Owners Insurance Company v. Warren Mechanical LLC
ORDER granting in part and denying in part 26 Motion to Compel; denying 28 Motion for Summary Judgment; denying 37 Motion to Dismiss and Motion for Summary Judgment Signed by Honorable David C Norton on September 29, 2017.(cban, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
OWNERS INSURANCE COMPANY,
WARREN MECHANICAL, LLC, d/b/a
The following matters are before the court on plaintiff Owners Insurance
Company’s (“Owners”) motion to compel defendant Warren Mechanical LLC
(“Warren”) to pay expert fees, ECF No. 26, Owners’s motion for summary judgment,
ECF No. 28, and Warren’s motion to dismiss, or in the alternative, cross-motion for
summary judgment, ECF No. 37. For the following reasons, the court grants in part
and denies in part Owners’s motion for expert fees, denies both parties’ motions for
summary judgment, and denies Warren’s motion to dismiss.
The instant action arises out of an insurance coverage dispute between
Owners and its insured, Warren, regarding certain alleged misrepresentations in
Warren’s January 21, 2015 application for workers’ compensation insurance. ECF
No. 28-3, Application. Warren is a medium-sized construction company that
specializes in the propane and natural gas industry. ECF No. 28-1, Steve Dep. 12:11–
14. Warren was founded in 2006 by Steve Warren (“Steve”), who is its sole owner.
In 2014, one of Warren’s major customers required it to obtain an “anti-subrogation
endorsement” in its workers’ compensation policy. ECF No. 37 at 3. Warren
contacted its insurance agent, the Creech Roddy & Watson Insurance Agency
(“CRW”), which informed Warren that it would need to switch insurers to obtain the
required coverage. Id. Warren’s primary contact at CRW, Robert Nalley (“Nalley”),
suggested Owners as a replacement insurer. Id.
Warren maintains that Steve and Nalley met a few days before CRW
submitted Warren’s application for the new policy, but Nalley forgot to bring the
application to the meeting. Steve Dep. 22:10–24:3. Rather than retrieve the
application, Nalley asked Steve a number of questions and told Steve he would fill
out the application later. Id. Nalley could not provide Steve with a quote for the
policy without first completing the application, so the pair arranged for Steve’s wife,
Raynee Warren (“Raynee”), to deliver a check for the premium amount on the policy
to CRW’s office at a later date. Id. at 35:14–36:1.
Nalley did not personally prepare the application. In fact, Nalley was not
even present at the time the application was completed. Instead, Aura Lewis
(“Lewis”), a newly hired CRW employee, completed the application based on
information provided to her through communications with Nalley. Lewis Dep. 9:6–
10:23, 34:11–20. A more senior employee of CRW, Rebecca Hipp (“Hipp”), was
also present when Lewis completed the application. Id. at 36:4–7. It was Hipp who
ultimately signed the application on CRW’s behalf. Application at 4.
When Raynee arrived at CRW’s office to drop off Warren’s premium check,
the CRW receptionist instructed her to sign the application. ECF No. 37-6, Raynee
Dep. 11:6–20. Raynee asked CRW whether it was appropriate for her to sign the
application, and was told that it was, at which point she signed the application. Id. at
12:20–25. Raynee now claims that she did not have the authority to sign the
application, and only did so because she was “in haste” and “didn’t think about it.”
Id. at 13:1–6. Indeed, Raynee testifies that she did not even read the application, and
that CRW pressured her to sign it by telling her that Warren would not be allowed on
a job site unless the application was signed immediately. Id. at 13:20–14:21.
The application stated that:
(1) [Warren’s] business operations consisted of “PLUMBING”;
(2) [Warren] had only two full-time employees - one “Plumbing NOC
& Drivers” employee under National Council on Compensation
Insurance (“NCCI”) classification code 5183 and one “Clerical Office
Employees NOC” employee under NCCI classification code 8810;
(3) [N]one of [Warren’s] work was performed above 15 feet; and
(4) [Warren’s] business did not give rise to “[a]ny exposure to
radioactive materials, flammables, explosives, caustics, fumes,
landfills, asbestos, wastes, fuel tanks, etc.”
Application at 2–3. Steve has unambiguously stated that the latter three of these
representations were inaccurate. Steve Dep. 29:2–21, 31:3–21. As noted above,
Steve has also described Warren as a construction company that specializes in the
propane and natural gas industry. Id. at 12:11–14. While this work certainly involves
pipes, Warren has admitted—through its failure to respond to Owners’s requests for
admission—that neither Warren nor Steve are “licensed plumber[s]” pursuant to S.C.
Code § 40-11-410. ECF No. 28-17, Requests for Admission.
Owners—unaware of these misrepresentations—issued a policy providing the
requested coverage for the period of January 22, 2015 to January 22, 2016 (the
“Policy”). ECF No. 10 ¶ 11. Around a month after the Policy was issued, Warren
hired Scott Gerhard (“Gerhard”). Gerhard was injured on December 7, 2015 when
nitrogen was released from a propane tank he was working on nearly 20 feet above
the ground, causing him to fall and suffer second degree burns. ECF No. 28 at 4–5;
ECF No. 34 at 6. Gerhard made a claim to Owners for workers’ compensation
benefits, which Owners denied on the ground that there was no valid policy in place.
