United States District Court, D. South Carolina, Charleston Division
Liberty Mutual Fire Insurance Company and Employers Insurance of Wausau, a Mutual Company, Plaintiff,
J.T. Walker Industries, Inc., f/k/a Metal Industries, Inc., f/k/a MI Home Products, Inc., and Metal Industries Inc. of California, Defendants,
MI Windows & Doors, Inc., Counterclaimant.
ORDER AND OPINION
MARGARET B. SEYMOUR, Senior District Judge.
This matter is before the court on remand from the Court of Appeals for the Fourth Circuit. The Fourth Circuit instructed this court to determine whether the evidence presented at trial supported the jury's finding that Liberty Mutual Fire Insurance Co. ("Liberty") acted willfully, wantonly, or in reckless disregard of the rights of MI Windows ("MI"). Liberty Mut. Fire Ins. Co. v. J.T. Walker Indus., Inc., 554 F.Appx. 176, 190 (4th Cir. 2014). If there is sufficient evidence for such a finding, then the court is to consider objections to the amount of punitive damages awarded to MI. Id.
I. PROCEDURAL BACKGROUND
This case involves a dispute over the settlement by Liberty of several lawsuits against MI, which Liberty settled in its capacity as MI's insurer. Liberty filed this action in 2008 seeking declaratory relief concerning the triggering of insurance coverage, allocation, and the right to refuse and control settlement. ECF No. 1 (Complaint). Liberty also sought damages for breach of contract. ECF No. 1. MI countersued for contrary declarations and for damages for breach of contract and bad faith. ECF No. 13 (Answer & Counterclaim).
The Fourth Circuit summarized the underlying facts giving rise to this case as follows. MI is a manufacturer of windows and doors. Liberty Mut. Fire Ins. Co., 554 F.Appx. at 180. During the relevant time period, Liberty insured MI under several policies. Id. These policies "conferred upon Liberty the duty and right to defend MI against lawsuits claiming property damage. They also vested in Liberty the discretion to investigate any occurrence and settle any claim or suit that may result.'" Id. The Fourth Circuit left undisturbed this court's previous holdings that the insurance policies between Liberty and MI gave Liberty "a duty and a right to control the defense and settlement" of the underlying claims and that MI did not have the right to approve the settlement decisions. See ECF No. 138 at 4-5, 8 (this court's order on summary judgment).
During the period covered by the policies, MI was named as a defendant in five property damage lawsuits and tendered each to Liberty. Liberty Mut. Fire Ins. Co., 554 F.Appx. at 180-81. The five suits were: Avian Forest, Tilghman Shore, Riverwalk, Magnolia North, and Marais.  Id. Despite MI's expressed desire to proceed to trial on four of the five, Liberty settled each of the five lawsuits. Id. at 181. For each case, Liberty set a reserve amount representing an estimate "of losses due to MI's potential exposure" and estimated defense costs. See id. at 181-82 (summarizing Liberty's process for setting reserves and its settlement in each of the five underlying claims).
In each of the underlying lawsuits, MI potentially was subject to joint and several liability with other defendants, including the developers and contractors. "One adverse verdict, subject to joint and several liability, in any of the five underlying claims could have exceeded the total settlement amounts." Id. at 188. For four of the underling claims- Avian Forest, Tilgman Shores, Riverwalk, and Magnolia North -the defense counsel retained by Liberty advised that there could be no resolution of the cases on summary judgment and that in each case MI's likelihood of success was no better than fifty percent. See id. at 181-82. In the fifth case, Marais, MI accepted some level of responsibility for the alleged property damage and expressed a desire to settle. Id. at 182. The mediator in the case estimated that settlement would require between $7 million and $10 million. Id. MI's trial counsel referred to Marais as a "catastrophically difficult" case. Id. at 188. Liberty settled MI's portion of Marias for $500, 000. The various reserves, estimated defense costs, and settlement amounts are summarized in the following table:
Reserves Estimated Settlement Difference Defense Cost Amount (Settlement amount - reserves & defense costs) Avian Forest $300, 000 $96, 250 $72, 300 - $323, 950 Tilgman Shores $75, 000 $65, 000 $75, 000 - $65, 000 Riverwalk $0 $125, 000 $200, 000 $75, 000 Magnolia North $50, 000 $192, 000 $200, 000 - $42, 000 Marais $50, 000 $291, 000 $500, 000 $159, 000 Total $475, 000 $789, 250 $1, 047, 300 - $196, 950
See id. at 181-82. In the aggregate, the total amount of the settlements was almost $200, 000 less than the estimated combined total costs of defense and the reserve amounts set by Liberty. A portion of these settlement costs were allocated to Zurich, MI's succeeding insurance carrier. Id. at 182.
The Fourth Circuit observed that Liberty settled the underlying cases based on the evidence, the reserve estimates, the nature of the claim, and the potential for joint and several liability. Id. at 181. The Fourth Circuit concluded that there was not "substantial evidence supporting a finding that [MI] would have either prevailed in the underlying lawsuits or spent less than the settlement amounts on defense and liability." Id. 
A seven-day jury trial was held before this court beginning on January 26, 2012. The jury returned a verdict for both parties. ECF No. 268. The jury ruled in favor or Liberty on its breach of contract claim and awarded it damages of $894, 416.01. ECF No. 268. The jury ruled in MI's favor on both its breach of contract and bad faith claims, awarding $18, 290 in damages for the breach of contract claim and $684, 416.01 in damages for the bad faith claim. ECF No. 268. The jury also awarded MI $12, 500, 000 in bad faith punitive damages. ECF No. 271.
After trial, the court heard several post-trial motions and modified the jury's verdict. Finding that MI had failed to prove any actual or consequential damages as a result of Liberty's bad faith, the court overturned the jury's award of $684, 416.01 in consequential damages. See ECF No. 339 at 15-19; see also Liberty Mut. Fire Ins. Co., 554 F.Appx. at 187-89 (affirming the holding that MI failed to prove actual or consequential damages). Without proof of consequential or actual damages, the court found that MI was not entitled to punitive damages and so also set aside the jury's $12.5 million punitive damages award. The court also found that Liberty was not entitled to a portion of the damages the jury awarded it, and so reduced the jury's award in favor of Liberty to $684.416.01. See generally ECF No. 339 (Opinion and Order resolving post-trial motions); ECF No. 345 (Amended Judgment). The parties appealed. ECF Nos. 346 & 348.
The Fourth Circuit issued its opinion affirming all but one of this court's rulings on February 10, 2014. See Liberty Mut. Fire Ins. Co., 554 F.Appx. at 193-94. The Fourth Circuit reversed only the court's ruling that absent actual or consequential damages, MI could not receive punitive damages. Id. at 189. The Fourth Circuit held that "[a]n absence of ascertainable damages does not necessarily preclude nominal or punitive damages where, as here, the jury finds a party liable for punitive damages." Id. "Where a jury finds a willful or reckless invasion of a legal right, a court presumes that nominal actual damages are merged into a punitive damage award." Id. at 190 (citing Hinson v. A.T. Sistare Constr. Co., 113 S.E.2d 341, 345 (S.C. 1960)). The Fourth Circuit vacated this court's ruling on punitive damages and instructed this court to consider whether sufficient evidence exists to support the jury's finding that Liberty acted ...