# The Supreme Court of South Carolina

Ex Parte:

Builders Mutual Insuran ce Company and Nationwide Mutual Insurance Company, Appellants,

In Re:

Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc., a nd Jack Love, Individually, and on behalf of all others similarly situated, Plaintiffs,

v.

Island Pointe, LLC; Leonard T. Brown; Complete Building Corporation; Tr i-County Roofing, Inc.; Creekside, Inc.; American Residential Services, LLC d/b/a Rescue Rooter Charleston; Andersen Windows, Inc.; Atlantic Building Construction Services, Inc. n/k/a Atlantic Construc tion Services, Inc.; Christopher N. Union; Builder Services Group, Inc. d/b/a Gale Contractor Services; Novus Architects, Inc. f/k/a SGM Architects, Inc.; Tallent and Sons, Inc.; WC Services, Inc., CRG Engineering, Inc. ; Certainteed Corporation; Kelly Flooring Products, Inc. d/b/a Carpet Baggers and John Doe 1-60, Defendants,

Tri-County Roofing, Inc., Third-Party Plaintiff,

v.

Cornerstone Construction and Mark Malloy d/b/a Cornerstone Construction; Gutter Works, Inc. and Michael L. Segars d/b/a Gutter Works; Mr. Gutter; Litchfield Seamless Gutte rs & Windows, LLC and Thomas Litchfield d/b/a L itchfield Seamless Gutter; Miracle Siding, LLC and Wilson Lucas Sales d/b/a Miracle Siding, LLC; Mark Palpoint a/k/a MicahPalpoint; Elroy Alonzo Vasquez; and Chris a/k/a John Doe 61, Third-Pa rty Defendants.

And

Complete Building Corpora tion, Inc., Third-Party Plaintiff,

v.

Alderman Construction; Stan ley's Vinyl Fence Designs; Cohen's Drywall; and Mosley Concrete, Third-Party Defendants,

Of Whom Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc. and Jack Love, Individually, and on behalf of all others similarly situated, Tri-County Roofing, Inc., and WC Services, Inc. are the Respondents.

Appellate Case No. 2019-000238

ORDER

After careful consideration of Respondents' petition for rehearing, the Court grants the petition for rehearing, dispenses with further briefing, and substitutes the attached opinion for the opinion pr eviously filed in this matter.

s/ Donald W. Beatty C.J.

s/ John W. Kittredge J.

s/ Kaye G. Hearn J.

s/ John Cannon Few J.

s/ George C. James, Jr. J.Columbia, South Carolina August 12, 2020THE STATE OF SOUTH CAROLINA In The Supreme Court

Ex Parte:

Builders Mutual Insuran ce Company and Nationwide Mutual Insurance Company, Appellants,

In Re:

Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc., a nd Jack Love, Individually, and on behalf of all others similarly situated, Plaintiffs,

v.

Island Pointe, LLC; Leonard T. Brown; Complete Building Corporation; Tr i-County Roofing, Inc.; Creekside, Inc.; American Residential Services, LLC d/b/a Rescue Rooter Charleston; Andersen Windows, Inc.; Atlantic Building Construction Services, Inc. n/k/a Atlantic Construc tion Services, Inc.; Christopher N. Union; Builder Services Group, Inc. d/b/a Gale Contractor Services; Novus Architects, Inc. f/k/a SGM Architects, Inc.; Tallent and Sons, Inc.; WC Services, Inc., CRG Engineering, Inc. ; Certainteed Corporation; Kelly Flooring Products, Inc. d/b/a Carpet Baggers and John Doe 1-60, Defendants,

Tri-County Roofing, Inc., Third-Party Plaintiff,

v.

Cornerstone Construction and Mark Malloy d/b/a Cornerstone Construction; Gutter Works, Inc. and Michael L. Segars d/b/a Gutter Works; Mr. Gutter; Litchfield Seamless Gutte rs & Windows, LLC and Thomas Litchfield d/b/a L itchfield Seamless Gutter; Miracle Siding, LLC and Wilson Lucas Sales d/b/aMiracle Siding, LLC; Mark Palpoint a/k/a Micah Palpoint; Elroy Alonzo Vasquez; and Chris a/k/a John Doe 61, Third-Pa rty Defendants.

And

Complete Building Corpora tion, Inc., Third-Party Plaintiff,

v.

