Liberty Mutual Fire Insurance Company et al v. JT Walker Industries Inc et al
Filing
339
ORDER AND OPINION Liberty Mutual's motion for a new trial on MI Windows' claim for bad faith (ECF No. 291) is denied; denying 291 Motion for New Trial; Liberty Mutual's motion for judgment as a matter of law (ECF No. 292) is granted as to MI Windows claim for bad faith and denied as to MI Windows claim for breach of contract; granting in part and denying in part 292 Motion for Judgment NOV; Liberty Mutual's motion to alter or amend the judgment a s to punitive damages (ECF No. 293) is denied as moot; finding as moot 293 Motion to Alter Judgment; MI Windows motion for judgment as a matter of law or to amend the judgment (ECF No.297) is partially granted, and the court finds that the amount awarded to Liberty Mutual must be remitted by $210,000. Within fourteen days, Liberty Mutual must notify the court whether it elects to accept a reduced verdict of $684,416.01 on its breach of contract claim or have a new trial on that cl aim; granting 297 Motion for Judgment as a Matter of Law; granting 297 Motion to Amend/Correct; MI Windows' motion for attorney fees (ECF No. 305) is denied; denying 305 Motion for Attorney Fees; Ruling on Liberty Mutual's motions for an award of pre-judgment interest and costs (ECF Nos. 282 & 283) and MI Windows motion for an award of costs (ECF No. 304)is held in abeyance pending Liberty Mutual's response re 282 Motion Award of Pretrial Judgment Interest re: 278 Jud gment, 283 MOTION Award of Taxable Costs re 278 Judgment, 304 MOTION for Entry of an Order Awarding Costs in Favor of Defendants and Reserving on Amount by JT Walker Industries Inc, MI Windows & Doors Inc Signed by Chief Judge Margaret B Seymour on 8/10/2012.(asni, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
)
Liberty Mutual Fire Insurance
Company and Employers Insurance of )
)
Wausau,
)
)
Plaintiffs,
)
)
vs.
)
)
J.T. Walker Industries, Inc., f/k/a
)
Metal Industries, Inc.; and MI
)
Windows & Doors, Inc., f/k/a MI
)
Home Products, Inc.; and Metal
)
Industries, Inc. of California,
)
)
Defendants.
)
)
MI Windows & Doors, Inc.,
)
)
Counter-Claimant,
)
)
vs.
)
)
Liberty Mutual Fire Insurance
Company and Employers Insurance of )
)
Wausau,
)
)
Counter-Defendants.
)
Civil Action No. 2:08-2043-MBS
ORDER AND OPINION
On June 19, 2009, Liberty Mutual Fire Insurance Company and Employers Insurance of
Wausau (collectively “Liberty Mutual”) filed an amended complaint against J.T. Walker
Industries, Inc., and MI Windows & Doors, Inc. (collectively “MI Windows”). Liberty Mutual
sought a declaratory judgment construing six commercial general liability (“CGL”) insurance
policies issued to MI Windows, covering a period between 1997 and 2003. Liberty Mutual also
alleged that MI Windows had breached these contracts by failing to pay amounts due under the
policies. MI Windows filed a counterclaim seeking a declaratory judgment as to various
provisions of the insurance policies. MI Windows also filed counterclaims for breach of contract
and bad faith, alleging that Liberty Mutual had breached its contractual duty to defend and had
failed to provide a defense in good faith.
The dispute centers around five lawsuits filed against MI Windows in South Carolina
state court alleging that windows manufactured by MI Windows were defective. In each suit, a
homeowners’ association and individual homeowners alleged that windows manufactured by MI
Windows had leaked and allowed water to penetrate over time. These suits are referred to herein
by the names of the homeowners’ association plaintiffs: Avian Forest, Tilghman Shores,
Riverwalk, Magnolia North, and Marais. Because some of the alleged water damage occurred
during the periods covered by the policies at issue in this case, MI Windows tendered the cases to
Liberty Mutual for defense. Liberty Mutual defended each case under a reservation of rights and
eventually settled each case over MI Windows’ objection. Each policy contained a $500,000
deductible, requiring MI Windows to reimburse Liberty Mutual for the first $500,000 per
occurrence spent on defense and indemnity costs. However, MI Windows refused to reimburse
Liberty Mutual for these five settlements and for various associated defense and claim handling
fees.
On March 30, 2010, and September 22, 2011, the court issued orders construing various
provisions of the insurance policies at issue in this case. ECF No. 138 & 180. The court held
that the plain language of the policies gave Liberty Mutual the right to settle cases at its sole
discretion without the consent or approval of MI Windows. However, the court denied Liberty
Mutual’s motion for summary judgment on MI Windows’ bad faith claim, holding that Liberty
Mutual could be liable for bad faith if the settlements were unreasonable under the
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circumstances. The court also held that each policy covers loss from only the portion of
progressive water damage that occurred during the policy period, and that damage spanning
multiple policies may be allocated to multiple policies and/or insurers.
The jury trial of Liberty Mutual’s breach of contract claim and MI Windows’
counterclaims for breach of contract and bad faith began on January 26, 2012. On February 3,
2012, the jury returned a verdict. The jury found MI Windows liable for breach of contract and
awarded $894,416.01 to Liberty Mutual. The jury also found Liberty Mutual liable for breach of
contract and awarded $18,290 to MI Windows. Finally, the jury found Liberty Mutual liable for
bad faith and awarded $684,416.01 to MI Windows. The jury found by clear and convincing
evidence that MI Windows was entitled to punitive damages. After further argument by the
parties, the jury returned to deliberate. The jury awarded punitive damages to MI Windows in
the amount of $12,500,000.00.
Now before the court are Liberty Mutual’s motions for judgment as a matter of law, for a
new trial, for a new trial conditioned on remittitur, and to reduce the punitive damages award on
constitutional grounds. ECF No. 291, 292 & 293. MI Windows has moved for judgment as a
matter of law or amendment of the judgment to correct manifest error. ECF No. 297. Liberty
Mutual has also moved for an award of pre-judgment interest pursuant to S.C. Code § 34-21-20
and an award of taxable costs pursuant to Rule 54(d)(1) of the Federal Rules of Civil Procedure.
ECF No. 282 & 283. Finally, MI Windows has moved for an award of costs and attorney fees on
various grounds. ECF No. 304 & 305.
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DISCUSSION
I.
Liberty Mutual’s Motion for New Trial Based on Improper Jury Instructions
A.
Jury Instructions
Liberty Mutual argues that it is entitled to a new trial on MI Windows’s bad faith claim
because the jury was improperly given an instruction based on Tyger River Pine Co. v. Maryland
Casualty Co., 170 S.E. 346 (S.C. 1933). The court gave the jury the following instruction:
If an insurer assumes the defense of its policyholder in a liability case where the
policyholder may potentially be exposed to liability above and beyond the policy
limits, the insurer has the duty to settle the case if it is the reasonable thing to do.
