First Financial Insurance Comp v. Tonya Brumbaugh
Filing
UNPUBLISHED AUTHORED OPINION filed. Originating case number: 2:11-cv-00554-RMG. Copies to all parties and the district court/agency. [999273106].. [12-2452]
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2452
FIRST FINANCIAL INSURANCE COMPANY,
Plaintiff - Appellant,
v.
TONYA BRUMBAUGH, as Personal Representative for the Estate
of Wanda Elaine Malmede Holland,
Defendant – Appellee,
and
CHAD WAYNE KESSING, SR.; EDWARD STEVE ENGLISH; GARY DENAUX;
GAREY G. GOREY; WHOLESALE TRANSMISSIONS AND AUTO REPAIR; GHA
LLC,
Defendants.
Appeal from the United States District Court for the District of
South Carolina, at Charleston.
Richard M. Gergel, District
Judge. (2:11-cv-00554-RMG)
Argued:
September 18, 2013
Decided:
January 8, 2014
Before SHEDD, DUNCAN, and KEENAN, Circuit Judges.
Vacated and remanded by unpublished opinion. Judge Keenan wrote
the majority opinion, in which Judge Duncan joined. Judge Shedd
wrote a dissenting opinion.
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ARGUED: Mark S. Barrow, SWEENY, WINGATE & BARROW, PA, Columbia,
South Carolina, for Appellant.
William Mullins McLeod, Jr.,
MCLEOD LAW GROUP, Charleston, South Carolina, for Appellee. ON
BRIEF: William R. Calhoun, Jr., Aaron J. Hayes, SWEENY, WINGATE
& BARROW, PA, Columbia, South Carolina, for Appellant. Julie L.
Moore, MCLEOD LAW GROUP, LLC, Charleston, South Carolina, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
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BARBARA MILANO KEENAN, Circuit Judge:
In
this
appeal,
we
consider
whether
the
district
court
properly applied principles of equitable estoppel under South
Carolina
law
in
requiring
that
an
insurance
carrier
provide
coverage to a third party not otherwise entitled to coverage
under the terms of the policy at issue.
Upon our review, we
conclude that the district court abused its discretion in using
the
doctrine
of
circumstances.
estoppel
We
to
create
coverage
therefore
vacate
the
under
district
these
court’s
judgment.
I.
Appellant First Financial Insurance Co. (First Financial)
issued a liability insurance policy to Gary Denaux, formerly the
sole
proprietor
of
Wholesale
Transmission,
an
automotive
transmission business located in Moncks Corner, South Carolina.
The policy issued to Denaux (the policy or the Denaux policy)
listed
the
named
Transmission.”
insured
as
“Gary
Denaux
DBA
Wholesale
The term “insured” was defined in the policy to
include the named insured as well as his employees. 1
1
An endorsement to the policy added the owners of the
“garage premises” as additional insureds.
3
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In the section of the policy declarations entitled “form of
business,”
the
alternative
policy
options
liability company.”
listed
“individual,”
including
rather
“partnership”
and
than
“limited
Under the policy, First Financial agreed to
“pay all sums an ‘insured’ legally must pay as damages because
of ‘bodily injury’ or ‘property damage’ . . . caused by an
‘accident’ and resulting from ‘garage operations.’”
By its terms, the policy was effective from May 23, 2007
through
May
23,
2008.
Under
the
heading
“Transfer
of
Your
Rights and Duties Under this Policy,” the policy provided:
Your rights and duties under this policy may not be
transferred without our written consent except in the
case of death of an individual named insured.
(Emphasis added).
Midway
through
the
operating
his
opened
new
automotive
also
named
a
location,
business.
term
A
of
former
the
policy,
coworker,
transmission
Wholesale
Denaux
Edward
business
Transmission.
in
ceased
English,
the
English
same
and
a
friend, Garey Gorey, operated the new business through a newly
formed
limited
liability
company.
Upon
receiving
a
bill
addressed to Denaux at the business’ address, English paid the
last installment of the Denaux policy premium in February 2008.
Denaux did not attempt to cancel the policy or to transfer
his coverage under the policy to English.
In April 2008, as the
policy was nearing its termination date, First Financial sent by
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facsimile a blank insurance application to Lee Ann Wise, the
independent
insurance
agent
who
had
obtained
the
Denaux and who also was acting as English’s agent.
policy
for
Wise thought
that the application was for a renewal of the Denaux policy,
which was to expire on May 23, 2008.
On May 2, 2008, Wise sent a completed application for a
policy in English’s name to an underwriter for First Financial.
Her facsimile transmission included a cover sheet, which stated:
Gary Denaux is no longer the owner of this company. I
made the changes on the app[lication]. I am not sure
if you will need to re-quote it w[ith] the new owner
[and] drivers.
