S.C. Court Denies Faulty Workmanship Coverage in Bituminous Case

September 29, 2005

The South Carolina Supreme Court issued its decision in the case of L-J, Inc. v. Bituminous Fire and Marine Insurance Co., Sept. 26, holding that faulty workmanship is not considered an accidental event or “occurrence” under a commercial general liability policy.

“PCI agrees with the court’s decision that faulty workmanship is not caused by accident” said Robert J. Hurns, counsel for the Property Casualty Insurers Association of America, which filed an amicus brief in the case.

Bituminous Fire and Marine Insurance Co. brought the underlying declaratory judgment action seeking a determination as to whether a CGL policy issued to L-J, Inc. covered damage caused by the faulty workmanship of L-J, Inc. and its subcontractors on a road construction project.

The policy language defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The trial court held the damage to the roadway was covered under the Bituminous CGL policy, stating the damage constituted an “occurrence,” therefore the “expected or intended” and “your work” exclusions did not apply. The Court of Appeals affirmed this decision. The Supreme Court of South Carolina granted review and overturned the appellate court decision.

“The policy language clearly provided coverage for occurrences. However, ongoing faulty workmanship cannot be considered to be an occurrence. The appellate court decision opened insurers up to increased litigation and expenses not contemplated in the premiums charged. The lower court’s ruling was a huge concern for PCI’s membership. However, that concern has now been addressed.”

“This was the first opportunity for the South Carolina court to consider this issue and it has set an appropriate precedent here” Hurns said. “Clearly the damages caused were the result of negligence and not considered an occurrence as defined in the contract. If the court had ruled the other way, the contract would have transformed into a performance bond, as opposed to an insurance policy to insure against accidents.”

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