ECF No. 37-10, Owners’s Denial Letter. Gerhard then filed a hearing request with
the South Carolina Workers’ Compensation Commission (“SCWCC”). Despite
denying coverage, Owners initially hired an attorney to represent Owners and Warren
in connection with Gerhard’s claim. ECF No. 37-11, Email to Aura Lewis. On April
7, 2016, another attorney appeared in Gerhard’s SCWCC case solely on Owners’s
behalf, and asked the court to find that the Policy did not cover Gerhard’s claim. ECF
No. 37 at 6. Owners later filed a motion in the SCWCC proceedings to have the
Policy declared void ab initio. Id. This motion was denied, pending discovery. ECF
No. 44, Dworjanyn Letter. Gerhard’s case before the SCWCC was then settled,
without the SCWCC making any decision regarding the Policy.
On March 2, 2016, Owners filed the instant federal action seeking to have the
Policy declared void ab initio. ECF No. 1 ¶¶ 20–23. On April 11, 2016, recognizing
the jurisdictional problems presented by its request, Owners amended its complaint to
state that “[n]o employees’ rights are involved in this action, as this is solely a dispute
between Owners and the insured, Warren Mechanical. The issues in this case are not
proper before the [SCWCC].” ECF No. 10 ¶ 14. Owners has further clarified that
“this litigation was initiated to provide for the determination as to Owners’ duties and
obligations under the policy as to any other potential claims that may arise under the
policy at issue,” and as such, the court need not “address issues relating to any [of
Gerhard’s] claims.” ECF No. 39 at 2.
Owners filed its motion to compel Warren to pay expert fees on December 15,
2016. ECF No. 26. Owners then filed its motion for summary judgment on
December 20, 2016. ECF No. 28. Warren filed a response to the motion to compel
on December 29, 2016, ECF No. 34, and Owners filed a reply on January 3, 2017,
ECF No. 35. On January 9, 2017, Warren filed a motion to dismiss, or in the
alternative, for summary judgment in lieu of a response to Owners’s motion for
summary judgment. ECF No. 37. Owners filed a joint reply in support of its motion
for summary judgment and in response to Warren’s motion for summary judgment on
January 20, 2017. ECF No. 39. Warren filed a reply on January 27, 2017. ECF No.
41. The matters have been fully briefed and are now ripe for the court’s review.
Subject Matter Jurisdiction
The determination of subject matter jurisdiction must be made at the outset
before any decision on the merits. Steel Co. v. Citizens for a Better Environment,
523 U.S. 83 (1998). “The plaintiff bears the burden of persuasion if subject matter
jurisdiction is challenged under Rule 12(b)(1).” Williams v. United States, 50 F.3d
299, 304 (4th Cir. 1995). If the plaintiff cannot overcome this burden, then the claim
must be dismissed. Welch v. United States, 409 F.3d 646, 651 (4th Cir. 2005). When
a party contends that “the complaint  fails to allege facts upon which subject matter
jurisdiction can be based[,] . . . all the facts alleged in the complaint are assumed to
be true.” Luna-Reyes v. RFI Const., LLC, 57 F. Supp. 3d 495, 499 (M.D.N.C. 2014)
(quoting Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)). “[A] trial court
should dismiss under Rule 12(b)(1) only when the jurisdictional allegations are
‘clearly . . . immaterial, made solely for the purpose of obtaining jurisdiction or where
such a claim is wholly unsubstantial and frivolous.’” Kerns v. United States, 585
F.3d 187, 193 (4th Cir. 2009) (quoting Bell v. Hood, 327 U.S. 678, 682 (1946)).
Summary judgment shall be granted “if the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine dispute
as to any material fact and that the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(c). “By its very terms, this standard provides that the mere
existence of some alleged factual dispute between the parties will not defeat an
otherwise properly supported motion for summary judgment; the requirement is that
there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247–48 (1986). “Only disputes over facts that might affect the outcome of
the suit under the governing law will properly preclude the entry of summary
judgment.” Id. at 248. “[S]ummary judgment will not lie if the dispute about a
material fact is ‘genuine,’ that is, if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.” Id.
“[A]t the summary judgment stage the judge’s function is not himself to
weigh the evidence and determine the truth of the matter but to determine whether
there is a genuine issue for trial.” Id. at 249. When the party moving for summary
judgment does not bear the ultimate burden of persuasion at trial, it may discharge its
burden by demonstrating to the court that there is an absence of evidence to support
the non-moving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
The non-movant must then “make a showing sufficient to establish the existence of
an element essential to that party’s case, and on which that party will bear the burden
of proof at trial.” Id. at 322. The court should view the evidence in the light most
favorable to the non-moving party and draw all inferences in its favor. Anderson, 477
U.S. at 255.
Motion to Compel Payment of Expert Fees
Federal Rule of Civil Procedure 26(b)(4)(E) states that:
“Unless manifest injustice would result, the court must require that the
party seeking discovery: (i) pay the expert a reasonable fee for time
spent in responding to discovery under Rule 26(b)(4)(A) or (D); and
(ii) for discovery under (D), also pay the other party a fair portion of the
fees and expenses it reasonably incurred in obtaining the expert's facts
Fed. R. Civ. P. 26(b)(4)(E).
Courts generally rely on the following factors to determine whether an expert
fee is “reasonable”:
(1) the witness’s area of expertise; (2) the education and training that is
required to provide the expert insight that is sought; (3) the prevailing
rates for other comparably respected available experts; (4) the nature,
quality and complexity of the discovery responses provided; (5) the cost
of living in the particular geographic area; (6) the fee being charged by
the expert to the party who retained him; (7) fees traditionally charged
by the expert on related matters, and (8) any other factor likely to be of
assistance to the court in balancing the interests implicated by Rule 26.