Please call me if you have any
questions.
On June 6, 2008, First Financial issued a new policy to “Steve
Edward English DBA Wholesale Transmission” (the English policy),
retroactively effective as of May 23, 2008, the same day that
the Denaux policy expired.
Eleven days before the expiration of the Denaux policy, but
before the English policy went into effect, one of English’s
employees, Chad Kessing, was involved in a vehicle collision
that
Tonya
resulted
in
Brumbaugh,
the
the
death
of
personal
Wanda
Holland
representative
(the
accident).
of
Holland’s
estate, filed a wrongful death action in a South Carolina state
court against Kessing, Wholesale Transmission, Denaux, English’s
limited liability company, and English.
First Financial later
brought the present action in federal district court against
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Kessing,
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English,
Denaux,
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Gorey,
Wholesale
Transmission,
English’s limited liability company, and Brumbaugh, seeking a
declaration that the Denaux policy did not provide coverage in
the underlying liability lawsuit.
The district court entered default judgment against all of
the
defendants
Brumbaugh. 2
except
The
defaulting
defendants
therefore admitted the following:
Mr. Denaux, the named insured under First Financial’s
policy, cannot be liable—directly or vicariously—for
the injuries to or death of Ms. Holland. He had sold
the business and left it entirely approximately four
months before Kessing’s accident.
Kessing was not an insured under Denaux’s policy at
the time of the accident.
He did not fit into the
policy’s “Who is an Insured” provision because he was
not an employee of Denaux when the accident occurred;
he was employed by Steve English in a different
business than that owned by Gary Denaux.
Mr. Denaux
had no “power or right to control and direct” Mr.
Kessing at the time of the accident.
Mr. Denaux could not, and did not, transfer his rights
and duties under the policy to Steve English; [Garey]
Gorey; GHA, LLC; or Wholesale Transmission and Auto
Repair.
Denaux did not seek, and did not obtain,
First Financial’s written consent to transfer any
rights under [the policy] to any other party.
See DIRECTV, Inc. v. Rawlins, 523 F.3d 318, 322 n.2 (4th Cir.
2008) (citing Ryan v. Homecomings Fin. Network, 253 F.3d 778,
780
(4th
defaults,
Cir.
he
2001))
admits
(explaining
the
plaintiff’s
2
that,
when
factual
a
defendant
allegations
as
Brumbaugh also defaulted but successfully moved to set
aside default.
6
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true).
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The district court thereafter entered a default judgment
order holding that the Denaux policy did not provide coverage
for any of the defaulted defendants.
After
entering
considering
First
the
the
default
cross-motions
Financial
and
judgment
for
Brumbaugh,
summary
the
order,
and
judgment
district
court
after
filed
held
by
as
a
matter of law that the Denaux policy did not provide coverage
for the accident, because First Financial had not consented in
writing to the transfer of Denaux’s rights under the policy to
English and his employees.
district
court
held
a
Following this determination, the
bench
trial
to
resolve
the
court’s
additional question whether First Financial “should be equitably
estopped from denying coverage, notwithstanding the fact that
coverage
does
not
technically
exist
under
the
terms
of
the
Policy.”
At the conclusion of the bench trial, the district court
reiterated that the Denaux policy did not cover the accident,
but
nevertheless
held
that
First
Financial
was
equitably
estopped from denying coverage because, by its conduct, First
Financial
had
reasonably
induced
English
to
believe
Denaux’s rights under the policy had been transferred.
Financial
timely
appealed
from
the
district
imposing equitable estoppel in this case.
7
court’s
that
First
judgment
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II.
We review the district court’s decision to apply equitable
estoppel for abuse of discretion.
Am. Bankers Ins. Grp. v.
Long, 453 F.3d 623, 629 (4th Cir. 2006).
Under the facts of
this case, we note at the outset that English never was a named
insured under the Denaux policy, and was not otherwise a party
to an insurance contract with First Financial at any time before
the accident. 3
See Auto-Owners Ins. Co. v. Rhodes, No. 27316,
2013 S.C. LEXIS 248, at *21-22 (S.C. Sept. 25, 2013) (citations
omitted)
(citing
cases
for
the
proposition
that,
when
an
insurance policy is issued for a sole proprietorship, the policy
is considered to be issued to the proprietor personally).
Under
South
Carolina
law,
the
doctrine
of
equitable
estoppel applies when the party to be estopped (1) engages in
“conduct which amounts to a false representation, or conduct
which is calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) [has] the intention that
such conduct shall be acted upon by the other party; and (3)
3
We observe that Brumbaugh was the only party who attempted
to establish coverage through equitable estoppel, given the
default of all her co-defendants.
Because we hold that
equitable estoppel cannot be employed to create coverage under
the Denaux policy for the accident, we do not consider the
effect of English’s default on Brumbaugh’s ability to assert
equitable estoppel derivatively through English.
