National Specialty Insurance Company v. AIG Domestic Claims Inc et al
Filing
110
ORDER granting in part and denying in part 92 Motion for Summary Judgment. National Union is granted summary judgment on the claims related to the April/Ohio accident and denied summary judgment on the claims related to the October/Texas accident. The parties shall submit to the court a joint proposed scheduling order for the remainder of the case within ten (10) days of this order. Signed by Honorable Timothy M Cain on 5/18/12.(gpre, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
National Specialty Insurance
Company, individually and
as an assignee of Trans Select
d/b/a Select Transport Systems
a/k/a Tran Select d/b/a Transport
Systems,
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Plaintiff,
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v.
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National Union Fire Insurance
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Company of Pittsburgh Pa.,
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Defendant.
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_________________________________
C/A No. 6:10-826-TMC
OPINION & ORDER
This matter is before the court on Defendant National Union Fire Insurance
Company’s (“National Union’s”) Motion for Summary Judgment (Dkt. # 92).
Plaintiff
National Specialty Insurance Company (“National Specialty”) filed a response opposing
the motion. (Dkt. # 95). On March 12, 2012, a hearing was held on this matter and the
court took the motion under advisement.
For the reasons set forth below, National
Union’s Summary Judgment Motion is granted in part and denied in part.
Background/Procedural History
Prior to 2004, Trans Select or Select Transport Systems ("Trans Select"), a
trucking company, insured its fleet of trucks with insurance policies issued by National
Specialty using the Jamison Group as its insurance agent. Sometime in 2004, when
Trans Select leased two new trucks, it notified the Jamison Group that it wanted to add
the two new trucks to its policy. However, the trucks were never added to Trans Select’s
policy.
Subsequently, the new trucks were involved in separate accidents: 1) April 5,
2004 in Ohio (“April/Ohio accident”) and 2) Oct. 30, 2004, in Texas (“October/Texas
accident”) and National Specialty disclaimed coverage for the two accidents. However,
pursuant to the operation of the Federal Motor Carrier Safety Administration regulations,
National Specialty remained liable and ultimately paid $277,500 to settle claims arising
out of the April/Ohio accident and $105,574.62 for the October/Texas accident.
On June 11, 2007, National Specialty filed an action against the Jamison Group
and its employee, Marvin W illiams, in state court, Nat’l Specialty Ins. Co. v. The Jamison
Group, Inc., 2007-CP- 23-3705, (“Underlying Suit”).1 The Jamison Group had gone out of
business in August 2006 and National Specialty obtained a default judgment against only
the Jamison Group in the amount of $417,434.56, which included the $383,074.62
settlement payments plus costs, fees, and interest.
Pursuant to professional liability
errors and omission (“E&O”) insurance policies, National Specialty is now seeking to
recover from National Union for the default judgment which was entered in the Underlying
Suit
National Union issued several E&O insurance policies to the Jamison Group. One
of the relevant policies covered the period of February 12, 2004, to February 12, 2005,
and a subsequent policy began February 12, 2006. The parties dispute whether the
Jamison Group’s last E&O policy with National Union ended on September 6, 2006, or
February 12, 2007. However, National Union states, for the purposes of this motion, it
1
National Specialty alleges that because it was forced to settle the claims from
the accidents on behalf of Trans Select, Trans Select became liable to National
Specialty. Trans Select assigned its rights against its agents, the Jamison Group and
Williams, to National Specialty.
2
will rely on National Specialty’s contention that the policy ended on the later date,
February 12, 2007.
On January 3, 2005, National Specialty through Jim Spencer, a third party claims
administrator, sent a letter to W illiams at the Jamison Group stating that a claim had been
submitted regarding the October/Texas accident and there “appears to be no coverage
for [the] loss.” As the trucks were never added to Trans Select’s policy as requested,
Spencer asked the Jamison Group to contact its E&O carrier. (Dkt. # 95-2). On January
5 th , W illiams responded to Spencer’s letter stating that he felt that the accident should be
covered and that Spencer may have overlooked “the provision in the policy for newly
acquired vehicles and the 30-day time frame in which that may be added.” (Dkt. # 95-3).
