South Carolina's High Court Clarifies Rules on Construction Defect Coverage
Clarifying several rulings on coverage for construction defects, South Carolina’s Supreme Court ruled this week that a trial court did not err in determining that a CGL policy covered damages awarded to a homeowner in an arbitration against an insured contactor for water intrusion related to negligent application of stucco by a subcontractor. The court first clarified prior decisions and found that an “occurrence” is present where defective construction results in property damage. The court acknowledged that there was some confusion in the trial courts as to the difference between an “occurrence” of alleged negligent construction from negligent construction resulting in an “occurrence.” The court concluded that although “the stucco subcontractor’s negligent application is not on its own sufficient to constitute an “occurrence,” we find that . . . the continuous water intrusion into the home resulting from the subcontractor’s negligence qualifies as an “accident” involving “continuous or repeated exposure to substantially the same harmful conditions.” The court additionally rejected the insurer’s argument that the water intrusion damages were excluded under the policy as “expected or intended” damages as the insured contractor certainly did not intend for its subcontractor to perform negligently. Finally, the court allowed for recovery under the policy for that portion of the arbitration award concerning removal and replacement of the stucco stating this was necessary in order to remedy the extensive water intrusion damage behind the stucco and was therefore associated with remedying covered property damage.
While I agree with the SC Supreme Court's coverage decision in Auto Owners v. Newman & Trinity, it is indeed curious that the Court feels compelled to comment "This Court's attempt to distinguish an "occurrence" of alleged negligent construction...from negligent construction resulting in an "occurrence" ...has apparently caused confusion in other courts interpretation of the ultilmate holding in L-J." I suggest that it is the SC Supreme Court that is confused, or at the very least has caused any such confusion.
It strains common sense to define an event as an accident solely by whether or not the event happens to cause damage to only certain types of property. For example, by L-J reasoning, if I collide with your vehicle at an intersection, the courts should first see if I damaged your vehicle before determining whether the collision is an accident - if only my vehicle is damaged, it would not be an accident. If your vehicle is damaged, then it is an accident.
The L-J ruling is particularly troubling when considering Auto Owners cite of Green v. U. Ins., for the definition of "accident" applied to the CGL in SC. As far as I can determine, this definition does not take into consideration whose property is harmed - the event must be unexpected and unintended and must occur by chance. To conclude that faulty work always is expected or intended or never can occur by chance seems to lack foundation -mistakes can and are made in construction that are purely accidental - just ask any homeowner who has to call a professional to fix their work because their home improvement project has gone awry. As professional constructors are human, they can and do make mistakes that are completely unintentional. If such mistakes are a "business risk," the CGL contains multiple PD exclusions to handle resulting damage. But then who wants to be involved in all of those messy exclusions when the Court will allow you to declare that the claim does not fall within the insuring agreement (and thus exclusions do not matter)?