Also, if the interests of the insurer conflict with the interests of the policyholder
during the insurer’s defense of the claim brought against the policyholder, the
insurer must sacrifice its own interests in favor of those of the policyholder.
ECF No. 276 at 13-14. Liberty Mutual argues that this requirement for an insurer to sacrifice its
own interests applies only when the policyholder “may potentially be exposed to liability above
and beyond the policy limits,” as in Tyger River, and is completely inapplicable when an insurer
decides to settle a case for an amount less than the policyholder’s deductible. The court is not
persuaded.
The fundamental flaw in Liberty Mutual’s arguments is a failure to distinguish a
policyholder’s “interests” from its “demands” or “desires.” See ECF No. 291 at 3 & 6. The cases
cited by Liberty Mutual show that an insurer, rather than having “an unqualified duty to abandon
its interests and accede to the demand of an insured to settle within [policy] limits,” need only act
reasonably in deciding whether to settle a case. This premise was never in dispute. The jury
instructions as a whole unambiguously state that Liberty Mutual had the contractual right to
control settlement decisions and could be liable for bad faith only if it exercised this right
unreasonably. However, although the terms of the insurance contract allowed Liberty Mutual to
4
substitute its judgment for that of MI Windows in making settlement decisions, the contract did
not permit Liberty Mutual to put its interests above those of MI Windows. The distinction may
sometimes be subtle, but it is a distinction that exists under South Carolina law. If Liberty
Mutual reasonably believed that it was in MI Windows’ best interest to settle a lawsuit for an
amount within the deductible, there was no bad faith regardless of whether MI Windows agreed
with the decision. However, if Liberty Mutual’s decision was made to further its own interests at
the expense of MI Windows’ interests, there was bad faith.
In Tyger River, the insurer refused a reasonable settlement offer that was near the policy
limit. As the South Carolina Supreme Court recognized in that case, an insurer acting only in its
own interests would have no incentive to settle a case for an amount near the policy limit.
Because any amount greater than the policy limit would be paid by the policyholder, the insurer
does not stand to lose any more from a large verdict at trial than it would for the settlement, and
there is always a chance that it could win at trial. However, because the insurer’s actions
potentially expose the policyholder to significant losses that could be avoided, the insurer must
sacrifice its own interests by accepting the reasonable settlement offer.
Rather than addressing harm caused by exposing an insured to liability above and beyond
available coverage, as was the case in Tyger River, this case deals with alleged harm caused by
settlement below the threshold for insurance coverage. Nevertheless, it is not difficult to see why
a duty of good faith is also needed when an insurer decides to settle for an amount within the
policyholder’s deductible. In this case, because of the $500,000 deductible, Liberty Mutual had
the power to spend up to $500,000 of MI Windows’ money in defending and settling a case. If
Liberty Mutual were to put its own interests ahead of those of MI Windows, it would have the
5
incentive to promptly settle any case that could possibly be settled for less than $500,000 –
regardless of whether the case were frivolous or the settlement demand excessive – in order to
avoid even the smallest chance that a verdict at trial might reach the layer of insurance coverage.
An insurer defending a policyholder has a duty to protect the interests of the policyholder,
and the insurer could potentially breach this duty by unreasonably settling a case or by
unreasonably refusing to settle. Because the Tyger River charge was a correct statement of law
that was applicable to the facts of this case, there is no reason to order a new trial on this ground.
II.
Liberty Mutual’s Motion for JNOV
“If a party has been fully heard on an issue during a jury trial and the court finds that a
reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that
issue, the court may: (A) resolve the issue against the party; and (B) grant a motion for judgment
as a matter of law against the party on a claim or defense” that depends on that issue. Fed. R.
Civ. P. 50(a)(1). Such a motion may be made at any time before the case is submitted to the jury.
Fed. R. Civ. P. 50(a)(2). If the court does not grant a party’s Rule 50(a) motion, the party may
file a renewed motion for judgment as a matter of law after the jury returns a verdict. Fed. R.
Civ. P. 50(b). In ruling on a renewed motion, the court may allow judgment on the jury’s verdict,
order a new trial, or direct the entry of judgment as a matter of law. Id.
A.
Contract Damages
Liberty Mutual moves for judgment as a matter of law on MI Windows’ breach of
contract claim. Liberty Mutual argues that there is no basis in the evidence for the contract
damages awarded to MI Windows. MI Windows’ response to Liberty Mutual’s motion does not
address this argument. MI Windows argued at trial that Liberty Mutual breached the contracts
6
by, among other things, charging excessive claim fees. See ECF No. 260 at 22. Liberty Mutual
contends that these fees were justified by the insurance contracts.
Under the Wausau policies, MI Windows agreed to reimburse Wausau for “unallocated
loss adjustment expenses . . . on a fee per claim basis as follows: $625 for the first six hours, or
any portion thereof, plus time and expense for any time over six hours.” ECF No. 17-6 at 58;
ECF No. 17-7 at 60; ECF No. 17-8 at 62. Under the 2000-01 and 2001-02 Liberty Mutual
polices, MI Windows agreed to reimburse Liberty Mutual for “claim handling expenses” at a rate
of $625 per claim. ECF No. 17-9 at 32; ECF No. 17-10 at 30. Finally, under the 2002-03 Liberty
Mutual policy, MI Windows agreed to reimburse Liberty Mutual for “claim handling expenses”
at a rate of $967 per claim for general liability products claims. ECF No. 17-11 at 31.
At trial, Darlene Moffatt, MI Windows’ corporate representative, testified that Liberty
Mutual opened four claim files for Riverwalk: one under the 1997-98 Wausau policy and one
under each of the three Liberty Mutual policies. ECF No. 256 at 103-04. She testified that
Liberty Mutual opened six claim files for Magnolia North: two under the 1998-99 Wausau
policy, one under the 1999-2000 Wausau policy, and one under each of the three Liberty Mutual
policies. Id. at 104. She testified that Liberty Mutual opened five claim files for Tilghman
Shores: one each under the 1998-99 and 1999-2000 Wausau policies and one under each of three
Liberty Mutual policies. Id. at 104-05. She testified that Liberty Mutual opened seven claim
files for Avian Forest: one under the 1998-99 Wausau policy and two under each of the three
Liberty Mutual policies. Id. at 105. Finally, she testified that Liberty Mutual opened four claim
files for Marais: one under the 1999-2000 Wausau policy and one under each of the three Liberty
Mutual policies. Id. at 106.
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MI Windows argued at trial that Liberty Mutual should have opened only one claim file
for each of the five underlying cases rather than the twenty-six claim files that were actually
opened. Donald Langro, a Liberty Mutual employee, testified that Liberty Mutual’s practice was
to open a separate file for each policy year triggered by a lawsuit based on progressive damage.
