Ruling worries S.C. contractors: Responsibility for settlements shifts

A recent ruling from South Carolina's highest court has general contractors throughout the state worried that they could be liable for paying potentially huge financial damages that their insurers traditionally covered.

Property owners who sue builders for faulty workmanship -- such as sloppily installed windows, an improperly poured concrete foundation or a poorly sealed building exterior -- can be awarded generous settlements from the court system.

Insurance carriers usually pay that money on behalf of builders through a common type of policy called commercial general liability. But the S.C. Supreme Court shifted that responsibility to general contractors on Jan. 7 when it ruled on a 10-year-old case about a poorly built Myrtle Beach condominium development.

The decision surprised the construction community and attorneys who represent the building industry. Both parties are asking state lawmakers for a bill that would protect contractors from paying out lawsuit settlements.

"Even the most conscientious builders can get caught up in these things," said Jenny Costa Honeycutt, an attorney with Haynsworth Sinkler Boyd who spoke Thursday to a group of local construction professionals.

The issue arose in 2001 after home-owners at five condominium buildings in Myrtle Beach sued their builder, Crossman Communities of North Carolina Inc., over "numerous construction defects," according to the court's opinion.

A judge awarded the homeowners $16.8 million to pay for repairs.

Crossman officials called upon their carrier, Harleysville Mutual Insurance Co., to pay the cost, but the insurer refused. The insurance company argued that it shouldn't have to pay because the damage wasn't caused by weather or by an accident, such as an excavator running into the building.

Doug Carlson, president of the Carolinas chapter of Associated Builders and Contractors Inc., said the Supreme Court's ruling puts all the financial burden on the general contractor, which typically hires independent specialists called subcontractors to do much of the work.

In the Myrtle Beach case, the insurer and the general contractor agreed that sloppy work by subcontractors caused the water intrusion problem that damaged the structures.

But as a result of the high court's decision, the general contractor was found liable for the cost.

"It could bankrupt a lot" of builders, Carlson said. "It's going to have that effect."

Reach Katy Stech at 937-5549.