Alderman Construction; Stan ley's Vinyl Fence Designs; Cohen's Drywall; and Mosley Concrete, Third-Party Defendants,

Of Whom Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc. and Jack Love, Individually, and on behalf of all others similarly situated, Tri-County Roofing, Inc., and WC Services, Inc. are the Respondents.

Appellate Case No. 2019-000238

Appeal from Charleston County Jennifer B. McCoy, Circuit Court Judge

Opinion No. 27970 Heard February 11, 2 020 – Filed May 13, 2020 Re-Filed August 12, 2020

AFFIRMED

John L. McCants, of Rogers Lewis Jackson Mann & Quinn, LLC, of Columbia, fo r Appellant Builders Mutual Insurance Company; and J. R. Murphy and Timothy J.Newton, both of Murphy & Grantland, P.A., of Columbia, for Appellant Nationwide Mutual Insurance Company.

Justin O. Lucey and Joshua F. Evans, both of Justin O'Toole Lucey, P.A., of Mt . Pleasant, for Respondents Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc. a nd Jack Love; Steven L. Smith, Zachary J. Closser, and Samuel M. Wheeler, all of Smith Closser Wheeler P.A., of Charleston, for Respondent Tri-County Roofing, Inc.; and James A. Atkins, of Clawson & Staubes, LLC of Charleston for Respondent WC Services, Inc.

Mark S. Barrow and Christy E. Mahon, both of Sweeny, Wingate & Barrow, P.A., of Columbia, and Steven M. Klepper, of Kramon & Grah am, P.A., of Baltimore, Maryland, all for Amici Curi ae Hartford Fire Insurance Company, Hartford Casualty Insurance Company, and Hartford Underwriters Insurance Company.

Frank L. Eppes, of Eppes & Plumblee, P.A., of Greenville, and Jesse A. Kirc hner, Michael A. Timbes, and Thomas J. Rode, a ll of Thurmond Kirchner & Timbes, P.A., of Charleston, all for Amicus Curiae South Carolina Association for Justice.

JUSTICE KITTREDGE: In this case, several insu rance companies (the Insurers) appeal the denial of their motions to intervene in a construction defect action between a property owners' association (the Association) and a number of construction contractors and subcontractors (the Insureds). The underlying construction defect action proceeded to trial, resulting in a verdict for the Association.

We find the Insurers were not entitled to inte rvene as a matter of right, and, further, the trial court did not abuse its discretion in denying them permissive intervention. Nonetheless, as we will discuss further, th e Insurers most assuredly have a right to a determination of which portions of the Association's damages are covered under the commercial general liability (CGL) policies between the Insurers and theInsureds. As such, we reaffirm our prio r holdings allowing insurance companies to contest coverage in a subsequent declaratory judgment action.

I.
Palmetto Pointe at Peas Island (Palmetto Pointe) is a condominium development located in Charleston County near Folly Beach. Following Palmetto Pointe's construction, the Association became aware of damage to the buildings, which they attributed to the Insureds. As a result, the Associati on filed a construction defect action against the Insureds for negligence, breach of implied warranties, and unfair trade practices and sought $17.5 million in actual and conseque ntial damages to repair or replace various components of th e condominiums. The Insureds each had one or more applicable CGL policies with the Insurers, and, pursuant to the CGL policies, the Insurers provided independent counsel to the Insureds to defend them in the action, subject to a reservation of rights to later contest whether the damages awarded in the action were covered by the CGL policies. The Insurers were not made parties to the construction defect action and did not direct the Insureds' defense.
Approximately three years later, at the tail end of the discovery period, the Insurers individually motioned to intervene in th e action "for the limited purpose of participating in the preparation of a special verdict form or a general verdict form accompanied by answers to interrogatories for [] submission to the jury during trial." The Insurers disavow ed any desire to be forma lly named as a party to the action, citing the likely prejudice to themselves and their clients (the Insureds). 1 However, by motioning to intervene, the In surers essentially sought to force the Association and the jury to itemize the damages against each Insured, which was not otherwise required. In doing so, the Insurers hoped to ensure the jury would determine which portions of the damage s were covered by the applicable CGL policies, thus obviating the need for th e subsequent declaratory judgment action.

