Palmetto Pointe v. Tri-County Roofing: Covenant-Not-to-Execute Setoff Under S.C. Code §15-38-50

Introduction

In Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc. and Jack Love v. Tri-County Roofing, Inc., the Supreme Court of South Carolina resolved a critical question in construction-defect litigation: to what extent is a non-settling subcontractor entitled to a dollar-for-dollar credit (setoff) against a joint verdict when the plaintiff has previously obtained pretrial payments from other defendants? The parties before the Court were Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc. (“Palmetto”) and Jack Love, representing a putative class of condominium owners, as respondents, and Tri-County Roofing, Inc. (“TCR”) as petitioner. The dispute centered on two categories of pretrial payments received by Palmetto—(1) a $1,000,000 covenant-not-to-execute from the general contractor’s insurer and (2) nearly $2,000,000 in lump-sum settlements from four other subcontractors. The Court reversed the court of appeals in part, affirmed in part, and remanded for recalculation of TCR’s liability.

Summary of the Judgment

The Supreme Court’s opinion, delivered by Justice James, held that under Section 15-38-50 of the South Carolina Code a non-settling defendant is entitled to a full setoff for a pretrial covenant-not-to-execute in the amount paid, because that credit was “stipulated by the covenant” against any subsequent judgment. The Court reversed the court of appeals’ denial of setoff for the $1,000,000 covenant-not-to-execute paid by Complete Building Corporation’s insurer. By contrast, the Court affirmed that TCR was not entitled to setoff for the full amounts of the four other pretrial settlements (Novus, Atlantic, H&A, and Cohen’s), beyond the partial offsets conceded by Palmetto, because those settling defendants’ payments were allocated—by the trial court in the exercise of discretion—to categories of damage not all attributable to TCR’s work.

Analysis

Precedents Cited

Jolly v. Fisher Controls Int’l, 443 S.C. 511, 905 S.E.2d 380 (2024) – reaffirming that a non-settling defendant’s right to setoff arises “by operation of law” when settlement funds compensate the same injury, and endorsing trial-court discretion to allocate multi-claim settlements.
Smith v. Widener, 397 S.C. 468, 724 S.E.2d 188 (Ct. App. 2012) – holding that a setoff is automatic when a release satisfies the same injury.
Ellis v. Oliver, 335 S.C. 106, 515 S.E.2d 268 (Ct. App. 1999) – emphasizing lack of trial-court discretion when a settlement plainly covers the identical injurious claim.
Oaks at Rivers Edge Prop. Owners Ass’n v. Daniel Island Riverside Devs., 420 S.C. 424, 803 S.E.2d 475 (Ct. App. 2017) – authorizing reasonable allocation among distinct claims in a multi-claim settlement.
Riley v. Ford Motor Co., 414 S.C. 185, 777 S.E.2d 824 (2015) – clarifying deference to parties’ agreed allocations, so long as not plainly unreasonable.

Legal Reasoning

The Court’s analysis turned on S.C. Code §15-38-50, which provides that a “release or a covenant not to sue or not to enforce judgment” given in good faith to one of multiple tortfeasors “reduces the claim against the others to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, whichever is the greater.” Here:

$1,000,000 Covenant-Not-to-Execute. The July 2018 covenant expressly stated that the payment “constitute[d] a credit in the same amount against any judgment obtained against CBC.” Because CBC and TCR were jointly and severally liable for identical categories of damage—and because the covenant fell squarely within §15-38-50—the Court held that TCR must be credited the full $1,000,000.
Four Lump-Sum Settlements. Palmetto received $650,000 from Novus, $700,000 from Atlantic, $500,000 from H&A, and $125,000 from Cohen’s. Although Palmetto conceded TCR was entitled to modest partial offsets to avoid double recovery on overlapping issues, the remaining unapportioned share required a reasoned allocation by the trial court. The Court, citing Jolly, affirmed that where settlement proceeds cover multiple claims—some relevant to the verdict and some not—the judge may allocate the proceeds reasonably. Because the trial court’s allocation here was not an abuse of discretion, the Court affirmed denial of further setoff.

Impact

This decision carries important lessons for practitioners and parties in multi-defendant tort cases:

When negotiating a covenant-not-to-execute, ensure the credit is explicitly “stipulated by the covenant” to secure a full setoff for non-settling codefendants.
In lump-sum settlements covering varied defects or injuries, consider incorporating an express, contemporaneous allocation of settlement proceeds among distinct claims to avoid post-verdict disputes.
Trial courts enjoy discretion to allocate settlement funds; appellate review is deferential unless the allocation is arbitrary or unreasonable.
Non-settling defendants should diligently assert setoff rights under §15-38-50 and challenge any unjustified or unsupported lump-sum allocations.

Complex Concepts Simplified

Joint and Several Liability: When two or more defendants are responsible for the same injury, a plaintiff can collect the entire judgment from any one of them.
Setoff Under §15-38-50: A legal credit reducing a defendant’s liability when another tortfeasor has paid on the same claim.
Covenant-Not-to-Execute: A pretrial agreement where one defendant’s insurer pays the plaintiff to refrain from enforcing judgment, often in exchange for preserving certain claims.
Apportionment of Fault: Dividing financial responsibility among multiple defendants based on their respective percentages of liability.
Reasonable Allocation: A fair division of settlement proceeds among the claims covered, reflecting each payment’s value to released claims.

Conclusion

Palmetto Pointe v. Tri-County Roofing clarifies that South Carolina’s statutory setoff provision (§15-38-50) mandates a full credit for a covenant-not-to-execute when the payment is expressly stipulated as a judgment credit, and it reaffirmed the trial court’s discretion to allocate multi-claim settlements reasonably. This ruling underscores the importance of transparent, contemporaneous allocations in settlement agreements and offers clear guidance for litigators on structuring releases to protect non-settling codefendants’ rights. As the industry adapts, counsel should heed these principles to minimize post-settlement disputes and secure predictable outcomes in complex, multi-party construction litigation.