Spencer did not respond to W illiams’ letter until May 24 th . (Dkt. # 95-5). In this letter,
Spencer apologized for his delay in responding and then explained that the 30-day grace
period for newly acquired vehicles applied only to owned vehicles and the truck involved
had been leased. Id. Spencer then stated if W illiams felt that Spencer had overlooked
any other policy provision to let him know, but otherwise, he should contact his E&O
carrier.
Id.
The claim was first reported to National Union on June 7, 2005. The
April/Ohio accident was first reported to National Union in July 2007 after National
Specialty filed the Underlying Suit.
National Specialty alleges causes of action for breach of contract, bad faith refusal
to pay insurance benefits, and negligence. National Specialty also seeks an order from
the court declaring that the E&O insurance policy issued by National Union to the
Jamison Group provides coverage for the default judgment that National Specialty
obtained against the Jamison Group in the Underlying Suit. National Union asserts that
the loss litigated in the Underlying Suit was not covered by any National Union policy.
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Standard of Review
The court shall grant summary judgment “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to a judgment as a
matter of law.” Fed. R. Civ. P. 56(a). The movant bears the initial burden of demonstrating
that summary judgment is appropriate; if the movant carries its burden, then the burden
shifts to the non-movant to set forth specific facts showing that there is a genuine issue
for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 23 (1986). If a movant asserts
that a fact cannot be disputed, it must support that assertion either by “citing to particular
parts of materials in the record, including depositions, documents, electronically stored
information, affidavits or declarations, stipulations (including those made for purposes of
the motion only), admissions, interrogatory answers, or other materials;” or “showing . . .
that an adverse party cannot produce admissible evidence to support the fact.”
Fed.R.Civ.P. 56(c)(1).
Accordingly, to prevail on a motion for summary judgment, the movant must
demonstrate that: (1) there is no genuine issue as to any material fact; and (2) that he is
entitled to judgment as a matter of law. As to the first of these determinations, a fact is
deemed “material” if proof of its existence or non-existence would affect disposition of the
case under applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
An issue of material fact is “genuine” if the evidence offered is such that a reasonable jury
might return a verdict for the non-movant. Id. at 257. In determining whether a genuine
issue has been raised, the court must construe all inferences and ambiguities against the
movant and in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S.
654, 655 (1962).
Under this standard, the existence of a mere scintilla of evidence in support of the
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nonmoving party’s position is insufficient to withstand the summary judgment motion.
Anderson, 477 U.S. at 252. Likewise, conclusory allegations or denials, without more,
are insufficient to preclude the granting of the summary judgment motion.
Ross v.
Commc’n Satellite Corp., 759 F.2d 355, 365 (4th Cir. 1985). “Only disputes over facts
that might affect the outcome of the suit under the governing law will properly preclude
the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will
not be counted.” Anderson, 477 U.S. at 248.
Discussion
In regard to the October/Texas accident, National Union contends that the January
3, 2005 letter from Spencer on behalf of National Specialty to the Jamison Group placed
a reasonable person on notice of a potential claim and the Jamison Group’s failure to
report the claim in writing at that time precluded coverage. Additionally, National Union
contends that the E&O policy excludes wrongful acts committed prior to the beginning of
the policy if the insured knew or could have reasonably foreseen that a prior wrongful act
could lead to a claim. National Specialty contends that the Jamison Group acted
reasonably in not reporting the October/Texas accident until June 7, 2005, and the
policy’s prior knowledge exclusion is inapplicable because W illiams believed the truck
should have been covered under the “newly acquired vehicle” provision.2
2
The court notes that National Specialty's alternative argument that W illiams would
have called Bill Holland, the alleged agent of National Union, and Holland would have told
W illiams that he did not need to report the claim to the E&O carrier or that such a
conversation was a reporting of the potential claim to National Union is entirely too
speculative to defeat National Union’s summary judgment motion. There is no evidence
that W illiams ever actually called Holland and to then speculate as to how Holland would
have responded is purely conjecture. Mere speculation cannot establish a genuine issue
of material fact. See Baber v. Hosp. Corp. of Am., 977 F.2d 872, 874–75 (4th Cir.1992)
(recognizing that a nonmoving party cannot rely on beliefs, conjecture, speculation, or
conclusory allegations to defeat a motion for summary judgment). Additionally, the court
notes that National Union disputes that Holland was its agent.