8
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actual
Strickland
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or
v.
constructive
Strickland,
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knowledge
650
the
real
465,
470
(S.C.
S.E.2d
of
facts.”
2007).
Estoppel can be established through a party’s silence when that
party owes the other a duty to speak but “refrains from doing so
and thereby leads the other to believe in the existence of an
erroneous state of facts.”
S. Dev. Land & Golf Co. v. S.C. Pub.
Serv. Auth., 426 S.E.2d 748, 751 (S.C. 1993) (citation omitted).
The
party
asserting
estoppel
must
demonstrate
“(1)
lack
of
knowledge, and the means of knowledge, of the truth as to the
facts in question; (2) reliance upon the conduct of the party
estopped; and (3) a prejudicial change of position in reliance
on the conduct of the party being estopped.”
Strickland, 650
S.E.2d at 470.
Although
estoppel
is
a
flexible
doctrine
that
requires
consideration of the relative equities between the parties, see
Pitts v. N.Y. Life Ins. Co., 148 S.E.2d 369, 371-72 (S.C. 1966),
the doctrine’s reach is not unlimited.
In Pitts, the Supreme
Court
general
of
South
Carolina
discussed
the
principle
of
insurance law that conditions or restrictions on coverage may
not be extended by waiver or estoppel.
Id. at 371 (citations
omitted).
According to this principle, estoppel “cannot be used
to
the
extend
primary
coverage
liability,
therein.”
but
of
may
an
insurance
only
Id.
9
affect
policy
the
or
rights
create
a
reserved
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The South Carolina court held that this general principle
is not binding when circumstances warrant application of the
doctrine.
Pitts,
148
S.E.2d
at
371.
Addressing
such
a
circumstance, the court carved out a narrow exception in which,
after the insured’s coverage has terminated, the insurer retains
premium payments made by the insured over a period of time.
In
Pitts’ case such payments extended for a period of 16 years.
Id. at 370-71.
Holding
that
the
insurance
carrier
was
estopped
from
denying coverage, the court in Pitts explained that
[w]here the insurer over a long period of time after
the date prescribed by it for the termination of a
particular coverage has continued to demand, accept
and retain the premium fixed by it for that coverage,
it may be reasonably inferred that the insured, who in
the normal course of things relies upon the insurer’s
billing, has been misled by such conduct to believe
that the insurer has continued to accept the coverage.
Id. at 372.
The court in Jost v. Equitable Life Assurance Society of
the
United
concluded
expired
insured,
States,
that,
but
the
248
because
the
nevertheless
carrier’s
S.E.2d
778
insurer
collected
actions
(S.C.
knew
premium
could
only
1978),
that
similarly
coverage
had
payments
from
the
indicate
that
the
carrier either intended to provide additional coverage, intended
to provide the insured with nothing, despite the payments, or
had collected the payments by mistake, which explanation the
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carrier had not asserted.
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Id. at 779.
Therefore, relying on
Pitts, the court in Jost held that the insurer was estopped from
denying coverage.
248 S.E.2d at 780.
In the present case, Brumbaugh asserts that English and his
employees are entitled to the benefits of coverage under the
Denaux policy, even though English was not a named insured under
the policy.
Relying on Pitts and Jost, she contends that First
Financial misled English into believing that the Denaux policy
provided him with coverage, by failing to return the premium on
Denaux’s policy after learning that Denaux had ceased operating
his business.
In our view, Brumbaugh’s requested result would
impermissibly “create a primary liability” by estoppel, because
the special circumstances warranting application of the doctrine
in Pitts and Jost are absent here.
In both those cases, the doctrine of equitable estoppel was
applied
because
insured,
with
the
whom
insurance
the
carrier
carrier
had
an
had
misled
existing
its
named
contractual
relationship, to think that coverage continued to exist.
Here,
in contrast, English was not a named insured under the Denaux
policy, and First Financial had no duty to inform English or his
agent, Wise, that English lacked coverage under the existing
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Denaux policy. 4
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Further, at the time of the accident, the Denaux
policy was still in effect for Denaux and his covered former
employees, and English had not yet obtained his own policy. 5
For
these reasons, we conclude that Brumbaugh’s reliance on Pitts
and Jost is misplaced.
She cannot escape the general principle
of insurance law, as applied by the South Carolina courts, which
ordinarily does not allow use of the doctrine of estoppel to
create insurance coverage when an insurer has not misled its
insured to think that the risk in question was covered.
See
4
Under South Carolina law, “as a general rule, an insurance
agent has no duty to advise an insured at the point of
application, absent an express or implied undertaking to do so.”
Houck v. State Farm Fire & Cas. Ins. Co., 620 S.E.2d 326, 329
(S.C. 2005).
