QBE Insurance Corporation v. Ocean Keyes Development LLC et al

Filing 46

ORDER granting 45 Motion to Dismiss. Signed by the Honorable R Bryan Harwell on 02/13/2018. (Attachments: # 1 Settlement, Release and Policy Buy-Back Agreement) (lsut, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
FLORENCE DIVISION
QBE INSURANCE CORPORATION,

)
)
PLAINTIFF,
)
)
vs.
)
)
OCEAN KEYES DEVELOPMENT, LLC; )
)
KEYE CONSTRUCTION COMPANY,
)
INC.; KEYE COMMUNITIES, LLC;
)
PINE BLUFF CONSTRUCTION CO.;
KEYE REAL ESTATE, INC.; RUSSELL )
)
BALTZER; MARC HYMAN; BEACH
)
VILLAS AT OCEAN KEYES
PROPERTY OWNERS ASSOCIATION, )
INC.; SEASHORE VILLAS AT OCEAN )
)
KEYES PROPERTY OWNERS
)
ASSOCIATION, INC.; LAKESIDE
)
TOWNHOMES AT OCEAN KEYES
)
HORIZONTAL PROPERTY REGIME,
)
INC.; LAKESIDE TOWNHOMES AT
OCEAN KEYES PROPERTY OWNERS )
)
ASSOCIATION, INC.; HARPER
)
OCEAN KEYES, LLC; ROBERT F.
)
MCKENNA; OLGA R. MCKENNA;
ROBERT W. DISMORE; AND LUTHER )
)
A. BEAZLEY, III, TRUSTEE OF THE
)
LUTHER A. BEAZLEY REVOCABLE
)
TRUST,
)
DEFENDANTS.
)
)

C.A. NO. 4:17-CV-01611-RBH

CONSENT ORDER

I.

BACKGROUND

1.

QBE Insurance Corporation (“QBE”) initiated this action on June 20, 2017

against the following Defendants: Ocean Keyes Development LLC (“Ocean Keyes”), Keye Real
Estate, Inc. (collectively “Ocean Keyes Entities”); Keye Construction Co., Inc., Keye
Communities, LLC, Pine Bluff Construction Co., Marc Hyman, Russell P. Baltzer (“Keye1 

Related Entities”); Beach Villas at Ocean Keyes Property Owners Association, Inc., Seashore
Villas at Ocean Keyes Property Owners Association, Inc., Lakeside Townhomes at Ocean Keyes
Horizontal Property Regime, Inc., Lakeside Townhomes at Ocean Keyes Property Owners
Association, Inc., Harper Ocean Keyes, LLC; Robert F. McKenna, Olga R. McKenna, Robert W.
Dismore, and Luther A. Beazley, III, Trustee of the Luther A. Beazley Revocable Trust
(collectively “Homeowner Parties”).
2.

QBE’s Complaint alleged that the Defendant Homeowner Parties claimed

construction defects at their respective condominium and townhouse projects, including to their
individual units and the project common areas against some or all of the Ocean Keyes Entities
and the Keye-Related Entities in the following underlying lawsuits:
a.

Beach Villas at Ocean Keyes Property Owners Association, Inc. v. Ocean

Keyes Development, LLC, et al. in the Fifteenth Judicial Circuit in the Court of Common Pleas of
Horry County, South Carolina, Case No. 2014-CP-26-6573 (“the Beach Villas action”).
b.

Seashore Villas at Ocean Keyes Property Owners Association, Inc. v.

Ocean Keyes Development, LLC, et al. in the Fifteenth Judicial Circuit in the Court of Common
Pleas of Horry County, South Carolina, Case No. 2015-CP-26-8308 (“the Seashore Villas
action”).
c.

Lakeside Townhomes at Ocean Keyes Horizontal Property Regime, Inc., et

al. v. Ocean Keyes Development, LLC, et al. in the Fifteenth Judicial Circuit in the Court of
Common Pleas of Horry County, South Carolina, Case No. 2015-CP-26-5585 (“the Lakeside
Townhomes action”);
d.

Harper Ocean Keyes, LLC, et al, v. Ocean Keyes Development, LLC, et

al., in the Fifteenth Judicial Circuit in the Court of Common Pleas of Horry County, South

2 

Carolina, Case No. 2015-CP-26-4599 (“the Harper Ocean action”)
3.

