United States District Court, D. South Carolina, Charleston Division
C. NORTON UNITED STATES DISTRICT JUDGE.
matter comes before the court on declaratory judgment action
(2:13-cv-03035-DCN) defendant and bad faith action
(2:14-cv-03272-DCN) plaintiff George Giannaras as Guardian
for Emmanuel Kehagias’s ("Kehagias") motion
for partial summary judgment, ECF No. 155, and declaratory
judgment action plaintiff and bad faith action defendant
Founders Insurance Company’s ("Founders")
motion for summary judgment, ECF No. 159. For the reasons set
forth below, the court denies Kehagias’s motion and
grants Founders’s motion.
a consolidated matter that involves two separate but related
actions. The first is a declaratory judgment action,
2:13-cv-03035, in which plaintiff Founders requests that the
court declare that it is not required to provide coverage
under a general liability policy ("the
Policy") because the insureds failed to provide
timely notice of the underlying personal injury lawsuit. The
second action is a bad faith action, 2:14-cv-03272, filed by
declaratory judgment action defendants and bad faith action
plaintiffs Richard Ruth’s Bar & Grill LLC
("Richard’s Bar"), Richard Ruth, Sr.
("Mr. Ruth"), Jane Ruth ("Ms. Ruth")
(collectively "the Ruths"), and Kehagias, as the
Ruths’ assignee, alleging that Founders, Utica Mutual
Insurance Company ("Utica"),  Hull & Company,
Inc. ("Hull"), and Brown & Brown, Inc.
("Brown") failed to properly handle the underlying
personal injury claim.
September 29, 2012, a patron of Richard’s Bar struck
Kehagias during a pool game, and Kehagias suffered severe
injuries and permanent brain damage as a result. After the
incident, George Giannaras ("Giannaras"),
Kehagias’s brother-in-law, was appointed to serve as
Kehagias’s Guardian. On November 21, 2012, the
Anastopoulo Law Firm sent Mr. Ruth a letter ("notice
letter") notifying him that Kehagias retained the firm
to represent him in connection with the injuries he sustained
at the bar. Kehagias’s Mot. Summ. J. Ex. 1. The notice
letter asked that Mr. Ruth "[p]lease forward this letter
to any and all insurance carriers with policies applicable to
Richard’s Bar and Grill, Richard Ruth, and the building
housing Richard’s Bar and Grill immediately."
Id. On November 26, 2012, Ms. Ruth sent the notice
letter to their local agent, Cherie Dumez ("Dumez")
at the Cherie Dumez Agency. Ex. 17. The following day, Dumez
emailed the notice letter to Hull. Ex. 18. Kehagias filed the
underlying injury suit on December 19, 2012 in the Court of
Common Pleas for the Ninth Judicial Circuit. Ex. 7. Ms. Ruth
was served with the Summons and Complaint on January 8,
2013. Dumez emailed the notice letter to Hull a
second time on January 9, 2013. Ex. 19.
contends that the Ruths notified Dumez and that Dumez in turn
notified Hull, the insurance broker. Kehagias further
contends that "Hull either failed to forward the letter
to Founders, or, if they did, Founders failed to process
it." Kehagias Mot. for Summ. J. 7. Neither the Ruths,
nor anyone on their behalf, filed an answer, and on February
22, 2013, the court entered an Order for Entry of Default
against the Ruths in the underlying action. Ex. 26. Founders
received notice of the underlying lawsuit on May 15, 2013
when Hull sent the notice letter to Founders. Ex. 20 (email
from Hull to Founders describing the claim as a "new
claim" and requesting the "claim number ASAP as the
agent originally submitted in January"). Founders
disputes Kehagias’s claims that the Ruths notified
Dumez after being served and that Dumez notified Hull.
