South Carolina Construction Law Blog
South Carolina Construction Law - Discussion of mechanic's liens, delay claims, coverage, and constr
Legislature Responds to Crossman Case
In a previous blog I discussed the court's holdings in L-J, Inc. v. Bituminous Fire & Marine Ins. Co. and Auto Owners Ins. Co., Inc. v. Newman. In L-J, the court held that damage to a roadway caused by faulty workmanship did not constitute an occurrence and was not covered under the CGL policy. In Newman, the court ruled that damage to walls and exterior sheathing did constitute an occurrence because the damage went beyond the defective work product itself (stucco). Specifically, the continued repeated exposure to moisture caused by the defective stucco was both unexpected and unintended, therefore coverage could be found for those damages, but not for the defective stucco itself.
The court took another look at it's insurance jurisprudence in Crossman Communities of North Carolina, Inc., v. Harleysville Mutual Ins. Co.. In this case, defective construction on a condominium project resulted in homeowners filing claims against the developer. The developer settled with the homeowners for $16.8 million, and in turn sought coverage from Harleysville, the issuer of the developer's CGL policy. Harleysville refused to provide coverage and this declaratory judgment followed. The issue before the court was: when faulty workmanship directly causes further damage to non-defective components of an insured's project, does this necessarily constitute an occurrence?
Occurrence is defined in the policy as an "accident including continuous or repeated exposure to substantially the same general harmful conditions." "Accident" is defined by the court as "an unexpected happening or event, which occurs by chance and usually suddenly, with harmful results, not intended or designed by the person suffering the harm or hurt."
The court then took the opportunity to review both the majority and minority rules in other jurisdictions as to what constitutes an occurrence in faulty workmanship cases. Under the majority rule, faulty workmanship alone does not trigger coverage under a CGL policy. Under the minority rule, however, damages caused by faulty workmanship do constitute an occurrence as long as they are unintended or unexpected from the standpoint of the insured. Critics of the minority rule argue that it is more of a performance bond than an insurance policy.
In analyzing whether a claim for faulty workmanship is covered, the court first must determine whether there has been an occurrence. This means the damages must arise from a fortuitous event and must not be the natural and probable consequences of the faulty workmanship. Second, the court must address whether there has been property damage according to the specific CGL policy.
The court overruled its decision in Newman "to the extent it permitted coverage for faulty workmanship that directly causes further damage to property in the absence of an 'occurrence' with its fortuity underpinnings." The error in Newman lies in the fact that the court found coverage for property damage without the necessary finding of an occurrence.
Under the above analysis, the court held that there was no occurrence in the present case because the damage caused "was a direct result and the natural and expected consequence of faulty workmanship...."
In response to this case, the South Carolina Senate proposed S. 431, a bill to amend the South Carolina Code of Laws to define an occurrence as an "accident" or "continuous or repeated exposure to substantially the same general harmful condition or substance." The bill specifically adds that "No additional requirement of a fortuitous event is needed to constitute an occurrence." On March 31, S. 431 was referred to the House Committee on Labor, Commerce and Industry.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
The court took another look at it's insurance jurisprudence in Crossman Communities of North Carolina, Inc., v. Harleysville Mutual Ins. Co.. In this case, defective construction on a condominium project resulted in homeowners filing claims against the developer. The developer settled with the homeowners for $16.8 million, and in turn sought coverage from Harleysville, the issuer of the developer's CGL policy. Harleysville refused to provide coverage and this declaratory judgment followed. The issue before the court was: when faulty workmanship directly causes further damage to non-defective components of an insured's project, does this necessarily constitute an occurrence?
Occurrence is defined in the policy as an "accident including continuous or repeated exposure to substantially the same general harmful conditions." "Accident" is defined by the court as "an unexpected happening or event, which occurs by chance and usually suddenly, with harmful results, not intended or designed by the person suffering the harm or hurt."
The court then took the opportunity to review both the majority and minority rules in other jurisdictions as to what constitutes an occurrence in faulty workmanship cases. Under the majority rule, faulty workmanship alone does not trigger coverage under a CGL policy. Under the minority rule, however, damages caused by faulty workmanship do constitute an occurrence as long as they are unintended or unexpected from the standpoint of the insured. Critics of the minority rule argue that it is more of a performance bond than an insurance policy.
In analyzing whether a claim for faulty workmanship is covered, the court first must determine whether there has been an occurrence. This means the damages must arise from a fortuitous event and must not be the natural and probable consequences of the faulty workmanship. Second, the court must address whether there has been property damage according to the specific CGL policy.