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Specifically, National Union contends that National Specialty must prove that the
accident was reported in writing to National Union during the policy period of February 12,
2004, to February 12, 2005, when Policy 937-66-88 was in effect.3
National Union
contends that in issuing Policy 490-35-02 in February 2005, it relied upon the Jamison
Group’s representation that it had no knowledge of any incident which might result in a
claim being made. The Jamison Group circled “no” in response to the following question
on the application dated January 11, 2005:
Does any prospective Insured have knowledge or information
of any circumstances or any allegations or contentions of any
incident which may result in any claim being made against the
applicant or any of its past or present partners, executive
officers, directors, salespersons (whether employees or
independent contractors), employees, or any predecessors in
business?
(Dkt. # 46-3 at 26). Further, National Union argues that Policy 490-35-02 excluded “any
W rongful Act committed prior to the beginning of the Policy Period, if on or before the
inception date of this policy any Insured knew or could have reasonably foreseen that
such W rongful Act did or could lead to a claim or suit.” (Dkt. # 46-3 at 7). “W rongful Act”
3
Policy 937-66-88 provides:
The Insured, shall, as a condition precedent to the availability
of the rights provided under this policy, give written notice to
the Company as soon as practicable during the Policy Period,
or during the extended reporting period (if applicable), of any
claim made against the Insured. Notice given by or on behalf
of the Insured to any authorized representative of the
Company, with particulars sufficient to identify the Insured,
shall be deemed notice to the Company, or:
W ithin sixty (60) days after the end of the Policy Period or the
Extended Reporting Period (if applicable), as long as such
claim(s) is reported no later than thirty (30) days after the date
such claim was first made against an Insured.
(Dkt. # 46-2 at 21).
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is defined, in pertinent part, as “any actual or alleged negligent act, error or omission.”
(Dkt. # 46-3 at 6). National Union argues that the prior knowledge exclusion is not
contingent on whatever claims the insured in his subjective judgment deems reasonable,
but rather it is contingent on an objective standard of reasonableness and foreseeability.
National Specialty argues that W illiams acted reasonably in not reporting the
October/Texas accident claim until June 2005 and not raising this as a potential claim on
the insurance application dated January 11, 2005, because W illiams believed that there
was coverage for the new leased truck under the newly acquired vehicle provision.
National Specialty contends whether W illiams acted reasonably is a question of fact.
Neither of the parties nor the court have found any Fourth Circuit cases dealing
with this specific issue. However, the United States Court of Appeals for the Third Circuit
in Seiko v. Home Ins. Co., 139 F.3d 146 (3rd Cir. 1998), followed in Coregis Ins. Co. v.
Baratta & Fenertv, Ltd. 264 F.3d 302 (3rd Cir. 2001), which is cited by National Union,
developed a mixed two-part subjective/objective analysis to determine whether a
professional liability policy's similarly-worded exclusion applied. First, the court is to
consider whether the insured had actual knowledge of the underlying facts which are the
basis of the claim (subjective), and second, would a reasonable insured in possession of
such facts have a basis to believe that these facts could constitute a claim (objective). In
this case W illiams clearly knew the underlying facts because of the January 3 rd letter
about the claim. However, the pivotal issue is whether a reasonable insurance agent with
this knowledge would believe that these facts could constitute a claim.
