A state’s highest court generally gets to have the last word on insurance policy interpretation.  Recently, however, the South Carolina Senate asserted its right to override this judicial prerogative.  Following a decision of the South Carolina Supreme Court regarding the meaning of “occurrence,” the South Carolina Senate approved a bill that would significantly broaden the definition of “occurrence” in the context of liability policies covering construction professionals.

The Senate bill followed the decision of the South Carolina Supreme Court in Crossmann Communities of North Carolina, Inc. v. Harleysville Mut. Ins. Co., __ S.E.2d __, Docket No. 26909 (S.C., Jan. 7, 2011).  In Crossmann, the Court found that an insurer on a commercial general liability policy was not liable to the policyholder, a condominium project developer, for damage to the homes resulting from defective construction.  The Court explained that an “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” and that there is a “fortuity element inherent in the term ‘accident.’”  In the Court’s view, because the faulty workmanship (negligent installation of siding to the condominiums) caused further damage (water intrusion) as a “natural and probable consequence,” the element of fortuity was not present, and thus the water damage was not an “occurrence.”

Following the Crossmann decision, on March 31, 2011, the South Carolina Senate approved Senate Bill 431 by a vote of 39 to 2.   If passed into law, the bill would override the holding of Crossmann by requiring South Carolina courts to construe “occurrence” more broadly in a construction context.  The preamble to Senate Bill 431 states that the purpose of the bill is:

TO PROVIDE THAT A LIABILITY INSURANCE POLICY ISSUED BY AN INSURER AND COVERING A CONSTRUCTION PROFESSIONAL IN THIS STATE MUST BE BROADLY CONSTRUED IN FAVOR OF COVERAGE, AND TO PROVIDE THAT WORK OF A CONSTRUCTION PROFESSIONAL RESULTING IN PROPERTY DAMAGE IN CERTAIN CIRCUMSTANCES CONSTITUTES AN OCCURRENCE AS COMMONLY DEFINED IN LIABILITY INSURANCE AND IS NOT THE INTENDED OR EXPECTED CONSEQUENCE OF THE WORK OF THE CONSTRUCTION PROFESSIONAL.

Senate Bill 431 directly addresses the holding in Crossmann by requiring that where a liability policy is issued to a construction professional, “no … requirement of a fortuitous event is needed to constitute an ‘occurrence.’”  The bill has been sent to the South Carolina House of Representatives, where it awaits further consideration.

Please click here to read a copy of Senate Bill 431.

Please click here to read a copy of the Crossmann decision.