First S. Bank v. Fifth Third Bank, N.A., 2014 WL 3868000, at *4 (D.S.C. Aug. 6,
2014), aff’d sub nom. First S. Bank v. Fifth Third Bank NA, 631 F. App’x 121 (4th
Cir. 2015), Massasoit v. Carter, 227 F.R.D. 264, 265 (M.D.N.C. 2005). “Manifest
injustice” is normally only found by a court “where the deposing party is indigent[,]
or if requiring the party to pay a deposition fee would create an undue
hardship.” First S. Bank, 2014 WL 3868000, at *2.
Warren’s Motion to Dismiss
Warren argues that Owners’s action to have the Policy declared void ab initio
should be dismissed for lack of subject matter jurisdiction and failure to state a claim
upon which relief can be grant. For both of these grounds, Warren focuses on
Owners’s failure to bring an actual case or controversy before the court. Warren’s
position is as follows: (1) if this action would result in a denial of Gerhard’s claim,
the court lacks subject matter jurisdiction because such matters are the exclusive
purview of the SCWCC, and (2) if this action would only affect subsequent, as yet
unknown, claimants, the court lacks subject matter jurisdiction because there is no
case or controversy. ECF No. 37 at 7–9.
The first of these arguments is no longer relevant, as the parties have informed
the court that Gerhard’s claim before the SCWCC has been settled.
However, it is still necessary to consider Warren’s argument that this action
fails to present a case or controversy. Warren contends that there is no case or
controversy outside of Gerhard’s claim because no other claim has been filed against
the Policy, nor could one be, given that the Policy expired on January 22, 2016, and
the South Carolina Workers’ Compensation Act (“SCWCA”) requires injuries to be
reported to employers within 90 days, which has not happened. Id. at 8. However,
the SCWCA actually says that notice should be “given within ninety days after the
occurrence of accident or death, unless reasonable excuse is made . . . for not giving
timely notice.” S.C. Code § 42-15-20 (emphasis added). Additionally, despite this
90 day reporting requirement, the statute of limitations for filing workers’
compensation claims is “within two years after an accident, or if death resulted from
the accident, within two years of the date of death.” S.C. Code § 42-15-40. Thus,
there is at least the possibility that another claim could arise under the Policy.
The question, then, is whether this possibility is enough to present a “case or
controversy” under Article III of the Constitution. “The test for a ‘case or
controversy,’ . . . is whether the dispute ‘is definite and concrete, touching the legal
relations of parties having adverse legal interests.’” White v. National Union Fire Ins.
Co. of Pittsburgh, Pa., 913 F.2d 165, 167–68 (4th Cir. 1990) (quoting Aetna Life Ins.
Co. v. Haworth, 300 U.S. 227, 240–41, (1937)). “In deciding whether a justiciable
controversy exists, a district court looks to ‘whether the facts alleged, under all the
circumstances, show that there is a substantial controversy, between parties having
adverse legal interests, of sufficient immediacy and reality to warrant the issuance of
a declaratory judgment.’” Commercial Union Ins. Co. v. Detyens Shipyard, Inc., 147
F. Supp. 2d 413, 421 (D.S.C. 2001) (quoting White, 913 F.2d at 167–68). The
parties’ “dispute must be definite and concrete, touching the legal relations of parties
having adverse legal interests, real and substantial, and admit of specific relief
through a decree of a conclusive character, as distinguished from an opinion advising
what the law would be upon a hypothetical state of facts.” Fox Grp., Inc. v. Cree,
Inc., 819 F. Supp. 2d 520, 522–23 (E.D. Va. 2011) (internal alterations and quotation
marks omitted) (quoting Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1334–
35 (Fed. Cir. 2008)).
The court acknowledges how Warren could think that Owners has failed to
meet this standard. There is no dispute that Gerhard is the only known claimant
under the Policy. There is also no indication that another claim is particularly likely.
Furthermore, Owners does not attempt to identify any particular source of the
hypothetical future claims that it believes provide the basis for this court’s
jurisdiction. Warren also points to two cases that dismissed similar insurance
coverage disputes for lack of jurisdiction where the purported “case or controversy”
was—in some respects—more “immediate” and less “hypothetical” than in this case.
Warren first highlights Commercial Union, where this court addressed an insurance
dispute regarding a sunken drydock. 147 F. Supp. 2d at 420. There, the plaintiff
sought a declaration that its “protection and indemnity” policy provided coverage. Id.
However, that policy “require[d] wreck removal under statutory authority or [in
some] other manner prescribed by law prior [to the] filing [of] a claim.” Id. (internal
quotation marks omitted). Because this contingency had not occurred, the court
found that the plaintiff’s declaratory judgment claim did not present a true case or
controversy. Id. Warren also cites ACE Am. Ins. Co. v. Michelin N. Am., Inc., 470
F. Supp. 2d 602, 604 (D.S.C. 2007). The ACE decision dealt with a commercial
liability insurance policy that insured two distinct entities. Id. at 603. The insurer
brought a declaratory judgment action against one of the insureds, seeking a
declaration that it did not owe the defendant any coverage in connection with an
underlying action filed against the other insured party. Id. The court determined that
there was no justiciable case or controversy because the defendant-insured was not
even involved in the underlying action, and had not sought any coverage in
connection with it. Id. at 604–05. The controversies presented by the Commercial
Union and ACE cases could certainly be seen as more “immediate” than the
controversy presented here. In those cases, there were at least some facts indicating
that a claim might arise under the policies in question. Here, the only reason to
believe that Owners might face some future claim is the fact that the Policy exists.