“[S]ummary judgment is generally an inappropriate way to decide questions of
reasonableness because ‘the jury's unique competence in applying the “reasonable man”
standard is thought ordinarily to preclude summary judgment.’” TSC Industries v.
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Northway, Inc., 426 U.S. 438, 450 n. 12 (1976)). See also 10 W right, Miller & Kane,
Federal Practice and Procedure, § 2729 (2d ed.1983). Here, the court cannot find that no
rational jury could conclude that W illiams did not act reasonably. There is a genuine
issue of material fact as to the reasonableness of W illiams’ actions relating to the
October/Texas accident.4 Accordingly, summary judgment is denied as to this claim.
In regard to the April/Ohio accident, a claim was first made against the Jamison
Group in July 2007. National Union contends no claims were made between February
12, 2005, and February 12, 2006, when policy number 490-35-02 was in effect nor
between February 12, 2006, and February 12, 2007, when policy number 625-94-89 was
in effect. National Union argues that since there was no insurance contract in effect in
July 2007, National Union had no obligation to provide insurance coverage to the
Jamison Group.
National Specialty contends that the reporting of this claim “would have been
within National Union’s policy for 2006-2007 - with the 365-day extended reporting period
- if Defendant’s had not terminated the policy in a manner contrary to the statutory law of
South Carolina, thereby wrongfully refusing Jamison the benefit of the extended reporting
period.”
(Pl.’s Mem. at 9-10).
National Specialty argues that because the insurance
policy was financed through a premium service company, S.C. Code Ann. § 38-39-90 is
applicable to its cancellation. Section 38-39-90 (b) provides:
b) The premium service company shall deliver to the insured
4
The court notes that the parties have argued extensively regarding whether expert
evidence is allowable to establish reasonableness in this case. Even if the court were to
exclude such expert testimony, the court concludes that based on the record, there
remains a genuine issue of fact as to whether W illiams acted reasonably. However, at
this time, and in the absence of any motion, the court declines to rule whether Thomas
Hesse is an expert as to the reasonable man standard and whether his opinion should be
excluded pursuant to Rule 702, Fed. R. Evid.
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at least ten days’ written notice of its intent to cancel the
insurance contract if there is a default. This notice must be
mailed or delivered not more than ten days before the due
date.
National Specialty contends that there is no evidence that the ten-day notice of intent to
cancel was delivered to the Jamison Group and therefore the cancellation of the Jamison
Group’s policy for 2006-2007 is invalid. National Specialty then argues National Union
denied the Jamison Group the right to extend further coverage from February 12, 2007 to
February 12, 2008, under a “tail” policy.
For the purposes of this motion, National Union concedes that the policy period
ended on February 12, 2007. Therefore, the court need not address whether National
Union improperly cancelled the insurance in September 2006 in violation of S.C. Code
Ann. 38-39-90. The issue then is whether National Union denied National Specialty the
right to extend coverage through February 12, 2008, through the purchase of a “tail”
policy. “Tail coverage is insurance coverage that becomes effective upon the cancellation
or termination of a policy. The coverage applies to all claims that arise during the primary
policy period but are not asserted until after the stated policy period expires.”
In re
Lavigne, 114 F.3d 379, 382 (2d Cir. 1997).
Importantly, the court notes that the Jamison Group went out of business in August
2006.
W hile, as argued by National Specialty, tail insurance coverage is commonly
purchased by principals in a closed business, there is no evidence that the Jamison
Group or its principals intended to purchase such insurance. National Specialty contends
that “it is anticipated that either W illiams or Chris Parnell, the principal of Jamison, may
testify that he would have purchased the 365-day period of extended coverage if given
the opportunity . . . ” (Pl.’s Mem. at 12). Anticipating that someone may testify a certain
way is too tenuous to support National Specialty’s claim. See Baber, 977 F.2d at 874–75
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(recognizing that a nonmoving party cannot rely on beliefs, conjecture, speculation, or
conclusory allegations to defeat a motion for summary judgment). There is simply no
evidence that the Jamison Group would have extended its coverage beyond February 12,
2007.