Founders’s Resp. 5 n.5. Upon receiving notice, Founders
assigned the claim to adjustor Carlos Ortiz
("Ortiz"), and he began an investigation. Founders
"escalated" the claim after learning of the
severity of the injuries, opened a separate
"coverage" file, and assigned adjustor Alberta
Squalls ("Squalls") to investigate the late notice
22, 2013, J.D. Smith ("Smith"), retained by
Founders to represent the Ruths in the underlying action,
filed a motion to set aside the default. On August 27, 2013,
the Anastopoulo Law Firm sent an offer of compromise
("Offer") to Smith. Ex. 33. The letter included a
demand "for payment of policy limits" and stated:
"At 5:00 p.m. EDT on September 9, 2013, this offer will
be withdrawn and we will obtain an excess judgment against
your insured." Id. The offer did not include a
specific amount and stated that "[i]f any condition is
not met, or if any additional condition is imposed by
[Founders], including but not limited to conditions of
indemnification or the waiver of any rights or claims not
specified herein, this offer of compromise will be
withdrawn." Id. In response to the Offer, Smith
sent Kehagias’s attorney an email inquiring about the
specific amount demanded, stating: "I understand that
this policy has limits of $50, 000 and want to make sure we
are on the same page with the limits before I forward the
demand to the carrier." Ex. 35. Kehagias’s
attorney responded that he understood the policy limits to be
$1, 005, 000.00 and was therefore demanding that amount.
September 3, 2013, Squalls responded to the offer of
compromise, rejecting the offer but providing a counteroffer
of $50, 000.00. Ex. 40. On September 10, 2013,
Kehagias’s attorney sent a notice of the withdrawal of
the offer of compromise because no payment had been received.
Ex. 42. On October 29, 2013, Squalls sent Kehagias’s
attorney a second offer of compromise. Ex. 50. Squalls stated
that "[b]ased on [Founders’s] re-examination of
its Policy provisions as may apply to this claim, Founders
has determined that the maximum available coverage which
could potentially be afforded to its insureds" was $105,
000.00. Id. Kehagias’s attorney never
responded to Founders’s second offer. Kehagias filed an
opposition to the Ruths’ motion to set aside the entry
of default on October 24, 2013, and the state court conducted
a hearing on the motion on October 30, 2013. Founders filed
the present declaratory judgment action on November 6, 2013.
January 17, 2014, Judge Nicholson denied the Ruths’
motion to set aside the entry of default in the underlying
state court action. Ex. 45. Judge Newman held a damages
hearing on March 19, 2014, and on April 29, 2014, entered a
default judgment against the Ruths in the amount of $5, 000,
000.00. Ex. 55. At the Ruths’ request, Smith appealed
Judge Newman’s default judgment on May 28, 2014. That
same day, the Ruths executed an agreement with Kehagias under
which Kehagias agreed not to execute the judgment against the
Ruths, and the Ruths assigned their right to sue Founders and
Hull for bad faith to Kehagias. Ex. 49. On May 29, 2014,
one day after the assignment, the Ruths’ personal
counsel advised Founders that the Ruths no longer wished to
appeal. Ex. 50. Kehagias, as the Ruths’ assignee, filed
the bad faith action on August 14, 2014. On August 20,
2014, the Ruths’ personal counsel directed Founders to
dismiss the appeal. Ex. 52. Founders thereafter authorized
Smith to dismiss the appeal in accordance with the
Ruths’ request. Ex. 53.
filed a partial motion for summary judgment in the
declaratory judgment action on October 14, 2015. ECF No. 155,
at 2-3. Founders also filed a motion for summary
judgment in the declaratory judgment action on October 14,
2015. ECF No. 159. On October 22, 2014, Founders dismissed
the appeal, Ex. 54, and a final judgment was entered on
November 25, 2014, Ex. 55.
asks this court to declare that it is not required to
indemnify the Ruths because they breached their duty to
provide notice of the underlying claim and to forward the
legal documents from the underlying suit. Founders
alternatively asks that, should the court find that it must
indemnify the Ruths, the court declare that the amount of
coverage is limited to $105, 000.00. The Ruths and Kehagias
(hereafter collectively "Kehagias") filed a joint
response in opposition to the motion on November 12, 2015.