See ECF No. 249 at 68. Michael Schaaf, another Liberty Mutual employee, testified that a single
occurrence may give rise to multiple claims. See ECF No. 244 at 90-91. Finally, various
witnesses testified that each of the five underlying “cases” actually involved two lawsuits – one
brought by a homeowners’ association and one brought as a putative class action of individual
homeowners. See ECF No. 247 at 17, 25, 73-74, 89-90 & 155; ECF No. 249 at 202.
Ms. Moffatt testified that the cost of the twenty-one allegedly inappropriate claim files was
approximately $18,000. ECF No. 256 at 124. The jury awarded MI Windows $18,290 on its
breach of contract claim. ECF No. 278.
“Insurance policies are subject to the general rules of contract construction.” B.L.G.
Enterprises, Inc. v. First Financial Ins. Co., 514 S.E.2d 327, 330 (S.C. 1999). The court “must
give policy language its plain, ordinary, and popular meaning.” Id. “When a contract is
unambiguous, clear, and explicit, it must be construed according to the terms the parties have
used.” Id. However, a policy “which [is] in any respect ambiguous or capable of two meanings
must be construed in favor of the insured.” Reynolds v. Wabash Life Ins. Co., 161 S.E.2d 168,
169 (S.C. 1968).
The insurance policies neither define the term “claim” nor address whether additional
claim files may be opened when a claim triggers coverage under multiple policies. Both in legal
usage and ordinary usage, the term “claim” is susceptible of more than one meaning. See Int’l
8
Ins. Co. v. RSR Corp., 426 F.3d 281, 291 (5th Cir. 2005). Although Liberty Mutual correctly
states that a loss caused by progressive damage triggers every policy in effect during the period
of progressive damage, this in itself does not establish that each triggered policy constitutes a
separate “claim.” This is certainly a reasonable interpretation, but it is not the only reasonable
interpretation. A “claim” could also reasonably be defined as a demand made against MI
Windows, including a lawsuit. Under this definition, a single lawsuit would give rise to only one
“claim” regardless of the number of policies triggered. The court finds that the contracts are
ambiguous on this issue, and that the jury could have reasonably construed them in favor of MI
Windows. Furthermore, the evidence introduced at trial supports the jury’s award of breach of
contract damages to a reasonable degree of certainty. Liberty Mutual’s motion for judgment as a
matter of law is therefore denied.
B.
Bad Faith
The court is not aware of any South Carolina case where an insurer has been held liable
for bad faith in settling a policyholder’s case for an amount within policy limits. Under Tyger
River, an insurer may be liable to its policyholder for any harm caused by the insurer’s refusal to
accept a reasonable settlement offer. See Tyger River, 170 S.E. at 348-49. As explained above,
the rationale of Tyger River implies that an insurer may also be liable to its policyholder for any
harm caused by the insurer’s acceptance of an unreasonable settlement offer. Accordingly, MI
Windows had the burden to show at trial that Liberty Mutual’s settlements were objectively
unreasonable, and that it was harmed by these settlements.
i.
Liability
Liberty Mutual moves for judgment as a matter of law on MI Windows’ bad faith claim.
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Liberty Mutual first argues that the jury’s verdict on MI Windows’ bad faith claim conflicts with
the court’s previous holding that Liberty Mutual had the right to settle lawsuits against MI
Windows at its discretion. Essentially, Liberty Mutual argues that if the insurance contract
explicitly gives it the right to settle lawsuits over MI Windows’ objection, a decision to settle
over MI Windows’ objection cannot constitute bad faith. Although Liberty Mutual is correct that
settling over MI Windows’ objection does not in itself constitute bad faith, this does not support
judgment as a matter of law. In the same order holding that Liberty Mutual had the right to
control settlement decisions, this court also held that Liberty Mutual could be liable for bad faith
if there was no reasonable basis to support its settlement decisions. See ECF No. 138 at 12-16.
As the court has repeatedly made clear, the focus is on the objective reasonableness of the
settlements.
Although MI Windows puts forth numerous ways in which Liberty Mutual allegedly
acted in bad faith, most of these fail as a matter of law. MI Windows goes to great lengths to
emphasize the subjective bad faith of many Liberty Mutual employees involved in the claims
process, but Liberty Mutual is not liable for bad faith unless these subjective considerations
actually resulted in objectively unreasonable settlements. Furthermore, MI Windows’ expansive
understanding of “reasonableness” would shift the focus away from the reasonableness of the
settlement amounts and render Liberty Mutual’s contractual right of control a nullity. MI
Windows argued before trial that the covenant of good faith and fair dealing requires Liberty
Mutual to defer to the settlement wishes of MI Windows when settling for an amount within MI
Windows’ deductible. ECF No. 229 at 5-6. MI Windows continues to argue that because Liberty
Mutual retained less risk than MI Windows, Liberty Mutual should defer to MI Windows’s
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wishes “absent a truly reasonable basis to not consider and accede to those wishes.” ECF No.
319 at 4.
Under MI Windows’ theory, the reasonableness of an insurer’s settlement decision would
be determined by some complex weighing of the deference given to the policyholder’s wishes
and the relative risks borne by each party. However, the insurance policies in this case sidestep
the difficulties involved in such an undertaking by explicitly granting Liberty Mutual the right to
settle any claim or suit “at [its] discretion.” MI Windows’ argument that Liberty Mutual
“should” have deferred to its wishes when settling for amounts less than $500,000 would write a
major exception into a contractual provision that is perfectly clear. South Carolina bad faith law
does not permit such a result. Rather, if Liberty Mutual settled the underlying cases for amounts
that are objectively reasonable in light of the facts of those cases, it is irrelevant whether the
settlement amounts are above or below MI Windows’ deductible or whether MI Windows agreed
with the decisions.
MI Windows also argues that Liberty Mutual acted in bad faith by failing to consider the
amount of MI Windows’ deductible in making settlement decisions. MI Windows’ expert
witness, Charles Miller, testified that it was “startling” that MI Windows “ha[d] $500,000 at
stake here and it wasn’t even considered in the settlement of these cases.” ECF No. 252 at 124.
Once again the implication is that Liberty Mutual should have “considered” this fact by deferring
to MI Windows’ settlement wishes. For example, Charles Miller, speaking about the
considerations underlying Liberty Mutual’ settlement decisions, stated that “another concern was
that . . . these cases are going to cost a lot of money to defend. But this is MI Windows’ money
to defend, not Liberty Mutual’s. If MI Windows wants to spend its own money to defend the
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products, it seems to me that’s up to MI Windows. And Liberty Mutual is not in a position to
say, well, we have to settle these cases because it’s going to cost MI Windows too much money
to defend them.” Id. at 143.