Nevertheless, the existence of the Policy is enough to establish a case and
controversy because the existence of the Policy is the very thing Owners wishes to
challenge. All of the facts relevant to this dispute have already occurred—if a new
claim were to arise under the Policy, nothing about the claim itself would affect
whether the alleged misrepresentations rendered the Policy void ab initio. This is
what distinguishes the issue at hand from Commercial Union and ACE. Those
decisions evaluated the justiciability of coverage disputes that might arise under the
policy, not the justiciability of a dispute about the formation of the policy itself.
Because the dispute in this case deals with the formation of the policy, it is as definite
and concrete as it will ever be. Therefore, the court finds that this action presents a
justiciable case or controversy.
Warren also argues that, even if this case meets the requirements of Article
III, the court should exercise the discretion afforded by the Declaratory Judgment Act
and decline to hear the action. ECF No. 41 at 7–9. The court disagrees.
“A federal court has the discretion to decline to entertain a declaratory
judgment action, but . . . the court must do so only for ‘good reason.’” Cont’l Cas.
Co. v. Fuscardo, 35 F.3d 963, 965–66 (4th Cir. 1994) (quoting Aetna Casualty &
Surety Co, 92 F.2d at 324).
Because the remedial discretion conferred by the Declaratory Judgment
Act must be liberally exercised to effectuate the purposes of the statute,
. . . [the Fourth Circuit] ha[s] held that a federal district court should
normally entertain a declaratory action within its jurisdiction when it
finds that the declaratory relief sought (i) will serve a useful purpose in
clarifying and settling the legal relations in issue and (ii) will terminate
and afford relief from the uncertainty, insecurity, and controversy
giving rise to the proceeding.
Id. at 965 (internal alterations and quotations omitted) (quoting Nautilus Ins. Co. v.
Winchester Homes, Inc., 15 F.3d 371, 375 (4th Cir. 1994)). In making this
determination, a district court must consider the following factors:
(1) the strength of the state’s interest in having the issues raised in the
federal declaratory action decided in the state court; (2) whether the
issues raised in the federal action can be more efficiently resolved in the
pending state action; (3) whether the federal action might result in
unnecessary entanglement between the federal and state systems due to
overlapping issues of fact or of law; and (4) whether the federal action
is being used merely as a device for “procedural fencing,” i.e., to
provide another forum in a race for res judicata.
Id. at 966.
The court believes that this action will serve a useful purpose and will relieve
the uncertainty created by the parties’ dispute. Balancing the factors in the above test
reinforces this conclusion. First, while the state of South Carolina has an interest in
managing workers’ compensation claims, the matter before the court is fundamentally
an issue of contract formation. Contract disputes are routinely brought before state
courts and certainly are decided under state law. However, federal courts are wellequipped to adjudicate contract disputes that are brought before them under diversity
jurisdiction. Here, the parties have exercised their right under 28 U.S.C. §1332 to
have their state law claim heard before a federal court based on diversity jurisdiction,
and the court cannot abstain from ruling on Owners’s request for declaratory
judgment without “good reason.” Second, the issue raised in the current action
cannot be resolved more efficiently in the pending state action, because there is no
longer any pending state action. The dispute is now solely about whether or not a
valid contract for insurance exists as to potential future claims. Third, there is no
chance of entanglement between the state and federal systems, because there are no
longer two different court systems adjudicating this case that might produce
“overlapping issues of fact or law.” Finally, this case is not being used “to provide
another forum in a race for res judicata,” because this ruling will not be used in a
pending state court action.
The factors guiding judicial discretion under the Declaratory Judgment Act
fail to provide “good reason” for the court to abstain from exercising jurisdiction in
this case. Therefore, the court denies Warren’s motion to dismiss.
Owners’s Motion for Summary Judgment
Owners argues that the Policy should be declared void ab initio based upon
Warren’s material misrepresentations in its application for insurance. ECF No. 28 at
1. Under South Carolina law, an insurer may void a policy when it establishes: (1)
the insured made false statements; (2) the insured knew the statements were false; (3)
the statements were material to the risk; (4) the statements were made with the intent
to deceive; and (5) the insurer relied upon the statements in issuing the policy.
Evanston Ins. Co. v. Watts, 52 F. Supp. 3d 761, 766 (D.S.C. 2014) (citing Strickland
v. Prudential Ins. Co. of Am., 292 S.E.2d 301, 304 (S.C. 1982)). It is undisputed that
the application for insurance contained certain errors. However, because Warren has
not proved as a matter of law that the statements were made with the intent to
deceive, the courts denies Owners’s motion for summary judgment.
