The South Carolina Supreme Court held that the legislative definition expanding the meaning of "occurrence" to include damage resulting from faulty workmanship cannot be applied retroactively. Harleysville Mut. Ins. Co. v. The State of South Carolina, 2012 S.C. LEXIS 270 (S.C. Nov. 21, 2012).
The South Carolina legislation, Act No. 26, was enacted on May 17, 2011. It states that CGL policies shall include in the definition of "occurrence" "property damage or bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself." The statute made the new provision applicable to all CGL policies issued in the past, currently in existence or issued in the future.
The court considered three challenges to the retroactive portion of the statute: (1) violation of the separation of power doctrine; (2) unconstitutional special legislation or violates equal protection; and (3) violates the contract clause.
The court found the provision did not violate the separation of powers doctrine. The legislature did not retroactively overrule the South Carolina Supreme Court's interpretation of a statute. Next, the court decided a special legislation analysis was inapplicable to Act No. 26 when it was a general law in that it uniformly applied to all construction CGL policies issued in South Carolina. Moreover, Act No. 26 withstood the minimal level of scrutiny under equal protection because the legislature had a logical reason and sound basis for enacting the provision.
However, the legislation did not survive the contract clause analysis. While it was within the legislature's power to statutorily define the meaning of "occurrence," it violated the contract clause to apply the new definition retroactively as it would substantially impair pre-existing contracts by materially changing their terms. The unconstitutional portion was severed from the body of the statute, which remained complete in itself.
South Carolina's Act No. 26 is similar to Hawaii's Act 83 (codified at Haw. Rev. Stat. 431:1-217) because they both attempt to construe the meaning of "occurrence" more favorably towards contractors and sub-contractors who are sued for construction defects arising from faulty workmanship. Hawaii's Act 83 did not attempt to apply its provisions retroactively, however.