A duty can be created by implication if the
insurer received compensation beyond the payment of the premium,
the insured clearly requested the advice of the insurer, or
“there is a course of dealing over an extended period of time
which would put an objectively reasonable insurance agent on
notice that his advice is being sought and relied on.”
Id.
(citation omitted).
None of these exceptions to the general
rule apply here.
5
In concluding that First Financial had misled English into
believing that he was covered under the Denaux policy, the
district court relied partially on the fact that First Financial
failed to cancel the policy after receiving notice on May 2,
2008 that Denaux had ceased operating Wholesale Transmission.
Under the terms of the policy, however, First Financial
could unilaterally cancel the policy only under limited
circumstances.
Aside from cancellation for non-payment of
premiums, a circumstance not applicable in this case, First
Financial could cancel the policy only after providing Denaux
with 30 days’ notice.
Accordingly, had First Financial sought
to cancel the policy after receiving Wise’s facsimile on May 2,
2008, the required 30-day notice period would have eclipsed both
the date of the accident and the date on which the policy would
have expired by its own terms.
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Pitts, 148 S.E.2d at 371; Standard Fire Ins. Co. v. Great Am.
Ins. Co., 392 S.E.2d 460, 462 (S.C. 1990).
We
also
observe
that
imposition
of
primary
liability
coverage in the present case would not promote the equitable
considerations
underlying
the
doctrine
of
estoppel.
Such
imposition would require that an insurance carrier, here, First
Financial, provide coverage for a party and associated risks
that:
(1)
were
not
contemplated
when
the
carrier
originally
entered into the insurance contract with its insured; and (2)
for which no premium was paid.
Moreover,
Brumbaugh
cannot
prove
a
required
element
of
equitable estoppel, namely, that English did not know or have
the opportunity to know the truth about the transferability of
rights under the Denaux policy.
Although English and Wise may
have had an honest misunderstanding about the state of English’s
coverage,
rights
the
could
face
not
be
of
the
policy
transferred
makes
absent
plain
written
that
Denaux’s
consent
from
First Financial.
Wise, as the insurance agent of both Denaux and English,
had access to the Denaux policy and, therefore, had the ability
to correct her mistaken assumption that the policy automatically
covered English’s new business.
clarification
or
a
response
Nevertheless, she did not seek
from
First
Financial
on
the
facsimile cover page, nor did she indicate to First Financial
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that she thought that the rights under the Denaux policy had
been transferred to English.
English therefore cannot show the
“lack of knowledge, and the means of knowledge, of the truth as
to the facts in question” necessary to apply equitable estoppel.
Strickland, 650 S.E.2d at 470; see also S. Dev. Land & Golf Co.,
426 S.E.2d at 751 (“One with knowledge of the truth or the means
by which with reasonable diligence he could acquire knowledge
cannot claim to have been [misled].”). 6
III.
In
sum,
discretion
in
we
hold
that
holding
that
the
district
First
court
Financial
estopped from denying coverage for the accident.
abused
was
its
equitably
Accordingly,
we vacate the district court’s judgment and remand for further
proceedings consistent with this opinion.
VACATED AND REMANDED
6
Because we conclude that Brumbaugh’s assertion of
equitable estoppel fails as an improper imposition of coverage,
and because Wise and English had the means to discover the
transferability requirements of the Denaux policy, we do not
address whether the other elements of equitable estoppel are
satisfied.
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SHEDD, Circuit Judge, dissenting:
I believe the majority has made several critical mistakes
in its analysis. It has required the accident victim to prove an
additional
element
not
mandated
by
the
law
of
equitable
estoppel, and it has failed to focus on the crucial information
known only by the insurance company, which is the basis for this
estoppel. This knowledge is not, as the majority believes, the
transfer
provision
written
into
the
insurance
contract,
but
instead the fact that the company did not intend to waive that
provision. The result of this flawed analysis means that the
insurance
company
will
liability for the fatal
succeed
in
avoiding
even
potential
accident caused by its insured, 1 and
which victim the insurance company tried to silence in court.
Under the circumstances, I respectfully dissent.
First Financial Insurance Co. (“First Financial”), issued
an insurance policy to Gary Denaux, doing business as Wholesale
Transmission (“WT”), covering the period of May 23, 2007, to May
23, 2008. WT is an auto-repair shop started by Gary Denaux,
which Edward English later joined as a partner. The two ran the
company together from late 2006 to late 2007. Around the end of
2007 or beginning of 2008, Denaux left the business. WT was then
1
As pointed out by the court below, despite equitable
estoppel, First Financial can still assert it has no financial
responsibility for the accident. See J.A. 313.
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run by English and Gary Gorey, after Gorey bought out Denaux’s
interest.