Accordingly, the court grants National Union summary judgment on National
Specialty’s April/Ohio claims.
In regard to National Specialty’s bad faith refusal claim, National Union contends
that there was no insurance contract that would have provided coverage for these claims.
Citing Tadlock Painting Co. v. Maryland Casualty Co., 473 S.E.2d 52 (S.C. 1996),
National Specialty argues that “a bad faith action may be brought against an insurance
company for bad faith in the handling of an insurance claim, regardless of whether the
insured had coverage or even had a contract with the insurer.”
(Pl.’s Mem. at 12).
National Specialty contends the question of whether National Union acted in bad faith is a
disputed issue of material fact.
Under South Carolina Law, the elements of an action for bad faith refusal to pay
benefits under an insurance contract include: “(1) the existence of a mutually binding
contract of insurance between the plaintiff and the defendant; (2) refusal by the insurer to
pay benefits due under the contract; (3) resulting from the insurer's bad faith or
unreasonable action in breach of an implied covenant of good faith and fair dealing
arising on the contract; (4) causing damage to the insured.” Cock-N-Bull Steak House,
Inc. v. Generali ins. Co., 466 S.E.2d 727, 730 (S.C. 1996)(citing Crossley v. State Farm
Mut. Auto. Ins. Co., 415 S.E.2d 393, 396-97 (S.C. 1992). Furthermore, a bad faith claim
may exist even in the absence of any violation of an insurance contract provision, as “the
benefits due an insured are not limited solely by those expressly set out in the contract.”
Tadlock Painting Co., 473 S.E.2d 52, 55. “[I]f an insured can demonstrate bad faith or
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unreasonable action by the insurer in processing a claim under their mutually binding
insurance contract, he can recover consequential damages in a tort action.” Tadlock, 473
S.E.2d at 53 (internal quotation omitted).
However, “if there was an objectively
reasonable ground for contesting an insurance claim, there is no bad faith in the denial of
it.
W hether such an objectively reasonable basis for denial existed depends on the
circumstances existing at the time of the denial.” Shiftlet v. Allstate, 451 F.Supp. 763,
772 (D.S.C. 2006)(internal citations omitted). W hen conflicting evidence is presented,
summary judgment on a bad faith claim is generally inappropriate. However, a court may
grant summary judgment on this claim if, viewing the evidence in the light most favorable
to the plaintiff, no reasonable finder of fact could find for the plaintiff on the bad faith
claim. Id.
Here, for the same reason the court grants summary judgment to National Union
as to the coverage claims relating to the April/Ohio claims, National Union is also granted
summary judgment as to National Specialty’s bad faith claim relating to the April/Ohio
claims. Viewing the evidence in a light most favorable to National Specialty, National
Union had an objectively reasonable ground for contesting the April/Ohio claims. There is
simply no evidence, other than conjecture, that the Jamison Group or its principals would
have purchased a tail policy which would have provided coverage beyond February 2007.
Accordingly, the court grants National Union summary judgement on National Specialty’s
bad faith claim in regard to the April/Ohio accident.
As for the October/Texas accident, the court denies National Union summary
judgment because, as discussed above, there is a genuine issue of fact as to whether
there was coverage and there is also a genuine issue of material fact as to whether
National Union acted in an objectively reasonable manner in denying coverage for this
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claim.
Conclusion
National Union is granted summary judgment on the claims related to the
April/Ohio accident and denied summary judgment on the claims related to the
October/Texas accident. Accordingly, Defendant National Union’s Summary Judgment
Motion (Dkt. # 92) is GRANTED in part and DENIED in part. The parties shall submit to
the court a joint proposed scheduling order for the remainder of the case within ten (10)
days of this order.
IT IS SO ORDERED.
s/Timothy M. Cain
United States District Judge
Greenville, South Carolina
May 18, 2012
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