Stoney Marine International Limited et al v. Arthur J Gallagher & Co et al
ORDER granting 7 Motion to Remand Signed by Honorable David C Norton on December 19, 2016.(rweh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
STONEY MARINE INTERNATIONAL
LIMITED d/b/a Coleman Supply
Company and Laurence O. Stoney,
ARTHUR J. GALLAGHER & CO.,
ARTHUR J. GALLAGHER RISK
MANAGEMENT SERVICES INC. d/b/a
Gallagher Riley, and RILEY &
ASSOCIATES INC. and/or its Officers,
Directors and Shareholders,
This matter is before the court on a motion to remand filed by plaintiffs Laurence
O. Stoney and Stoney Marine International Limited (“plaintiffs”). For the reasons set
forth below, the court grants plaintiffs’ motion.
Plaintiffs operate a ship chandlery business, supplying the needs of vessels in the
Port of Charleston, South Carolina. Compl. ¶ 1. From 2007 to 2009 plaintiffs purchased
liability insurance through defendant Riley & Associates, Inc. (“Riley”). Id. ¶ 17. In
2009 or early 2010, plaintiffs selected a competing agency, Anderson Insurance
Associates (“Anderson”) to place its insurance. Id. ¶¶ 18, 19. Riley eventually
approached plaintiffs about regaining their business, and plaintiffs informed Riley that if
it could provide the same coverage as the policy obtained through Anderson (the
“Anderson Policy”) at a better price, then plaintiffs would again purchase their insurance
through Riley. Id. ¶¶ 20, 21. Notably, the Anderson Policy included coverage for claims
made pursuant to the Longshore and Harbor Workers’ Compensation Act (“LHWCA
coverage”).1 Id. ¶ 19. Plaintiffs provided Riley with a copy of the Anderson Policy for
this purpose. Id. ¶ 21. Based on Riley’s representation that it could provide the same
coverage at a lower premium, plaintiffs resumed purchasing their insurance from Riley
and obtained a policy for the period of August 1, 2011 to August 1, 2012 (the “2011
Policy”). Id. ¶ 23; see also Notice of Removal Ex. B, 2011 Policy.
In early 2012, defendants Arthur J. Gallagher & Co. and Arthur J. Gallagher Risk
Management Services Inc. (the “Gallagher defendants”) purchased Riley’s assets and
liabilities. Id. ¶ 4. Plaintiffs then purchased a renewal of the 2011 Policy through the
Gallagher defendants for the period of August 1, 2012 to August 1, 2013 (the “2012
Policy”). Notice of Removal Ex. C, 2012 Policy.
On or about December 24, 2012, plaintiffs were making a water delivery to a
customer vessel when one of plaintiffs’ crew members suffered a fall which caused him
significant injury (the “accident”). Compl. ¶¶ 9, 10. Plaintiffs immediately notified
defendants of the accident and their potential claim. Id. ¶ 11. In March of 2013, the
insurance carrier of the 2012 Policy denied plaintiffs’ claim because there was no
coverage in place to protect plaintiffs from potential liability imposed under Workers’
Compensation, the Longshore and Harbor Workers’ Compensation Act, or the Jones Act.
Id. ¶ 12. On February 26, 2016, plaintiffs filed the instant action in Court of Common
Pleas for Charleston County, bringing claims for negligence and gross negligence, fraud,
fraud in the inducement, violation of the South Carolina Unfair Trade Practices Act, and
At least, plaintiffs allege that the Anderson Policy included such coverage. No
party has provided the court with a copy of the Anderson Policy.
negligent misrepresentation in connection with the defendants’ failure to obtain the
proper coverage on plaintiffs’ behalf.
On April 13, 2016, the Gallagher defendants filed a notice of removal pursuant to
28 U.S.C. §§ 1332, 1441 and 1446, on the grounds that Riley, the only non-diverse party,
should be disregarded for jurisdictional purposes because Riley was fraudulently joined.
On May 13, 2016, plaintiffs filed the instant motion to remand, and on May 31, 2016, the
Gallagher defendants filed a response. This matter has been fully briefed and is ripe for
the court’s review.
A defendant has a statutory right to remove a civil action brought in state court
over which “the district courts of the United States have original jurisdiction.” 28 U.S.C.
