Insurance – Covenant-Not-to-Execute – Pretrial Settlements

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Subcontractor is entitled to set off the full amount of the $1,000,000 paid by general contractor’s insurer to a townhome project in exchange for the covenant-not-to-execute.

We reversed in part, affirmed in part, and remanded to the trial court for the calculation of judgment to be entered against Tri-County Roofing (TCR).

The issue in this construction defect case concerned the amount TCR, a subcontractor on a townhome project named Palmetto Pointe at Peas Island, is entitled to set off from Palmetto’s joint and several verdict against TCR and the general contractor, Complete Building Corporation (CBC). We addressed two categories of pretrial settlement payments received by Palmetto: (1) $1,000,000 paid to Palmetto by CBC’s insurer in exchange for a covenant-not-to-execute approximately 10 months before trial; and (2) pretrial settlements paid by four other defendants totaling $1,975,000—part of which Palmetto conceded TCR was entitled to set off. The court of appeals held TCR is not entitled to setoff for either the $1,000,000 covenant-not-to-execute or the total amount of the settlements paid by the four other defendants.

The court of appeals erred in holding TCR is not entitled to setoff for the $1,000,000 paid to Palmetto by CBC’s insurer in July 2018, 10 months before trial. Palmetto unquestionably gave the pretrial covenant-not-to-execute to CBC in good faith, and the covenant stipulates the $1,000,000 is a “credit in the same amount against any judgment obtained against CBC.” The judgment (here, clearly the verdict) obtained against CBC was obviously for categories of damage presented to the jury. TCR and CBC were found liable to Palmetto for the same categories of damage. And here, the verdict as rendered made CBC and TCR jointly and severally liable for those damages. Under the facts of this case, allowing Palmetto to belatedly allocate CBC’s $1,000,000 pretrial payment to categories of damage for which Palmetto did not seek recovery at trial flies in the face of the plain language of section 15-38-50. We reversed the court of appeals on this issue and held TCR is entitled to set off the full amount of the $1,000,000 paid by CBC’s insurer to Palmetto in exchange for the covenant-not-to-execute.

We held the court of appeals did not err in holding TCR was not entitled to full setoff for the pretrial settlements between Plaintiff Palmetto and Defendants Novus Architects, Inc., Atlantic Building Construction Services, Inc., H&A Framing Construction, LLC, and Cohen’s Drywall Company, Inc. As is customary in construction litigation, Palmetto sued numerous defendants and claimed it was entitled to damages for multiple types of injuries. During trial, evidence of several types of injuries were presented to the jury. Cohen’s performed drywall and insulation work on the project and was sued by Palmetto. Before trial, Cohen’s paid $125,000 to Palmetto in exchange for a full release, and Cohen’s was dismissed from the action. The Cohen’s release contained no allocation between drywall and insulation. Defects arising from drywall installation were tried before the jury, while defects related to insulation were not. After the jury rendered its general verdict, Palmetto unilaterally allocated 50 percent of the Cohen’s settlement to drywall issues. In its setoff motion, TCR claimed it was entitled to a setoff of the entire $125,000 paid by Cohen’s. Thus, as the moving party, TCR had to establish Palmetto’s allocation of the Cohen’s settlement was unreasonable. After considering the arguments of TCR and Palmetto, the trial court found the allocation was reasonable. Cohen’s involvement in the project was twofold—drywall (an issue tried to the jury) and insulation (an issue not tried to the jury). Therein lies the rub in this case—was the entire Cohen’s payment to Palmetto “for the same injury (drywall)” tried to the jury? Here, the trial court, which had the advantage of seeing and evaluating what was and was not presented to the jury, considered the parties’ arguments and concluded the 50% allocation was reasonable. We held the trial court properly exercised its discretion.

We reversed the court of appeals’ setoff holding on the $1,000,000 payment to Palmetto in July 2018 and held TCR is entitled to set off that amount against the verdict. We affirmed the court of appeals’ holding on the Novus, Atlantic, H and A, and Cohen’s settlements. We remanded to the trial court for calculation of the amount of judgment to be entered against TCR.

Reversed in part, affirmed in part, and remanded.

Palmetto Pointe at Peas Island Condominium Property Owners Association Inc. v. Island Pointe LLC (Lawyers’ Weekly No. 010-028-25, 11 pp.) (George C. James, J.) Appealed from Charleston County Circuit Court (Jennifer B. McCoy, J.) Christian Stegmaier, Kelsey Jan Brudvig, Henry Dargan McMaster, Jr., Evan Markus Gessner, and Michael C. Bunda, all of Collins & Lacy, PC, of Columbia, for Petitioner; Edward D. Buckley, Jr. and Russell Grainger Hines, both of Clement Rivers, LLP, of Charleston; Justin O’Toole Lucey, Joshua Fletcher Evans, Sohayla Roudsari Townes, and Anna Scarborough McCann, all of Justin O’Toole Lucey, P.A., of Mt. Pleasant; and Stephanie D. Drawdy, of Justin O’Toole Lucey, P.A., of Summerville, all for Respondents. South Carolina Supreme Court