WT
operated
in
the
same
location,
and
the
First
Financial policy remained in place. In February of 2008, English
paid the final insurance premium for the 2007–2008 policy with a
check signed in his name.
In April of 2008, Lee Ann Wise, an insurance agent for WT
and English, received a blank application from First Financial
for insurance for WT, which she understood to be an application
for the renewal of the then-existing policy. On the application,
Wise asked for the renewal to be effective on May 23, 2008, the
date the original coverage period was to terminate, which would
ensure no lapse of coverage. As with the original application,
the
renewal
application
listed
the
name
of
the
business
as
Wholesale Transmission, the same address for WT, the applicant’s
business as a “transmission repair shop,” and the same amount of
coverage. On May 2, 2008, Wise faxed the completed application
to First Financial, with a cover letter that stated,
Pat- 2
Gary
made
need
call
Denaux is no longer the owner of this company. I
the changes on the app, I am not sure if you will
to re-quote it w/ the new owner & drivers. Please
me if you have any questions. Thank you, Lee Ann.
2
Pat Dandridge was an employee of Johnson & Johnson, which
is an agent of First Financial. J.A. 320.
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J.A. 114 (emphasis added). First Financial never contacted Wise
regarding
the
information
in
her
cover
letter
or
in
the
application, nor did it inform her the current policy would not
cover
WT
Financial
if
Denaux
did
not
was
no
refund
longer
any
of
the
owner.
Further,
the
premium
to
WT
First
after
discovering Denaux was no longer involved with WT. On May 12,
2008, Ms. Wanda Holland was killed in a car accident with one of
WT’s
employees.
Ms.
Holland,
through
her
daughter,
Tonya
Brumbaugh, sued WT (and others) in state court because of the
accident.
The case before us represents First Financial’s attempts to
avoid liability coverage for the auto accident. First Financial
brought a declaratory judgment action in district court against
Brumbaugh (and others) seeking a determination that it was not
required to provide coverage for the accident that caused Ms.
Holland’s
death.
judgment
action,
After
First
suing
Brumbaugh
Financial
then
in
the
claimed
declaratory
she
had
no
standing to even assert First Financial’s coverage.
The district court first denied First Financial’s attack on
Brumbaugh’s standing. Then, after a bench trial, the district
court estopped First Financial from denying coverage based on
First Financial’s position that it had not given written consent
under the policy for coverage to be transferred to WT operating
without Denaux.
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In arguing that we should not even hear from Brumbaugh,
First Financial incorrectly relies on South Carolina case law
that explains when a party may bring a direct cause of action
against an insurer. Brief of Appellant at 11–12. Here, Brumbaugh
did
not
bring
a
direct
action
against
First
Financial,
but
rather, was brought into court by First Financial. Brumbaugh
clearly
South
has
standing
Carolina
to
law.
defend
Cases
herself
in
limiting
this
direct
action
under
actions
are
inapplicable. See, e.g., Major v. Nat'l Indem. Co., 229 S.E.2d
849
(S.C.
1976)
(distinguishing
between
case
law
allowing
joinder of insurance companies by third parties versus a direct
suit
solely
South
against
Carolina
reformation
an
courts
of
insurance
allow
insurance
company
third
contracts
by
parties
to
which
a
to
third
seek
they
party).
contract
are
not
a
party. George v. Empire Fire & Marine Ins. Co., 519 S.E.2d 107,
110 (S.C. Ct. App. 1999) rev'd on other grounds, 545 S.E.2d 500
(S.C. 2001), (“Ordinarily, a party requesting reformation must
have been a party to the written document or in privity with a
party.
contract
However,
may
a
bring
third-party
such
an
beneficiary
action.”
to
an
(citations
insurance
omitted)).
Accordingly, Brumbaugh has standing to defend herself in this
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declaratory action, regardless of whether she has a direct cause
of action against the insurer under South Carolina law. 3
Next, First Financial argues that insurance coverage may
not be extended by equitable estoppel. See Brief of Appellant at
22.
First
Financial
is
incorrect;
South
Carolina
does
allow
insurance coverage to be extended by estoppel. See Standard Fire
Co. v. Marine Contracting & Towing Co., 392 S.E.2d 460, 462
(S.C. 1990); Pitts v. New York Life Ins. Co., 148 S.E.2d 369,
3
First
Financial’s
argument
on
standing
not
only
contravenes South Carolina law but is contrary to the insurance
principles recognized both in this Circuit and others. For
example, as we previously stated in Penn Am. Ins. Co. v. Valade,
28 F. App’x 253 (4th Cir. 2002),
[T]he third party’s interest in defining the scope of
insurance coverage is independent of the interest of
the insured. When an insurer initiates a declaratory
judgment action against both an injured third party
and its insured, the injured third party acquires
standing, independent of that of the insured, to
defend itself in the declaratory judgment proceeding.
