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Evanston Insurance Co. v. Watts

United States District Court, D. South Carolina, Columbia Division

October 2, 2014

Evanston Insurance Company, Plaintiff,
Vickie Watts, as Personal Representative of the Estate of Dorothy Jones; Meredith Wofford; Estate of Dora Elizabeth B. Hanna, by and through her Personal Representative, King C. Hanna, Jr., and on behalf of a class of individuals similarly situated; LaFay Walker, as Personal Representative of the Estate of Martha Sellers Blackwelder; Amanda Curtis; Preston Wayne Chandler, as Personal Representative of the Estate of Mildred Louise Chandler; Patty Larimore, as Personal Representative of the Estate of Annie Larimore; the Estate of Clarice Potter; Agape Senior, LLC; Agape Senior Primary Care, Inc.; Agape Nursing & Rehabilitation, Inc.; Agape Community Hospice, Inc.; Carolinas Community Hospice, Inc.; Scott Middleton; Floyd Cribbs; Kezia Nixon; and Jackson & Coker Locum Tenes, LLC d/b/a Jackson and Coker, Defendants

As Amended October 21, 2014.

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For Evanston Insurance Company, Plaintiff: Ernest Mitchell Griffith, Matthew David Cavender, Michael D Freeman, LEAD ATTORNEY, Griffith Sadler and Sharp, Beaufort, SC; Kylie Marie Inman Holladay, LEAD ATTORNEY, Caitlin M Crist, Gregory L Mast, Paul L. Fields, Jr, PRO HAC VICE, Fields Howell Athans and McLaughlin, Atlanta, GA.

Vickie Watts, as Personal Representative of the Estate of Dorothy Jones personal representative, Dorothy Jones, Defendant, Pro se, West Columbia, SC.

For Meredith Wofford, Defendant: David Edward Belding, LEAD ATTORNEY, Columbia, SC.

For Dora Elizabeth B Hanna, Estate of Dora Elizabeth B Hanna by and through her Personal Representative King C Hanna Jr and on behalf of a Class of Individuals Similarly Situated personal representative, King C Hanna, Jr, Defendant: Edwin Grey Wicker, LEAD ATTORNEY, Law Office of Michael E Spears, Spartenburg, SC; George M Hearn, Jr, LEAD ATTORNEY, Hearn and Hearn, Conway, SC; Michael Eugene Spears, LEAD ATTORNEY, Michael E Spears, Spartanburg, SC.

For Agape Senior LLC, Agape Senior Primary Care Inc, Scott Middleton, Defendants: Jenkins McMillan Mann, Kevin Hayne Sitnik, Shaun Christian Blake, LEAD ATTORNEY, Rogers Lewis Jackson Mann and Quinn, Columbia, SC.

For Agape Nursing & Rehabilitation Inc, Agape Assisted Living Inc, Agape Community Hospice Inc, Carolinas Community Hospice Inc, Defendants: Jenkins McMillan Mann, Kevin Hayne Sitnik, LEAD ATTORNEY, Rogers Lewis Jackson Mann and Quinn, Columbia, SC.

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Joseph F. Anderson, Jr., United States District Judge.

I. Introduction

This matter comes before the court on cross motions for summary judgment filed by Plaintiff, Evanston Insurance Company, (" Evanston" ) and Defendants Agape Senior Primary Care (" ASPC" ), Floyd Cribbs, Kezia Nixon, and Scott Middleton (" collectively Agape Defendants" ).

In 2013, Evanston brought this declaratory judgment action seeking a determination as to whether it has a duty to defend and/or indemnify the parties who have been named in underlying lawsuits (both filed and unfiled) against the Agape Defendants.[1] Evanston seeks a summary judgment ruling that the policy does not afford coverage for the underlying suits and that it is not required to defend or indemnify. Conversely, the Agape Defendants seek a ruling that the policy does afford coverage

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for the claims made in the underlying actions.

II. Background Facts

The issue of disputed coverage arises from an unusual set of circumstances. Agape is a business that employs and deploys physicians and nurse practitioners to nursing homes, rehabilitation centers, freestanding offices, and assisted living facilities. (DiNino Dep. 11:25-12:7, 14:22-15:3). Prior to issuing the policy involved in the current suit, Evanston provided ASPC[2] with a policy of professional liability insurance, policy number MM-820866. While this policy was in place Earnest Addo (" Addo" ) assumed the identity of Dr. Arthur Kennedy (" Kennedy" ), obtained employment with Agape, and sought insurance coverage with Evanston under ASPC's existing policy. (ECF No. 199-8). In February of 2012, Addo filled out an application representing that he was Arthur Kennedy, a South Carolina licensed medical physician. (Id.). After Evanston's receipt of Addo/" Kennedy's" application, it issued Endorsement 10-10 adding Arthur Kennedy, M.D. to the policy. (ECF No. 119-9). Thereafter, on July 15, 2012, the policy was renewed by ASPC. (ECF No. 119-10). All Named Insureds, including Addo/" Kennedy," submitted new applications for insurance coverage. (Id.). As a result of this renewal, Evanston issued policy MM-822351, which included Arthur Kennedy as a Named Insured. (ECF No. 119-11). In August of 2012, Addo's true identity was discovered by the Lexington County Sheriff's Department, and Addo was later indicted on federal charges of identity theft. (DiNino Dep. 29:2-30:20; ECF No. 119-26).

In the wake of Addo's true identity coming to light, several lawsuits were filed against Agape and other Named Insureds. Some former patients also alerted Agape to their intention to file suit. These suits and potential claims assert causes of action for medical malpractice and various negligence-based claims. (ECF Nos. 119-13, 119-16, 119-17, 119-18, 119-19, 119-21, 119-22, and 119-23).

