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S.C. construction defect bills draw insurer opposition


COLUMBIA, S.C.—Recently introduced legislation in South Carolina would extend coverage for construction defects under commercial general liability policies, a move opposed by insurer groups.

The legislation, H.B. 3449 and S.B. 431, runs counter to a recent South Carolina Supreme Court decision in the case of Crossman Communities of North Carolina Inc. vs. Harleysville Mutual Insurance Co. that faulty workmanship by a contractor or subcontractor cannot be considered an occurrence under a comprehensive general liability policy.

The legislation, however, states that “continuous or repeated exposure to substantially the same general harmful condition must constitute an ‘occurrence' and in these cases no additional or accompanying requirement of an accident or fortuitous event is needed to constitute an ‘occurrence.'”

If the legislation is passed, it could cause an increase in insurance rates for South Carolina consumers, according to the Property Casualty Insurers Assn. of America.

“Such a law would negate the positive message the Legislature is sending on tort reform efforts and discourage economic growth and job creation,” said Micaela Isler, PCI's state government relations manager, in a statement Tuesday. “We respectfully request that the Legislature resist the urge to create a new law that would erode the court's unanimous decision on this issue,” she said.

Even though construction defects are not considered an occurrence in some states, some insurers have chosen to treat them as such. A controversial ruling in Hawaii last year that damage resulting from defects does not constitute an occurrence triggering coverage under a CGL policy prompted some underwriters to alter policy language to make it clear that they intended to pay such losses.

PCI was joined by the American Insurance Assn. and National Assn. of Mutual Insurance Cos. in opposing the proposed South Carolina legislation.