South Carolina Court: Insurer Not Liable for Poor Construction

The South Carolina Supreme Court has ruled that insurers are not liable for damages caused by faulty workmanship under a contractor’s commercial general liability policy.

The high court found that a builder’s insurance company, Harleysville Mutual Insurance Co., was not on the hook for $16.8 million in damages based on the builder’s negligence when constructing the properties.

South Carolina builders fear the decision could have a negative impact if builders have to assume more risk.

The case originated in 2001 when a group of Myrtle Beach homeowners sued their builders on five condominium projects built between 1992 and 1995. They charged that the builder, Crossman Communities of North Carolina, Inc., had used poor methods that resulted in a “substantial decay and deterioration” in the units. Initially, the builder settled with the owners for the $16.8 million in damages, agreeing that a subcontractor’s poor work had resulted in water damage to the properties. Crossman then filed a claim with Harleysville seeking coverage for the costs under its general liability policy.

Harleysville, however, rejected the claim saying it was not responsible since the damage was not the result of a covered peril such as windstorm damage or other accidental damage.

At issue for the high court was whether the builder’s actions constituted an “occurrence” as understood in the general liability policy. The court found that the contractor’s actions did not constitute an occurrence since the damage did not occur as the result of an “unintended, unforeseen, fortuitous, or injurious event.” To cover such claims, said the court, would transform a general liability policy into a performance bond.