§ 1441(a); Davis v. N.C. Dep’t of Corr., 48 F.3d 134, 138 (4th Cir. 1995). If it appears
that removal was improper, a party can move to remand the case to state court “within 30
days after the filing of the notice of removal.” 28 U.S.C. § 1447(c). When removal is
challenged, the defendant has the burden of establishing federal jurisdiction. Mulcahey
v. Columbia Organic Chem. Co., Inc., 29 F.3d 148, 151 (4th Cir. 1994). Because federal
courts are courts of limited jurisdiction, removal raises federalism concerns and must be
strictly construed in favor of state court jurisdiction. Id. “If federal jurisdiction is
doubtful, a remand is necessary.” Id.
The Gallagher defendants contend that this court has diversity jurisdiction over
this action pursuant to 28 U.S.C. § 1332. Diversity jurisdiction requires “complete
diversity,” meaning that “each defendant [must be] a citizen of a different State from
each plaintiff.” Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373 (1978)
(emphasis in original). Plaintiffs and Riley are undisputedly citizens of South Carolina.
To avoid this apparent lack of diversity, the Gallagher defendants look to the doctrine of
The doctrine of fraudulent joinder allows a federal court to “disregard, for
jurisdiction purposes, the citizenship of certain [in-state] defendants, assume jurisdiction
over a case, dismiss [those] defendants, and thereby retain jurisdiction.” Mayes v.
Rapoport, 198 F.3d 457, 461 (4th Cir. 1999). The party asserting fraudulent joinder has
the “heavy burden” to “demonstrate either outright fraud in the plaintiff’s pleading or that
there is no possibility that the plaintiff would be able to establish a cause of action against
the in-state defendant in state court, . . . even after resolving all issues of law and fact in
the plaintiff’s favor.” Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999)
(internal quotation marks and citation omitted) (emphasis in original). “This standard is
even more favorable to the plaintiff than the motion to dismiss standard under Rule
12(b)(6).” Id. A plaintiff’s claim need only possess a “glimmer of hope” to defeat a
fraudulent joinder challenge. Id. at 426. As always, the court must “resolve all doubts
about the propriety of removal in favor of retained state court jurisdiction.” Id. at 425
(internal quotation marks omitted).
In their Notice of Removal, the Gallagher defendants argue there is “no
possibility” that plaintiffs can establish a cause of action against Riley for two reasons.
“The term ‘fraudulent joinder’ is a bit misleading, inasmuch as the doctrine
requires neither a showing of fraud . . . nor joinder.” Mayes v. Rapoport, 198 F.3d 457,
466 n.8 (4th Cir. 1999). “In fact, it is irrelevant whether the defendants were ‘joined’ to
the case or originally included as defendants; rather, the doctrine is potentially applicable
to each defendant named by the plaintiff either in the original complaint or anytime prior
to removal.” Id.
First, the Gallagher defendants contend that Riley did not procure the 2012 Policy in
effect at the time of the accident, and therefore, there is no casual chain linking Riley’s
acts or omissions to plaintiffs’ injuries. Notice of Removal at 4–5; Defs.’ Resp. 2–3. The
Gallagher defendants next contend that, even if this causation problem could be ignored,
any claims against Riley are time barred. Notice of Removal at 5; Defs.’ Resp. 4–6. The
court addresses each argument in turn.
The Gallagher defendants argue that Riley cannot be held liable for the
deficiencies in the 2012 Policy because it did not procure that policy. Defs.’ Resp. 2–3.
The Gallagher defendants contend that a policy renewal constitutes a separate contract
under South Carolina law, and therefore, Riley’s failure to procure the proper coverage in
the 2011 Policy had no effect on the coverage in the 2012 Policy. Id. This argument
draws on principles of contract law in an effort to demonstrate that plaintiffs’ statutory
and tort claims fail for a lack of causation. Id. (arguing that the two policies must be
considered “separate contracts requiring renegotiation and Riley would therefore still not
be a party to the 2012 transaction”). However, plaintiffs’ statutory and tort claims are
each based on Riley’s alleged misrepresentations regarding the coverage available under
the 2011 Policy, not Riley’s obligations under the 2012 Policy. Compl. ¶¶ 24, 26–30,
32–34, 38; see also Armstrong v. Collins, 621 S.E.2d 368, 376 (S.C. Ct. App. 2005)
(“The recovery of damages may be predicated upon a negligently made false statement
where a party suffers either injury or loss as a consequence of relying upon the
misrepresentation.” (quoting Winburn v. Ins. Co. of N. Am., 339 S.E.2d 142, 146 (S.C.
Ct. App. 1985)). Causation, therefore, should be governed by tort law, not contract law.
Under ordinary tort principles,
Proof of proximate cause requires proof of both causation in fact and legal
cause. Causation in fact is proved by establishing the injury would not
have occurred “but for” the defendant's negligence. Legal cause is proved
by establishing foreseeability. A plaintiff therefore proves legal cause by
establishing the injury in question occurred as a natural and probable
consequence of the defendant's negligence.
