Off the Reservation (of Rights): South Carolina Speaks on CGL Insurer Notification Requirements

by Spilman Thomas & Battle, PLLC
Contact

Spilman Thomas & Battle, PLLC

Lawsuits over defective construction are common in South Carolina. So, when a construction company covered by a CGL insurance policy is sued over an alleged construction defect, the insurance company may agree to defend the construction company in the construction defect lawsuit. But what happens when the lawsuit is over and there is a conflict between the insurance company and contractor about which losses are covered by the policy and which are not?

That question was answered by the Supreme Court of South Carolina in its 2017 decision in Harleysville Grp. Ins. v. Heritage Comm., Inc. Insurance companies operating in South Carolina must notify the company to whom they provide CGL coverage ("insured") about dividing money received in a lawsuit between covered and non-covered losses. In the Harleysville case, the Supreme Court explained that CGL insurers owe their insureds a "high fiduciary duty" when the insurer takes on defense of a lawsuit related to a loss covered by the CGL policy. This means that insurance companies must be very careful to explain to their insureds the specific reasons that the insurance company may have to dispute coverage in a detailed, written "reservation of rights" letter. 

The Harleysville lawsuit involved a dispute between an insurance carrier and its insured concerning the extent of the insurer's obligation to indemnify the insured for approximately $11 million in compensatory damages from jury verdicts based on defectively constructed condominiums in Myrtle Beach. The verdicts in the underlying suits, however, did not distinguish between covered and non-covered losses. Additionally, the insurer had issued a generic reservation of rights letter concerning compensatory damages that simply, through a copy-and-paste method, provided the insured with copies of relevant insurance policy provisions.

The Supreme Court of South Carolina called attention to the insurer's failure to notify the insured of the need to allocate damages between covered and non-covered losses and "non-specific—'we will let you know later'—purported reservation of rights" when the insurer took control of the underlying litigation. The Court stated that "[t]he right to control the litigation carries with it certain duties, including the duty not to prejudice the insured's rights by failing to request special interrogatories or a special verdict in order to clarify coverage of damages." The Court also indicated that the insurer's reservation of rights letter must state the specific bases upon which the insurer might dispute coverage, reasoning that without such an identification "the insured has no reason to act to protect its rights because it is unaware that a conflict of interest exists between itself and the insurer." Therefore, the Court held that the insurer failed to properly reserve its right to contest coverage of the compensatory damages award.

The Harleysville decision is important to both South Carolina insurers and insureds alike. For insurers, Harleysville highlights the importance of a carefully worded reservation of rights letter that specifically identifies the potential bases for contesting coverage. Further, insurers that take on defense of an insured must notify the insured that any potential damages award should be divided between covered and non-covered losses. Otherwise, the insurer will have forfeited its right to contest coverage of an otherwise non-covered portion of an award.

For insureds, Harleysville demonstrates problems that can occur when insurance companies do not provide enough information to their insureds about conflicting positions between the insurer and insured. To avoid negative outcomes caused by such a conflict, insureds may wish to (and insurers may argue insureds are now obligated to) hire independent defense counsel to protect their interests in the underlying litigation. Insureds also may want their own lawyer to pursue reimbursement from the insurance company instead of relying on insurer-appointed counsel, who may not be as diligent. If a situation arises where the insurance defense company does end up controlling the defense of a case, insureds should carefully review the policy and every communication from the insurer to guarantee that their rights are being protected as the case moves forward. At the first sign that the lawyer hired by the insurance company is not acting in the insureds best interests, the insured needs to quickly advise the insurance company of the conflict and ask to hire its own lawyer.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Spilman Thomas & Battle, PLLC | Attorney Advertising

Written by:

Spilman Thomas & Battle, PLLC
Contact
more
less

Spilman Thomas & Battle, PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.