South Carolina Moves Forward with Construction Defect Bill

By | April 1, 2011

Insurers in South Carolina may find themselves on the losing side over a battle to prevent construction defects from being covered under a general commercial liability (CGL) policy.

The South Carolina Senate has approved a bill (S.431) that would reverse a state Supreme Court ruling in the case of Crossman Communities of North Carolina v. Harleysville Mutual Insurance, Inc., where the court ruled that faulty workmanship by a contractor or subcontractor cannot be considered an “occurrence” in a general liability policy.

As stated in the policy, an occurrence is “an accident, including continuous or repeated exposure to substantially the same general harmful.” The court noted that although accident is not defined in the policy, the court had previously defined it as “an unexpected happening or event, which occurs by chance and usually suddenly, with harmful results, not intended or designed by the person suffering the harm or hurt.”

As defined in the case, the court found that the contractor’s action did not constitute an occurrence since the damage did not occur as the result of an “unintended, unforeseen, fortuitous or injurious event.”

The American Insurance Association has come out strongly against the bill saying it will increase costs by requiring insurers to pay claims for damages that it was never intended to cover. “Commercial general liability policies were never meant to cover faulty workmanship by the contractor,” said Ray Farmer, southeast region vice president for the American Insurance Association. “This bill’s supplementary and erroneous liability provisions will only serve to unnecessarily impact construction costs in South Carolina.”

The Property and Casualty Insurers Association of America is calling on the South Carolina House of Representatives to not act on the bill to wait for another Supreme Court ruling before moving forward with the bill. Attorneys for Crossman Communities filed a petition for rehearing, which was granted March 9. Oral arguments have been scheduled to heard on May 31.

Micaela Isler, PCI’s state government relations manager said if the House concurs with the Senate it would, “essentially render all contracts worthless in South Carolina and would send a message to the business community that the judicial system isn’t stable, thus discouraging economic growth and job creation.”

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