South Carolina Court Upholds Exclusions Blocking Contractor Suit Against Subcontractor

South Carolina’s high court has found that a general contractor cannot sue a subcontractor for faulty workmanship in instances where the subcontractor is in essence doing work on the contractor’s behalf.

The South Carolina Supreme Court handed down the ruling in the case of [Bennett & Bennett Construction, Inc. v, Auto Owners Insurance SC27284], which hinged on an interpretation of whether several general liability contract exclusions barred the contractor from collecting damages from a subcontractor.

The case had its origins in a suit initially decided by South Carolina’s Fifth Circuit Court for Richland County.

In that case, Bennett & Bennett was hired by a homeowner as a general contractor to remove the home’s original exterior synthetic stucco finish and replace it with a brick façade.

Bennett hired M&M Construction of the Carolinas LLC to install the brick, but Bennett later found the workmanship deficient, most notably because mortar had dried on some of the facing on the bricks.

M&M hired a subcontractor to clean the bricks, but in doing so the company defaced the decretive features of some of the bricks. Bennett requested that M&M replace the bricks, which M&M failed to do, leaving Bennett with the cost of doing the work.

At a trial court level, a judge awarded a default judgment in favor of Bennett against M&M, which failed to defend itself against the lawsuit.

As a result, Bennett sued M&M, and its general liability insurer Auto Owners Insurance Co. in circuit court for breach of contract, breach of warranty and negligence.

Following a bench trial, a Circuit Court Judge Ernest Kinard ruled in favor of Bennett on the basis that M&M’s actions fell under the definition of an “occurrence.”

Under state law, an occurrence as defined under a general liability policy covers both accidents that include repeated exposure to harmful conditions, as well as coverage for property damage or bodily injury from faulty workmanship.

Based on that definition, Kinard ruled that M&M, along with its insurer Auto Owners, were responsible for paying damages despite there being several policy exclusions that limited coverage under certain circumstances.

Auto Owners appealed the case to the state Supreme Court.

The Supreme Court, however, overturned the district court’s ruling, finding that the policy exclusions did prevent Bennett from collecting damages from Auto Owners.

Supreme Court Judge Costa Pleicones, writing for the majority, said that the district court improperly misread two policy exclusions that limited Auto Owners’ general liability policy’s coverage.

Foremost at issue is a policy exclusion that bars coverage in cases, “which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.”

The circuit court had held the policy exclusion was no longer in effect since Bennett had completed its work of replacing the stucco exterior with brick. Therefore, Kinard ruled, the exclusion no longer barred Bennett from collecting damages from Auto Owners.

The high court, however, disagreed. It took the position that since the policy exclusion applied when a contractor or subcontractor was “performing operations,” then the coverage limit remained in force as long as any work was being done.

“The temporal limits of the exclusion are coterminous with the performance of the acts,” Pleicones wrote. “There can be no question the damage in this case occurred with the insured’s subcontractor was actively ‘performing operations.'”

Pleicones said that based on that reasoning, the general liability exclusion effectively barred Bennett from collecting damages from Auto Owners, even though Bennett had completed its work on the home.

“Exclusion j(5) unambiguously excludes coverage whenever the insured or a person acting on the insured’s behalf causes damage in the course of working on the property, regardless of whether the insured’s work has been completed,” wrote Pleicones.

The high court found that another policy exclusion also barred coverage in cases where “if such work is withdrawn from use because of a known or suspected defect, deficiency, inadequacy, or dangerous condition in it.”

Since Bennett had hired M&M as a subcontractor to install the decorative brick, which was later found deficient, Bennett under the exclusion was barred from seeking damages from M&M’s insurer.

Topics Lawsuits Auto Contractors South Carolina