The trial court denied the motions to inte rvene, and the Insurers appealed to the

1 See, e.g. , Rule 411, SCRE (prohibiting the ad mission of evidence tending to show a person was insured against liability); Crocker v. Weathers , 240 S.C. 412, 424, 126 S.E.2d 335, 340–41 (1962) ("The long-establis hed rule of our decisions is that the fact that a defendant is protected from liability in an action for damages by insurance shall not be made known to the ju ry. The reason of the rule is to avoid prejudice in the verdict, which might re sult from the jury's knowledge that the defendant will not have to pay it.").court of appeals. We subsequently certif ied the Insurers' appeals pursuant to Rule 204(b), SCACR.

II.
"The decision to grant or deny a motion to join an action pursuant to Rule 19, SCRCP, or intervene in an action pursu ant to Rule 24, SCRCP, lies within the sound discretion of the trial court." Ex parte Gov't Emps. Ins. Co. ( Ex parte GEICO ), 373 S.C. 132, 135, 644 S.E.2d 699, 701 (2007). On appeal, this Court will not disturb the trial court's decision ab sent a manifest abuse of discretion that results in an error of law. Id. (quoting Jeter v. S.C. Dep't of Transp. , 369 S.C. 433, 438, 633 S.E.2d 143, 145 (2006)). Moreover, the error of law must be so opposed to the trial court's sound discretion "as to amount to a deprivation of the legal rights of the party." Id. (citation omitted).

III.
The Insurers sought to inte rvene as a matter of right under Rule 24(a)(2), SCRCP. This Court has explained an entity seek ing intervention as a matter of right under Rule 24(a)(2) must necessarily:
(1) establish timely application; (2) assert an interest relating to the property or transaction which is the subject of the action; (3) demonstrate that it is in a position such that without intervention, disposition of the action may impair or impede its ability to protect that interest; and (4) demonstrate th at its interest is inadequately represented by other parties.
Berkeley Elec. Coop., Inc. v. Town of Mt. Pleasant , 302 S.C. 186, 189, 394 S.E.2d 712, 714 (1990). With respect to the seco nd element, we have compared having an interest in the action with constitutional sta nding, in that the intervenor must be a "real party in interest." See Ex parte GEICO , 373 S.C. at 138–39, 644 S.E.2d at 702–03 (describing a real party in interest as one who has a real , actual, material, or substantial interest in the subject matter of the acti on, as distinguished from one who has only a nominal, formal, or technical interest in, or connection with, the action (citing Bailey v. Bailey , 312 S.C. 454, 458, 441 S.E.2d 325, 327 (1994))); see also Restor-A-Dent Dental Labs., In c. v. Certified Alloy Prods., Inc. , 725 F.2d 871, 874 (2d Cir. 1984) (explaining the inte rest required for intervention as a matter of right must be "direct," "imme diate," and "significantly protectable," rather than "remote or contingent" (cita tions omitted)). As our precedent makes clear, the Insurers are not "real parties in interest" to the cons truction defect actionand, thus, cannot satisfy the four-part test espoused in Berkeley Electric

. See Ex parte GEICO , 373 S.C. 136, 138–39, 64 4 S.E.2d at 701, 702–03. 2

Because the Insurers have not shown they ha ve a direct interest in the construction defect litigation for Rule 24(a)(2) purposes, we hold the Insurers have not met the requirements to intervene as a matter of right. See Berkeley Elec. , 302 S.C. at 189, 394 S.E.2d at 714 (listing an interest in the action as one of four elements required for intervention as a matter of right). As a result, we affirm the trial court's denial of the Insurers' motions to in tervene as a matter of right. See Restor-A-Dent , 725 F.2d at 876 ("We are frank to admit that we are also influenced here by practical considerations that seem significant. A refusal to find a right under Rule 24(a) still leaves open the possibility in an appropriate case of permissive intervention by an insurer under Rule 24(b) for the purpose sought here, while a contrary holding would open the door wider to such inte rvention regardless of any unfortunate effect on the course of the main action. Moreover, a variety of factors properly bear on whether the type of intervention sought here should be allowed, and the trial judge's determination s hould ordinarily be accorded great weight. Application of subsection (b) of Rule 24 rather than subsection (a) recognizes these considerations, in view of the explicit emphasis in the former on undue delay or prejudice in the main action . . . .").