Fed. Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 353
(3d Cir. 1986) (stating that injured third party
“ha[s] standing to defend the declaratory judgment
action despite the absence of . . . the actual
insured”); Hawkeye-Sec. Ins. Co. v. Schulte, 302 F.2d
174, 177 (7th Cir. 1962) (“It would be anomalous to
hold here that an actual controversy exists between
[an injured third party] and [an insurer] and yet deny
[the injured third party] the right to participate in
the controversy.”). In this regard, it would be
anomalous not to permit the injured third party an
opportunity to present its case against the insurer,
which initially brought the declaratory judgment
action, after the insured defaulted.
Id. at 256–57 (emphasis added).
19
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372
Doc: 29
(S.C.
1966)
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(“[E]stoppel
Pg: 20 of 29
is
an
equitable
doctrine,
essentially flexible, and therefore to be applied or denied as
the equities between the parties may preponderate.”).
The question here is whether the district court erred in
finding that the circumstances present in this case met South
Carolina’s estoppel requirements. We review the district court
decision under the abuse of discretion standard. The district
court abused its discretion only if it made an error of law or
clearly erred in its factual findings. Am. Bankers Ins. Grp.,
Inc. v. Long, 453 F.3d 623, 629 (4th Cir. 2006).
We review factual findings by the district court under
the clearly erroneous standard set forth in Federal
Rule of Civil Procedure 52(a). Monroe v. Angelone, 323
F.3d 286, 299 (4th Cir. 2003); Fields v. Attorney Gen.
of Md., 956 F.2d 1290, 1297 n.18 (4th Cir. 1992). Our
scope of review is narrow; we do not exercise de novo
review of factual findings or substitute our version
of the facts for that found by the district court.
Jiminez v. Mary Washington College, 57 F.3d 369, 378
(4th Cir. 1995). Instead, “[i]f the district court's
account of the evidence is plausible in light of the
record viewed in its entirety, the court of appeals
may not reverse it even though convinced that had it
been sitting as the trier of fact, it would have
weighed the evidence differently.” Anderson v. City of
Bessemer City, 470 U.S. 564, 573-74, 105 S. Ct. 1504,
84 L.Ed.2d 518 (1985). Thus, facts found by the
district court are conclusive on appeal “unless they
are plainly wrong.” Jiminez, 57 F.3d at 378-79.
Walton v. Johnson, 440 F.3d 160, 173 (4th Cir. 2006). For the
reasons discussed below, the district court made no error of
law; and as the factfinder, that court clearly could find the
20
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elements
of
Filed: 01/08/2014
equitable
estoppel
Pg: 21 of 29
had
been
met
based
on
the
circumstances in this case.
Although the majority correctly rejects First Financial’s
erroneous view that South Carolina does not allow the extension
of
insurance
misreads
coverage
South
circumstances
under
equitable
Carolina
which
allow
law.
for
the
The
estoppel,
it
majority
application
of
otherwise
conflates
equitable
estoppel in specific cases with the requirements of the general
rule. Stated another way, the cases the majority relies on do
not add an additional requirement to equitable estoppel in South
Carolina. Properly applying the law of equitable estoppel, we
must affirm the district court.
As relevant here, the elements for equitable estoppel in
South Carolina are:
As to the estopped party, . . . (1) . . . conduct
calculated to convey the impression that the facts are
otherwise than, and inconsistent with, the party's
subsequent assertions; (2) intention or expectation
that such conduct be acted upon by the other party;
and (3) actual or constructive knowledge of the real
facts. As to the party claiming estoppel, the
essential elements are: (1) lack of knowledge or the
means
of
acquiring,
with
reasonable
diligence,
knowledge of the true facts; (2) reasonable reliance
on the other party's conduct; and (3) a prejudicial
change in position. . . . Estoppel by silence arises
when the estopped party owes a duty to speak to the
other party but refrains from doing so, thereby
leading the other party to believe in an erroneous
state of facts.
21
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Provident Life & Acc. Ins. Co. v. Driver, 451 S.E.2d 924, 928
(S.C.
Ct.
App.
1994)
(citation
omitted).
Further,
a
duty
to
speak may arise
where one party expressly reposes a trust and
confidence in the other with reference to the
particular transaction in question, or else from the
circumstances of the case, the nature of their
dealings, or their position towards each other, such a
trust and confidence in the particular case is
necessarily implied[.]
Hedgepath v. Am. Tel. & Tel. Co., 559 S.E.2d 327, 339 (S.C. Ct.