The court overruled its decision in Newman "to the extent it permitted coverage for faulty workmanship that directly causes further damage to property in the absence of an 'occurrence' with its fortuity underpinnings." The error in Newman lies in the fact that the court found coverage for property damage without the necessary finding of an occurrence.
Under the above analysis, the court held that there was no occurrence in the present case because the damage caused "was a direct result and the natural and expected consequence of faulty workmanship...."
In response to this case, the South Carolina Senate proposed S. 431, a bill to amend the South Carolina Code of Laws to define an occurrence as an "accident" or "continuous or repeated exposure to substantially the same general harmful condition or substance." The bill specifically adds that "No additional requirement of a fortuitous event is needed to constitute an occurrence." On March 31, S. 431 was referred to the House Committee on Labor, Commerce and Industry.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Labor Groups Sue Governor Haley
On January 20, 2010, the International Association of Machinists and AFL-CIO filed suit against Governor Nikki Haley and Catherine Templeton, newly appointed Director of the state's Department of Labor Licensing and Regulation, for a declaratory judgment and injunction based on their actions opposing labor unions in South Carolina.
The suit was filed in Federal District Court in Charleston by Armand Derfner, a local attorney and adjunct professor of Advanced Constitutional Law at the Charleston School of Law, on behalf of the Plaintiff Labor Groups. According to the complaint, the Governor and Director acted under color of state law to implement a policy opposing labor unionization in the state in violation of the Labor Relations Act and the First and Fourteenth Amendments to the United States Constitution.
The lawsuit was spurred by comments Haley made at a press conference when nominating Templeton Director of LLR. Specifically, Haley referred to potential issues with unionization at Boeing: "We are going to fight the unions, and I needed a partner to do it; [Templeton is] the right person to help me do it."
South Carolina is a right-to-work state, meaning the law secures the right for employees to choose whether or not they will participate in labor unions. Many suggest that South Carolina's stance on labor unions played a determinative role in Boeing's selection of North Charleston for its new plant.
No matter what your opinion on labor unionization is, this case has the attention of South Carolinians and could have important ramifications for the state's construction industry.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
The suit was filed in Federal District Court in Charleston by Armand Derfner, a local attorney and adjunct professor of Advanced Constitutional Law at the Charleston School of Law, on behalf of the Plaintiff Labor Groups. According to the complaint, the Governor and Director acted under color of state law to implement a policy opposing labor unionization in the state in violation of the Labor Relations Act and the First and Fourteenth Amendments to the United States Constitution.
The lawsuit was spurred by comments Haley made at a press conference when nominating Templeton Director of LLR. Specifically, Haley referred to potential issues with unionization at Boeing: "We are going to fight the unions, and I needed a partner to do it; [Templeton is] the right person to help me do it."
South Carolina is a right-to-work state, meaning the law secures the right for employees to choose whether or not they will participate in labor unions. Many suggest that South Carolina's stance on labor unions played a determinative role in Boeing's selection of North Charleston for its new plant.
No matter what your opinion on labor unionization is, this case has the attention of South Carolinians and could have important ramifications for the state's construction industry.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
NLRB Memo: Effective Remedies in Organizing Campaigns
The National Labor Relations Board ("NLRB") General Counsel Lafe Solomon released a memo on December 20, outlining the NLRB's commitment to protecting employee free choice in unionization.
Solomon emphasized the importance of remedial efforts after NLRA violations. One such remedial measure may be to require employers to read NLRB remedial notices to employees and to give unions access to employee bulletin boards. Notice reading is said to have a greater "psychological impact" on employees during a union organizing drive than merely posting notices.
Another suggested remedial measure is ordering an employer to disclose employee names and addresses to a union during a campaign.
This site and any information contained herein is for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Solomon emphasized the importance of remedial efforts after NLRA violations. One such remedial measure may be to require employers to read NLRB remedial notices to employees and to give unions access to employee bulletin boards. Notice reading is said to have a greater "psychological impact" on employees during a union organizing drive than merely posting notices.
Another suggested remedial measure is ordering an employer to disclose employee names and addresses to a union during a campaign.
This site and any information contained herein is for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Construction Layoffs on the Rise
The Bureau of Labor Statistics reported on December 22, 2010, that mass layoffs in the construction industry continued to increase since September. 26,767 construction workers filed initial unemployment claims in November after construction firms initiated 325 mass layoffs that month.
