July 4, 2008
Greenville, SC - You are a general contractor or a homebuilder. Long after your project has been accepted, payment has been made, and the project cleared from your books comes the dreaded notice that you have been sued for an alleged construction defect. As a responsible contractor, you have maintained a commercial general liability (CGL) insurance policy to protect your business from these post-construction issues. You promptly forward the lawsuit to your insurance agent and you are covered, right? Well, maybe. The answer to that question depends on many facts and factors which include, but are not necessarily limited to, the type of damage, what was damaged, and who did the work that resulted in the damage. Be assured, your insurer is examining these facts closely.
After you submit the lawsuit to your insurance agent, your insurer may appoint counsel to represent you in the dispute. Separate counsel may also evaluate the claim on behalf of your insurer to determine whether coverage is owed under your policy. This will involve the analysis of many potentially applicable exclusions to coverage contained in most, if not all, standard CGL policies. The interpretation of these exclusions by the South Carolina courts is an area of great debate. Each case will be fact-sensitive and must be evaluated individually.
All exclusions potentially applicable to your case will be set forth in the likely-to-follow Reservation of Rights (ROR) or Denial of Coverage letter to you from your insurer. The purpose of the ROR letter is to inform you that your insurer has decided to continue with the defense of your business under your CGL policy, but that it "reserves the right" to deny coverage and withdraw this defense at any time in the future.
If the insurer feels confident about its position with respect to coverage, it may move forward with a Declaratory Judgment action. This is a separate lawsuit filed by your insurer against you in which the court is asked to decide the applicability of the cited policy exclusions to your case. In filing such an action, your insurer is seeking a legal determination that it is not required to provide a defense to you or pay any judgment or settlement on your behalf. Be aware that the lawyer retained by the insurer to represent you in the claim brought for the construction defect will not be paid by the insurance carrier to represent your interests in this separate declaratory lawsuit. You will most likely need to retain additional counsel to address that matter.
Finding out a year into litigation that your insurer has no intention of paying any judgment against you or settlement on your behalf can place the future of your business at great risk. As the insurers are working hard to protect their rights under their policies, it is imperative that you know your rights as well. It is equally imperative that you know your obligations. An experienced construction lawyer can assist you with this process and provide the best opportunity for an effective resolution of any construction defect claim brought against your business.
Scott J. Bradley practices in the areas of Design and Construction, Transportation and Tort and Personal Injury litigation. For more information, visit www.gwblawfirm.com or call Gallivan, White & Boyd, P.A. at (864) 271-9580.
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