IV.
Turning to permissive interventi on, Rule 24(b), SCRCP, provides:
Upon timely application anyone may be permitted to intervene in an action . . . (2) when an applicant' s claim or defense and the main action have a question of law or fact in common. . . . In exercising its discretion the court shall consid er whether the intervention will unduly delay or prejudice the adjudicati on of the rights of the original

2 A significant number of courts discussi ng intervention as a matter of right under similar factual scenarios found the insuran ce companies' interests were contingent, rather than direct, for similar reasons. See, e.g.
, Am. Home Prods. Corp. v. Liberty Mut. Ins. Co. , 748 F.2d 760, 766 (2d Cir. 1984); Nieto v. Kapoor , 61 F. Supp. 2d 1177, 1194 (D.N.M. 1999); Davila v. Arlasky , 141 F.R.D. 68, 70–73 (N.D. Ill. 1991); Fid. Bankers Life Ins. Co. v. Wedco, Inc. , 102 F.R.D. 41, 44 (D. Nev. 1984); Universal Underwriters Ins. Co. v. E. Cent. Ala. Ford-Mercury, Inc. , 574 So. 2d 716, 723 (Ala. 1990) (citing U.S. Fid. & Guar. Co. v. Adams , 485 So. 2d 720, 721–22 (Ala. 1986)); Donna C. v. Kalamaras , 485 A.2d 222, 223 (Me. 1984).parties.
An intervenor seeking permissive intervention must: (1) establish timely application; (2) assert a claim or defens e that has a question of law or fact in common with the underlying action; and (3) prove his participation in the underlying action will not delay or prejudice the adjudication of the rights of the original parties. "A reversal of a denial of permissive intervention has been termed 'so unusual as to be almost unique.'" S.C. Tax Comm'n v. Union Cty. Treasurer
, 295 S.C. 257, 262, 368 S.E.2d 72, 75 (Ct. App. 1988) (quoting New Orleans Pub. Serv., Inc. v. Unite d Gas Pipeline Co. , 732 F.2d 452 (5th Cir. 1984)).
The record is replete with f acts rationally supporting the trial court's denial of the Insurers' motions for permissive interventi on. We therefore conclude the Insurers have failed to prove the trial court abused its discretion. See Ex parte GEICO , 373 S.C. at 135, 644 S.E.2d at 701. In affirmi ng the trial court, we need look no further than the third factor—the delay or prejudice to the original parties. There are facts in the record supporting the trial court' s decision that the Insurers' intervention would (1) unnecessarily complicate the c onstruction defect action, including altering the Association's burden of proof and possibly delaying the trial, and (2) create a conflict of interest for the Insureds' counsel, w ho were supplied to them by the Insurers.

A.
As to the complication of the construction defect action, we note that, absent the Insurers' intervention, the Association has no need to parse its damages into categories corresponding to the c overage provided in a CGL policy. 3 Rather, as one of the Insurers conceded, the Associ ation could properly re quest and receive a general verdict against all of the Insureds . However, with the addition of special jury interrogatories and verdict forms, the Association—as the plaintiff, with the

3 Generally, a CGL policy does not cover the cost of repairing or removing faulty workmanship; however, the policy does cove r the cost of repairing additional, consequential damage caused by the faulty workmanship, such as water intrusion caused by negligent construction. See S.C. Code Ann. § 38-61-70(B)(2) (2015); Crossman Cmtys. of N.C., Inc. v. Harleysville Mut. Ins. Co. , 395 S.C. 40, 49–50, 717 S.E.2d 589, 593–94 (2011) ("In sum, we clarify that negligent or defective construction resulting in damage to otherwise non-defective components [is covered under a CGL policy], but the de fective construction would not [be covered].").burden of proof —would have a heightened burden to itemize its damages into Insurer-defined categories which the Association may not have intended to present to the jury. The Association's counsel here specifically bemoaned this exact problem. According to counsel, at the ti me the Insurers motioned to intervene (three years into the action and at the end of discovery ), the parties had conducted "in excess of 40 depositions wherein the qu estion[s that would be] relevant to the special verdict [or] special interrogatory . . . weren't asked."
Further, in a subsequent declaratory judgme nt action, the Insureds and the Insurers have the collective burden to show whic h portions of the general verdict are covered under the CGL policies. See Gamble v. Travelers Ins. Co. , 251 S.C. 98, 103, 160 S.E.2d 523, 525 (1968) (explaining the initial burden to prove that a loss is covered under an insurance policy is on the insured, and once the insured has done so, the burden shifts to the insurer to prove that an exclusion applies to defeat coverage); see also Helena Chem. Co. v. Allianz Underwriters Ins. Co. , 357 S.C. 631, 642 n.5, 594 S.E.2d 455, 460 n.5 (2004) (stating that, when relevant, the insured bears the burden to prove an excep tion to the exclusion applies in order to restore coverage). Allowing the Insurers to intervene in the construction defect action in an attempt to segregate covered and non-cove red damages would effectively place that burden of proof on th e Association. Through the trial court's decision to leave all coverage issues to a subsequent declarat ory judgment action, the burden of proof concerning the coverage dispute will remain with the Insureds and the Insurers respectivel y, where it properly belongs.
Likewise, even if the Insurers were pe rmitted to intervene, it would only grant them the ability to request special jury interrogatories and verdict forms under Rule 49(a) and (b), SCRCP. Howeve r, it does not require the trial court use the requested documents at all, mu ch less without modification. See Thomas v. Henderson , 297 F. Supp. 2d 1311, 1325 n.16 (S.D. Ala. 2003); Plough, Inc. v. Int'l Flavors & Fragrances, Inc. , 96 F.R.D. 136, 137 (W.D. Tenn. 1982). Were the Insurers to object to the trial court's failu re to submit the proposed interrogatories or to the way the interrogatories were framed by the court, they could appeal and grind the entire construction defect trial to a halt. See Restor-A-Dent , 725 F.2d at 877 (noting this complication, and stating, "W hile it is highly unlikely that such an appeal would be successful in view of a [trial] court's broad discretion in this context, nevertheless the possibility of this complication of the main action remains." (citation omitted)).