ECF No. 180. Founders filed a joint response in support of
various motions on December 1, 2015. ECF No. 193. Founders
and Utica (referred to collectively in this order as
"Founders") filed a joint response in opposition to
Kehagias’s motion for summary judgment on November 12,
2015. The motions have been fully briefed and
are ripe for the court’s review.
judgment is appropriate "if the movant shows that there
is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). "Rule 56(c) of the Federal Rules of
Civil Procedure requires that the district court enter
judgment against a party who, ‘after adequate time for
discovery . . . fails to make a showing sufficient to
establish the existence of an element essential to that
party’s case, and on which that party will bear the
burden of proof at trial.’" Stone v. Liberty
Mut. Ins. Co., 105 F.3d 188, 190 (4th Cir. 1997)
(quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986)). Any reasonable inferences are to be drawn in favor
of the nonmoving party. See Webster v. U.S. Dep’t
of Agric., 685 F.3d 411, 421 (4th Cir. 2012). However,
to defeat summary judgment, the nonmoving party must identify
an error of law or a genuine issue of disputed material fact.
See Fed.R.Civ.P. 56(a); Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 256 (1986); see also
Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d
514, 522 (4th Cir. 2003).
the court must draw all justifiable inferences in favor of
the nonmoving party, the nonmoving party must rely on more
than conclusory allegations, mere speculation, the building
of one inference upon another, or the mere existence of a
scintilla of evidence to overcome summary judgment. See
Anderson, 477 U.S. at 252; Stone, 105 F.3d at
191. Rather, "a party opposing a properly supported
motion for summary judgment . . . must ‘set forth
specific facts showing that there is a genuine issue for
trial.’" Bouchat, 346 F.3d at 522
(quoting Fed.R.Civ.P. 56(e) (2002) (amended 2010)). If the
adverse party fails to provide evidence establishing that the
factfinder could reasonably decide in his favor, then summary
judgment shall be entered "regardless of ‘[a]ny
proof or evidentiary requirements imposed by the substantive
law.’" Id. (quoting Anderson,
477 U.S. at 248).
the summary judgment stage the judge’s function is not
himself to weigh the evidence and determine the truth of the
matter but to determine whether there is a genuine issue for
trial." Id. at 249. When the party moving for
summary judgment does not bear the ultimate burden of
persuasion at trial, it may discharge its burden by
demonstrating to the court that there is an absence of
evidence to support the non-moving party’s case.
Celotex Corp., 477 U.S. 317, 325 (1986). The
non-movant must then "make a showing sufficient to
establish the existence of an element essential to that
party’s case, and on which that party will bear the
burden of proof at trial." Id. at 322.
South Carolina law, "‘[i]nsurance policies are
subject to the general rules of contract
construction.’" USAA Property & Cas. Ins. Co.
v. Clegg, 661 S.E.2d 791, 797 (S.C. 2008) (quoting
B.L.G. Enters., Inc. v. First Fin. Ins. Co., 514
S.E.2d 327, 330 (S.C. 1999)). "‘Courts must
enforce, not write, contracts of insurance, and their
language must be given its plain, ordinary and popular
meaning.’" Id. (quoting Sloan Constr.
Co. v. Centr. Nat’l Ins. Co. of Omaha, 236 S.E.2d
818, 819 (S.C. 1977)). "‘When a contract is
unambiguous, clear, and explicit, it must be construed
according to the terms the parties have used.’"
Id. (quoting B.L.G. Enters., Inc., 514
S.E.2d at 330). However, "‘[a]mbiguous or
conflicting terms in an insurance policy must be construed
liberally in favor of the insured and strictly against the
insurer.’" Id. (quoting Diamond State
Ins. Co. v. Homestead Indus., Inc., 456 S.E.2d 912, 915
(S.C. 1995)); see also Edens v. S.C. Farm Bureau Mut.
Ins. Co., 308 S.E.2d 670, 671 (S.C.1983) ("Where
language used in an insurance contract is ambiguous, or where
it is capable of two reasonable interpretations, that
construction which is most favorable to the insured will be
insurer’s obligation under a policy of insurance is
defined by the terms of the policy itself and cannot be
enlarged by judicial construction." Penn.
