After a much anticipated rehearing, the South Carolina Supreme Court upheld its prior decision that an insurer failed adequately to reserve the right to contest coverage with specificity and failed to request an allocated verdict in the underlying litigation. Harleysville Grp. Ins. v. Heritage Communities, Inc., 803 S.E.2d 288 (S.C. 2017).
The Supreme Court previously held, among other things, that insurers’ reservation of rights letters must place insureds on notice of the specific grounds on which insurers may contest coverage, and that insurers must request allocated verdicts in underlying actions in order to later preserve the right to contest coverage of portions of a verdict. Harleysville Grp. Ins. v. Heritage Communities, Inc., No. 2013-001281, 2013-001291, 2017 WL 105021 (S.C. Jan. 11, 2017), opinion superseded on reh'g, 803 S.E.2d 288 (S.C. 2017). The Court reheard the case and issued an opinion that generally reiterated its prior opinion. The Court, however, did add analysis of why a property owners’ association, which was not a party to the insurance contract, had standing to challenge the sufficiency of a reservation of rights letter. The Court noted that, while strangers to insurance contracts typically lack standing to challenge insurance contracts, the unique facts of the case granted the property owners’ association standing. Specifically, it noted that the insured was now defunct and failed to make an appearance, the property owners’ association shared a common interest with the insured in maintaining insurance coverage, and, accordingly, the property owners’ association should be allowed to “stand in the shoes” of the insured.