McNair v. Rainsford, 499 S.E.2d 488, 497 (S.C. Ct. App. 1998) (internal citations
omitted). These principles of causation suggest that there is some possibility that
plaintiffs may maintain a cause of action against Riley. If plaintiffs depended on Riley to
procure the proper coverage, it stands to reason that they would also have been relying on
Riley’s assessment of that coverage in renewing the policy. It is almost axiomatic that a
renewal policy contains substantially the same provisions as the original policy, and thus,
Riley may well have foreseen the consequences of its alleged misrepresentations
extending beyond the 2011 Policy period. Undoubtedly, there may be other facts which
need to be considered in determining whether the result of Riley’s failures was
foreseeable, but this is why courts have long held that “the question of proximate cause is
[ordinarily] one of fact for the jury.” Id.
The Gallagher defendants certainly have not provided any legal authority
requiring a different analysis. The Gallagher defendants’ primary legal support for their
argument comes from Allstate Ins. Co. v. Thatcher, wherein the Supreme Court of South
Carolina held that an insurer seeking to include certain exclusions in a policy must
comply with the statutorily required procedures governing such exclusions each time the
policy is renewed. 325 S.E.2d 59, 60–61 (S.C. 1985). The Allstate decision only
partially supports the principle the Gallagher defendants seek to establish—that a renewal
is a distinct contract from the original policy. In addressing this point, the Allstate court
stated that “[i]n one sense of the word, the renewal of any contract creates a new
contract,” suggesting that, in another sense, the opposite is true. Id. at 61 (emphasis
added). Moreover, even if a renewal were considered completely distinct from the
original policy, this principle does not necessarily lead to the conclusion that the creation
of the initial policy has no causal connection to the contents of the renewal policy. The
Allstate decision simply says nothing about how this principle of contract law interacts
with tort law’s causation requirement. For the reasons outlined above, it seems entirely
possible that one contract could have some causal effect on another.
Therefore, the court finds that the Gallagher defendants have failed to carry their
heavy burden to prove there is no possibility that plaintiffs can establish causation.
Statute of Limitations
The Gallagher defendants next argue that any claims plaintiffs might have against
Riley are clearly barred by their respective statutes of limitations. Notice of Removal 5–
6; Defs.’ Resp. 4–6. The Gallagher defendants assert, and plaintiffs do not dispute, that
each of plaintiffs’ claims is subject to a three year statute of limitations running from the
time when a party knows or should know, through exercise of due diligence, that a cause
of action exists. Defs.’ Resp. 5. Because the proposal for the 2012 Policy, which was
produced on July 29, 2012, and the 2012 Policy itself, which went into effect on August
1, 2012, both explicitly excluded LHWCA coverage, the Gallagher defendants argue that
plaintiffs should have known of their claims well before this action was filed on February
26, 2016. Id. Plaintiffs contend that they could not have learned about the deficiencies in
their policy, because they reasonably relied on Riley and Gallagher’s expertise to procure
the appropriate coverage. Pl.’s Mot. 6–7.
Generally, “[t]he duty on the part of one who signs a written instrument to
exercise reasonable care to protect himself requires that he read the contract which he
signs.” Maw v. McAlister, 166 S.E.2d 203, 205 (S.C. 1969). On the other hand, “[w]hile
an insured cannot abandon all care, the rules which require one to inform himself of the
terms of his contract and to take precautions for his own protection are less exacting
when dealing with one’s own insurance agent or broker in the procurement of an
insurance contract.” Riddle-Duckworth, Inc. v. Sullivan, 171 S.E.2d 486, 492 (S.C.
1969). “This also applies to renewal of a policy, where a layman would not have known
about a coverage problem.” Great Am. Ins. Co. v. Mills, No. 4:06-cv-01971, 2008 WL
2250256, at *10 (D.S.C. May 29, 2008).
The Gallagher defendants argue that even under the more relaxed standard
announced in Riddle-Duckworth, plaintiffs failed to exercise reasonable care to protect
themselves because they “abandon[ed] all care” by failing to read the 2012 Policy
proposal or the policies themselves. Defs.’ Resp. 5. The Gallagher defendants seem to
assume that plaintiffs did not read these documents based on their assessment that anyone
who had done so would have realized that the policies did not provide the requested
coverage. The Gallagher defendants have not explained why a review of the policy
proposal or the 2012 Policy would have necessarily alerted plaintiffs to the lack of
LHWCA coverage, but a review of each document indicates that LHWCA coverage is
not available. See 2012 Policy at 73 (containing exclusion for “[b]odily [i]njury to any
person in work subject to the Longshore and Harbor Workers’ Compensation Act”); ECF
No. 9-2, Policy Proposal at 7 (indicating limit of “USL&H” coverage “N/A”).
