United States District Court, D. South Carolina, Charleston Division
FINDINGS OF FACT AND CONCLUSIONS OF LAW
PATRICK MICHAEL DUFFY, United States District Judge.
matter is before the Court following a bench trial. For the
reasons stated herein, the Court enters judgment for
Plaintiff CAMICO Mutual Insurance Company.
a professional liability insurance coverage dispute between
an insurance carrier, the accountants and accounting firm it
insured, and several of the firm's clients. The dispute
relates to three state-court malpractice lawsuits the clients
have filed against the accountants over the alleged
mishandling of their taxes. In this case, CAMICO seeks a
judicial declaration of the extent of its obligation to
defend and indemnify Defendants Jackson CPA Firm, Brent Hill,
and Frank Jackson (the “Accountants”) in those
malpractice cases. The Accountants contend CAMICO has
breached one or more of the insurance policies it sold them
and that it has acted in bad faith. Defendants David Brooks,
Marcia Brooks, Jarrod Brooks, Zita, Inc., AAA Fence Company
of Charleston, Inc., and Mike Dohoney's Barrier Island
Construction Specialists, Inc. (the “Clients”)
also seek a declaratory judgment regarding CAMICO's
obligations in their lawsuits.
filed this action in April 2015. After the parties conducted
discovery and filed cross-motions for summary judgment, the
Court found there were genuine issues of material fact and
therefore denied the motions. The parties tried the case on
August 16 and 17, 2016. Having considered the evidence
admitted at trial, as well as the parties' pre-trial
briefs and post-trial submissions, the Court now makes the
following findings of fact and conclusions of law in
accordance with Federal Rule of Civil Procedure 52(a).
on the preponderance of the evidence in the record, the Court
finds as follows:
The Accountants and Their Insurance Policies
years, certified public accountants Frank Jackson and Brent
Hill worked together in their two-member accounting firm,
Jackson and Hill, LLC. Their association ended with
Hill's retirement in August 2011. Following some
additional personnel changes, Jackson now practices alone in
Jackson CPA Firm, LLC.
Since 2005, CAMICO has insured the Accountants under a series
of professional liability, claims-made-and-reported policies.
The policies have a retroactive date of July 1, 1998.
policy provides a year of coverage that begins on January 28
of the year. For example, the main policy at issue here has
an effective date that runs from January 28, 2011, to January
28, 2012 (the “2011-2012 policy”).
policy's declarations page lists a general indemnity
limit of $1, 000, 000 per claim and $2, 000, 000 aggregate.
An endorsement to each policy provides a separate limit of
$250, 000 for defense costs and other claim expenses.
policy contains an identical insuring agreement. However,
each policy also has an endorsement titled “Limited
Coverage for ‘Known Claims' Endorsement” that
changes parts of the insuring agreement. For example, the
known-claims endorsement for the 2011-2012 policy deletes
section A of that policy's insuring agreement and
replaces it with an insuring agreement that provides, in
relevant part, as follows:
Coverage for Damages and Reporting
Company will pay those sums that an Insured becomes
legally obligated to pay as Damages because of a
Claim arising out of an Insured's
negligent act, error or omission in rendering or failing to
render Professional Services performed after the
Retroactive Date and before the end of the
Policy Period, provided that:
(a) The Claim was first made against the
Insured and reported to the Company during the same
Policy Period; and
(b) The Claim was not reported to any professional
liability insurer, including the Company, prior to the
effective date of the Policy Period identified in
the policy's Declarations.
. . . .
any Insured became aware of a Claim or a
Potential Claim either after the Retroactive
Date of this Policy or during the twelve (12) months
prior to the Effective Date of this Policy Period,
whichever is later, and reports that Claim or
Potential Claim to the Company during the Policy
Period, that Claim or Potential Claim
shall be deemed timely reported to the Company during the
Policy Period; however, the Limits of Liability
applicable to such Claim or Potential Claim
shall be limited to the amount stated in section I. INSURING
AGREEMENTS, C. Limits of Liability, Sub-Limits and
Deductibles, paragraph 1.c.
policies define “Claim” as follows:
a demand received by any Insured for money or
services, and includes the service of suit(s), a request that
an Insured agree to waive a legal right or sign an
agreement to toll a statute of limitations, or a demand for
arbitration. A Claim also includes two or more
Claims arising out of or resulting from a single
act, error or omission in rendering Professional
Services, or from Multiple Acts, Errors or
Omissions in rendering Professional Services,
whether such demands are made: (1) against one or more
Insureds; (2) by one or more Persons, or
(3) during one or more Policy Periods.
policies define “Multiple Acts, Errors or
Omissions” as “all acts, errors or omissions in
rendering Professional Services that are logically
or causally connected by any common fact(s), circumstances,
situation, transaction(s), event(s), advice or
decision(s).” The policies go on to state that a single
per-claim coverage limit “applies to a Claim
arising from Multiple Acts, Errors or
Omissions, regardless of the number of claimants,
lawsuits, or Insureds involved.”
policies define “Potential Claim” as “an
event or circumstances that any Insured might
reasonably expect would be the basis for a
Claim.” In turn, Insured includes
Hill, Jackson, their firm, and its employees.
mentioned above, paragraph A.4 of the known-claims
endorsement's insuring agreement limits the coverage for
certain claims to “the amount stated in section I.
