Jared Burtner | Phelps Dunbar
The Supreme Court of South Carolina held that the insurers of contractors and subcontractors sued in a construction defect action could not intervene in order to obtain a verdict that would apportion liability and damages among the insurers without the need of a subsequent declaratory judgment action. Builders Mut. Ins. Co. v. Island Pointe, LLC, 2020 S.C. LEXIS 68 (May 13, 2020).
Following construction of a condominium complex, the property owners’ association discovered damage to the condominiums and sued a number of contractors and subcontractors involved in the construction and development. The defendants’ various insurers were not named as parties, but they moved to intervene at the end of the discovery period. They requested at trial a special verdict form or a general verdict form accompanied by interrogatories with the goal of having the jury allocate liability among the defendants and the insurers by proxy. The trial court denied the motion, and the insurers’ appeal was taken up directly by the Supreme Court.
The Supreme Court first concluded that the insurers did not have the right to intervene under South Carolina Rule of Civil Procedure 24 because they could not demonstrate that they were real parties in interest with interests that were “direct,” “immediate” and “significantly protectable,” instead of “remote or contingent.” The Court then determined that the insurers had also failed to demonstrate that they would not delay or prejudice the adjudication of the original parties’ rights, as required to permit permissive intervention, because special verdict forms or interrogatories would heighten the plaintiff’s burden of proof by requiring itemized damages while relieving the defendants and their insurers of their “collective burden” of proving covered and non-covered damages in a declaratory judgment action. The defendants’ rights would further be affected, the Court noted, because special verdict forms could motivate the insurer-appointed defense counsel to concede liability where certain damages would have a higher likelihood of coverage. The Court was not persuaded that a subsequent declaratory judgment action could not be based upon the evidence adduced at trial.
The Court then clarified two of its earlier decisions that the insurers raised as mandating intervention. The Court stated that its decision in Auto Owners Insurance Co. v. Newman, 385 S.C. 187, 684 S.E.2d 541 (2009) should not be read to foreclose an insurer from seeking a declaratory judgment action to resolve a coverage dispute. The Court further clarified its decision in Harleysville Group Insurance v. Heritage Communities, Inc., 420 S.C. 321, 803 S.E.2d 288 (2017) affirming an order that rejected an insurer’s attempt to allocate covered and noncovered damages and instead directed the insurer to pay an entire general verdict. The Court explained that the Harleysville decision was based solely on the insurer’s inadequate reservation of rights that constituted an implied waiver of the right to contest coverage.