Mr. Miller’s argument is an inaccurate characterization of the duty of good faith in light
of Liberty Mutual’s contractual right of control. By permitting Liberty Mutual to settle cases at
its discretion, the insurance policies did in fact put Liberty Mutual in the position to settle cases
based on its own judgment that “it’s going to cost MI Windows too much money to defend
them.” As explained above, Liberty Mutual is bound to protect MI Windows’ interests – not to
accede to its demands or desires. If in fact Liberty Mutual treated costs to be borne by MI
Windows as if they were going to be paid by Liberty Mutual, this is evidence of good faith rather
than of bad faith.
MI Windows argues that Liberty Mutual acted in bad faith by failing to consider possible
damage to MI Windows’ reputation when making settlement decisions. MI Windows stated at
trial that it “put great importance in protecting its reputation and its products,” and that it refused
to settle “frivolous” or “baseless” lawsuits involving its products. ECF No. 244 at 24-25 & 44.
Relatedly, MI Windows argues that Liberty Mutual acted in bad faith by settling cases in which
there was no evidence of any product defect. See, e.g., ECF No. 319 at 13 (the underlying cases
“were not only defensible, but . . . needed to be resisted because MI had done nothing wrong.”).
However, in each of the underlying cases, the plaintiffs put forth sufficient evidence such that MI
Windows was unable to resolve the cases by motion without a trial.
MI Windows would read the insurance contract to say that Liberty Mutual may settle
cases at its discretion “provided that sufficiently convincing evidence of a product defect exists.”
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This is simply not the agreement into which the parties entered. A manufacturer could
reasonably decide to settle a weak lawsuit for a small amount of money if it appears that it would
be more expensive to go to trial, particularly if there is even a minimal chance that a large verdict
could result. A settlement for more than the cost of defense may also be reasonable depending on
counsel’s evaluation of the chances of success and the potential liability. On the other hand, it
may also be reasonable to incur the expense and risk at trial in order to defend business
reputation and deter future lawsuits. Although MI Windows states its strong preference for the
latter course of action, this preference is not embodied in the insurance contract. Rather, by
allowing Liberty Mutual to settle cases at its discretion, the contract allows Liberty Mutual to use
its own judgment in choosing between multiple reasonable options. Furthermore, although MI
Windows contends that its long-term interests are damaged by settling cases without evidence of
product defects, it clearly furthers some interest of MI Windows to resolve lawsuits against it for
around the expected cost of defense and thereby eliminate any possibility of a large trial verdict.
Accordingly, unless Liberty Mutual chose to settle for amounts that were unreasonably high,
Liberty Mutual’s actions cannot constitute bad faith.
Liberty Mutual argues that “[e]ven if [it] had an extra-contractual duty to exercise [its]
settlement discretion in good faith, [it] clearly did so in settling each of the underlying cases.”
ECF No. 292 at 12. Both parties introduced abundant evidence at trial addressing the
reasonableness of Liberty Mutual’s five settlement decisions. Liberty Mutual’s evidence
explained the possibility that MI Windows could face enormous liability due to joint and several
liability and suggested that the cases could not be won on pretrial motions. Liberty Mutual’s
evidence showed that it relied on the advice of experienced counsel who found the settlements to
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be wise given the cost and uncertainty of a jury trial. On the other hand, MI Windows introduced
evidence showing that the cases against it were very weak, that its products were not defective,
and that it could have potentially avoided joint and several liability. MI Windows also presented
evidence that Liberty Mutual’s reserves for each case, which allegedly reflect Liberty Mutual’s
valuation of a case, were lower than the amounts for which Liberty Mutual settled. Furthermore,
MI Windows presented evidence suggesting that Liberty Mutual believed their retained counsel
was irrationally biased toward settlement and unprepared to go to trial.
The reasonableness of Liberty Mutual’s settlement decisions is a question of fact for the
jury. Although Liberty Mutual certaintly “introduced evidence of numerous reasonable bases”
supporting its decisions, ECF No. 291 at 8, the jury was not required to accept this evidence at
face value. The court finds that the evidence introduced at trial, viewed in the light most
favorable to MI Windows, could lead a reasonable jury to conclude that Liberty Mutual settled
one or more of the underlying cases for an unreasonably large amount.
ii.
Actual and Consequential Damages
Liberty Mutual finally argues that “even assuming . . . that [Liberty Mutual] acted in bad
faith in settling the underlying actions, MI Windows cannot demonstrate that it was injured as a
result of those actions unless it can prove that the defense costs and damages it would have paid
in taking the cases through trial would have been less than the settlement amounts to which
[Liberty Mutual] agreed.” ECF No. 292 at 23.1 The damages awarded by the jury for bad faith
1
MI Windows argues that Liberty Mutual has waived this argument by failing to
present it in its motion for directed verdict at trial. Although Liberty Mutual did not
present the argument in detail, it argued that MI Windows had not “incurred any damage
that was caused by the action of [Liberty Mutual]” or satisfied the “causative element
required under the Tadlock decision.” ECF No. 260 at 17-18. The court finds this
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comprise the entire sum awarded to Liberty Mutual for breach of contract minus $210,000 – the
amount that Liberty Mutual contributed to the Marais settlement. That is, the jury awarded MI
Windows damages based on the amount it owed Liberty Mutual for the Avian Forest, Tilghman
Shores, Magnolia North, and Riverwalk settlements; the disputed defense costs; and the disputed
claim handling fees. MI Windows also argues that its costs and attorney fees, which have not yet
been proven, are recoverable as consequential damages of bad faith. The court will consider each
category of damages separately.
a.
Settlements
As explained above, a case involving a bad faith settlement is analogous to the bad faith
refusal to settle described in Tyger River – in both cases, unreasonable, self-interested actions on
the part of the insurer may cause the policyholder to incur greater expense than it otherwise
would. However, further comparison with Tyger River reveals an additional difficulty regarding
damages in the case of a bad faith settlement. In Tyger River, the insurer unreasonably refused a
settlement for less than the policy limits. As a result, the case went to trial and resulted in a
verdict that exceeded the policy limits. In this situation, the measure of damages is clear and
definite; any amount over policy limits the policyholder is forced to pay is proximately caused by
the insurer’s bad faith in refusing a lower settlement. But in a situation where the bad faith
consists of settling for an unreasonable amount, it is not generally obvious what would have
happened if the insurer had not settled. Without knowing what it would have cost to resolve the
case absent the bad faith settlement, there is no way to determine the consequential damages
flowing from the insurer’s bad faith.
sufficient to preserve the issue for the renewed motion for judgment as a matter of law.
