Takeaways from The CLM & Business Insurance 2017 Construction Conference

Laura Paton, Sarah (Wetmore) Butler, and Patrick Norris proudly represented Carlock, Copeland & Stair, LLP at the 2017 CLM & Business Insurance Construction Conference in San Diego this week.  Both Laura and Sarah were selected to speak as panelists.  Laura’s panel focused on properly reserving your rights to later disclaim coverage subsequent to the Heritage Communities decision and Sarah’s panel discussed tips on drafting an enforceable settlement agreement.  Here are a few takeaways from each presentation:

Reserving your Rights:

  • Be timely in sending out your ROR – the sooner the better!
  • DON’T use the “cut and paste” method inserting huge chunks of the policy    into a letter without substantive explanation
  • DO provide a thorough analysis of the reasoning for the reservation and discuss how the facts of the case apply to the policy provisions
  • DO include notice as to any special remedies you may later pursue like submitting special interrogatories or requesting a special verdict

Drafting your Release:

  • Get it SIGNED!  Under the South Carolina Rules of Civil Procedure, you need a signed writing to enforce settlement
  • DO consider indemnity issues, additional insured claims and potential assignments when drafting the release
  • Understand the difference between a full release, a mutual release, an issue release and a convening not to execute
  • Be wary of timing requirements and be careful in proof reading the settlement documents for proper inclusion of parties and claims
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Heritage Decision Fallout Begins as Carrier DENIED Intervention…

The fallout has already begun from the recent South Carolina Supreme Court decision Harleysville Group Ins.v. Heritage Comms., Inc., Op. No. 27698 (S.C. Sup.Ct. field Jan. 11, 2017), which we wrote about a few weeks ago (see Don’t Write Another Reservation of Rights Letter Before Reading This Opinion! Posted January 18, 2017).  We understand that in a hearing on a Motion to Intervene last week, a South Carolina trial court denied the Motion, relying in part on Heritage in reaching its decision.

While the Order has yet to be signed, we have been informed that the Court’s denial of the Motion rested heavily on the recent Heritage decision.  As we understand it, the court held that the Heritage decision indicated a preference for general verdicts in a construction matter, even where this means that an insurer will be responsible for the all covered and non-covered claims in that verdict.  The trial court seemed to consider the potential conflict of interest where the insurer was attempting to both defend its insured and present special questions to the jury in an effort to deny possible indemnification following trial, which we understand it believed unfair to the insured.  Finally, the court seems to have noted that the insurer’s intervention would create a high likelihood of confusing the jury.  It is our understanding that the court concluded that intervention by the insurer was inappropriate, and denied the Motion, noting that a subsequent declaratory judgment action would be a more proper vehicle for asserting that the insured had no right to indemnification under the policy.

This is an interesting decision, as the insurer had asserted the right to intervene based on the ruling in Heritage.  As noted, however, the trial court read the decision differently, holding that it does not entitle the insurer to intervene in the underlying litigation to propound special interrogatories to the jury.  Whether other trial and appellate courts interpret the recent decision in a consistent manner or provide their own interpretation is something we will be watching closely in the coming months.

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Don’t Write Another Reservation of Rights Letter Before Reading This Opinion!

Last week, the South Carolina Supreme Court issued an opinion that is likely to heavily influence the fields of construction coverage law and construction litigation in South Carolina.  The case, Harleysville Group Ins. V. Heritage Comms., Inc., Op. No. 27698 (S.C. Sup.Ct. field Jan. 11, 2017), arises out of the construction of two condominium complexes in Myrtle Beach, South Carolina.  The complexes were constructed by Heritage Communities between 1997 and 2000, during which time various Heritage entities had liability policies through Harleysville.  The last Harleysville policy lapsed in 2001, after which Heritage was uninsured and, ultimately, went out of business entirely.

When Harleysville received notice of the lawsuits against it, it agreed to assume Heritage’s defense under what it believed to be a full reservation of rights.  Following general verdicts in favor of the Plaintiffs in the underlying cases, Harleysville filed a declaratory judgment action seeking a determination that there was no coverage for the losses, or, in the alternative, requesting that the court determine which portions of the general verdicts were covered damages.  The case was referred to a Special Referee, who found that Harleysville failed to properly reserve its right to contest coverage as to the underlying damages constituting faulty workmanship because the reservation of rights letters were not sufficiently specific to put the insureds on notice of Harleysville’s specific defenses.

On appeal, the Supreme Court agreed with the Special Referee.  The Supreme Court held that although the letters identified the particular insured entities, the lawsuits at issue, the allegations against the insureds in the Complaint, the policy numbers, the policy periods, and nine to ten pages of various policy terms relating to, among other issues, the insuring agreement, Harleysville’s duty to defend, and a number of policy exclusions and definitions, the letters lacked sufficient specificity to properly reserve Harleysville’s right to contest coverage, except as to punitive damages.  The Supreme Court noted both the “cut-and-paste approach” to the policy provisions in the reservation of rights letter and the fact that, despite the inclusion of these provisions, “the letters failed to specify the particular grounds upon which Harleysville did, or might thereafter, dispute coverage.”  The Supreme Court also noted that Harleysville’s letters did not “expressly put its insureds on notice that it intended to litigate the issues of whether any damages resulted from acts meeting the definition of occurrence, whether any damages occurred during the applicable policy period, what damages were attributable to non-covered faulty workmanship, and whether certain damages resulted from intentional acts by the insured and were thus excluded.”

The court also rejected Harleysville’s contention that subsequent oral reservations were sufficient to put the insureds on notice, without definitively determining whether oral representations may be sufficient in other circumstances.  Thus, the court concluded that the reservation of rights letters were no more than a “general warning” and were “too imprecise to shield” Harleysville.  Finally, the court made note of the more than six-month delay between notice of the lawsuit and the issuance of Harleysville’s reservation of rights letters, but also held that the issue was not raised by either party and, therefore, not preserved for review.

We are still unpacking the full meaning of this decision, not only for reservation of rights letters, but for construction law in general.  In addition to the reservation issue, the Supreme Court also issued rulings affecting recovery for punitive damages under a liability policy, the effects of the use of a general verdict form on subsequent coverage litigation, and the proper time-on-the-risk analysis for damages, including loss of use and punitive damages, among other rulings.  Thus, it is likely that this decision will continue to reverberate through the fields of construction coverage and litigation in South Carolina for years to come.  Stay tuned for a more detailed analysis of this case in Carlock, Copeland & Stair LLP’s next installment of its quarterly construction newsletter, “The Critical Path.”

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