General Liability Doesnt Cover Bad Workmanship, South Carolina Court Rules ~
In most states, builders, like other businesses, are required to carry liability insurance. And builders typically count on that insurance to cover them against homeowner lawsuits alleging damage due to construction defects even if the damages were caused by a mistake the builder made. But its complicated. Different courts in different states have applied different interpretations to the standard language found in most commercial general liability (CGL) policies. In South Carolina, a January ruling from the state Supreme Court has limited the insurance companys obligation in cases where the builder made a mistake and the ruling comes as a surprise to some builders. The Courts opinion, authored by Justice John W. Kittredge, is posted at the Courts website, (26909 - Crossmann Communities v. Harleysville Mutual). In the ruling, Justice Kittredge says the decision hinges on what constitutes an occurrence of liability. Kittredge explains that an occurrence, in insurance policy language, has to be an accident which the court has defined 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." Faulty workmanship, the Justice reasons, is not an accident, because it is foreseeable and preventable its under the builders control. If the workmanship created damage to some other persons property if, say, bad wiring sparked a fire that killed a person that secondary event might be considered an unforeseeable accident. The policy would not necessarily cover replacing the wiring, but it would cover liability for the death. But in the Crossman case, homeowners werent suing about consequential damages, but about the faulty nature of their houses. In a case like that, the Court ruled, where theres no consequential damage except to the builders own work, general liability insurance does not have to compensate the builder for his liability to the homeowner. In a concurring opinion, Justice Costa M. Pleicones wrote, As the majority notes, the homeowners allege negligent construction on many fronts, including improper installation of siding, windows, flashing at the windows, walkway floor sheathing, and wind resistant tie down straps; deterioration of structural columns and structural components; failure to completely install the building wrap; flooding of units; water infiltration; failure to properly attach handrails; failure to properly construct emergency stairs; termite infestation and destruction; and defective storm water drainage system. This complaint alleges nothing more than negligent acts constituting faulty workmanship, not an occurrence. However straightforward the logic may appear to the high court, however, the result dismayed some builders, reports the Charleston Post and Courier ( Ruling worries S.C. contractors: Responsibility for settlements shifts, by Katy Stech). The court's decision surprised the construction community and attorneys who represent the building industry, the paper reports. Both parties are asking state lawmakers for a bill that would protect contractors from paying out lawsuit settlements.