The court cites the exhibit page number, rather than the page numbers listed on
the 2012 Policy itself.
This evidence may well demonstrate that plaintiffs knew or should have known
that the 2012 Policy did not contain LHWCA coverage. However, plaintiffs do not allege
that they asked Riley for LHWCA coverage, specifically, but only that they asked for the
same coverage that had been provided under the Anderson Policy. Compl. ¶ 21. Thus,
even under the Gallagher defendants’ proposed analysis, the real question is not whether
plaintiffs would have realized that the 2011 and 2012 Policies did not include LHWCA
coverage, but rather, whether plaintiffs would have realized that such policies did not
include the same coverage as the Anderson Policy. The Anderson Policy has not been
produced to this point, but if it were available, the court’s inquiry would need to account
for the fact that plaintiffs are not insurance experts, and thus, they may not have been able
to accurately compare the two policies. See Riddle-Duckworth, 171 S.E.2d at 492
(“Plaintiff, while experienced in his own business, was not experienced in the insurance
field and had a right to rely upon the expert knowledge of the agent. The reasonableness
of the conduct of the parties must be assessed in that light.”).
Moreover, there is at least one South Carolina decision, Kelly v. S.C. Farm
Bureau Mut. Ins. Co., holding that an insured plaintiff reasonably relied on her agent to
procure the appropriate coverage despite the fact that she never read the policy. 450
S.E.2d 59, 63 (S.C. Ct. App. 1994). The facts in Kelly are quite similar to the facts
alleged here. In Kelly, the plaintiff specifically explained to her agent that she needed the
same coverage provided in her previous policy with another insurer—which, crucially,
covered certain storage buildings on her property. Id. at 61. After Hurricane Hugo
damaged these storage buildings, the plaintiff made a claim under her new policy only to
discover that the buildings were not covered. The court specifically found that
[plaintiff] did not read the [new] policy and was not aware of this
exclusion. She could have read the policy and would have easily
understood the exclusion had she done so. She would have also
understood that the storage buildings were not covered.
Id. Nevertheless, the court noted that the plaintiff made “specific inquiries” into the
terms and provisions of her policy4 and “reasonably relied upon her agent whom she
trusted to provide her with the same coverage she enjoyed under the [previous] policy.”
Id. at 63. Much like the plaintiff in Kelly, plaintiffs allege they gave Riley specific
instructions to obtain the same coverage that was provided in the Anderson policy.5
Therefore, the court finds that it is at least possible that plaintiffs were entitled to
rely on Riley’s alleged representations, and thus, were not unreasonable in failing to
discover the policies’ deficiencies until they were denied coverage in March 2013. The
court need not decide whether plaintiffs’ claims are likely to succeed, or even if such
claims would survive a Rule 12(b)(6) motion to dismiss. Hartley, 187 F.3d at 424.
Plaintiffs’ likelihood of success may be very slight, indeed, but even a “slight possibility”
is sufficient to divest this court of jurisdiction. Id. at 426. “Once the court identifies [a]
glimmer of hope for the plaintiff, the jurisdictional inquiry ends.” Id. The court finds
that such a “glimmer of hope” exists in this case.
The only “specific” communications mentioned in the opinion are the plaintiff’s
statements to her agent that “she desired the same coverage she had under the [previous]
policy.” Kelly, 450 S.E.2d at 60.
The court notes that it may be possible to distinguish the Kelly case due to the
fact that, in Kelly, the plaintiff also received a declarations page indicating that some
portion of her premium covered “appurtenant structures.” See Kelly, 450 S.E.2d at 63
(“Farm Bureau accepted a premium to provide coverage for ‘appurtenant structures’ and
its declarations page on the policy reflected such coverage. . . . Farm Bureau’s acceptance
of the premium for this coverage estops it from claiming, after a loss, that no coverage
exists.”). However, the Kelly court mentioned this fact in a section separate from the
rationale outlined above, suggesting that it was an independent basis for the court’s
holding. Ultimately, the “no possibility” standard is exceedingly difficult to establish and
the court is convinced that the Kelly decision is sufficiently analogous to find that it is at
least possible that Kelly would apply here.
For the foregoing reasons, the court GRANTS plaintiffs’ motion and remands this
case to state court.
AND IT IS SO ORDERED.
DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
December 19, 2016
Charleston, South Carolina
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