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MI Windows argues that the entire amount of defense and settlement costs spent by
Liberty Mutual to settle cases in bad faith (and then billed to MI Windows) is recoverable as
damages. MI Windows further argues that it satisfied its burden to prove damages “by presenting
evidence that [Liberty Mutual] spent MI’s money to settle product defect claims when there were
no defects.” ECF No. 319 at 23. MI Windows essentially contends that the settlements did not
benefit the company in any way. See id. at 23-24 (“And, while true that the money spent funding
Liberty’s bad faith settlements would ultimately have been spent by MI elsewhere . . . , these
would have been things that had value to MI.”). The court disagrees. The settlements had the
value of resolving cases against MI Windows in which it was facing millions of dollars in
potential liability. If Liberty Mutual had not settled the cases, it would have had to resolve them
in some other way. Even if there were no product defects, MI Windows would have very likely
had to spend significant amounts of money at trial to prove that there were no defects. Unless the
plaintiffs in each underlying case summarily dismissed all claims against MI Windows, MI
Windows would have had to defend the cases; defense costs could have approached or even
exceeded the settlement amounts. Furthermore, if MI Windows lost one or more of the cases,
which is at least possible, it could have faced far greater liability.
The evidence introduced at trial does not permit a jury to determine with reasonable
certainty the likelihood that MI Windows would have won its cases at trial or the amount of
money that would have been required for a successful defense. Furthermore, although Paul Gary,
an attorney who frequently represents MI Windows, testified that he had seen plaintiffs “walk
away from [such] claims,” ECF No. 256 at 33, the evidence does not establish any reasonable
likelihood that the plaintiffs in the five underlying cases would have summarily dismissed their
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claims against MI Windows. Finally, MI Windows did not introduce evidence showing that any
of the cases could have successfully been settled for a lower amount.
MI Windows argues that requiring such proof “misstates MI’s burden and operative law.”
ECF No. 319 at 23. MI Windows cites no examples of this “operative law,” and it is unclear to
what it is referring. As Liberty Mutual points out, no South Carolina court has previously found
an insurer liable for bad faith where the insurer had the contractual right to control settlement
decisions and settled within policy limits. See ECF No. 336 at 4. Such a claim exists only by
analogy to other forms of bad faith that have been recognized by South Carolina law. These
other forms of bad faith require a showing of some definite loss that would not have occurred had
the insurer acted in good faith. See, e.g., Nichols v. State Farm Mut. Auto Ins. Co., 306 S.E.2d
616, 618 (S.C. 1983) (insurer’s bad faith refusal to pay benefits delayed the policyholder from
repairing his car for over seven months); Tadlock Painting Co. v. Maryland Cas. Co., 473 S.E.2d
52, 53 (S.C. 1996) (insurer’s bad faith refusal to pay benefits caused the policyholder to lose a
customer because the policyholder was unable to repair damage it had previously caused to the
customer). Beyond South Carolina, courts have consistently recognized that in a claim for bad
faith damages based on an insurer’s failure to make a reasonable settlement, causation cannot be
shown without some consideration of what would have happened if the insurer had not acted in
bad faith.2
2
See, for example, 3-23 New Appleman on Insurance Law Library Edition §
23.02[7]] (“Once it has been established that an insurer has breached its duty of good
faith and fair dealing, the insured also must prove that the breach was the proximate
cause of his damages. In some cases, causation flows directly from the breach, as where
the insurer has improperly rejected a within-limits demand that would have fully
protected the insured. On the other hand, if there is no evidence that the claim could
have been settled, then any bad faith conduct would not have been the cause of the excess
17
In essence, MI Windows argues that a policyholder should not have to pay for anything
done in bad faith. Although this has some intuitive appeal, it is not a fair characterization of
South Carolina bad faith law. A more accurate statement would be that the policyholder does not
have to pay anything more than it would have paid had the insurer acted in good faith. The latter
characterization recognizes that even if an insurer’s contractual performance includes actions
done in bad faith, the overall performance may still have some value to the policyholder.3 Like
any contract or tort action, the fundamental purpose of an action for bad faith is to compensate
policyholders for actual harm rather than punish defendants for perceived unreasonableness.
Requiring sufficiently definite proof of what might have happened absent an insurer’s bad faith in
settling cases keeps the focus of a bad faith action on this actual harm.
b.
Defense Costs
For the same reasons explained above, the disputed defense costs awarded to Liberty
Mutual for breach of contract do not constitute damages resulting from Liberty Mutual’s bad
judgment.”); id. at § 23.02[6][d][i] (“Even if an insurer has failed to investigate or to
properly evaluate the claim against the insured and even if the insurer has adopted an
improper no-settlement approach, such misconduct does not cause any excess judgment
against the insured unless the claim could have been settled had the insurer acted
differently.”); id. at § 23.02[4][c] (“Failure to inform the insured of a settlement
opportunity, standing alone, is not a basis for liability unless that failure caused harm to
the insured”).
3
For example, as in Tyger River, an insurer may unreasonably refuse a settlement
within policy limits, causing a policyholder to go to trial and sustain a verdict above
policy limits. After trial, the insurer may then indemnify the policyholder up to the
policy limits and leave him to pay the additional expense personally. In this situation,
although the insurer’s bad faith has caused harm to the policyholder, the insurer has still
performed its contractual obligation to indemnify up to the policy limits. Accordingly,
although the policyholder’s excess payment may be recovered as damages, the insurer’s
contractual performance is not entirely “worthless,” and there would be no rationale for
the policyholder to recover as damages any deductible paid under the policy.
18
faith. MI Windows has not explained, or introduced evidence showing, how defense costs might
have been lower if Liberty Mutual had not acted in bad faith. In fact, given that MI Windows
preferred to go to trial in each of the cases Liberty Mutual settled, it is much more likely that
defense costs would have been significantly higher if Liberty Mutual had complied with MI
Windows’ wishes.
c.
Claim Fees
MI Windows also argued that Liberty Mutual acted in bad faith by charging excessive
claim handling fees. As discussed above, the jury found that Liberty Mutual breached the
insurance contracts by charging more than one claim handling fee for each underlying case. The
jury awarded MI Windows approximately the amount it requested for these excess claim fees.
Allowing MI Windows to recover the same damages again under a cause of action for bad faith
would constitute an impermissible double recovery. See Collins Music Co. v. Smith, 503 S.E.2d
481, 482 (S.C. Ct. App. 1988) (“It is well settled in this state that there can be no double recovery
for a single wrong and a plaintiff may recover his actual damages only once.”) (quotation
omitted). More fundamentally, even in the absence of such a double recovery, an insurer’s
attempt to bill its policyholder for claim handling fees that are not clearly authorized by the
policy does not give rise to an action for bad faith.
The South Carolina Supreme Court has on several occasions described the tort of bad
faith in broad terms, stating, for example, that “if an insured can demonstrate bad faith or
unreasonable action by the insurer in processing a claim under their mutually binding insurance
contract, he can recover consequential damages in a tort action.” Nichols, 306 S.E.2d at 340. As
discussed above, the term “claim” is not defined in the insurance policies and is ambiguous in
19
meaning. Although, in the face of this ambiguity, the court adopted an interpretation favoring MI
Windows, Liberty Mutual’s interpretation is in no sense “unreasonable.”