B.
Additionally, a number of attorneys in this case raised concerns over the conflict ofinterest inherent in allowing the Insurers to intervene. 4 One of the most common worries expressed by the attorneys was th at if the trial court permitted a verdict form with special interrogatories, it w ould place the Insureds' counsel in the untenable position of essentially concedi ng liability so as to focus instead on damages. In particular, several counsel explained a special verdict form would force them to alter their presentation of evidence to shunt as much of the Association's damages as possible into cove red, consequential da mages (e.g., water intrusion resulting from faulty workmanship ), thereby conceding the Insureds had, in fact, created faulty workmanship in the first place. Th e concerns over the possibility—and likelihood—of a conflict of interest in these types of situations are echoed by a number of cour ts across the country. See, e.g.
, Nat'l Fire Ins. Co. of Pitt., P.A. v. Bakker , 917 F.2d 22 (4th Cir. 1990) (per curiam); Restor-A-Dent , 725 F.2d at 877; Nieto , 61 F. Supp. 2d at 1195 (noting the insured would not only have the burden of presenting a defense to th e plaintiff's accusations, but were his insurance company allowed to intervene, he would also have the additional burden of having his insurance company interfere with his defense); High Plains Coop. Ass'n v. Mel Jarvis Constr. Co. , 137 F.R.D. 285, 290–91 (D. Neb. 1991); Wedco

, 102 F.R.D. at 43; Allstate Ins. Co. v. Keltner , 842 N.E.2d 879, 882–83 (Ind. Ct. App. 2006) (noting the insurance company' s argument that its insured would not want to seek an allocated verdict be cause it "would automatically expose [the insured] to liability on" the non-covered da mages portion of the allocated verdict); Donna C. , 485 A.2d at 225; Harleysville Grp. Ins. v. Heritage Cmtys., Inc. , 420 S.C. 321, 363, 803 S.E.2d 288, 311 (2017) (Pleicones, A.J., dissenting) (opining it would be impossible for an insurance co mpany to intervene in a construction defect suit and assert a defense against c overage without creating an impermissible conflict of interest (citation omitte d)); Christopher Lyle McIlwain, Clear as Mud: An Insurer's Rights and Duties Where Coverage Under a Liability Policy is Questionable , 27 Cumb. L. Rev. 31, 52–53 (1997) (explaining courts frequently deny permissive intervention because "requiri ng the jury to focus on certain issues may prejudice the prosecution or defense of the plaintiff's claim, and may force the insured to take steps to assure coverage of claims rath er than defend all claims").

