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Morris v. Auto-Owners Insurance Co.

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

December 29, 2016

Stephen F. Morris and Martha Morris, Plaintiffs,
Auto-Owners Insurance Company, Defendant.


         Defendant Auto-Owners Insurance Company (“Defendant”), pursuant to Fed.R.Civ.P. 12(c), filed a motion for judgment on the pleadings (ECF No. 23) on its counterclaim for declaratory judgment against Plaintiffs Stephen F. and Martha Morris (“Plaintiffs”) (ECF No. 4 at 10-14) as well as on Plaintiffs' claims for bad-faith refusal to pay, breach of contract, and breach of contract with fraudulent intent against it (ECF No. 1-1 at 19-22). For the reasons that follow, the court GRANTS Defendant's motion for judgment on the pleadings (ECF No. 23).


         Plaintiffs initiated this action by filing suit in the Court of Common Pleas for Richland County, South Carolina, on February 24, 2016, against Defendant and against Cary's Lake Homeowners Association, Upper Rockyford Lake Owners Association, Inc., and Lake Elizabeth Estates, Inc. (together, not including Defendant Auto-Owners Insurance Company, the “dam Defendants”). (ECF No. 1-1.) In their complaint, Plaintiffs allege that “[o]n October 4, 2015, the State of South Carolina experienced hours of intense rainfall as a result of the convergence of two powerful weather systems” and that “[a]fter hours of rainfall, a dam in northeastern Richland County cracked and then eventually broke completely, allowing a substantial amount of muddy water to flow freely downstream through its earthen dike.” (Id. at 8.) Anticipating arguments raised in the instant motion, Plaintiffs specifically allege that the “release of contained water was not due to a breach of the dam because of the height of the water but rather due to the failed and eroded construction of the body of the dam itself, as well as a lack of maintenance needed to protect its integrity.” (Id.) Plaintiffs further allege that the waters continued to flow through Gills Creek watershed causing several other dams owned or maintained by the dam Defendants to fail or break. (Id.) “The effect of the dams' breaking . . . was a powerful surge of an enormous amount of water throughout the Columbia area, ” which “sent an incursion of water . . . into Plaintiff[s'] home . . . .” (Id. at 9.) Plaintiffs asserted claims for negligence, strict liability, and nuisance against the dam Defendants based on their alleged failure to maintain, build, and/or operate the dams, the breaking of which allegedly contributed to the damage of Plaintiffs' property. (Id. at 8-24.)

         Plaintiffs also allege that their home was covered by an insurance policy entered into between Defendant and Plaintiffs and that Defendant refused to make payments to Plaintiffs allegedly due under the policy's terms on the basis that the policy excluded coverage for damage caused by flooding. (Id. at 10; see ECF No. 1-2; ECF No. 1-3 at 1-13.) The exclusion at issue states that Defendant

do[es] not cover loss to covered property caused directly or indirectly by any of the following, whether or not any cause or event contributes concurrently or in any sequence to the loss:
Water damage, meaning:
(a) regardless of the cause:
1) flood . . . .

         (ECF No. 1-2 at 93, 118.) The policy also contains a notice that purports to be required by the South Carolina Department of Insurance, with the heading “LIMITATIONS OR EXCLUSIONS UNDER THIS POLICY” and stating, “Flood-Flood damage is not covered under your policy.” (ECF No. 1-3 at 2.)

         In their complaint, Plaintiffs allege that the exclusion set forth above

does not apply to the circumstances leading to Plaintiffs' losses to their home[, ] and payment should be made pursuant to the terms of the homeowner's policy in effect. The damage to the home was the direct result of broken manmade dams due to failed construction and lack of maintenance; the negligence of third-parties caused or greatly contributed to the damage to Plaintiffs' home. It was not the result of a flood as contemplated within the language of the Exclusion for water damage.

         (ECF No. 1-1 at 10.) Based on the allegations set forth above, Plaintiffs' complaint includes a claim for breach of contract against Defendant on the ground that Defendant failed to make payments for the damages sustained by the home and a claim for breach of contract with fraudulent intent based on the same failure to make payments. (Id. at 20-21.) The complaint also contains a claim for bad-faith refusal to pay against Defendant based on an alleged breach of the implied covenant of good faith and fair dealing again grounded on the same failure to make payments. (Id. at 19-20.)

         The action was removed to federal court pursuant to the court's diversity jurisdiction (ECF No. 1), and, following removal, the court entered an order severing the claims against the dam Defendants, remanding them to state court, and retaining jurisdiction over the claims against Defendant (ECF No. 37.) Defendant filed a counterclaim against Plaintiffs, seeking a declaratory judgment, pursuant to 28 U.S.C. § 2201, et seq., “declaring that the [policy] does not provide coverage for the flood damage to [Plaintiffs' home] under the circumstances presented in Plaintiffs' civil action.” (ECF No. 4 at 14.)

         Defendant filed the instant motion for judgment on the pleadings, pursuant to Rule 12(c), arguing that it is entitled to judgment on its claim for declaratory judgment because the facts alleged by Plaintiffs show that the policy does not provide coverage for the damage sustained by Plaintiffs' home and that Plaintiffs' claims against Defendant fail as a matter of law because they are all grounded on the allegation that the policy provides such coverage. (See ECF No. 23.) Reduced to essentials, Defendants' argument is that the term “flood, ” as used in the policy and in South Carolina law, encompasses the circumstances alleged by Plaintiffs and, therefore, that the water damage sustained by the home is not covered by the policy. (See id.) Plaintiffs argue, however, that the term “flood” in the policy is ambiguous and should be construed ...

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