SC Supreme Court ruling highlights importance of details
Insurance carriers should take note of a recent ruling from the South Carolina Supreme Court. The court published its opinion in Harleysville Group Ins. v. Heritage Communities, Inc. on January 11th.
The state’s high court left the insurance company on the hook for multimillion dollar verdicts stemming from property damage related to claims of construction defects. Through the ruling, the court:
- Affirmed what is covered and what is not under commercial general liability (CGL) polices in terms of construction defects
- Affirmed that an insurer’s duty to indemnify is limited to damages during the insurer’s “time on risk” and offers guidance on how to perform such calculations
As a practical legal matter, the key to the ruling is the court’s adoption of strict requirements for reservation of rights letters. The justices found that in using standard language, often copied and pasted, the provider gave “no express reservation or other indication that it disputed coverage for any specific portion or type of damages. Nor did the letters or testimony indicate that, in the event Heritage was found liable in the construction-defect suits, Harleysville intended to file the instant lawsuit to contest various coverage issues.”
Reservation of Rights Letters
In Harleysville, the state Supreme Court provided specifics from case law that will help guide providers moving forward. Excerpts:
- Letters “must give fair notice to the insured that the insurer intends to assert defenses to coverage or to pursue a declaratory relief action at a later date.”
- Insurers have “a duty to inform the insured of the need for an allocated verdict as to covered versus noncovered damages.”
- Reservations “must be unambiguous; if it is ambiguous, the purported reservation of rights must be construed strictly against the insurer and liberally in favor of the insured.”
- Reservations must be made “prior to undertaking the defense” and the carrier “must specify in detail any and all bases upon which it might contest coverage in the future.”
Our team of attorneys will continue to monitor developments.
Full opinion – Harleysville Group Ins. v. Heritage Communities, Inc.
Brent M. Boyd is a partner (shareholder) at Murphy & Grantland, P.A. He regularly defends businesses in lawsuits involving construction defects and premises liability.