We conclude there are facts in the record that support the trial court's decision that permissive intervention here would present conflict of interest concerns and likely cause undue delay and prejudice to the Associ ation and the Insureds. Accordingly, we hold the trial court did not abuse its discretion in denying the Insurers' motions

4 In fact, all counsel provided by the Insu rers to the Insureds refused to take positions on the motions to intervene for fear of a conflict of interest.for permissive intervention. See, e.g.
, Restor-A-Dent , 725 F.2d at 877 ("Under all of these circumstances, we cannot say that the district judge abused his discretion here [in denying the insurance co mpany's motion for intervention]."). 5

V.
According to the Insurers, their moti ons to intervene were mandated by our decisions in Auto Owners Insurance Co. v. Newman 6 and Harleysville Group Insurance v. Heritage Communities, Inc. 7 We respectfully disagree, although the Insurers' position is understandable , especially with respect to Newman

.
In Newman , a homeowner sued a construction co ntractor for the alleged defective construction of her home, and, following an arbitration proceeding, an arbitrator issued an award in favor of the homeown er. 385 S.C. at 190, 684 S.E.2d at 542. In a subsequent declaratory judgment action between the contractor and its insurance company, the trial court fo und the CGL policy covered the damages awarded by the arbitrator. Id. at 190–92, 198, 684 S.E.2d at 543, 547. This Court affirmed in part and reversed in part, finding the CGL policy covered parts of the damages awarded by the arbitrator but did not cover other parts of the damages. Id. at 196, 198, 684 S.E.2d at 545–46, 546–47. However, the Court refused to review or parse the arbitrat or's award, finding that arbitration awards are generally conclusive and will not be revi ewed on the merits on appeal. Id. at 198, 684 S.E.2d at 547 (citing Pittman Mortg. Co. v. Edwards , 327 S.C. 72, 76–77, 488 S.E.2d 335, 337–38 (1997) (stating an appella te court must affirm an arbitration award so long as it is "barely colorable")).

5 Following the denial of the Insurers' motions to intervene, the trial court permitted the construction defect trial to go forward, despite the Insurers' pending appeals of those motions. The Insurers thus also raise a question to this Court as to whether the trial court erred in allowing th e trial to proceed wh ile the appeals were still pending. Because we ha ve found the trial court did not abuse its discretion in denying the motions to intervene, the In surers were not improperly excluded from participating in the constructio n defect trial. As a result, this issue is moot, and we do not address it.

6 385 S.C. 187, 684 S.E.2d 541 (2009).

7 420 S.C. 321, 803 S.E.2d 288 (2017).It was not the intent in Newman to categorically foreclose a subsequent declaratory judgment action to resolve a covera ge dispute. To the extent Newman may be read to foreclose an insurance company's subsequent declaratory judgment action to resolve the coverage dispute, we modify Newman accordingly. South Carolina has long recognized the efficacy of declaratory judgment actions in this context. See,
e.g. , Sims v. Nationwide Mut. Ins. Co. , 247 S.C. 82, 145 S.E.2d 523 (1965).
Turning briefly to Harleysville , a condominium property ow ners' association sued a construction contractor for the al leged defective construction of the condominium complex, and a jury awarde d a general verdict to the property owners' association. 420 S. C. at 329–31, 803 S.E.2d at 292–94. In the declaratory judgment action between the insurance co mpany and the contractor, the Special Referee ordered the insurance company to pay the entirety of the general verdict, despite the fact that the verdict included some losses that explicitly were not covered under the CGL policy, because he found that " it would be improper and purely speculative to attempt to allocate the [] general verdic t[] between covered and non-covered damages." Id. at 332, 803 S.E.2d at 294. Notably, in the alternative, the Special Refe ree found the insurance compan y's reservation of rights letter to the insured was inadequate a nd constituted an implied waiver of the insurer's right to contest coverage in the declaratory judgment action. See id. at 336, 338, 803 S.E.2d at 296, 297. It wa s this latter basis—the inadequate reservation of rights letter—th at served as the basis of this Court's affirmance of the Special Referee. See id. at 336–44, 803 S.E.2d at 296–301 (describing the reservation letter as a "gener ic denial[] of coverage coupled with furnishing the insured with a copy of all or most of th e policy provisions (through a cut-and-paste method)"). The Court concluded the reserva tion of rights letter was so lacking that it was "insufficient to [actua lly] reserve [the insurance co mpany's] right to contest coverage of actual damages, " and, therefore, affirm ed the Special Referee's decision. Id. at 343, 803 S.E.2d at 300. Harleysville neither mandates intervention in the underlying construction defect acti on nor forecloses a declaratory judgment action to resolve a coverage dispute.

