Beaufort News

SC high court: Builders to pay for errors, not insurers

CHARLESTON -- A recent ruling from South Carolina's highest court has general contractors throughout the state worried they could be liable for huge financial damages their insurers previously have covered.

Property owners who sue builders for faulty workmanship -- such as windows installed incorrectly, 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 "commercial general liability" policy. But the S.C. Supreme Court shifted that responsibility to general contractors Jan. 7 when it ruled on a 10-year-old case about a poorly built Myrtle Beach condominium development.

Ashley Feaster, executive officer of the Hilton Head Area Home Builders Association, said it's disconcerting to think the insurance builders buy might not protect them.

"It's concerning, especially with the amount of money our builders and our contractors are putting into insurance every year," Feaster said.

The court's 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 in Charleston.

The issue arose in 2001 after homeowners at five condominium buildings in Myrtle Beach sued their builder, Crossman Communities of North Carolina, 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, Harleyville Mutual Insurance, to pay the cost, but the insurer refused. The insurance company argued 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, said the Supreme Court's ruling puts all the financial burden on the general contractor, which typically hires independent subcontractors to do much of the work.

In the Myrtle Beach case, both 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.

Officials at the Homebuilders Association of the Lowcountry in Beaufort could not be reached Friday afternoon.

Staff writer Josh McCann contributed to this report.