Nat’l Mut. Cas. Ins. Co. v. Lewis, 105 F.Supp. 3d
573, 583 (D.S.C. 2015), aff’d sub nom. 2016 WL
3033203, at *1 (4th Cir. May 27, 2016) (citing S.C. Ins.
Co. v. White, 390 S.E.2d 471, 474 (S.C. Ct. App. 1990)).
"A policy clause extending coverage must be liberally
construed in favor of coverage, while insurance policy
exclusions are construed most strongly against the insurance
company, which also bears the burden of establishing the
exclusion’s applicability." Id. (citing
M & M Corp. of S.C. v. Auto-Owners Ins. Co., 701
S.E.2d 33, 35 (2010); Owners Ins. Co. v. Clayton,
614 S.E.2d 611, 614 (2005)). "However, if the intention
of the parties is clear, courts have no authority to torture
the meaning of policy language to extend coverage that was
never intended by the parties." S.C. Farm Bureau
Mut. Ins. Co. v. Wilson, 544 S.E.2d 848, 850 (S.C. Ct.
argues that the court should grant its motion for summary
judgment and declare as a matter of law that it is not
required to indemnify the Ruths because they breached their
obligations under the Policy to provide notice, which
substantially prejudiced Founders. Alternatively, Founders
argues that the court should declare that even if it is
required to indemnify the Ruths, the policy limits are $105,
000.00. In his partial motion for summary judgment, Kehagias
makes the following arguments: (1) Founders has failed to
establish prejudice as a matter of law and therefore cannot
avoid coverage for insufficient notice; (2) the assignment to
Kehagias is valid; (3) the Ruths acted reasonably, in good
faith, and were not negligent as a matter of law; and (4)
Kehagias’s request for attorney’s fees is not
unconstitutional as a matter of law. The court will address
the parties’ arguments in turn.
first argues that because the Ruths breached their duty under
the policy to notify Founders of the claim and to send the
legal documents to Founders, causing Founders substantial
prejudice, it is not required to provide coverage under the
Policy. Founders’s Mot. for Summ. J. 11. In response,
Kehagias first argues that the Ruths did provide
notice to Dumez. ECF No. 180, 3-4. Kehagias alternatively
contends that even if the Ruths breached their duty under the
Policy to provide Founders notice, Founders cannot establish
substantial prejudice as a matter of law. Id. at
plaintiff’s duty to provide notice of a suit is a
covenant under the Policy. Episcopal Church in S.C, v.
Church Ins. Co. of Vermont, 53 F.Supp. 3d 816, 828
(D.S.C. 2014). "As a general rule, breach of an
insurance policy’s notice clause automatically relieves
the insurer of its obligations under the contract, including
the payment of proceeds due, and the duty to defend and to
indemnify the insured." Wright v. UNUM Life Ins.
Co., No. 2:99-2394-23, 2001 WL 34907077, at *2 (D.S.C.
Aug. 31, 2001). "Where a question exists as to the
failure of an insured to comply with the notice requirements
contained in a liability insurance contract, the burden of
proof rests with the insurer." Vt. Mut. Ins. Co. v.
Singleton, 446 S.E.2d 417, 421 (S.C. 1994) (citing
Squires v. Nat’l Grange Mut. Ins. Co., 145
S.E.2d 673 (S.C. 1965); Pharr v. Canal Ins. Co., 104
S.E.2d 394 (S.C. 1958)). "‘No rule of law is more
firmly established in this jurisdiction than that one suing
on a policy of insurance, where the notice required by
the policy is not timely given, cannot recover . . .
.’" Prior v. S.C. Med. Malpractice Liab. Ins.
Joint Underwriting Ass’n, 407 S.E.2d 655, 657
(S.C. Ct. App. 1991) (quoting Lee v. Metro. Life Ins.