Although every contract contains an implied duty of good faith and fair dealing, breach of
this duty does not generally give rise to liability in tort. The South Carolina Supreme Court has
noted that “[a] bad faith tort action arises from the common law due to special characteristics of
the insurance relationship,” and has emphasized its “reluctance to extend tort actions for violating
good faith obligations.” Masterclean, Inc. v. Star Ins. Co., 556 S.E.2d 371, 374-76 (S.C. 2001).
Two duties in particular – the duty to defend and the duty to promptly pay valid claims –
illustrate the “special characteristics of the insurance relationship” and form the basis of most bad
faith law in South Carolina and nationwide. An insurer defending its policyholder against a
lawsuit exercises broad discretion and has the ability to harm the policyholder’s interests in
various ways. Similarly, an insurer that wrongfully refuses to pay a valid claim may cause harm
to a policyholder in a time of need. Even if the policyholder eventually succeeds in recovering
the amount due through a suit for breach of contract, the policyholder may have suffered harm in
the meantime that is not compensated by such a recovery.
By contrast, nothing about an insurer’s charging of excessive claim handling fees either
calls for or justifies an extra-contractual remedy. Unlike the situations described above, where
the insurer is in a position to exercise its power and discretion to the detriment of the
policyholder, in this case the “special characteristics of the insurance relationship” are largely
absent. The dispute is much closer to an ordinary disagreement over payment for services
rendered under a contract, and it is difficult to imagine a situation in which contractual damages
are insufficient to compensate the policyholder. Although MI Windows’ position appears to be
20
that any breach of an insurance contract by the insurer may constitute bad faith, the court declines
to extend the tort of bad faith in such a way in the absence of any reasonable justification.
d.
Costs and Attorney Fees
MI Windows seeks to recover its costs and attorney fees in this case as consequential
damages of Liberty Mutual’s bad faith. As Liberty Mutual points out, there is no South Carolina
precedent awarding such costs and attorney fees as consequential damages in a case where the
insurer has not denied coverage. However, even assuming that this court were to accept MI
Windows’ contention that “in a bad faith action, attorneys’ fees reasonably incurred in the
prosecution or defense of a case represent a portion of the insured’s compensatory damages,”
ECF No. 305 at 3-4, costs and attorney fees would not be recoverable in a case where no other
damages were recovered. Such fees cannot be said to be “reasonably incurred.”
iii.
Statute of Limitations
Liberty Mutual finally moves for judgment as a matter of law on MI Windows’ bad faith
claim on the ground that it is barred by the statute of limitations. The court rejects this argument
for the same reasons previously explained in its March 30, 2010 order. ECF No. 138 at 16-17.
iv.
Judgment as a Matter of Law
Because a reasonable jury would not have a legally sufficient evidentiary basis to find that
MI Windows suffered damages as a result of any bad faith by Liberty Mutual, Liberty Mutual’s
renewed motion for judgment as a matter of law is granted as to MI Windows’ bad faith claim.
Although Rule 50(b)(2) permits the court to order a new trial rather than entering judgment as a
matter of law, the court finds no justification for a new trial on this issue. Accordingly, judgment
is entered in favor of Liberty Mutual.
21
v.
Punitive Damages
Liberty Mutual moves for judgment as a matter of law as to bad faith punitive damages.
Because the court finds that MI Windows has not proven actual or consequential damages
resulting from any bad faith on the part of Liberty Mutual, the award of punitive damages cannot
stand. Cook v. Atlantic Coast Line R.R. Co., 190 S.E. 923, 924-25 (S.C. 1937). Accordingly, the
court does not address Liberty Mutual’s arguments.
III.
Liberty Mutual’s Motion for New Trial Based on Weight of the Evidence
Liberty Mutual argues that the court should grant a new trial on MI Windows’ bad faith
claim because the jury’s verdict is against the clear weight of the evidence and amounts to a
miscarriage of justice. “If the court grants a renewed motion for judgment as a matter of law, it
must also conditionally rule on any motion for a new trial by determining whether a new trial
should be granted if the judgment is later vacated or reversed.” Fed. R. Civ. P. 50(c)(1).
After a jury trial, the district court may “grant a new trial on all or some of the issues . . .
for any reason for which a new trial has heretofore been granted in an action at law in federal
court.” Fed. R. Civ. P. 59(a)(1)(A). More specifically, a district court may grant a new trial if,
“consider[ing] the evidence in the light most favorable to the jury verdict, the court concludes
that “the jury verdict is against the clear weight of the evidence, and to allow such verdict to
stand would result in a miscarriage of justice.” Ludrick v. Roland, 270 F. Supp. 692, 693 (D.S.C.
1967). Absent such a finding, “the fact that the court would have reached a different result than
the jury verdict is no proper basis for granting a new trial.” Id. at 695.
As required by Rule 50(c)(1), the court conditionally rules that a new trial should not be
granted if the judgment is later vacated or reversed. The court does not find that the jury’s
22
verdict as to Liberty Mutual’s liability for bad faith is against the clear weight of the evidence, or
resulting in a miscarriage of justice. Furthermore, if it is held as a matter of law that MI
Windows may recover the entire settlement amounts as bad faith damages, there is no question
that these amounts have been proven. Accordingly, the conditional motion for a new trial on MI
Windows’ bad faith claim is denied.
IV.
Liberty Mutual’s Motion to Reduce Punitive Damages
Liberty Mutual also argues that the punitive damages verdict is excessive, and that the
court should either order remittitur or reduce the verdict on constitutional grounds. Because the
award of punitive damages cannot stand in the absence of actual or consequential damages, the
court does not address these arguments.
V.
MI Windows’ Motion for Judgment as a Matter of Law or Amendment of Judgment
MI Windows argues that the damages awarded to Liberty Mutual on its breach of contract
claim are excessive. MI Windows therefore requests that the court enter judgment as a matter of
law under Rule 50 of the Federal Rules of Civil Procedure, or alter or amend the judgment under
Rule 59(e), to reduce the verdict. Courts have occasionally reduced verdicts as a matter of law
when “it is apparent as a matter of law that certain identifiable sums included in the verdict
should not have been there.” Wright, Miller & Kane, 11 Federal Practice & Procedure, Civil 2d
§ 2815 (2012); see, e.g., Westchester Fire Ins. Co. v. Hanley, 284 F.2d 409 (6th Cir. 1960).
However, courts have more often found such a practice to infringe the Seventh Amendment right
to trial by jury. See, e.g., Brewer v. Uniroyal, Inc., 498 F.2d 973, 976 (6th Cir. 1974). The
general rule is that when the trial court finds a verdict to be excessive in light of the facts
introduced at trial, the court must “require a remittitur or order a new trial.” Cline v. Wal-Mart
23
Stores, Inc., 144 F.3d 294, 305 & n.2 (4th Cir. 1998). That is, the court must give the plaintiff
the option to either accept a reduced verdict or have a new trial. Accordingly, the court construes
MI Windows’ motion to include a request for remittitur.