Collectively, the Beach Villas lawsuit, Seashore Villas lawsuit, Lakeside

Townhomes lawsuit, and Harper Ocean lawsuit are collectively referred to as the “Underlying
Actions”.
4.

The Defendant Homeowners alleged in the Underlying Actions that Ocean Keyes

was the developer and/or general contractor of their homes.
5.

QBE’s Complaint alleged that QBE issued Policy Number JCG23468, which was

effective from June 29, 2010 to June 29, 2011 (“2010-2011 policy”) and Policy Number
JCG23468-1, which was effective from June 29, 2011 to June 29, 2012 (“2011-2012 policy”)
(collectively, referred to as the “QBE policies”).
6.

QBE agreed to defend Ocean Keyes against the Underlying Actions under a

“reservation of rights”.
7.

QBE’s Complaint alleged the following regarding the QBE policies:
a.

Both of the Declaration Pages in the QBE policies list “Keye Real Estate,

Inc.” and “Ocean Keyes Development, LLC” as Named Insureds, and identify them in the
business description as: “real estate agent”. The Declaration Pages state that the classification
and annual premium calculation ($1,479) was based on the following: (1) real estate agents
payroll, and (2) approximately 10,028 square feet of building or premises, classified as: “bank,
office-merc, mfg (lessor’s risk only).”
b.

Each of the QBE policies contain a Commercial General Liability

Coverage Part, which has a General Aggregate Limit of $2,000,000, a Products - Completed
Operations Aggregate Limit of $2,000,000, and an “Each Occurrence” Limit of $1,000,000.
c.

The Insuring Agreement in the QBE policies provide as follows:
a.

We will pay those sums that the insured becomes
3 

legally obligated to pay as damages because of
"bodily injury" or "property damage" to which this
insurance applies. We will have the right and duty
to defend the insured against any "suit" seeking
those damages. However, we will have no duty to
defend the insured against any "suit” seeking
damages for "bodily injury" or "property damage"
to which this insurance does not apply. We may, at
our discretion, investigate any "occurrence" and
settle any claim or "suit" that may result. But:
(1)

The amount we will pay for damages is limited as
described in Section III - Limits Of Insurance; and

(2)

Our right and duty to defend ends when we have
used up the applicable limit of insurance in the
payment of judgments or settlements under
Coverages A or B or medical expenses under
Coverage C.

No other obligation or liability to pay sums or perform acts or
services is covered unless explicitly provided for under
Supplementary Payments - Coverages A and B.
b.

This insurance applies to "bodily injury" and
"property damage" only if:

(1)

The "bodily injury" or "property damage" is caused
by an "occurrence" that takes place in the "coverage
territory";

(2)

The "bodily injury" or "property damage" occurs
during the policy period; and

(3)

Prior to the policy period, no insured listed under
Paragraph 1. of Section II - Who Is An Insured and
no "employee" authorized by you to give or receive
notice of an "occurrence" or claim, knew that the
"bodily injury" or "property damage" had occurred,
in whole or in part. If such a listed insured or
authorized "employee" knew, prior to the policy
period, that the "bodily injury" or "property
damage" occurred, then any continuation, change or
resumption of such "bodily injury" or "property
damage" during or after the policy period will be
deemed to have been known prior to the policy
4 

period.
c.

d.

"Bodily injury" or "property damage" will be deemed to
have been known to have occurred at the earliest time when
any insured listed under Paragraph 1. of Section II - Who Is
An Insured or any "employee" authorized by you to give or
receive notice of an "occurrence" or claim:

(1)

Reports all, or any part, of the "bodily injury" or "property
damage" to us or any other insurer;

(2)

Receives a written or verbal demand or claim for damages
because of the "bodily injury" or "property damage"; or

(3)

Becomes aware by any other means that "bodily injury" or
"property damage" has occurred or has begun to occur.

e.

d.

"Bodily injury" or "property damage" which occurs during
the policy period and was not, prior to the policy period,
known to have occurred by any insured listed under
Paragraph 1. of Section II - Who Is An Insured or any
"employee" authorized by you to give or receive notice of
an "occurrence" or claim, includes any continuation,
change or resumption of that "bodily injury" or "property
damage" after the end of the policy period.