The highest specialty groups affected were highway, street and bridge construction. Workers in these categories filed 12,964 initial unemployment claims in November, up from 2,564 in October.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
The highest specialty groups affected were highway, street and bridge construction. Workers in these categories filed 12,964 initial unemployment claims in November, up from 2,564 in October.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
NLRB Proposes New Notice Requirement
The National Labor Relations Board ("NLRB") proposed a new notice requirement on December 20, 2010, which affects all employers subject to the National Labor Relations Act ("NLRA"). If the Board passes this proposed rule, employers will be required to post a notice in the workplace informing employees of their rights under the NLRA. Among these rights are the rights to organize or join a union, bargain collectively, discuss wages and terms of employment with co-workers or a union, and picket.
Failure to comply with this regulation can result in severe sanctions including charges of unfair labor practices, extension of time limits in which to file charges of unfair labor practices, and consideration of the failure to comply as evidence of unlawful motive.
The NLRB notice poster will likely mimic the language found in the Department of Labor (DOL) poster released in May of this year.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Failure to comply with this regulation can result in severe sanctions including charges of unfair labor practices, extension of time limits in which to file charges of unfair labor practices, and consideration of the failure to comply as evidence of unlawful motive.
The NLRB notice poster will likely mimic the language found in the Department of Labor (DOL) poster released in May of this year.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
New Rule Affecting all Federal Subcontractors
http://edocket.access.gpo.gov/2010/pdf/2010-30565.pdf
Effective December 13, 2010, contractors on all federal projects “shall not enter into any subcontract in excess of $30,000” with contractors at any tier who have been suspended or disbarred. Previously this rule, which exists to protect the government’s interest, only applied to first tier contractors.
Contractors must provide a “compelling reason” in writing to the contracting officer to avoid this prohibition. If the contract is for the “acquisition of commercial items, the notification requirement applies only for first-tier subcontracts.”
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Faulty Workmanship is not an Occurrence
The South Carolina Supreme Court determined in L-J Inc. v. Bituminous Fire and Marine Ins. Co., that faulty workmanship, standing alone, could not constitute an occurrence. However, if the faulty workmanship causes an accident it would be an occurrence because it is neither expected nor anticipated from the standpoint of the insured.
In Auto Owners Insurance Co., Inc., v. Newman, the court took this decision one step further and declared that if the defect causes injury to other property there is coverage in the policy. In Newman, improperly installed stucco caused damage to both the stucco itself and to the building’s substrate. The court found coverage for the damaged substrate, but not for the actual defective stucco. The insured’s only recourse as to the faulty workmanship was against the contractor.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
In Auto Owners Insurance Co., Inc., v. Newman, the court took this decision one step further and declared that if the defect causes injury to other property there is coverage in the policy. In Newman, improperly installed stucco caused damage to both the stucco itself and to the building’s substrate. The court found coverage for the damaged substrate, but not for the actual defective stucco. The insured’s only recourse as to the faulty workmanship was against the contractor.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
When is Insurance Coverage Triggered in Construction Defects?
An occurrence is an event unexpected or unanticipated from the standpoint of the insured. In terms of construction defects, it is also important to determine which insurance policy an occurrence triggers. Construction defects often do not manifest themselves for many years, thus the insurer may have changed several times over. Naturally, the insured wants to collect on all these policies in order to fully compensate his losses. The South Carolina Supreme Court has struggled over the issue of when coverage is triggered for many years.
Prior to 1997, the court utilized the manifestation theory, which triggered insurance coverage at the time the insurable issue was first discovered. In 1997, the Supreme Court handed down its decision in Joe Harden Builders v. Aetna Casualty & Surety Co., which changed the prevailing theory of coverage. In that case, a concrete company misaligned concrete columns in a building, which allowed water intrusion to occur causing serious damage to the building.
The court declined to adopt the manifestation theory, and instead went with a hybrid theory. This theory holds that coverage is triggered at the time of the injury in fact, and continuously triggers all policies from that point forward. Expert testimony is used to determine when, to a reasonable degree of professional certainty, the damage first occurred. This theory is pro-insured because it allows the insured to find more coverage than prior theories would have allowed.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Prior to 1997, the court utilized the manifestation theory, which triggered insurance coverage at the time the insurable issue was first discovered. In 1997, the Supreme Court handed down its decision in Joe Harden Builders v. Aetna Casualty & Surety Co., which changed the prevailing theory of coverage. In that case, a concrete company misaligned concrete columns in a building, which allowed water intrusion to occur causing serious damage to the building.
