South Carolina Coverage and Bad Faith Opinion

South Carolina Answers Certified Question For Attorney Client Privilege In Bad Faith Refusal to Defend

The South Carolina Supreme Court, on certified question from the Fourth Circuit, has decided whether an insurer waives the attorney-client privilege when it denies liability in a “bad faith” case. 

The issue arose out of a construction defect lawsuit when the insurer failed to defend its insured, a contractor.  After settling out of the case personally, the policyholder contractor sued the carrier for bad faith refusal to defend.  In discovery, the policyholder sought the carrier claim file including correspondence between the carrier and its coverage attorneys.  The Insurer claimed privilege over those communications, but the Insured argued that the Insurer’s denial of liability for bad faith and its affirmative defense of “good faith” resulted in waiver of the attorney-client privilege.  The discovery dispute ultimately found its way to the SC Supreme Court.

Holding:

A client does not waive the attorney-client privilege simply by bringing or defending a lawsuit; rather, waiver requires the additional interjection of the issue of advice of counsel (either expressly or implicitly) by the client.  In other words, whether or not “advice of counsel” is raised as an affirmative defense, if the client defends based on the affirmative theory that the client’s mental state at the time at issue (such as when the Insurer denied the Insured’s claim) was based on an evaluation of the law and the facts then existing, such would equate to putting the legal evaluation “at issue” and thus result in a waiver of the privilege.

“a client does not waive the privilege simply by bringing or defending a lawsuit. “

In reaching its conclusion, the Court relied heavily on an approach adopted by Arizona in the case State Farm Mutual Automobile Insurance Co. v. Lee.

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TARGETED TENDERS

Construction defect cases are occurrence based matters which, in South Carolina, are pre-determined to involve the occurrence of property damage each and every year following a construction project. The “continuous trigger” theory puts the onus on a defense attorney to send notice in the form of a “tender letter” to all insurers affording CGL coverage to an insured for the time on risk.
Today we will look at this a little more closely.
South Carolina does not follow the “targeted tender doctrine”, which allows the insured to submit an entire claim to only one of multiple insurers whose policies may be triggered. However, South Carolina courts have held that when an insurer owes a duty to defend, the insurer must defend the entire claim.  Sloan Constr. Co., Inc. v. Central Nat’l Ins. Co. of Omaha, 269 S.C. 183, 236 S.E.2d 818 (1977).
Where two companies insure the identical risk and both policies provide for furnishing the insured with a defense, neither company, absent a contractual relationship, can require contribution from the other for the expenses of the defense where one denies liability and refuses to defend. The duty to defend is personal to both insurers; neither is entitled to divide the duty. Indemnity contemplates merely the payment of money. The agreement to defend contemplates the rendering of services.Citing Sloan Constr. Co., Inc. v. Central Nat’l Ins. Co. of Omaha, 269 S.C. 183, 236 S.E.2d 818 (1977).
For purposes of indemnification, the claim must be submitted to each carrier on the risk while the damage continued, and each carrier is responsible for only the “property damage” that occurred during its policy period.  Crossmann Cmties. of N.C., Inc. v. Harleysville Mut. Ins. Co., 395 S.C. 40, 66-67, 717 S.E.2d 589, 603 (2011).
This distinction is often confusing at mediations, I have found. In certain situations we may have three policies of insurance defending a claim under three reservations of rights. Depending on the issues, any of the carriers might evaluate their indemnity duties as being slight and, in many cases, less than another carrier’s. As defense counsel it is important to make sure these issues are addressed by a third party, such as a good mediator. Fortunately we have several outstanding mediators in Charleston. William G. “Bill” Lyles, Jay Jones, and John Massalon come to mind.

OHIO DECISION PARTS WAYS WITH THE NORM AS TO CONSTRUCTION DEFECT COVERAGE FOR GENERAL CONTRACTORS

On October 9, 2018, the Ohio Supreme Court issued an important decision in Ohio N. Univ. v. Charles Constr. Servc., Inc., Slip Opinion 2018-Ohio-4057.  Departing from the national majority view, the Ohio Supreme Court held that a general contractor’s commercial general liability policy does not cover claims for property damage caused by a subcontractor’s faulty work. Specifically, the Court reasoned that faulty work is not accidental or “fortuitous,” as contemplated within the policy’s definition of an “occurrence” triggering coverage.”

This topic has been hotly debated in South Carolina after the Crossman decision. Following Crossman, a South Carolina statute was enacted. The statute stated that the definition of “occurrence” in general liability policies includes property damage “resulting from faulty workmanship, exclusive of the faulty workmanship itself.” See S.C. Code § 38-61-70 (2011). The South Carolina Supreme Court has ruled that this statute may only be applied to general liability insurance contracts executed on or after the effective date of the statute – May 17, 2011. Any retroactive application is unconstitutional. See Harleysville Mut. Ins. Co. v. State, 401 S.C. 15 (2012).