Owners contends that Warren’s application for insurance contained four false
statements. First, “Warren listed itself as a plumbing contractor rather than including
any description indicating it was ‘a medium sized construction company dedicated to
the propane and natural gas industry.’” ECF No. 28 at 8. This is the only one of the
allegedly false statements that Warren disputes, arguing that the classification code
used for plumbing accurately classified Warren on the application because it includes
working with gas and propane. ECF No. 37-1 at 20. Owners also contends that
Warren’s application was false in stating that the business: (1) only had two
employees when in truth it had six at the time; (2) did not perform work above fifteen
feet when it did; and (3) did not involve any exposure to flammables, caustics, or fuel
tanks, when Gerhard was in fact injured after exposure to liquefied propane gas. ECF
No. 28 at 8. Raynee and Steve’s depositions, as well as the report submitted after
Gerhard’s accident, demonstrate that these three items on the application were indeed
false. ECF No. 28-5, Raynee Dep. at 21:23–22:1; Steve Dep. at 31:3–21; ECF No
28-9, Plains Safety Alert.
Intent to Deceive
Generally, “whether a misstatement of fact in the application was made with
the intent to deceive and defraud the insurer is a question for determination by the
jury.” Bennett v. Am. Hallmark Ins. Co. of Texas, 2011 WL 2936003, at *4 (D.S.C.
July 18, 2011) (quoting Arnold v. Life Ins. Co. of Ga., 83 S.E. 2d 553 (S.C. 1954)).
However, if there is “no other reasonable or plausible explanation for the applicant’s
false representations,” then the court may infer an intent to deceive. Floyd v. Ohio
Gen. Ins. Co., 701 F.Supp. 1177, 1190 (D.S.C.1988); see Phillips v. Life &
Cas. Ins. Co. of Tennessee, 226 S.C. 336, 342, 85 S.E.2d 197 (1954) (directed verdict
for insurer was proper when the “only reasonable inference warranted by the evidence
is that the policy was procured by fraudulent misrepresentation”). Additionally, “the
mere signing of [an] application containing the answers alleged to be false is not
conclusive” of fraudulent intent. Peterson v. First Health Life & Health Ins. Co.,
2010 WL 2723113, at *7 (D.S.C. July 9, 2010) (quoting Johnson v. New
York Life Ins. Co., 164 S.E.2d 175 (S.C. 1932)); see Shenandoah Life Ins. Co. v.
Smallwood, 737 S.E.2d 857, 862 (S.C. Ct. App. 2013) (“The simple fact that an
answer on a signed application is false does not satisfy an insurer's burden of proving
the applicant made the misrepresentation with the intent to defraud the company.”),
Here, there are plausible explanations for the falsities in Warren’s application.
No employee of Warren actually filled out the application. Nalley, Warren’s primary
contact at CRW, interviewed Steve and then had another CRW employee fill out the
application later. Although Raynee signed the application—giving her the
opportunity to read it and notice the errors—the mere fact that a Warren employee
signed the document is not conclusive of the company’s intent to deceive. It appears
that, throughout the process of several different people being involved in the
preparation and submission of the application, errors were made. As this is a
plausible explanation for the errors, the court declines to infer an intent to deceive.
Thus, the court finds that Owners failed to prove as a matter of law that the Policy
should be declared void ab initio based upon the errors in Warren’s application and
declines to grant summary judgment for Owners.
Warren’s Motion for Summary Judgment
Warren responds to Owner’s motion for summary judgment with a motion to
dismiss, or in the alternative a motion for summary judgment, contending that there is
no genuine issue of material fact and that it is entitled to judgment as a matter of law
on Owners’s claim that the Policy should be declared void. ECF No. 37 at 1. As
discussed above in Section III.C, there are genuine issues of material fact regarding
Warren’s intent to deceive Owners by submitting an application containing errors.
Thus, the court declines to grant summary judgment to Warren on Owners’s action to
declare the policy void.
In addition to moving for summary judgment on Owners’s material
misrepresentation claim, Warren raises as an affirmative defense that Owners is
estopped from having the contract declared void. Id. “Equitable estoppel occurs
where a party is denied the right to plead or prove an otherwise important fact
because of something which he has done or failed to do.” Parker v. Parker, 443
S.E.2d 388, 391 (S.C. 1994).
The elements of equitable estoppel as related to the party being estopped
are: (1) 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) the intention that such conduct shall be acted upon by the
other party; (3) actual or constructive knowledge of the real facts. The
party asserting estoppel must show: (1) lack of knowledge, or 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 v. Strickland, 650 S.E.2d 465, 470 (S.C. 2007).
Warren raises several reasons it believes Owners is estopped from arguing
that, based on the errors in the application, a proper insurance policy was never
formed. First, Warren argues that CRW was acting as an agent of Owners during the
formation of the contract. ECF No. 37-1 at 12. Warren believes that this binds
Owners—the principal in the agency relationship—to the Policy, despite the errors.
Id. Warren also contends that Owners is estopped from arguing that the Policy was
not valid as of March 2015, when Warren applied for a different insurance policy
with Owners. Id. at 14–15. Next, Warren argues that the manner in which “Owners
undertook the defense of Warren in Gerhard’s workers’ compensation claim” that
arose in December 2015 estops the current declaratory judgment action. Id. at 15.
Finally, Warren claims that Owners is estopped from denying the validity of the
Policy, which existed from January 2015 to January 2016, because Owners renewed
the policy in January 2016. Id. at 16. The court addresses each argument in turn.
Warren contends that Owners cannot void the Policy, because the insurance
agents that submitted the application—Nalley and the other employees at CRW—
were acting as agents of Owners, not Warren. Warren appears to insinuate that
because Nalley—as Owners’s agent—knew that Warren worked with gas lines and
propane, his knowledge is imputed to Owners, the principal in the relationship. Id. at
1, 12–13. Owners disputes this agency relationship and suggests that Nalley might in
fact be an agent of Warren. ECF No. 39 at 10–11.