The court declined to adopt the manifestation theory, and instead went with a hybrid theory. This theory holds that coverage is triggered at the time of the injury in fact, and continuously triggers all policies from that point forward. Expert testimony is used to determine when, to a reasonable degree of professional certainty, the damage first occurred. This theory is pro-insured because it allows the insured to find more coverage than prior theories would have allowed.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
What is Standing to Sue?
In order to successfully bring a lawsuit, the plaintiff must have standing to sue. Standing means the plaintiff is the right person to bring a particular claim before the court for adjudication. There are three requirements for standing: injury, causation, and redress.
First, the Plaintiff must have directly and personally sustained an injury, or there is immediate danger that the Plaintiff will sustain a direct injury. It is improper to sue for an injury that is of a general nature common to all members of the public. Likewise, it is generally improper to sue for the rights of a third party. However, parties with standing to sue will often assign their rights to another party to sue on their behalf. This is frequently seen in construction defect cases where individual homeowners assign the homeowners' association or regime the right to sue on behalf of all members collectively.
Second, causation requires that the injury be fairly traceable to the Defendant's conduct. This element ensures that the Plaintiff is suing the correct Defendant.
Finally, redress means that a favorable court decision will likely rectify the Plaintiff's injury. If the court determines that a party lacks standing to bring a claim, the court will typically grant summary judgment in favor of the opposing party.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
First, the Plaintiff must have directly and personally sustained an injury, or there is immediate danger that the Plaintiff will sustain a direct injury. It is improper to sue for an injury that is of a general nature common to all members of the public. Likewise, it is generally improper to sue for the rights of a third party. However, parties with standing to sue will often assign their rights to another party to sue on their behalf. This is frequently seen in construction defect cases where individual homeowners assign the homeowners' association or regime the right to sue on behalf of all members collectively.
Second, causation requires that the injury be fairly traceable to the Defendant's conduct. This element ensures that the Plaintiff is suing the correct Defendant.
Finally, redress means that a favorable court decision will likely rectify the Plaintiff's injury. If the court determines that a party lacks standing to bring a claim, the court will typically grant summary judgment in favor of the opposing party.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Court Finds for Landscaper Based on Quantum Meruit
A South Carolina landscape company agreed to perform landscaping and install an irrigation system for a Bluffton homeowner for $30,000. The arrangement was sealed with a handshake and was never reduced to writing.
After the landscaping began, the homeowner requested additional labor not included in the original proposal. Upon completion of the project, the company presented the homeowner with a bill for $32,677.89. When the homeowner refused to pay, the landscape company served him with a mechanic's lien and subsequently filed suit to foreclose the lien. The company's suit alleged breach of contract and, in the alternative, judgment under quantum meruit.
The court determined that although the landscape company's claim was not based on an express written contract, it was entitled recovery under a quantum meruit, or unjust enrichment claim.
There are three elements to a quantum meruit claim: (1) a benefit conferred upon the defendant by the plaintiff; (2) realization of that benefit by the defendant; and (3) retention by the defendant of the benefit under conditions that make it unjust for him to retain it without paying its value.
Because the company conferred a benefit of its services to the homeowner, which was realized by the homeowner, the court held that under these circumstances it would be unjust for the homeowner to retain this benefit without reasonably compensating the landscape company. For the full text of the SC Supreme Court's Opinion click here .
This site and any information contained herein is intended for information purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
After the landscaping began, the homeowner requested additional labor not included in the original proposal. Upon completion of the project, the company presented the homeowner with a bill for $32,677.89. When the homeowner refused to pay, the landscape company served him with a mechanic's lien and subsequently filed suit to foreclose the lien. The company's suit alleged breach of contract and, in the alternative, judgment under quantum meruit.
The court determined that although the landscape company's claim was not based on an express written contract, it was entitled recovery under a quantum meruit, or unjust enrichment claim.
There are three elements to a quantum meruit claim: (1) a benefit conferred upon the defendant by the plaintiff; (2) realization of that benefit by the defendant; and (3) retention by the defendant of the benefit under conditions that make it unjust for him to retain it without paying its value.
Because the company conferred a benefit of its services to the homeowner, which was realized by the homeowner, the court held that under these circumstances it would be unjust for the homeowner to retain this benefit without reasonably compensating the landscape company. For the full text of the SC Supreme Court's Opinion click here .
This site and any information contained herein is intended for information purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
