In third party coverage matters, the traditional test to determine whether an insured is entitled to a defense under a commercial general liability policy is the Comparison or Four-Corners Test. Under this Test, a court compares the four-corners of the claimant’s complaint (and only the complaint) to the policy. If any cause of action within that complaint is not excluded by the policy, then a duty to defend typically exists.
The South Carolina Supreme Court, in 2008, discussed this test. In USAA Prop. & Cas. Ins. Co. v. Clegg, the Court held that “the duty to defend is not strictly controlled by the allegations in [a] [c]omplaint.” Id., 377, S.C. 643, 657, 661 S.E.2d 791, 798 (2008) (emphasis added). Rather, “the duty to defend may also be determined by facts outside of the complaint that are known to the insurer.” Id. In Clegg though, the Court’s ruling pertained to whether an insurer must consider information outside of the complaint if that information would potentially bring a matter within coverage. The converse of that question, though, remained unanswered. In other words, could an insurer consider information outside of the complaint to exclude coverage? That answer now appears to also be “yes.”
In Mt. Hawley Insurance Company v. Carriage Hill Associates of Charleston, LLC, et al., the U.S. District Court of South Carolina, considered two permits the plaintiff-insurer, Mt. Hawley Insurance Company (“Mt. Hawley”) attached to its motion for judgment on the pleadings. The Court held that based upon those permits, the “work on the project occurred … outside the coverage period.” Therefore, “Mt. Hawley has no duty to indemnify or defend…” Id., No. CV 2:19-2550-RMG, 2020 WL 5583631, at *2 (D.S.C. Aug. 18, 2020).
Notably, this is the first occasion a South Carolina State or Federal Court has explicitly held that documents outside the pleadings may be utilized by an insurer to exclude coverage under a commercial general liability policy. Also of note is that the insured has appealed this ruling. See id., C/A No. 20-2004 (4th Cir. Sept. 17, 2020). Should the Fourth Circuit uphold the U.S. District Court of South Carolina’s decision, then precedent will firmly exist that documents outside of the pleadings may be utilized to do both, include and exclude coverage. We shall monitor this matter further and keep you abreast of any ruling. Should you have any questions about this or any other third party coverage matter, please do not hesitate to let us know.