Harleysville Group Insurance v. Heritage Communities, Inc.

Summary

The South Carolina Supreme Court addresses cross-appeals concerning insurance coverage for construction defects at two condominium developments. The court considers whether resulting property damage and punitive damages were covered under commercial general liability policies, the application of a time-on-the-risk allocation, and the sufficiency of the insurer’s reservation-of-rights letters. The court holds that generic reservations coupled with policy excerpts were insufficient to preserve coverage defenses concerning actual damages and emphasizes the insurer’s duties when controlling the defense.

Holdings

1. Under the exceptional circumstances presented—where the insured was defunct, the property owners' associations held final judgments, and the policy permitted direct suit—the associations could stand in the insured's shoes and challenge the adequacy of Harleysville's reservation of rights.
2. A reservation-of-rights letter that merely gives generic notice of potential noncoverage and attaches or incorporates policy provisions is insufficient to reserve the insurer's right to contest specific coverage issues, particularly when the insurer controls the defense.
3. Punitive damages were covered because the policies required payment of sums the insured became legally obligated to pay as damages arising from an occurrence, and the policies did not unambiguously limit covered damages to compensatory or actual damages.
4. The expected-or-intended exclusion did not bar coverage for punitive damages because Harleysville failed to prove that Heritage intended both the conduct and the specific property damage that resulted.
5. Actual loss-of-use damages at Riverwalk were progressive damages and therefore were subject to allocation under the time-on-the-risk formula.
6. Punitive damages were not subject to reduction under the time-on-the-risk multiplier on the facts of these cases.

Questions Presented

1. Whether the property owners' associations could challenge the adequacy of Harleysville's reservation of rights.
2. Whether generic reservation-of-rights letters, together with copies of policy provisions, sufficiently reserved Harleysville's right to contest coverage for actual damages.
3. Whether punitive damages were covered under the CGL policies' insuring agreement.
4. Whether the expected-or-intended exclusion barred coverage for punitive damages.
5. Whether actual loss-of-use damages were subject to time-on-the-risk allocation.
6. Whether punitive damages were subject to time-on-the-risk allocation.
7. Whether the general jury verdicts could be allocated using the time-on-the-risk formula despite the possibility that they included noncovered damages.
8. Whether the Special Referee abused his discretion in selecting the damage periods, policy periods, and allocation method and in resolving miscellaneous trial issues.

Disposition

affirmed