The Supreme Court of South Carolina has held that “[q]uestions of agency
ordinarily should not be resolved by summary judgment where there are any facts
giving rise to an inference of an agency relationship.” Fernander v. Thigpen, 293
S.E.2d 424, 425 (S.C. 1982). An inference of an agency relationship between CRW
and Owners could be drawn from the fact that: (1) CRW solicits business for Owners,
evidenced by Nalley suggesting Owners as a replacement insurance provider; and (2)
that Warren was instructed to deliver a check for the insurance premium directly to
CRW’s office, not to Owners. On the other hand, facts giving rise to an inference of
an agency relationship between CRW and Warren are: (1) that CRW filled out and
delivered to Owners the insurance application for Warren; and (2) that CRW is an
independent insurance agency, working with multiple insurance carriers, not just
Owners. 1 See ECF No. 39-2, Nalley Dep. 8:12–15. Because the facts do not clearly
demonstrate whether CRW and its employees are agents of Owners or Warren, and
because the existence of an agency relationship and “the scope of the alleged agent’s
authority are questions of fact for the jury,” the court declines to grant summary
judgment on the agency issue. Holmes v. McKay, 513 S.E.2d 851, 854 (S.C. Ct.
Warren argues CRW’s power to “solicit and secure applications and bind
coverage for contracts of insurance on behalf of Owners Insurance” makes it an agent
of Owners. ECF No. 41 at 9. By contrast, Owners contends that independent
insurance agents are “generally considered to be an agent of the insured.” ECF No.
39 at 10. The underlying question appears to be whether an insurance agent’s
authority to bind the insurer necessarily makes him an agent of the insurer, such that
the insurer is estopped from voiding the policy on the basis of misrepresentations in
the application. This question is not squarely addressed by the case law, which
focuses more on what facts must be shown to establish an insurance agent’s ability to
bind the insurer. See Holmes v. McKay, 513 S.E.2d 851, 856 (S.C. Ct. App. 1999)
(“Today, we hold that independent insurance agents’ licenses with several insurers
are, with respect to policies issued on the agents’ efforts, evidence of agency with and
authority to speak for the insurers for which they are licensed.”). The court refrains
from answering this state law question at this time, as it is unnecessary to decide upon
the motions for summary judgment.
App. 1999); see Johnson v. Arbabi, 584 S.E.2d 113, 116 (S.C. 2003) (“[W]hether an
agency relationship exists is a question of fact . . . .”).
March 2015 Application
In March 2015, about two months after Owners issued the Policy, Warren
submitted an application to Owners through CRW for an inland marine insurance
policy. ECF No. 37-1 at 14; ECF No. 37-8, White Dep. at 73:15–74:3. Warren
alleges that this application—which correctly reflects that Warren works with
propane—should have alerted Owners to the errors in the January 2015 policy. Thus,
Warren believes that Owners knew of the errors in the original policy nine months
before Gerhard’s injury, but failed to bring an action to declare the contract void
during that time. Id. Warren contends that this estops Owner from denying coverage
in Gerhard’s workers compensation claim. Id. That claim has since been settled, and
Owners has made it clear that the current action before this court exists solely to
determine the contractual relationship between the two parties.
Still, the court considers whether the March 2015 application for the inland
marine policy should estop Owners from seeking a declaratory judgment that the
Policy is void. While Warren alleges that Owners knew of the errors in the
application for the January 2015 Policy because of the March 2015 application,
Owners argues that it was not alerted to the errors, and that Warren’s argument
misconstrues how the insurance company operates. Owners points to the deposition
testimony of Owners underwriter Jamie White and its expert David L. Stegall
(“Stegall”), both of which “have testified [that] the existence of another policy [on
one line of business] . . . would not be imputed to another line of business.” ECF No.
39 at 14. White maintains that the March 2015 application for this separate inland
marine policy did not make Owners aware of the errors in the application for the
Policy at issue, because it is a “separate contract . . . [and] a separate policy
altogether,” and was issued by a “different underwriter” than the underwriter who
worked on the Policy. White Dep. 74:4–8, 17–21, 78:5. Stegall further explains that
“Owners is a big company, and [there are] two different departments [that deal with
these two different policies].” Stegall Dep. 38:11–21. He states that none of the
insurance companies he knows “keep an underwriting file on a company for all lines
of business . . . the worker’s comp[ensation] underwriter would have no idea that
some other policy was written with another policy period on another policy form.”
The court finds that there is a genuine dispute as to whether, starting in March
2015, Owners knew of the error in the application for the Policy. Because Warren
has failed to prove as a matter of law the Owners had “knowledge of the real facts,”
the court declines to find that Owners is estopped based on this ground. Strickland,
650 S.E.2d at 470.
Gerhard’s Workers’ Compensation Claim
Warren next contends that the manner in which Owners handled Gerhard’s
workers’ compensation claim lead Warren to believe that the Policy was still valid,
estopping Owners from now claiming it was never valid. ECF No. 13 ¶ 23; ECF No.
37-1 at 15. Specifically, Warren takes issue with Owners undertaking Warren’s
defense, without reserving its right to have the Policy declared void, and appointing
only one attorney to defend them both against Gerhard’s claim. Id. Owners, on the
other hand, claims that it did reserve its rights, and that from the moment it learned of
Gerhard’s claim, it unambiguously demonstrated its intention to deny coverage under
the policy because of the material misrepresentations within the application. ECF No.
