Scott Turner – September 28, 2013
On Monday, Sept. 25th , the Supreme Court of South Carolina issued its decision in Auto-Owners Ins. Co. v. Rhodes, — S.E.2d —-, 2013 WL 5348381 (2013). It held that the “occurrence” of a collapse of the policyholder’s construction work in one location satisfies the causation part of the CGL policy’s “caused by an ‘occurrence’” requirement as to the significant consequential damages flowing from the resulting need to remove similar work in two other locations. A “but for” test was applied for this causation requirement.
Rhodes owns and leases outdoor advertising space in various locations. He contracted with contracted with the policyholder, Eadon, to erect three advertising signs on property owned by Rhodes that bordered Interstate 77. Rhodes obtained the requisite permits from the South Carolina Department of Transportation (“SCDO”) to erect the three signs.
After completion, one sign was discovered to be leaning toward I–77. Shortly thereafter, one of the other signs fell across I–77. Based on its investigation, SCDOT ordered Rhodes to remove the remaining two signs and revoked Rhodes’ permits to maintain signs on the property..
Rhodes filed a tort action against Eadon, alleging damages to the real estate owned by Rhodes and lost income due to the negligent erection of the signs, which led to the removal of the three signs and the revocation of the SCDOT permits. A jury returned a verdict for Rhodes in the amount of $6.5 million. Eadon appealed this verdict.
Meanwhile, Eadon’s insurer, Auto–Owners, issued a reservation of rights and brought a declaratory judgment action. While Eadon’s appeal was pending, the judge in the DJ action found that Auto–Owners was obligated to indemnify Eadon for the judgment rendered in the tort action. In so ruling, the judge found “the loss of use of the remaining two signs and the consequential damages flowing therefrom was causally linked to the sign that fell and constituted property damage caused by an occurrence.”
Then, the Court of Appeals reversed the verdict in the tort action and ordered a completely new trial.
Based on this development, Auto–Owners moved to have the DJ order declared null and void based on the judge’s reliance on the evidence and testimony in the now-vacated tort action. The judge granted Auto–Owners’ motion in part, striking only the portion of the order referencing the money damages awarded by the jury. The other portions of the order remained in full force and effect. Auto–Owners appealed this ruling, ultimately to the Supreme Court.
The Supreme Court addressed the “caused by an ‘occurrence’” requirement. It noted that the parties agreed as to the falling sign being an “occurrence”. The issue before the court, then, was not the “occurrence” issue itself but whether “the loss of the remaining two signs and the consequential damages flowing therefrom [was] causally linked to the sign that fell and, thus, . . . caused by an occurrence under the policy.” That is, the issue was whether the damages related to the other two signs was “caused by” the occurrence of the first sign falling. As the court notes, “unlike the ‘normal’ defective construction case where damage from faulty workmanship is obvious and directly related, the mandated removal of the two additional signs in the instant case is more tangential.” Nevertheless, the court held that the falling of the first sign satisfied the “caused by an ‘occurrence’” requirement for the damages flowing from other two signs. In reaching this result, the court applied a “but for” test of causation.