INSURING AGREEMENTS, C. Limits of Liability, Sub-Limits and
Deductibles, paragraph 1.c.” That subparagraph, which
the endorsement adds, provides as follows:
The maximum amount payable by the Company for
Damages and Claim Expenses for each covered
Claim reported during this Policy Period
pursuant to section I. INSURING AGREEMENTS, A. Coverage for
Damages and Reporting Requirements, paragraph 4.,
shall be either $100, 000 or 25% of the Per Claim
Limit of Liability stated on the Declarations, whichever is
less. Amounts paid on behalf of an Insured pursuant
to this paragraph are chargeable against the applicable
Deductible and the Limits of Liability.
Finally, the known-claims endorsement eliminates separate
defense limits for claims that are afforded coverage under
the known-claims endorsement.
Hill's Declining Health and Work Performance
Hill was diagnosed with Parkinson's disease in 2006.
After being diagnosed, he continued to practice accounting
for several years.
Over those years, the symptoms of Parkinson's disease
gradually worsened, affecting Hill's work. The disease
caused Hill to experience tremors, fatigue, and a loss of
concentration, such that he became disorganized and
frequently could not complete much work in a typical work
those physical and mental impediments worsened, they were
also exacerbated by certain stressors, including the demands
of caring for his mother as her own health declined and
financial difficulties that arose due to his inability to
produce billable time. As a result, Hill's ability to
work suffered even more. Among other things, he could no
longer complete his work in time to either meet his
clients' filing deadlines or seek extensions. Hill's
failures to file resulted in clients being assessed interest
and late penalties.
2010, Hill's conditions reached, as he put it,
“critical mass.” Due to the symptoms of his
Parkinson's disease and those external stressors, on many
days he could barely accomplish three hours of work over the
course of a twelve-hour workday. However, he did not notify
clients of his growing inability to work or the consequent
tax problems they were facing.
Jackson's suggestion, the firm began delegating some of
Hill's work. Staff accountant Rita Hammond recommended
the firm contract with accountant Marty Hicks to help Hill.
Hicks' primary responsibility was to negotiate with state
and federal tax agencies in an effort to reduce or abate
interest and penalties they had assessed against Hill's
clients for Hill's late filings. The firm also hired an
assistant to help Hill with organization and to communicate
February and March 2011, Hill sent the IRS a series of
letters relating to late penalties it had assessed against
several of his clients due to their returns not being timely
filed. Each letter included the following:
I would like to take responsibility for the failure to file
on time and for any lack of a prompt response to notices
regarding the matter. Due to personal circumstances, I was
unable to complete returns for all of my clients by the
extended deadlines, and am just now finding myself able to
pay proper attention to wrapping up my commitments to some of
my clients related to 2009.
On-going adjustments to living with Parkinson's disease
and problems with the side effects of medications reduced my
productivity greatly for most of last year. Also, I have been
the only family member available to see to the care of my
83-year old mother, and that role intensified through 2010 as
her mental and physical conditions deteriorated. The last
four months of the year have proved to be the most stressful
of my life, as most of my time and energy was spent seeing
her through seven hospital visits, a move from her home to an
assisted living facility, then to a nursing home, where she
spent her final six weeks under hospice care. She passed away
January 2nd. With that behind me, and with a
recent change in medication making the Parkinson's more
tolerable, I am now getting my health and life back in
balance and better able to do the job of helping my clients
meet their tax-filing responsibilities in a timely manner.
concluded at least one of the letters by declaring, under
penalty of perjury, that the blockquoted language above was
Hill concluded several of the letters by asking the IRS to
abate his clients' late penalties “due to
circumstances beyond taxpayer control”; in at least one
other letter, he sought abatement “due to circumstances
beyond taxpayer control (and preparer)
Hill retired in August 2011. He announced his retirement to
his clients through a mass letter he sent on August 22, in
which he stated, “Most Parkinson's patients reach a
point when they can no longer function effectively in a job
that involves a high volume of deadline-intensive work. I am
past that point.”
When Hill retired in August 2011, Hicks and staff accountant
Rita Hammond took over Hill's files. Hammond joined with
Jackson to form the firm Jackson and Hammond, LLC, which
continued contracting with Hicks. Hammond and Hicks
thereafter continued to work with tax agencies on behalf of
Hill's former clients in an attempt to mitigate the
consequences of missed filing deadlines. Hammond and Hicks
left the accounting firm in September 2012, taking with them
all the files for Hill's former clients. They formed
their own firm and performed work for a number of Hill's
Hill's health has continued to decline since he retired.
By the time of trial, Hill's memory of his work for the
Clients was significantly diminished due to his disease.
Thus, through no fault of his own, his testimony carried