The instant suit was filed by Evanston in Federal Court on March 11, 2013, seeking a declaratory judgment as to the insurance coverage under its policy for the Agape Defendants. (ECF No. 1).

During the pendency of this case, the parties stipulated to several facts:

1. Earnest Osei Addo (" Addo" ) is not listed as a Named Insured under policy no. MM-822351 (" the Policy." ).
2. Addo assumed the identity of and posed as Arthur Kobina Kennedy, M.D. (" Dr. Kennedy" ).
3. Addo posed as a medical doctor, even though he was not a licensed South Carolina physician.
4. Neither the Hanna Action nor any of the claims by patients or residents of Agape stemming from Addo's impersonation of Dr. Kennedy allege any wrongful conduct by Dr. Kennedy.

III. Legal Standard

Pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, a district court " may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." The Act, however, gives the court the discretion to decline issuing the judgment.

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Aetna Cas. & Sur. Co. v. Ind--Com Elec. Co., 139 F.3d 419, 421 (4th Cir. 1998); Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (The Declaratory Judgment Act " confer[s] on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." ). " When a useful purpose will not be served, statute and practice have established the rule that the judgment may be refused when it is not necessary or proper at the time under all the circumstances." Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937).

Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is proper when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A material fact is one that " might affect the outcome of the suit under the governing law." Spriggs v. Diamond Auto Glass, 242 F.3d 179, 183 (4th Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A dispute of material fact is " genuine" if sufficient evidence favoring the non-moving party exists for the trier of fact to return a verdict for that party. Anderson, 477 U.S. at 248-49.

The moving party bears the initial burden of showing the absence of a genuine dispute of material fact. Celotex, 477 U.S. at 323. If the moving party meets that burden and a properly supported motion is before the court, the burden shifts to the non-moving party to " set forth specific facts showing that there is a genuine issue for trial." See Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 323. All inferences must be viewed in a light most favorable to the non-moving party, but he " cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another." Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985).

IV. Discussion

A. Evanston Policy Coverages

The policy issued to ASPC by Evanston is a claims-made[3] policy providing professional liability coverage. The policy has two types of coverage: Coverage A and Coverage B[4]. The policy provides in pertinent part:

Coverage A Individual Professional Liability : " because of Malpractice or Personal Injury, sustained by a patient and committed by the Coverage A Named Insured, or by any person for whose Malpractice or Personal Injury the Coverage A Named Insured is legally responsible." (ECF No. 119-11, p. 17).
Coverage B Association, Corporation or Partnership Liability: " because of Malpractice or Personal Injury, sustained by a patient and committed by any person for whom the Coverage B Named Insured is legally responsible, arising out of the practice of medicine." (ECF No. 119-11, p.17-18).

B. Addo's Material Misrepresentations and Whether the Policy is Viod Ab Initio

The insurer bears the burden of establishing by clear and convincing evidence

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that an insured has made a material misrepresentation, such that the insurance policy should be voided and coverage denied. " In order to vitiate a policy on the ground of fraudulent misrepresentation, it is necessary that the insurer show not only the falsity of the statement challenged, but also that the falsity was known to the applicant, was material to the risk, made with the intent to defraud the insurer, and relied upon by the insurer in issuing the policy." Strickland v. Prudential Ins. Co. of Am., 278 S.C. 82, 86-87, 292 S.E.2d 301, 304 (1982), (citing Atlantic Life Insurance Company v. Beckham, 240 S.C. 450, 126 S.E.2d 342 (1962); Metropolitan Life Insurance Company v. Bates, 213 S.C. 269, 49 S.E.2d 201 (1948); Cain v. United Insurance Company, 232 S.C. 397, 102 S.E.2d 360 (1958)).

In policies involving co-insureds, South Carolina has held that where an insurance policy creates several, individual obligations among co-insureds, criminal acts by one co-insured does not bar the innocent co-insureds from recovering under the policy. McCracken v. Government Employees, Ins. Co., 284 S.C. 66, 69, 325 S.E.2d 62, 64 (1985) (holding that in the absence of any statute or specific policy language denying coverage to a co-insured for the arson of another co-insured, the innocent co-insured shall be entitled to recover his or her share of the insurance proceeds).

Evanston argues that Addo made serious misrepresentations when he assumed the identity of Kennedy and posed as a licensed medical doctor in his application for insurance coverage. Agape Defendants also acknowledge that Addo's representations to Evanston were fraudulent. (ECF 131-1, p. 4). As stated previously, the parties have stipulated that Addo assumed the identity of Kennedy and posed as a medical doctor even though he was not a licensed South Carolina physician. (ECF No. 80) Accordingly, there is no factual dispute that Addo's representations in his application to Evanston regarding his credentials as a physician were false. Further, the facts bear out, the false representations were known to Addo at the time he made them, and Addo intended for Evanston to rely on the representations. Therefore, Evanston has satisfied the elements of material misrepresentation with regard to Addo's application for insurance and the Court concludes that such misrepresentations clearly allow Evanston to void coverage as to Addo/" Kennedy."

In light of Addo's conduct, the major dispute between the parties appears to be whether Addo's misrepresentations can be imputed onto the Agape Defendants, such that the entire policy of insurance is void under a theory of material misrepresentation. Whether the misrepresentations of Addo apply to the entire policy hinges on two factors: (1) whether the Agape Defendants were " applicants" for purposes of Addo/" Kennedy's" insurance and had knowledge of the ...

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