Contractors seek to extend coverage for construction defects

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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 proposed legislation 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.’”

The Associated Builders & Contractors of the Carolinas filed an Amicus Brief with the SC Supreme Court supporting the rehearing of the Crossman case. ABC is specifically looking for the courts to only consider this interpreation of the insurance contact on a moving forward basis (not taking away from the industry coverage that all believed they had). ABC is also tracking the bill in the SC legislature that further defines “occurrrence.”

The proposed legislation is being opposed by the Property Casualty Insurers Association of America, American Insurance Association and National Association of Mutual Insurance Companies.  If passed,  it could cause an increase in insurance rates for South Carolina consumers, according to the Property Casualty Insurers.

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 commercial general liability policy prompted some underwriters to alter policy language to make it clear that they intended to pay such losses. Read More.

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