App. 2001). In the insurance context specifically,
[a] duty may be imposed . . . if the agent . . .
undertakes to advise the insured. . . . [A] duty can
be impliedly created. In determining whether an
implied duty has been created, courts consider several
factors, including whether: (1) the agent received
consideration beyond a mere payment of the premium,
(2) the insured made a clear request for advice, or
(3) there is a course of dealing over an extended
period of time which would put an objectively
reasonable insurance agent on notice that his advice
is being sought and relied on.
Houck v. State Farm Fire & Cas. Ins. Co., 620 S.E.2d 326, 329
(S.C. 2005) (citations and internal quotation marks omitted).
At trial, the evidence necessary to establish each element
of equitable estoppel was presented to the district court as the
factfinder.
First,
there
was
“conduct
calculated
to
convey
the
impression that the facts are otherwise than, and inconsistent
with, the party's subsequent assertions.” Provident Life & Acc.
Ins. Co., 451 S.E.2d at 928. First Financial’s conduct conveyed
22
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the impression that English was covered because by not saying
anything to Wise or English, First Financial signified it was
waiving the no transfer provision in the original policy.
Second, there was an “intention or expectation that such
conduct be acted upon by the other party.” Id. First Financial
should
have
expected
that
by
not
saying
anything
at
all
in
response to Wise’s fax, English would believe he had continuing
coverage. Further, the existence of continuing coverage could be
gleaned from the fact that the new policy was to begin the exact
minute the old coverage period expired. The factfinder could
certainly find that English would thereby understand that he was
continually covered and would decide to forego obtaining other
insurance. See Moore v. Palmetto State Life Ins. Co., 73 S.E.2d
688, 693 (S.C. 1952).
Third,
First
Financial
had
“actual
or
constructive
knowledge of the real facts.” Provident Life & Acc. Ins. Co.,
451 S.E.2d at 928. First Financial knew or should have known
that English was seeking continuing coverage and that it did not
intend to waive the no transfer provision in the contract to
allow for that coverage. On this point, the majority mistakenly
believes the critical fact is the no transfer provision of the
insurance contract, but it is not. The “real” fact is that First
Financial did not waive that provision.
23
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Fourth, the party asserting estoppel must show a “lack of
knowledge or the means of acquiring, with reasonable diligence,
knowledge of the true facts.” Id. Here, the majority focuses on
the wrong “facts.” The majority asserts that Brumbaugh cannot
establish this element because “the face of the policy makes
plain
that
Denaux’s
rights
could
not
be
transferred
absent
written consent from First Financial.” But again, the majority
fails to realize that the critical issue is not whether English
could
have
found
the
no
transfer
provision
in
reading
the
contract, but rather, that First Financial had no intention of
waiving it.
Without
waive
the
question,
provision
First
Financial
requiring
its
had
the
written
authority
consent
for
to
a
transfer. Insurance companies can waive any provision meant to
protect them and can even waive provisions that define how a
proper waiver is to occur. Gandy v. Orient Ins. Co.,
29 S.E.
655, 656 (S.C. 1898) (“An insurance contract, like any other
contract, may be altered by the contracting parties, and the
insurer
may,
of
course,
waive
any
provision
for
forfeiture
therein. It may also waive the provision relating to the manner
or
form
of
waiver
by
its
agents,
since
this
clause
has
no
greater sanctity than any other part of the instrument.”). Thus,
First Financial clearly could waive the requirement that its
consent to transfer had to be in writing. Accepting, as the
24
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Pg: 25 of 29
majority does, that Wise knew of the transfer provision, she is
also charged with having knowledge of the law on waiver, and
based on her course of dealing with First Financial, she thought
First
Financial
was
waiving
the
provision.
Neither
Wise
nor
English had any way to discover that First Financial did not
intend to waive that provision because First Financial did not
respond in a manner to put English on notice that there was a
problem or issue pursuant to Wise’s fax.
Fifth, there was “reasonable reliance on the other party's
conduct.” Provident Life & Acc. Ins. Co., 451 S.E.2d at 928.
English, through his agent, Wise, believed that by its silence,
First
Thus,
Financial
Wise
was
thought
consenting
First
to
a
transfer
Financial’s
of
silence
the
policy.
meant
First
Financial was providing English with continuing coverage. There
is
no
doubt
this
reliance
was
clearly
reasonable;
First
Financial’s representative admitted as much at trial. J.A. 180.
Sixth,
Provident
there
Life
&
was
Acc.
“a
prejudicial
Ins.
Co.,
change
in
position.”
S.E.2d
at
928.
451
Wise
testified that if First Financial had notified her that there
was any problem whatsoever with continuing coverage for English,
she would have immediately obtained other insurance for English
to
prevent
prejudicial
any
change
lapse
in
in
coverage.
position
insurance for that time period.
25
when
Thus,
he
did
English
not
get
had
a
other
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The two additional elements for estoppel by silence are (1)
the duty to speak and (2) a failure to speak that misleads the
injured
party.
Id.