VI.
The parties offer varying approaches on the specifics of how a subsequent declaratory judgment action should be trie d. It appears a significant point of contention is the Insurers' concern that a ny coverage decisions in the declaratory judgment actions will be bound by factual de terminations made in the construction defect action. This point has been addressed by this Court in Sims v. Nationwide Mutual Insurance Co.In Sims , the Court explained that, generally, "where an insurance company has notice and [an] opportunity to defend an ac tion against its insured, the company is bound by pertinent material facts establishe d against its insured, whether it appears in the defense of the action or not." 247 S.C. at 84–85, 145 S.E.2d at 524. However, the Court reasoned that rule co uld not apply in situations where the insurance company had a conflic t of interest with its insured, such as when the company claimed the acts being sued over were partially or wholly outside the scope of the applicable insurance policy. Id. at 85–89, 145 S.E.2d at 524–26 (explaining the underlying purpose of the ge neral rule is to obviate the delay and expense of two trials upon the same issu e between parties whose interests are identical; and when a conflict of interest causes the parties' in terests to diverge, "the judgment against the [insured] does not decide issues as to the existence and extent of the duty to indemnify," such th at "in a subsequent action the [insurance company] may show that the circumstances under which [it] wa s required to give indemnity do not exist" (quoting Farm Bureau Mut. Auto . Ins. Co. v. Hammer , 177 F.2d 793, 799–801 (4th Cir. 1949) (citing the predecessor to the modern Restatement (Second) of Judgments § 58 (2020)))).
As further explained in section 58 of the Restatement (Second) of Judgments:
[T]he indemnitor has a right to its day in court on whether the indemnitee's liability is within the scope of the indemnity obligation. . . .

. . . [A]n indemnitor who has an independent duty to defend the indemnitee in effect has two lega l capacities with regard to the indemnitee. In his capacity as insu rer against the indemnitee's risk of being sued on claims that "might be found to be" within the indemnity obligation, the indemnitor has a res ponsibility to provide counsel and supporting assistance to defend th e indemnitee without regard to the indemnitor's interests . . . . In hi s capacity as indemnitor, he has a responsibility to indemnify for such liability as may be within the indemnity obligation. In the latter capacity, he should not be bound by determinations in an action in wh ich he participated in the former capacity if there is a conflict of interest between the two

.
See Restatement (Second) of Judgments § 58 & cmt. a (emphasis added).

Sims is directly applicable to the parties' dispute here. As explained above, there is a conflict of interest betwee n the Insurers and the Insureds as to the proper method of calculating damages vis-à-vis what porti ons of the Association's total damagesare covered under the CGL polic ies. Thus, the Insureds and the Insurers are not precluded from introducing evidence as to which damages are covered (or excluded from coverage) by the CGL policies. See, e.g.
, Universal Underwriters Ins. Co. , 574 So. 2d at 723 ("Nevertheless, not hing in our law would bar [the insurance company] from litigating the cove rage issue in a declaratory judgment action after the resolution of the underlying cases in this matter."); Donna C. , 485 A.2d at 224. Having said that, the par ties would be bound by the total amount of any jury verdict in the c onstruction defect action. See Restatement (Second) of Judgments § 58(1) (explaining the parties in the declaratory judgment action may not dispute the "existence and extent" of the judgment in the first action).

The Insurers and amici voiced their conc erns that, in a declaratory judgment action, courts may reject any efforts to allocate a general verd ict into covered and non-covered damages because that allocat ion requires some degree of speculation as to what the jury may have in tended when issuing its verdict. Cf., e.g.

, Harleysville , 420 S.C. at 332, 803 S.E.2d at 294 (explaining the Special Referee found "it would be improper and purely sp eculative to attempt to allocate the [] general verdict[] between covered and non-covered dama ges"). We, too, are concerned about the possibility an insura nce company may be unjustly forced to cover damages that are otherwise properly excluded under a CGL policy. 8

Given that the parties in the declarat ory judgment action are bound by the total verdict in the construction defect action, how then do we attempt to fairly allocate covered damages and non-covered damages? This seems to be the biggest challenge to resolve. We begin by noti ng that we do not oppose the parties coming to an agreement on a framework for allocati ng damages, subject to the approval of the court. Failing an agreement of the par ties, we set forth a default approach that shall serve as the framework for use in declaratory judgment actions for allocating covered and non-covered damage s. This default framework is utilized in other jurisdictions, and it allows litigants in a declaratory judgment action to use