A.
Proof of Correct Allocation
MI Windows first argues that Liberty Mutual failed to prove damages resulting from the
Marais settlement.4 The property damage giving rise to liability in Marais lasted for several
years and triggered policies issued by both Liberty Mutual and Zurich. The case was ultimately
settled for $500,000. Liberty Mutual and Zurich agreed to split defense and settlement costs,
with Liberty Mutual paying 42% and Zurich paying 58% toward the settlement. Based on this
agreement, Liberty Mutual contributed $210,000 toward the settlement, which it seeks to recover
from MI Windows in its breach of contract action.
In Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual Insurance Co.,
717 S.E.2d 589, 603 (S.C. 2011) (“Crossmann II”), the South Carolina Supreme Court held that
when a loss results from progressive property damage spanning multiple standard general
commercial liability policies, each policy is required to “cover only that portion of a loss
attributable to property damage that occurred during its policy period.” “In light of the difficulty
in proving the exact amount of damage incurred during each policy period,” the supreme court
4
Liberty Mutual argues that MI Windows stipulated to the amount of breach of
contract damages, and that this stipulation relieved Liberty Mutual of the burden of
proving a factual basis for its damages. See ECF No. 244 at 86-87. However, this
stipulation established only the amount claimed by Liberty Mutual. MI Windows did not
agree that this amount accurately reflected its liability or a correct allocation under
Crossmann II. In fact, MI Windows continued to argue during trial and in its motion for
directed verdict that Liberty Mutual had not presented evidence from which a proper
allocation could be made. See ECF No. 252 at 42-47.
24
adopted a default “time on risk” method for allocating shares of loss. Id. at 602-03. Under this
default rule, each policy must only cover a percentage of the total loss obtained by dividing the
length of the policy period by the total duration of the progressive damage.
MI Windows argues that Liberty Mutual cannot show that MI Windows breached the
insurance contracts by failing to reimburse Liberty Mutual for the Marais settlement without
proving which portion of the $500,000 settlement is actually covered by its policies. On the other
hand, Liberty Mutual argues that under the plain language of the contracts, MI Windows agreed
to reimburse Liberty Mutual for the first $500,000 of defense and indemnity costs per occurrence,
including damages paid as a result of a settlement. Liberty Mutual contends that by showing that
it paid $210,000 toward the Marais settlement and that MI Windows never repaid this money, it
has presented evidence sufficient to establish that MI Windows breached the contracts.
Under the insurance policies, Liberty Mutual agreed to “pay those sums that the insured
becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to
which this insurance applies.” See, e.g., ECF No. 17-8 at 18 (emphasis added). Crossmann II
established that in a progressive damage situation, an insurance policy only “applies to” the
portion of property damage occurring during the policy period, a portion which by default is
determined by a “time on risk” percentage calculation. For example, assuming the progressive
damage giving rise to liability in Marais lasted for only two years and triggered one Liberty
Mutual policy and one Zurich policy, each policy would only cover half of any settlement. That
is, for a $500,000 settlement, the Liberty Mutual policy would only cover $250,000 as loss. Any
amount greater than $250,000 paid by Liberty Mutual toward the settlement would not be paid to
satisfy its contractual obligations; rather, it would be a bonus or volunteer payment.
25
For its part, MI Windows agreed to reimburse Liberty Mutual for all “reimbursable
expenses” up to the $500,000 per occurrence deductible, defined to include “damages” as well as
“legal fees, costs and expenses.” See, e.g., ECF No. 17-8 at 64. The critical question is whether
MI Windows agreed to reimburse Liberty Mutual for any damages paid by Liberty Mutual on
behalf of MI Windows, or only for “damages because of . . . ‘property damage’ to which [the]
insurance applies.” See, e.g., ECF No. 17-8 at 18. In other words, does a policyholder breach the
insurance contract by failing to reimburse the insurer for expenses the insurer was not obligated
to pay under the contract? Although the court does not consider the circumstances under which
an insurer may bring an action in equity to recoup expenses mistakenly paid on behalf of a
policyholder, the court finds that it would be anomalous if an insurer could cause a policyholder
to incur a contractual reimbursement obligation by spending money in ways that were not
contemplated by the contract. Accordingly, payments made by Liberty Mutual for damages not
covered by its policies are not “reimbursable expenses.”
Liberty Mutual argues that “there is no evidence that [it] paid any amount at Marais ‘for
damages occurring outside its policy’s effective dates.’” ECF No. 314 at 8. The problem,
though, is that there is no evidence showing that the money Liberty Mutual paid for the Marais
settlement was for damages inside its policy’s effective dates. Liberty Mutual failed to introduce
evidence revealing either the duration of the progressive property damage giving rise to liability
in Marais or the policies triggered by this damage. In the absence of such evidence, it is
impossible to determine what percentage of the $500,000 settlement is covered by Liberty
Mutual’s policies. And without knowing what amount MI Windows was obligated to reimburse,
there is no basis to find it liable for breach of contract for failing to reimburse Liberty Mutual for
26
the Marais settlement.
The breach of contract damages awarded to Liberty Mutual included the $210,000 spent
on the Marais settlement. Because Liberty Mutual did not prove its entitlement to this amount,
the judgment in favor of Liberty Mutual must be remitted by $210,000.
B.
Allocation of Defense Costs
MI Windows also contends that the damages awarded for the Marais settlement are
excessive for another reason. MI Windows argues that under South Carolina law, an insurer’s
duty to defend requires the insurer to provide a complete defense of a case even if other insurers
also have a duty to defend the case. MI Windows therefore argues that the approximately
$425,000 spent to defend in Marais must be applied toward its $500,000 deductible with Liberty
Mutual, which would leave MI Windows with only $75,000 to pay in settlement costs (rather
than $210,000) before Liberty Mutual’s coverage begins. On the other hand, Liberty Mutual
argues that because Zurich also had a duty to defend in Marais, and because Liberty Mutual and
Zurich agreed to share defense costs 50/50, only half the defense costs should be applied toward
its deductible.
“The duty to defend is separate and distinct from the obligation to pay a judgment
rendered against the insured” and is “personal to each insurer.” Sloan Const. Co., Inc. v. Central
Nat. Ins. Co. of Omaha, 236 S.E.2d 818, 820 (S.C. 1977). “The obligation is several and the
insurer is not entitled to divide the duty nor require contribution from another absent a specific
contractual right.” Id.