39 at 15. Specifically, Owners discusses a letter it sent to Warren on December 17,
2015, denying coverage for the claim because the Policy was not valid. Id.; ECF No
37-10, Denial Letter. On March 3, 2016, Owners sent Warren another letter
expressing its intent to deny coverage and stating that it “reserves the right to initiate
a declaratory judgment action to have a court declare that Auto-Owners has no
obligations under the policy.” ECF No. 39 at 15; ECF No. 28-15, March 3, 3016
Letter. With that letter, Owners also returned all the premiums that Warren had paid
for the Policy thus far. Id.
A reasonable juror could certainly find that these letters indicate that, at least
from December 2015 onwards, Owners did not intend to perform under the Policy
because it did not consider it to be a valid contract. In that case, Owners would not be
estopped from arguing that it believed the policy to be void, at least from December
Renewal of the Policy in 2016
The Policy lasted from January 2015 to January 2016, and Owners renewed it
for another year in January 2016. The parties have not fully explained this issue in
the briefings before the court, but during the hearing on these motions there appeared
to be a dispute between the parties about the reason for the renewal. In its motion to
dismiss, Warren argues that the renewal shows how Owners held itself out to Warren
as though the Policy was valid at that time, supporting Warren’s estoppel claim. ECF
No. 37-1 at 15–16. By contrast Owners indicated at the hearing that the policy was
renewed because Owners failed to give the required 90 days notice of cancellation
and intent not to renew. 2 Tr. 9:2–9. According to Owners, this was because they
were not made aware of the errors in the application until December 7, 2015, when
Gerhard’s claim arose. ECF No 28 at 4. Because this issue has not been sufficiently
addressed in the parties’ briefs and there is a dispute about the reasons for renewal,
the court refrains from deciding whether the 2016 renewal estops Owners from
making its current claim to declare the Policy void.
Considering all of the above, the court finds that Warren has failed to prove as
a matter of law that Owners is estopped from claiming that the policy should be
declared void. Warren argues that there have been multiple instances—from the
issuance of the Policy in January 2015 until its renewal in January 2016—alerting
Owners to falsities within the application, and that because Owners failed to take any
action to declare the policy void after each of those instances, it is now estopped from
retrospectively claiming that the policy is void. However, as explained above, for
each of these instances, either Owners offers a reasonable explanation, or the law
dictates that it is a question best left for the fact-finder.
Furthermore, Warren has not proven all of the elements required under
Strickland for a successful estoppel claim. See Strickland, 650 S.E.2d at 470 (listing
elements that a party asserting estoppel must prove). First, Warren has not
conclusively proven that Owners made any false representations about its intent to
White’s deposition seems to echo this, stating that the policy was renewed
because the decision on renewal was made “maybe 60 days” before the new policy
was released on January 21, 2016. White Dep. 61:10–62:22.
continue to perform under the Policy while knowing of the application errors. To
prevail at summary judgment, Warren must also prove as a matter of law that Owners
intended that its conduct be acted upon by Warren, and Warren has not put forth any
arguments or evidence to that effect. Next, Warren has not proven that Owners had
knowledge of the errors in the application at any point before Gerhard’s claim arose,
and after Owners did become aware of the errors, it communicated to Warren that it
did not consider the Policy to be valid. Thus, the court declines to grant summary
judgment to Warren on its estoppel claim.
Motion to Compel Payment of Expert Fees
In October 2016, Warren sent Owners a request to depose Owners’s expert
witness, Stegall. ECF No. 26-2, Stegall Emails. In reply, Owners stated its
expectation that Warren—as the party requesting discovery—pay Stegall’s $2,500
retainer fee. Id. Before the deposition took place on November 29, 2016, Warren’s
attorney informed Owners of its intent not to pay the $2,500 fee, finding it
unreasonable for such a short and simple deposition. ECF No. 26-1, Objection to
Warren opposes the motion to compel, first on the basis that Stegall is not
actually an expert witness, and second because it believes Stegall’s fees are
Warren first contends that it should not be compelled to pay expert fees
because Stegall is only a fact witness—not an expert witness—and Rule 26(b)(4)(E)
requires the party seeking discovery to pay a reasonable fee for experts, not ordinary
witnesses. ECF No. 34 at 5–6. The court refrains from determining whether Stegall
qualifies as an expert witness. 3 Additionally, Owners correctly argues that whether
the court ultimately finds that Stegall qualifies as an expert witness “is not
determinative of whether the costs of deposing him are properly borne by Warren
who requested his deposition.” ECF No. 35 at 2. As this court has found, “[t]here is
no language in [Rule 26(b)(4)(E)] that specifically limits compensation to experts
whose opinions were ultimately presented at trial.” First S. Bank, 2014 WL 3868000,
at *3 (refusing to excuse defendant from reimbursing plaintiff for expert fees on this
ground). Rule 26(b)(4)(E) pertains to experts “whose opinions may be presented at
trial,” not only those witnesses who are ultimately tendered as experts at trial. Fed. R.
Civ. P. 26(b)(4)(A) (emphasis added).