8 In fact, the insurance company in Harleysville attempted to use a percentagebased approach described mo re fully below, but the Speci al Referee rejected the evidence as "irrelevant and speculative." Because the Harleysville majority issued its decision on the basis of the insuran ce company's inadequate reservation of rights letter, the Court did not address this finding by the Special Referee. To avoid any future confusion, we reject th e notion that, in a declaratory judgment action, it is "improper and purely speculativ e" to allocate a general verdict into covered and non-covered damages. See Harleysville , 420 S.C. at 332, 803 S.E.2d at 294.percentages, rather than exact dollar am ounts, to determine the amount of covered and non-covered damages in a general verdict.
In the declaratory judgment action, the re cord of the merits trial shall be the primary source of evidence concerning matters litigated in that trial, such as the extent of the damages. Additional evidence that is relevant to the coverage dispute determination may be presented in the declaratory judgment action, including expert testimony, 9 but the additional evidence should be narrowly tailored to matters that were not actually litigated in the first trial. 10 The trier of fact shall then make a determination allocating on a pe rcentage basis what portion of the underlying verdict constitute s covered damages and wh at portion constitutes noncovered damages. See, e.g.
, Duke v. Hoch , 468 F.2d 973, 984 (5th Cir. 1972) (explaining that on remand to allocate a ge neral verdict, the "primary source of evidence will be, of course, the transcript of the merits trial, containing the evidence on which the jury based its verdict. The trial judge, as trier of fact, will be in the position of establishing as best he can the allocation which the jury would have made had it been tendered the opportunity to do so. If it is impossible for the court to make a meaningful allocation based on only the transcript, [the judgment creditor, standing in the shoes of the in sured,] should have the right to adduce additional evidence and [the insurance company] to pres ent evidence in rebuttal."); MedMarc Cas. Ins. Co. , 199 S.W.3d at 60, 63 (describing in a declaratory judgment action the insureds' motion to allocate the general verdict in the underlying suit, and remanding the trial court's initial decision to allocate 25% of the jury verdict as covered damages be cause, while permissible to allocate by percentage, the trial court did not speci fy how it arrived at the 25% number); Keltner , 842 N.E.2d at 883 (noting the parties se emed to assume that if a general

9 For example, in Harleysville , the insurance company pr offered expert testimony from a general contractor who had prepared an estimate to completely repair the damaged condominium buildings. The ex pert segregated the portion of his estimate which constituted the cost to repair damages from water intrusion (covered damages) and determ ined what percentage of his total estimated damages that portion constituted. Finally, he took the percentage of the covered damages and multiplied it by the jury's verdict, arriving at an amount representing the approximate portion of the general verd ict constituting the covered damages.

10 For example, if the underlying merits tria l results in a general verdict, the parties in the declaratory judgment action shou ld be permitted to introduce evidence related to determining whic h portion of the damages are covered by the policy (or policies).verdict was entered in the underlying acti on, there would be no later opportunity to distinguish between cove red and non-covered damages, but holding that a supplemental proceeding in a declaratory judgment action "would offer an occasion for presenting evidence and argument regarding a fair approximation of the division of damages" (emphasis added)).
As we have acknowledged in this type of case in the past, perfect precision in allocating damages is not always achieva ble. Where perfect precision is not achievable, a fair approximation must suffice. See Crossman , 395 S.C. at 65–66, 717 S.E.2d at 602 (acknowledging that, after adopting a time-on-the-risk approach to progressive damage allocation, the time-on-the-risk "formula is not a perfect estimate of the loss attributable to each insurer's time on the risk. Rather, it is a default rule that assumes the damage o ccurred in equal portions during each year that it progressed. If proof is available showing that the damage progressed in some different way, then the allocation of losses would need to conform to that proof. However, absent such proof, a ssuming an even progression is a logical default." (italic emphasis a dded) (emphasis in original omitted)). Our exhaustive research persuades us that the percentage -based approach will best achieve a fair allocation of damages.

VII.
For the foregoing reasons, we conclude the tr ial court did not abus e its discretion in denying the Insurers' motions to intervene a nd, therefore, affirm. In doing so, we also recognize that the Insurers have the ri ght and ability to contest coverage of the jury verdict in a subsequent declarator y judgment action. In that action, the Insurers and the Insureds will be bound by the existence and extent of any jury verdict in favor of the Association in the construction defect action. However, they will not be bound as to any factual matters fo r which a conflict of interest existed, such as determining what portion of the total damages are covered by any applicable CGL policies.

AFFIRMED.

BEATTY, C.J., HEARN, FEW and JAMES, JJ., concur.