October 27, 2020
In matters of third party coverage, the traditional test for determining whether an insured person is entitled to a defense under a general liability business policy is the Comparison Test or Four Corners. Under this test, a court compares the four corners of the claimant’s complaint (and only the complaint) with the policy. If any cause for action within that claim is not excluded by the policy, there is usually a duty of defense.
The South Carolina Supreme Court in 2008 discussed this test. Inside USAA Prop. & Cas. Ins. Co. v. Clegg, the Court considered that “the duty to defend is not strictly controlled by the allegations in [a] [c]complain. ” I would go., 377, SC 643, 657, 661 SE2d 791, 798 (2008) (emphasis added). Instead, “the duty of defense can also be determined by facts outside the claim that are known to the insurer.” I would go. Inside Clegg however, the Court’s decision was whether an insurer should consider information outside of the claim if that information would potentially place an issue within the coverage. The reverse of that question, however, remained unanswered. In other words, could an insurer considers training outside of the claim to exclude coverage? That answer now seems Besides that be “yes”.
Inside Hawley Insurance Company vs. Carriage Hill Associates of Charleston, LLC, et al., the District Court of the United States of South Carolina, considered two authorizations from the insurer-plaintiff, MT. Hawley Insurance Company (“Mt. Hawley”) attached to your motion to hear the allegations. The Court found that based on these authorizations, “work on the project took place … outside the coverage period.” Therefore, “Mt. Hawley has no duty to indemnify or defend … ” I would go., CV No. 2: 19-2550-RMG, 2020 WL 5583631, at * 2 (DSC August 18, 2020).
Notably, this is the first time that a South Carolina State or Federal Court has explicitly stated that out-of-court documents can be used by an insurer to delete coverage under a commercial liability policy. It is also noteworthy that the insured appealed this decision. Watch I would go., C / A No. 20-2004 (4th Cir. September 17, 2020). If the Fourth Circuit upholds the decision of the United States South Carolina District Court, then there will be a firm precedent that documents outside the allegations can be used to do both, include and exclude coverage. We must monitor this matter further and keep you informed of any decision.