Damages because of "bodily injury" include damages
claimed by any person or organization for care, loss of
services or death resulting at any time from the "bodily
injury".

Both of the QBE policies contain an Additional Insured – Managers or

Lessors of Premises Endorsement, written on Form CG 2011 01 06, which states the following:
THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT
CAREFULLY
ADDITIONAL
PREMISES

INSURED

–

MANAGERS

OR

LESSORS

This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART

5 

OF

SCHEDULE
1. Designation of Premises (Part Leased to You):
601 HILLSIDE DRIVE N 3000 NORTH MYRTLE BEACH SC
29582
2. Name of Person or Organization (Additional Insured):
OCEAN KEYES DEVELOPMENT LLC
3. Additional Premium: $ INCLUDED
(If no entry appears above, the information required to complete this
endorsement will be shown in the Declarations as applicable to this
endorsement.)
WHO IS AN INSURED (Section II) is amended to include as an insured
the person or organization shown in the Schedule but only with respect to
liability arising out of the ownership, maintenance or use of that part of
the premises leased to you and shown in the Scheduled and subject to the
following additional exclusions:
This insurance does not apply to:
1. Any “occurrence” which takes place after you cease to be a tenant
in that premises.
2. Structural alterations, new construction or demolition operations
performed by or on behalf of the person or organization shown in the
Schedule.
e.

Section II - Who is An Insured in the QBE policies states the following:

1.

If you are designated in the Declarations as:
***
c.

A limited liability company, you are an insured.
Your members are also insureds, but only with
respect to the conduct of your business. Your
managers are insureds, but only with respect to their
duties as your managers.

d.

An organization other than a partnership, joint
venture or limited liability company, you are an
insured. Your “executive officers” and directors are
insureds, but only with respect to their duties as
officers or directors. Your stockholders are also
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insureds, but only with respect to their liability as
stockholders.
***
2.

Each of the following is also an insured:
***
a.

(2)

Your “volunteer workers” only while performing
duties related to the conduct of your business, or
your “employees”, other than either your
“executive officers” (if you are an organization
other than a partnership, joint venture or limited
liability company) or your managers (if you are a
limited liability company), but only for acts within
the scope of their employment by you or while
performing duties related to the conduct of your
business. However, none of these “employees” or
“volunteer workers” are insureds for:
***
“Property damage” to property:
(a)

Owned, occupied or used by,

(b)

Rented to, in the care, custody or control
of, or over which physical control is being
exercised for any purpose by

you, any of your “employees”, “volunteer workers”,
any partner or member (if you are a partnership or
joint venture), or any member (if you are a limited
liability company.
***
b.

3.

Any person (other than your “employee” or
“volunteer worker”, or any organization while
acting as your real estate manager.

Any organization you newly acquire or form, other than a
partnership, joint venture or limited liability company, and
over which you maintain ownership or majority interest,
will qualify as a Named Inured if there is no other similar
insurance available to that organization. However:
7 

a.

Coverage under this provision is afforded only until
the 90th day after you acquire or form the
organization or the end of the policy period,
whichever is earlier;

b.

Coverage A does not apply to “bodily injury” or
“property damage” that occurred before you
acquired or form the organization; and

c.

Coverage B does not apply to “personal and
advertising injury” arising out of an offense
committed before you acquired or formed the
organization.

No person or organization is an insured with respect to the
conduct of any current or past partnership, joint venture or
limited liability company that is not shown as a Named
Insured in the Declarations.
e.

The QBE policies also contain a Limitation of Coverage to Designated

Premises or Project Endorsement, written on Form CG 2144 07 98, which states the following:
THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT
CARFULLY
LIMITATION OF COVERAGE TO DESIGNATED PREMISES OR
PROJECT
This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART
SCHEDULE
Premises:
601 HILLSIDE DRIVE N 3000 NORTH MYRTLE BEACH SC
29582

Project:

8 

(If no entry appears above, the information required to complete this
endorsement will be shown in the Declarations as applicable to this
endorsement.)
This insurance applies only to “bodily injury”, “property damage”,
“personal and advertising injury” and medical expenses arising out
of:
1. The ownership, maintenance or use of the premises shown in the
Schedule and operations necessary or incidental to those
premises; or
2. The project shown in the Schedule.
f.