They
are
both
present
here.
The
majority
believes that “First Financial had no duty to inform English or
his agent, Wise, that English lacked coverage” because English
did not have an “existing contractual relationship” with First
Financial.
The
majority
apparently
finds
that
requirement
in
Jost v. Equitable Life Assurance Soc’y of the U.S., 248 S.E.2d
778 (S.C. 1978) and
Pitts, 148 S.E.2d 369. There, the South
Carolina Supreme Court estopped insurance companies from denying
coverage
because
they
continued
to
accept
premiums
from
individuals after their insurance policies had terminated. In
these cases, the court applied estoppel in a factual situation
where there was an existing contractual relationship, but the
court did not make such an existing relationship a requirement
for equitable estoppel. See S. Dev. Land & Golf Co., Ltd. v.
S.C. Pub. Serv. Auth., 426 S.E.2d 748, 750 (S.C. 1993) (listing
the
elements
of
equitable
estoppel,
but
not
including
an
existing relationship as a requirement); Provident Life & Acc.
Ins. Co., 451 S.E.2d at 928 (same).
There
is
no
requirement
for
an
existing
contractual
relationship, or any type of prior relationship, for there to be
a duty to speak in South Carolina. See, e.g., Moore, 73 S.E.2d
at 693 (estopping an insurance company from denying coverage of
26
Appeal: 12-2452
an
Doc: 29
Filed: 01/08/2014
individual
company,
and
who
had
treating
not
the
Pg: 27 of 29
yet
formed
company’s
a
contract
failure
to
with
speak
as
the
an
implied acceptance). In fact, in South Carolina, as little as a
first-time
phone
conversation
between
the
parties
can
be
sufficient to create a duty to speak. See S. Dev. Land & Golf
Co.,
Ltd.,
Development
426
S.E.2d
Land
and
at
Golf
750–51.
Co.,
an
For
example,
individual
in
Southern
interested
in
purchasing property for development called the power company to
inquire about exposed power lines located on the property and
advised
the
company
of
his
need
to
avoid
any
exposed
power
lines. Id. The power company told the caller the current lines
could be buried, but failed to tell him of its finalized plans
to replace those current lines with exposed high voltage lines.
Id. Because the power company knew the man needed to avoid all
such exposed lines and also knew it had plans to build new
exposed
lines
on
the
property,
this
superior
knowledge
was
enough to create a duty to speak, even though there was no prior
relationship between the parties before this phone call. Id.
The court found a duty to speak under the circumstances of
this case. 4 That finding is justified in several ways. First,
there was an implied trust and confidence based on both the
4
“Plaintiff could have informed [English] that it did not
consent to a transfer of rights under the Policy and that
additional coverage must be purchased for the period up until
May 23, 2008.” J.A. 326, n.9.
27
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circumstances
of
the
case
Pg: 28 of 29
and
the
nature
of
the
course
of
dealings between Wise, as English’s agent, and First Financial.
See Hedgepath, 559 S.E.2d at 339.
Second, under South Carolina law, there may be a duty to
speak
in
the
undertaking
to
insurance
context
advise
applicant.
an
if
there
Here,
is
an
Wise’s
implied
fax
could
certainly be construed as a request for advice. Further, the
testimony indicated “there [was] a course of dealing [between
Wise and First Financial] over an extended period of time which
would put an objectively reasonable insurance agent on notice
that his advice [was] being sought and relied on.” Houck, 620
S.E.2d at 329. The course of dealing between First Financial and
Wise
was
such
individual’s
that
coverage
whenever
or
there
was
application,
any
First
problem
with
Financial
an
would
advise her of it. Here, based on their prior course of dealing,
Wise was asking whether anything further needed to be done to
ensure that English had continuing coverage. Under these facts,
a duty to speak would arise under South Carolina law.
As
for
the
second
additional
element
of
estoppel
by
silence, First Financial’s failure to speak did have the effect
of misleading English. First Financial’s failure to speak had
the effect of causing both Wise and English to believe English
had continuing coverage. Wise testified that based on her course
of dealing with First Financial, the fact First Financial did
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Pg: 29 of 29
not contact her after she sent the fax signified there was no
problem
with
English’s
continuing
coverage.
Therefore,
this
element of estoppel by silence is met.
In conclusion, I do not believe the majority has correctly
applied the law of equitable estoppel to the circumstances of
this case. It has added a requirement that the parties have a
pre-existing relationship and it has focused on the contract
language rather than the insurance company’s failure to disclose
it was not waiving that contract provision. The district court
correctly followed South Carolina law, and the majority has not
made any real argument that the district court factfinding was
clearly erroneous. I believe reversing the district court is an
error and such a reversal certainly creates a harsh result for
the innocent victim. For these reasons, I respectfully dissent.
29
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