite) which is determined to have contributed to another 15% of the indivisible damages.  At this point, we have 45% allocated to the subs and architect, thus having yet considered any fault in the manufacture or sale of the windows and siding materials.

Drawing the logical conclusion that it will be difficult to show a tired and understandibly bored jury that the product manufacturers were not negligent, the final allocation is provided as follows:

Jury Verdict for the Plaintiff ($400,000)

Framing Sub:  (15%) or $60,000

Siding Sub:  (15%) or $60,000

Architect (15%) although not a party to suit.

Window Manufacturer (5%) or $20,000

Siding Manufacturer (5%) or $20,000

This allocation leaves only 45% allocated to the general contractor, which results in a $180,000 verdict against the general contractor.  While this amount is larger than any other defendant, the contribution is less than the combined sum of all other defendants who, arguably, acted as reasonably prudent and similarly situated actors would under the circumstances.

Is this fair and equitable?  Maybe not.  Does it ensure that a claimant will receive some relief regardless of the solvency or insurance status of the general contractor?  Absolutely.  Was the pro-rata system one which resulted in a more just result?  Absolutely not as a general contractor in such circumstances could be treated as a percentage contributor equal to each of the defendants which the general contractor, arguably, caused to be involved in the suit.

Reblogged from Stucco & Insulation Contractor:

A relatively new modification to modern Exterior Insulation Finish Systems (EIFS, or "Synthetic Stucco") are what is called (geek alert) Geometrically Defined Insulation Boards. What exactly does that mean?

It's a complex way of saying insulation with grooves cut into the back. The purpose of the grooves is to provide a way for water to drain out that gets behind the system.

Read more… 644 more words

Opinion in Jade Street

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.”