Liberty Mutual argues that Sloan is inapposite here because it dealt with a dispute
between two insurance companies covering the same risk rather than a dispute between an insurer
27
and a policyholder. Liberty Mutual contends that Sloan held only that “where two companies
insure the identical risk and both policies provide for furnishing the insured with a defense,
neither company, absent a contractual relationship, can require contribution from the other for the
expenses of the defense where one denies liability and refuses to defend.” Sloan, 236 S.E.2d at
820. However, this holding was based on the premise that each insurer had a personal,
indivisible duty to provide a complete defense for the policyholder – this is precisely why one
insurer was not harmed by the other insurer’s refusal to contribute to defense costs. Liberty
Mutual does not explain how a private agreement with another insurer could alter its personal,
indivisible duty to fully defend MI Windows.
Liberty Mutual also argues that Sloan is distinguishable because its policies did not insure
risk identical to that insured by Zurich. Rather, Liberty Mutual and Zurich each insured different,
non-overlapping periods of time during a period of progressive water damage lasting several
years. However, under South Carolina law, an insurer’s duty to defend is triggered if any cause
of action in a complaint seeks damages covered by the policy. See, e.g., Town of Duncan v. State
Budget and Control Bd., 482 S.E.2d 768, 773-74 (S.C. 1997). Similarly, even though Liberty
Mutual’s policies would only cover a percentage of the loss in Marais, this is sufficient to trigger
the duty to defend. Once triggered, this duty obliges Liberty Mutual to provide a complete
defense.
Although the South Carolina Supreme Court in Crossmann II explicitly adopted a policy
of allocating loss among multiple insurance policies based on time on the risk, it did not suggest
or imply that an insurer’s duty to defend could be allocated in the same way. Accordingly, this
court holds that an insurer is obliged to provide a full defense to its policyholder even if the
28
insurer’s policies cover only a portion of the progressive damage underlying the lawsuit. The
court expresses no opinion as to whether such an insurer is entitled to any contribution toward
defense costs from other insurers whose policies also cover portions of the same progressive
damage.
Because Liberty Mutual was obligated to provide a complete defense in Marais, MI
Windows is entitled to apply all defense costs for that case, approximately $425,000, against its
$500,000 deductible. However, the court found above that the judgment against MI Windows
must be reduced by $210,000 because there was insufficient evidence to show that MI Windows
breached the insurance contracts by failing to reimburse Liberty Mutual for its share of the
Marais settlement. Accordingly, even if the entire Marais defense costs are credited toward the
deductible, the total costs for Marais are still within MI Windows’ deductible. MI Windows is
therefore entitled to no further reduction of the judgment.
C.
Remittitur
The court finds that the judgment in favor of Liberty Mutual must be remitted by
$210,000, resulting in a revised judgment of $684,416.01. Within fourteen days, Liberty Mutual
must notify the court whether it wishes to accept the reduced verdict or have a new trial on its
breach of contract claim.
VI.
MI Windows’ Motion for Attorney Fees
In addition to MI Windows’ request for attorney fees as consequential damages of bad
faith, addressed above, MI Windows moves for an award of attorney fees under S.C. Code § 3859-40 and under Hegler v. Gulf Insurance Company, 243 S.E. 443 (S.C. 1979). Under S.C. Code
§ 38-59-40(1), an insurer who refuses to pay “a claim, loss, or damage . . . covered by a policy of
29
insurance . . . without reasonable cause or in bad faith” may be liable to the policyholder for
attorney fees spent in the prosecution of the case against the insurer. This statute has also been
construed to authorize an award of attorney fees where an insurer refuses to defend an insured
“without reasonable cause.” Boggs v. Aetna Cas. and Sur. Co., 252 S.E.2d 565 (S.C. 1979).
However, the present case does not involve a refusal to pay benefits or a refusal to defend.
Although MI Windows would read the statute to authorize attorney fees when an insurer fails to
provide “an adequate, good faith defense,” ECF No. 305 at 8, this is far from the plain meaning
of the statute, and the court declines to rewrite the statute in such a way.
In Hegler v. Gulf Insurance Co., 243 S.E.2d 443 (S.C. 1978), the South Carolina Supreme
Court held that a policyholder who had successfully defended a declaratory judgment action
brought by an insurer alleging no coverage could recover attorney fees. The supreme court held
that:
There is no material difference in the legal effect between an outright refusal to
defend and in undertaking the defense under a reservation of rights until a
declaratory judgment is prosecuted to resolve the question of coverage. In either
event, an insured must employ counsel to defend in the first instance in the
damage action and in the second in the declaratory judgment action to force the
insurer to provide the defense. In both, the counsel fees are incurred because of
the insurer’s disclaimer of any obligation to defend.
Hegler, 243 S.E.2d at 444. Furthermore, in Security Insurance Co. of Hartford v. Campbell
Schneider & Associates, LLC, 481 F. Supp. 2d 496 (D.S.C. 2007), the district court held that
Hegler also authorizes attorney fees for a policyholder who has successfully defended a
declaratory judgment alleging no duty to defend. Contrary to MI Windows’ suggestion, Hegler
pertains specifically to a declaratory judgment action where an insurer has denied its duty to
cover a loss or defend a policyholder, and does not generally authorize attorney fees where a
30
policyholder has “successfully assert[ed] his rights against [an insurer].” ECF No. 305 at 8.
Liberty Mutual has not disputed coverage of MI Windows’ claims or its duty to defend MI
Windows at any point in this litigation. Even if MI Windows were successful in its bad faith
action, it would not be entitled to attorney fees under section 38-59-40 or Hegler.
VII.
Motions for Costs and Interest
Liberty Mutual and MI Windows both move for an award of taxable costs under Rule
54(d)(1) of the Federal Rules of Civil Procedure. Liberty Mutual also moves for an award of prejudgment interest pursuant to S.C. Code § 34-21-20. The court holds its ruling on these motions
in abeyance pending Liberty Mutual’s decision on remittitur.
CONCLUSION
Liberty Mutual’s motion for judgment as a matter of law (ECF No. 292) is granted as to
MI Windows’ claim for bad faith and denied as to MI Windows’ claim for breach of contract.
Liberty Mutual’s motion for a new trial on MI Windows’ claim for bad faith (ECF No. 291) is
denied. Liberty Mutual’s motion to alter or amend the judgment as to punitive damages (ECF
No. 293) is denied as moot. MI Windows’ motion for attorney fees (ECF No. 305) is denied.
MI Windows’ motion for judgment as a matter of law or to amend the judgment (ECF No.
297) is partially granted, and the court finds that the amount awarded to Liberty Mutual must be
remitted by $210,000. Within fourteen days, Liberty Mutual must notify the court whether it
elects to accept a reduced verdict of $684,416.01 on its breach of contract claim or have a new
trial on that claim. Ruling on Liberty Mutual’s motions for an award of pre-judgment interest
[continued on following page]
31
and costs (ECF Nos. 282 & 283) and MI Windows’ motion for an award of costs (ECF No. 304)
is held in abeyance pending Liberty Mutual’s response.
IT IS SO ORDERED.
s/ Margaret B. Seymour
The Honorable Margaret B. Seymour
Chief United States District Judge
August 10, 2012
Columbia, South Carolina
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