Section IV of the QBE policies contains a condition, titled

“Representations”, which states the following:
6.

Representations
By accepting this policy, you agree:
a.
The statements in the Declarations are accurate and
complete;
b.

c.

8.

Those statements are based upon representations you made
to us; and
We have issued this policy in reliance upon your
representations.

QBE’s Complaint also alleged the following regarding the insurance application

for the QBE policies.
a.

On or about July 6, 2010, Marc Hyman signed an application for

insurance, in which Keye Real Estate and Ocean Keyes were identified as “real estate agents”.
b.

The insurance application also indicated that “Ocean Keyes Development,

LLC” requested to be added as an additional insured for one building: “Lessor’s Risk Landlord”.
9.

QBE’s Complaint contained nine counts, which sought the following:
9 

a.

A declaration that, under the terms and conditions of the QBE policies,

there is no coverage for Ocean Keyes for the Underlying Actions, and QBE has no duty to
defend or indemnify Ocean Keyes against the Underlying Actions.
b.

A declaration that, under the terms and conditions of the QBE policies,

there is no coverage for Keye Construction Company, Inc., Pine Bluff Construction Co., Inc.,
and Keye Communities, LLC, for the Underlying Actions, and QBE has no duty to defend or
indemnify Keye Construction Company, Inc., Pine Bluff Construction Co., Inc., and Keye
Communities, LLC against the Underlying Actions;
c.

A declaration that, under the terms and conditions of the QBE policies,

there is no coverage for Russell Baltzer and Marc Hyman for the Underlying Actions, and QBE
has no duty to defend or indemnify Russell Baltzer or Marc Hyman against the Underlying
Actions;
d.

A declaration that, under the terms and conditions of the QBE policies,

there is no coverage for the Underlying Actions pursuant to the Limitation of Coverage to
Designated Premises or Project Endorsement in the QBE policies, and QBE has no duty to
defend or indemnify any insured against the Underlying Actions;
e.

A declaration that, under the terms and conditions of the QBE policies,

there was no coverage for the Underlying Actions because some or all of the property damage
was known to the insureds prior to the QBE policy’s effective date of June 29, 2010, and
therefore, QBE had no duty to defend or indemnify any insured against the Underlying Actions;
f.

Rescission of the QBE policies based on alleged misrepresentations made

in the application for insurance which identified Keye Real Estate, Inc., and Ocean Keyes as
“real estate agents”;

10 

g.

Reimbursement of attorneys’ fees and other costs incurred in the

Underlying Actions;
10.

The Ocean Keyes Entities, Keye-Related Entities, and Homeowner Parties

disputed QBE’s contentions that were alleged in QBE’s Complaint.
11.

In an effort to avoid additional costly litigation, the parties voluntarily agreed to

resolve Plaintiff’s claims against the Defendants without further proceedings.
Wherefore, it is ORDERED, ADJUDGED and DECREED:
II.

SETTLEMENT, RELEASE AND POLICY BUY-BACK AGREEMENT

12.

The Settlement, Release and Policy Buy-Back Agreement (“Agreement”),

attached to this Consent Order as Exhibit A, was agreed to in good faith by all parties to this
action and made with the consent of all of the parties in this action.
13.

The parties agree that the intent or objective of the Agreement is the following:
a.

QBE’s $750,000 payment towards the settlement or judgment satisfaction

of the Underlying Actions, in return for a “policy buy-back”, i.e., a complete rescission of the
QBE policies, subject to the terms and conditions expressed in the Settlement Agreement.
Therefore, QBE’s $750,000 payment is consideration for buying back the QBE policies from the
Ocean Keyes Entities.
b.

QBE desires to effect a full and final settlement, compromise, mutual

release, and resolution of all claims by the Homeowner Parties in the Underlying Actions; any
unknown Plaintiffs, homeowners, or claimants in the Underlying Actions; and any and all
disputes and disagreements related to the Underlying Actions, and to terminate and release any
obligations QBE has or ever may have in the past, present, or future with respect to the
Underlying Actions or the QBE policies, and to effect a policy buy-back of the QBE policies

11 

from the Ocean Keyes Entities free and clear of all known liens, claims, encumbrances, and other
interests, to the full extent permitted by law.
c.