Reasonableness of Fees
Next, Warren asserts that Stegall’s fees are unreasonable. Federal Rule of
Civil Procedure 26(b)(4)(E) states that “the court must require that the party seeking
discovery [ ] pay the expert a reasonable fee for time spent in responding to
discovery.” Fed. R. Civ. P. 26(b)(4)(E) (emphasis added). Reasonableness is
determined by a multitude of factors, including the expert’s qualifications, the
Warren claims that “Stegall did not provide any opinion [ ] which only an
expert could give or [for] which an expert was required . . . [and therefore] Stegall’s
report and his testimony are unnecessary, irrelevant and inadmissible in this case.”
ECF No. 34 at 7. To support this claim, Warren invokes Federal Rule of Evidence
Rule 702 and case law discussing how expert testimony that does not aid the jury
should be excluded. ECF No. 34 at 5–6. An order on a motion to compel payment of
expert fees is not the appropriate place for the court to determine whether a party’s
expert witness meets the standards of the Federal Rules of Evidence. If Warren
desires to contest the expert status of one of Owners’s witnesses, it may file a motion
to exclude the expert.
expertise required to testify on the particular issue, and the prevailing rates for other
similarly qualified experts in this field. First S. Bank, 2014 WL 3868000 at *4.
Warren first questions the reasonableness of Stegall’s $2,500 retainer fee.
The court finds that the fee is reasonable, based on the First Southern Bank factors. In
terms of his expertise, Stegall has been designated a Chartered Property and Casualty
Underwriter, has personally underwritten thousands of insurance policies, and has
almost 40 years of experience in the insurance and risk management industry. ECF
No. 26-6, Stegall Docs. at 1–2. He has been deposed about thirty times as an expert
for issues relating to insurance underwriting. ECF No 35-1, Stegall Dep. at 4:22.
Stegall’s affidavit states that it is his practice “in each instance to request a $2,500
deposit for my time associated with being deposed.” Stegall Docs. at 2. He reasons
that, at his rate of $380.00 per hour, this retainer equals about 6.5 hours, the amount
of time he spends in an average deposition. Id. Based on all of the above, the court
finds Stegall’s $2,500 retainer fee to be reasonable.
In addition to his retainer fee, Stegall submitted an invoice of $1,401.33 for
fees and expenses from the deposition, id. at 26, which Warren also contests as
unreasonable. This invoice lists an hourly rate of $380.00 and shows that Stegall
spent two hours on “Deposition Preparation”—for a total of $760.00—and an hour
and a half on “Deposition Document Retrieval”—for a total of $570.00. These fees
combine with the $71.33 he spent on “Printing” to total $1,401.33 worth of deposition
expenses for Warren to pay.
Warren contends that Stegall’s lack of preparation for the deposition and his
inadequate answers during the deposition render this sum unreasonable. ECF No. 34
at 8. Warren lists several reasons it believes that Stegall was unacceptably
unprepared, the most significant being his failure to bring certain necessary
documents with him to the deposition. ECF No. 34 at 4, 9–10. The subpoena
notifying Stegall of the deposition required him to bring a “complete copy of [his]
entire file, including any and all documents, notes, correspondence, emails, drafts,
memoranda, research material, or other prepared documents as it relates to this case.”
Stegall Docs. at 22. During the deposition, however, Stegall revealed that—due to a
misunderstanding—he had not brought anything with him, even though documents
about the case had been sent to him by Owners’ lawyer. Stegall Dep. at 5:7–9:18. He
apologized and offered to go print them at his office, stating that this was “a little
unusual . . . I have only done one other telephonic deposition, and so usually the
attorney is here in person and hands me the stuff.” Id. Stegall spent an hour and a
half printing the materials before returning to complete the deposition.
The court finds it was unreasonable for Stegall to charge $570.00 to retrieve
documents that he should have brought with him. See Borel v. Chevron U.S.A. Inc.,
265 F.R.D. 275, 278 (E.D. La. 2010) (reducing the expert fees in part by finding it
unreasonable to spend three hours preparing for a three hour deposition, particularly
when the expert “failed to bring his report and any material reviewed to the
deposition.”). Stegall claims that he did not bring the necessary information with him
because of a misunderstanding between him and the attorneys about expectations for
the deposition. However, as an experienced witness, Stegall should have been
familiar with the subpoena requirements and communicated with the attorneys about
the procedure for this telephonic deposition.
The court also finds it unreasonable for Stegall to charge Warren $760.00 for
two hours of deposition preparation. Stegall set his retainer fee at $2,500 because—at
$380.00 per hour for 6.5 hours—it covers the cost of an average deposition. Here, the
cost of deposition preparation should be subsumed into that retainer fee.
Additionally, it is the duty of the party retaining the expert witness to prepare their
witness for deposition and trial. Stegall is Owners’s expert witness, and Owners is
already paying him to prepare for deposition and trial. It is unreasonable, then, to
have Warren pay for preparation time as well, since Warren is deposing Stegall on the
same subject matter.
Thus, the court grants in part and denies in part Owners’s motion to compel
payment of expert fees. The court directs Warren to pay the $2,500 retainer fee and
the $71.33 fee for his printing expenses. However, Warren is not required to pay the
$570.00 fee for document retrieval or the $760.00 fee for Stegall’s deposition
preparation, as they are unreasonable expenses.
For the foregoing reasons, the court DENIES Owners’s motion for summary
judgment, DENIES Warren’s motion to dismiss and, in the alternative, motion for
summary judgment, and GRANTS IN PART and DENIES IN PART Owners’s
motion to compel payment of expert fees.
AND IT IS SO ORDERED.
DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
September 29, 2017
Charleston, South Carolina
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