South Carolina Endorses Pro Rata Allocation

A new South Carolina Supreme Court decision has upheld a pro rata allocation of progressive damages. In the January 11, 2017 opinion in Harleysville Group Insurance v. Heritage Communities, Inc., et al., the court described that two property owners’ associations sued various Heritage companies, alleging the associations’ homeowners were damaged by the defective construction of two condominium complexes that caused progressive water intrusion. The defendants included the parent development company, the project-specific subsidiary companies, and a general contracting subsidiary. The construction spanned more than three years, during which time the different Heritage entities each had several liability insurance policies issued by Harleysville Insurance. The trials went in favor of the associations and compensatory and punitive damages were awarded for each of the two developments. Harleysville then filed declaratory judgment actions, seeking decisions about what portion of any covered damages fell to specific policies. The lower court determined that Harleysville was responsible for a “pro rata portion of the progressive damages based on Harleysville’s time on the risk” during the period of progressive damages identified by the court. On review, the state supreme court agreed that the lower court properly applied the concept of a progressive damages analysis because some definable portion of the damages in the underlying cases was not able to be tied to an injury during a policy’s period. The Court also affirmed the lower court’s use of a pro rata allocation methodology for compensatory damages and agreed that punitive damages were not subject to the same allocation. The Court’s decision also addressed other issues including reservation of rights letters, the use of a general jury verdict form and an insurer’s interest in segregating covered from non-covered damages, and an insurer’s effort to determine coverage for punitive damages.