To ensure that the Homeowner Parties receive the exclusive benefit of

QBE’s $750,000 payment in order to satisfy the Homeowner Parties’ claims in the Underlying
Actions, either through settlements or judgments in the Underlying Actions, subject to certain
conditions, as discussed in Section II of the Agreement.
d.

To effectively rescind the QBE policies, ab initio, so that the Ocean Keyes

Entities, Keye-Related Entities, and Homeowner Parties cannot assert or assign any rights or
obligations in any way related to QBE or the QBE policies to any other party, including any insurer,
subcontractor, plaintiffs, owners, principals, shareholders, general partners, limited partners, joint
ventures, officers, directors, agents, attorneys, third-party administrators, employees,
predecessors, members, and shareholders, or any other entity, whether known or unknown.
including their insurers, or any other entity, under any circumstance, whether known or unknown,
anticipated or unanticipated.
e.

To agree that any purported assignment rights against QBE shall be null and

void and will not bind any of the parties.
f.

To effect a full and final settlement, compromise, mutual release, and

resolution of all claims by each party against any other party relating to the instant action.
g.

To provide each party the broadest possible release with respect to the QBE

policies, the instant action, and any and all future claims that relate to the QBE policies, and to
provide that, except as set forth in the Agreement, no party shall have any further obligations with
respect to the QBE policies.

12 

14.

Pursuant to the Agreement and this Consent Order, the parties acknowledge and

agree that:
a.

QBE is a good faith purchaser of the QBE policies.

b.

The $750,000 consideration provided by QBE to the Ocean Keyes

Entities, pursuant to the Agreement, constitutes a fair and reasonable settlement of the instant
action and of their respective rights and obligations relating to the QBE policies and constitute
reasonably equivalent value.
c.

The policy “buy-back” of the QBE policies constitutes a complete

satisfaction of all QBE’s past, present, and future obligations to the Ocean Keyes Entities, or any
other insured or additional insured under the QBE policies or arising therefrom, as to any and all
claims for insurance coverage or policy benefits of any nature whatsoever, whether legal or
equitable, known or unknown, suspected or unsuspected, fixed or contingent, and regardless of
whether or not such claims are in any way related to, connected with, based on, or arise out of
the Underlying Actions, the instant action, or otherwise.
d.

The Agreement is a full and final release of all claims between QBE and

the Ocean Keyes Entities, QBE and the Keye-Related Entities, and QBE and the Homeowner
Parties and shall apply to all known and unknown and anticipated and unanticipated damages
that relate to the Underlying Actions, the instant action, and the QBE policies.
e.

The Agreement is not a full and final release of any claims between the

Homeowner Parties and the Ocean Keyes Entities, and the Homeowner Parties and the KeyeRelated Entities that relate to the Underlying Actions.
f.

In consideration for QBE’s $750,000 payment, the Ocean Keyes Entities,

Keye-Related Entities, and Homeowner Parties warrant that they have not, cannot, and shall not

13 

assign any of their rights or obligations relating to this action, or the QBE policies to any entity,
either known or unknown.
g.

The $750,000 payment by QBE to the Ocean Keyes Entities shall be used

for the exclusive benefit of the Homeowner Parties’ claims in the Underlying Actions, either
through settlements or satisfaction of judgments in the Underlying Actions, subject to certain
conditions, as discussed in Section II of the Agreement.
h.

QBE’s $750,000 payment shall be made within thirty (30) calendar days

after the Court grants this Consent Order.
i.

QBE’s obligation to defend the Underlying Actions ends on the date the

Court grants this Consent Order.
III.

SCOPE OF CONSENT ORDER

15.

The provision of this Consent Order shall apply to each party, and each of their

past, present, and future subsidiaries, affiliated companies, owners, principals, shareholders,
general partners, limited partners, joint ventures, officers, directors, agents, attorneys, third-party
administrators, servants, employees, predecessors, heirs, successors, assigns, members, and
shareholders.
16.

