In a January decision, the South Carolina Supreme Court found no coverage under a CGL policy for construction defects. On rehearing and after considering numerous amici briefs, the court withdrew its initial opinion and determined there was coverage for progressive property damage caused by faulty workmanship. Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual Ins. Co., 2011 S.C. LEXIS 277 (S.C. Aug. 22, 2011).

   Crossmann constructed multiple condominium projects from 1992 through 1999, using subcontractors. In 2001, the homeowners filed suit against Crossmann after discovering construction defects and resulting problems in the units. Crossmann settled with the homeowners for $16.8 million.

   Crossmann then sought coverage for the damages arising out of the lawsuit from Harleysville, but coverage was denied. Suit was filed and the parties stipulated to the facts and amount of damages. Only coverage and allocation questions were presented to the trial court. The parties stipulated that damage resulting from water intrusion was "property damage," that the damage progressed until repaired, and that the parties would not argue the applicability of any policy exclusions.

   The trial court ruled that the progressive damage that resulted from the subcontractor's negligent work was caused by an "occurrence." The trial court also ruled that Harleysville was jointly and severally liable and not entitled to a set-off based on other insurer's pre-trial settlements with Crossmann.

   The Supreme Court affirmed in part, reversed and remanded in part. First, the court affirmed the trial court's finding of coverage based on an "occurrence." Negligent or defective construction resulting in damage to otherwise non-defective components could constitute "property damage," but the defective construction itself did not. Various exclusions, however, could preclude coverage in some instances.

   Next, the court decided that pro rata or "time on the risk" was the proper method for allocating damage among various insurers, not joint and several liability. The joint and several analysis could make one policy responsible for the entire loss caused by a progressive injury. Under "time on the risk," each triggered policy had to indemnify only for the portion of the loss attributable to property damage that occurred during its policy period.

   Notably, South Carolina is now back on the construction-defects-can-arise-from-an-occurrence side of the ledger.