South Carolina Rules that Faulty Workmanship is not an “Occurrence” and not a covered event under a CGL policy


 The South Carolina Construction Defect Blog has provided ample opportunity for the author to discuss the treatment of construction defects as being covered events which often “trigger” coverage under a standard policy of commercial general liability insurance.  Our discussions have focused on South Carolina decisions such as 2003 LJ v. Bituminous, as well as the Auto Owners v. Newman saga in which it became well settled that our state was leaning towards recent national trends which construed faulty workmanship to be an “accident”, or unintended occurrence and, therefore, an “occurrence”.  Assuming that construction defects are, in fact, occurrences, the only issue to consider involves whether or not an occurrence has in fact constituted “property damage”.  In a recent decision by our State’s highest court, faulty workmanship is no longer an “occurrence”, thus stopping all analysis as to whether property damage has occurred.

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.

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3 thoughts on “South Carolina Rules that Faulty Workmanship is not an “Occurrence” and not a covered event under a CGL policy

  1. I am all-too-well aware of the way courts constantly manipulate what would seem to be plain English to fit their opinion. While this ruling may be yet another example of such language-twisting, I agree that faulty (defectiv)construction should not be considered an accident…at least using what I consider to be the usual meaning of accident.

    Otherwise….to be consistent (which I realize is a huge challenge for the court)…every incompetent action in the universe must also be considered an “accident”…..with the result being that we would have to invent some new word to define what the word accident has meant (and hopefully still means!).

    Perhaps more important however are the meanings of; (1) Faulty (defective) construction and (2) Damage.

    To define faulty / defective construction, the key issue is to identify the standards to be used to evaluate construction.

    If, as should be the case, building design plans are used as the primary standard….there can be many construction defects that do not (at least immediately) result in physical property damage. Yet, the risk of eventual property damage may be unacceptably high……..as, for example, if hurricane tiedown straps (specified on plans) are not installed or are installed improperly.

    “Damage” should therefore include “defect” to prevent gross construction defects from slipping through the cracks of the design and construction process.

    Like

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