Brief Facts: Insurance carrier (Harleysville) insured a Developer which was sued under several names or “d/b/a” identities. Developer was sued for construction defects. Carrier defended the claims on behalf of the Developer under various reservations of rights. General verdicts were returned against the Developer entities for $4,500,000.00 in actual damages and $1,000,000 in punitive damages. Insurance carrier then filed a declaratory judgment action seeking a determination of what portion of the damages were allocated to covered damages.
Key Holding: Reservation of Rights letters issued by carrier were not adequate under the circumstances and, therefore, declaratory relief was denied. Reservations were found to be non-specific recitations of the policy language. Because the reservations included non-specific, generic language, the insurance carrier could not contest coverage after the general verdict was issued. “(G)eneric denials of coverage coupled with furnishing the insured with a verbatim recitation of all or most of the policy provisions (through a cut-and-paste method) [are] not sufficient.”
What it Means: In South Carolina, insurance carriers must issue specific reservations putting a policy holder on actual notice of those portions of a claim that they intend to contest. If a carrier defends under a reservation of rights in a construction defect or any other liability claim, it must put the policy holder on notice of those aspects of the claim which might not be covered so the policyholder can defend its actions on a coverage basis.
Lesson: Insurance carriers need to inform their insured policyholders that a) carrier will seek a declaratory judgment and b) the grounds on which it will seek declaratory relief.
“It is axiomatic that an insured must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage…[and] generic denials of coverage coupled with furnishing the insured with a verbatim recitation of all or most of the policy provisions (through a cut-and-paste method) is not sufficient.”
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