Co., 186 S.E. 376, 381 (S.C. 1936)) (emphasis added).
purpose of a notification requirement is to allow for
investigation of the facts and to assist the insurer in
preparing a defense." Vt. Mut. Ins. Co., 446
S.E.2d at 421 (citing Washington v. Nat’l Serv.
Fire Ins. Co., 168 S.E.2d 90 (1969)). Although the
failure of an insured to comply with a notice requirement may
bar recovery by the insured, Squires, 145 S.E.2d at
677, "[w]here the rights of innocent parties are
jeopardized by a failure of the insured to comply with the
notice requirements of an insurance policy, the insurer must
show substantial prejudice to the insurer’s
rights" before recovery is barred. Vt. Mut. Ins.
Co., 446 S.E.2d at 421.
General Liability ("GL") portion of the Policy
states that the Ruths have the following duties in the event
of an occurrence, offense, claim, or suit: "You must see
to it that we are notified as soon as practicable of
an ‘occurrence’ or an offense which may result in
a claim." ECF No. 168 Ex. B (emphasis added). The Policy
further states that "[i]f a claim is made or
‘suit’ is brought against an insured, you must .
. . notify us as soon as practicable. You must see to it that
we receive written notice of the claim or
‘suit’ as soon as practicable. You and any other
involved insured must . . . immediately send us
copies of any demands, notices, summonses, or legal papers
received in connection with the claim or ‘suit’ .
. . ." Id. (emphasis added). The Liquor
Liability ("LL") portion of the Policy is even more
specific and states that the insured must "[n]otify us
by telephone at 888-676-4342 within seventy-two (72) hours;
and provide written notice to us at 1645 East Birchwood
Avenue, Des Plaines, Illinois 60018 within seventy-two (72)
hours." Id. Ex. C. The LL portion of the Policy
further states that "[y]ou and any other involved
‘insured’ must . . . [p]rovide us copies of any
demands, notices, summonses, or legal papers received in
connection with the claim or ‘suit’ within
seventy-two (72) hours." Id.
now contends that Jane Ruth gave the suit papers to Dumez
shortly after being served. ECF No. 179, Ex. 2, Ruth Aff.
¶ 30. Notably, Judge Nicholson denied Founders’s
motion to set aside the entry of default, concluding that the
Ruths’ "inability to recall whether they returned
the Complaint over to the local agent does not rise to the
level of good cause" sufficient to grant the motion. ECF
No. 155 Ex. 10. In her deposition, Ms. Ruth testified that
she notified Dumez when she received the November 21, 2012
letter from the Anastopoulo Law Firm and faxed the letter to
her. ECF No. 157 Ex. 4, Ms. Ruth Dep. 40:17-25. Dumez
testified that she sent the letter to Melanie Yount
("Yount") at Hull. Dumez Dep. 39:25-403. On January
4, 2013, Dumez sent Yount an email to follow up because she
had not heard anything, and on January 9, 2013, Yount
responded that she could not find anything in the file.
Id. at 40:8-13; 45:3-8.
Ruth was served with the suit papers on January 8, 2013 and
now claims that she gave Dumez the suit papers that day. ECF
No. 179 Ex. 2, Ms. Ruth Aff. ¶ 30. However, during her
deposition, Ms. Ruth testified:
Question: When you first sent the fax in to Miss Dumez did
you have a follow-up phone call to talk about it?
Answer: May have. I’m not sure. I don’t remember.
Question: And then you said the next communication you had
with Miss Dumez about what you called the Manny case was not
Question: And in the interim period in January you personally
were served with a summons and complaint regarding
Manny’s injury case?
Answer: Yes. . . .
Question: When you were served did you physically turn over
that summons and complaint or sent it or provide it to anyone
Answer: The only way I can answer that question is evidently
I did not. I thought I had, but I must not have because in
further following conversations with [Dumez] she said she
never received anything from me.
ECF No. 157 Ex. 4, Ms. Ruth Dep. 42:5-43:3.
Question: In between January 9th, 2013 and May 14th, 2013 did
you receive any other communications from anyone about the
incident that Attorney ...