Insurance Law Update - South Carolina Attempts to Clean Up the ‘Intellectual Mess’ Over the Meaning of ‘Occurrence’ in Construction Defect Claims - February 2011


Supreme Court of South Carolina

In Crossmann Communities of North Carolina, Inc. v. Harleysville Mut. Ins. Co., ___ S.E. 2d ___, 2011 WL 93716 (S.C. January 7, 2011), the Supreme Court of South Carolina held that there is no coverage under a commercial general liability (CGL) policy for liability that arises from nothing more than the natural and probable consequences of defective construction.

Harleysville Mutual Insurance Company issued a CGL policy to the developers of waterfront condominiums. After the condos were built and sold, the purchasers sued the insured developers, alleging that defective construction of the condos’ siding installed by subcontractors had resulted in significant water intrusion, causing substantial decay and deterioration. After settling the purchasers’ claims for $16.8 million, the insureds filed a declaratory judgment action to determine if coverage existed under the Harleysville policy. The parties stipulated to the facts, and the trial court ruled that the CGL policy provided coverage under the “subcontractor exception” to the “your work” exclusion.

The South Carolina Supreme Court reversed.

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