This Order is effective immediately upon its entry by the Court.

IV.

COSTS OF LITIGATION

17.

All parties shall be responsible for their own attorney’s fees and costs associated

with this action.
V.

PLAINTIFF’S MOTION TO DISMISS

Plaintiff QBE concurrently filed a Motion to Dismiss pursuant to Federal Rules of Civil
Procedure 41(a)(2). Defendants acknowledge and consent to Plaintiff’s dismissal without

14 

prejudice.
Now, therefore, with the consent of the parties, Plaintiff’s Motion to Dismiss is granted
and all parties are dismissed from this action without prejudice.
AND IT IS SO ORDERED:
This 13th day of February, 2017.
s/ R. Bryan Harwell
The Honorable R. Bryan Harwell
United States District Judge

15 

By their signatures below, the parties consent to the entry of this Consent Order.

WE SO MOVE:

By: s/Stephen L. Brown
Stephen L. Brown
Federal I.D. #: 06428
Email: [e-mail]
Mary S. Willis
Federal I.D. #:12388
Email: [e-mail]
Young Clement Rivers, LLP
25 Calhoun Street, Suite 400
Charleston, SC 29401
Telephone:
[phone]

and

YARON & ASSOCIATES

George D. Yaron
(Admitted Pro Hac Vice)
Email: [e-mail]
Jenna E. Settino
(Admitted Pro Hac Vice)
Email: [e-mail]
Telephone: [phone]
Facsimile:
[phone]
1300 Clay Street, Suite 800
Oakland, California 94612
Attorneys for QBE Insurance Company

WE CONSENT:
By: s/Andrew Preston Brittain
Andrew Preston Brittain
Email: [e-mail]
The Brittain Law Firm PA
4614 Oleander Drive
Myrtle Beach, SC 29577
Telephone:
[phone]
Attorney for Beach Villas at Ocean Keyes Property Owners Association Inc.
16 

WE CONSENT:
By: s/George Edward Mullen
George Edward Mullen
Email: [e-mail]
Mullen Wylie Law Firm
P.O. Box 5969
Hilton Head Island, SC 29938
The Brittain Law Firm PA
Telephone:
[phone]
By: s/Robert L. Wylie, IV
Robert L. Wylie, IV
Email: [e-mail]
Mullen & Wylie
Post Office Box 1980
Myrtle Beach, SC 29578
Telephone:
[phone]
By: s/Allison Burke Thompson
Allison Burke Thompson
Email: [e-mail]
Mullen & Wylie
171 Church Street, Suite 370
Charleston, SC 29401
Telephone:
[phone]
Attorneys for Beach Villas at Ocean Keyes Property Owners Association Inc. and Seashore
Villas at Ocean Keyes Property Owners Association Inc.

WE CONSENT:
By: s/Luther O. McCutchen, III
Luther O. McCutchen, III
Email:[e-mail]
McCutchen Mumford Vaught O’Dea and Geddie
4610 Oleander Drive, Suite 203
Myrtle Beach, SC 29577
Telephone:
[phone]
Attorney for Lakeside Townhomes at Ocean Keyes Horizontal Property Regime Inc. and
Lakeside Townhomes at Ocean Keyes Property Owners Association Inc.

17 

WE CONSENT:
By: s/Phillip C. Thompson
Phillip C. Thompson
Email: [e-mail]
Thompson and Henry
P.O. Box 1740
Conway, SC 29528
Telephone:
[phone]
Attorney for Harper Ocean Keyes LLC, Luther A. Beazley, III, Olga R. McKenna, Robert W.
Dismore and Robert F. McKenna

WE CONSENT:
By: s/David B. Miller
David B. Miller
Email: [e-mail]
Holly M. Lusk
Email: [e-mail]
Bellamy, Rutenberg, Copeland, Epps, Gravely & Bowers, P.A.
P.O. Box 357
Myrtle Beach, SC 29578
Telephone:
[phone]
Attorneys for Ocean Keyes Development, LLC, Keye Construction Company, Inc., Keye
Communities, LLC, Pine Bluff Construction Co., Keye Real Estate, Inc., Marc Hyman and
Russell Baltzer

18