Duty to Defend Triggered in Florida

Court rules that insurers must treat notice of claim for construction defects as a lawsuit for purposes of duty to defend. A pre suit letter is deemed to be a “suit” or “suit papers” in a policy.

The Sapphire Condominium in Fort Lauderdale (Credit: Keller Williams Realty)

Florida has issued a controversial and sweeping ruling which will impact insurers in the construction defect arena. “w]here an insurer issued a commercial general liability policy to a general contractor, the property owner’s notices of claim invoked the insurer’s duty to defend the contractor under the policy because the notice and repair pre-suit process of ch. 558, Fla. Stat., was an ‘alternative dispute resolution proceeding’ under the policy’s definition of ‘suit.’” Id. Altman Contrs., Inc. v. Crum & Forster Specialty Ins. Co., No. SC16-1420, 2017 Fla. LEXIS 2492 (Dec. 14, 2017)

The notice which triggered the duty to defend in Altman was Florida’s 558 Notice which is similar to South Carolina’s Notice and Opportunity to Cure letter.

Legal fees rise as San Francisco’s Millennium Tower continues to sink | Construction Dive

http://www.constructiondive.com/news/legal-fees-rise-as-san-franciscos-millennium-tower-continues-to-sink/505716/

Contractors and Force Majeure: Contractual Protection from Hurricanes and Severe Weather

This season is not special as hurricanes are a part of life on the east coast and gulf shores. From New York to Louisiana, just about every state has seen massive property loss from hurricanes during the past ten years.

We often see harsh outcomes for those on the coast living in finished homes. What happens to the unfinished and current projects awaiting completion? If you’re building on the coast, take a look at all of the following risk aversion mechanisms:

  1. Builders Risk Insurance is necessary as is Coverage for named storms. Be sure to review the “excluded perils” or speak to your agent as hurricane coverage best not be omitted.

Once you begin reviewing your current policy or engaging your agent, be sure to check for determination as to the extent of coverage for named storms. Your coverage should be reviewed for property and materials coverage, delay costs, and other particulars.

  1. Force Majeure clauses are certainly familiar to you if you’re reading this. In your contract, there is no reason to rely on a generic definition. Include language which states hurricane, named storm, tropical storm etc within the force Majeure clause while making sure to include language “including but not limited to: hurricanes, severe tropical weather…”. Should you be forced to duke it out with the customer in a residential or commercial setting, you shall be well ahead of the game and might avoid a dispute over damages for delay or other contractual non-performance.

  2. Force Majeure Contingency allocation. Since funds are typically withheld or placed on deposit for contingent events, you might well consider placing specific language entitling you to change order rights and other monetary backing to finish your job in a quality and timely manner.

  3. Payment for Storage and Protection is a key consideration during a high impact storm. This should be included in your contract because the owner will deserve to have high cost materials shielded from the elements. Your contract should include a payment contingency for this as well as an accurate calculator.

  4. Speak to your lawyer. If you have questions about this or other contractual issues, call your attorney and have a consultation.

Insurance Market Leader Ames and Gough report Premium Price Decreases

Although a slim majority of insurance companies providing architects and engineers professional liability insurance saw their rates stabilize in 2016, nearly one in three experienced modest rate decreases, according to a new survey by Ames & Gough.

Despite intense competition, insurers are maintaining underwriting discipline and placing greater emphasis on claims experience. This year, 95 percent of the insurers surveyed identified recent claims experience as a top reason to raise a firm’s professional liability insurance rates, a significant jump from the 79 percent that cited the factor last year. The other top three underwriting factors this year are: type of projects (84 percent); historic claims experience dating back more than two years (63 percent), and type of work or service (47 percent).

When asked whether plans to develop and repair the U.S. infrastructure raised concerns for architects and engineers professional liability exposures, 63 percent of the insurers surveyed cited the failure of design firms to adhere to contractual best practices when negotiating new projects, 53 percent pointed to firms accepting contractual responsibility outside their expertise, and 32 percent were wary of the inability of design firms to effectively assess and manage subconsultants.
“Even though there’s widespread enthusiasm over opportunities arising from the anticipated investment in infrastructure, design firms still need to maintain sound risk management in evaluating new projects, beginning with reviewing their contracts,” said Joan DeLorey, Ames & Gough senior vice president and partner. “While the insurance market is competitive, the buyers benefitting the most will be those that maintain high standards for managing risk, including evaluating the risk-reward potential of new projects and knowing how a change in project mix might affect their risk profile and insurance program.”
For the second consecutive year, 79 percent reported no change in their overall claim activity compared to prior years; in 2016, however, a greater percentage of insurers (21 percent) saw their claims experience improve and none had a worse experience.
Meanwhile, insurers have been monitoring emerging issues. Among the most prominent were: judicial rulings that are eroding protections for design firms under state statutes, such as economic loss doctrine (79 percent); evolving project delivery methods (e.g., design-build and private-public partnerships), cited by 68 percent; innovation, such as the use of BIM, technology and new construction materials/methods, and international exposures (each at 32 percent).