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Companion Property and Casualty Insurance Co. v. Wood

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

January 10, 2017




         This matter is before the court on cross-motions for partial summary judgment and several related motions. The motions and resolution are as follows:

         1. Defendants' Motion for Partial Summary Judgment, ECF No. 201, is granted in part and denied in part;

         2. Plaintiff's Motion for Partial Summary Judgment, ECF No. 202, is granted in part and denied in part;

         3. Defendants' Motion to Exclude Opinion Testimony of Charles L. McGimsey, ECF No. 199, is denied;

         4. Defendants' Motion to Strike Declaration of Charles L. McGimsey, ECF No. 239, is denied;

         5. Plaintiff's Motion to Strike Certain Exhibits and Arguments, ECF No. 252, is denied.



         This action arises out of a contractual relationship between Plaintiff, Companion Property and Casualty Insurance Company (“Companion”), and a group of interrelated businesses. The latter include Defendants AMS Staff Leasing Inc., d/b/a AMS Staff Leasing Corporation (“AMS”), Breckenridge Enterprises, Inc., d/b/a AMS Staff Leasing II (“Breckenridge”); AMS Staff Leasing II, Inc., (“AMS II”), and Aspen Administrators, Inc. (“Aspen”), each of which is a party to two related agreements referred to as the “2006 Coverage Agreement” and the “Claims Agreement.” The 2006 Coverage Agreement provided, inter alia, for the issuance of Workers Compensation policies to or on behalf of AMS, Breckenridge, and AMS II (collectively “PEO Defendants”).[2] The Claims Agreement authorizes Aspen to act as third-party claims administrator for claims made under the 2006 Coverage Agreement.

         The three PEO Defendants and Aspen are owned by Defendant Charles David Wood, Jr. (“Wood”). Wood signed a Guaranty and Indemnity Agreement (“Wood Guaranty”) in favor of Companion guaranteeing full performance under the 2006 Coverage and Claims Agreements.

         Wood also owns Defendant Highpoint Risk Services, LLC (“Highpoint”). Highpoint is not a party to the Coverage Agreement, Claims Agreement, or Wood Guaranty but allegedly played a role in issuing policies on which certain claims are based.

         Wood previously owned Dallas National Insurance Company (“Dallas National”), an additional signatory to the 2006 Coverage Agreement that acted as reinsurer for policies issued under that agreement. Wood sold Dallas National to a third-party in March 2013. After that sale, Companion, Dallas National, and Dallas National's new owner entered into agreements referred to as the 2013 Program Agreement and 2013 Guaranty.[3] Dallas National was placed into receivership during or after April 2014 and is not a party to this litigation.

         In or around July 2013, Companion terminated Defendants' authority to write new business or renew policies under the 2006 Coverage Agreement. The relationship between the parties was not, however, ended as claims continued to be processed and paid during the run-off period (“RunOff”) that followed. Much, but not all, of the present litigation relates to Companion's handling of claims and collateral and Defendants' payment (or non-payment) of claims and collateral obligations (and related obligations under the Wood Guaranty) during Run-Off, which continues to this day.


         Defendant Highpoint first initiated litigation against Companion in the Northern District of Texas (“Texas Action”) on August 20, 2014. See ECF No. 23-1 at 1 (motion to dismiss identifying Highpoint Risk Services, LLC v. Companion Property & Casualty Insurance Company, No. 3:14-cv-3398-L (N.D. Tex. filed Aug. 20, 2014) as first filed action). That action sought return of certain funds relating to what the court and parties have referred to as a “PayGo” line of business.

         Companion then initiated this action on September 19, 2014, seeking a declaratory judgment as to the same subject matter and asserting additional claims as to other lines of business. This court stayed claims to the extent related to the PayGo line of business, in deference to the first filed action in the Northern District of Texas.[4]

         This matter has proceeded as to all other claims and counterclaims with discovery concluding for most purposes on August 1, 2016. The court extended discovery for limited purposes through mid-October 2016. The parties filed cross-motions for partial summary judgment on October 28, 2016. Briefing on those motions and several related evidentiary motions is now complete.


         Summary judgment should be granted 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). It is well established that summary judgment should be granted “only when it is clear that there is no dispute concerning either the facts of the controversy or the inferences to be drawn from those facts.” Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir. 1987). The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact, and the court must view the evidence before it and the inferences to be drawn therefrom in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).

         Rule 56(c)(1) provides as follows:

(1) A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:
(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . ., admissions, interrogatory answers or other materials; or
(b) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.

Fed. R. Civ. P. 56(c)(1).


         The discussion that follows considers all arguments relating to a given subject matter together. Thus, where Companion and Defendants have moved for summary judgment on the same claims or counterclaims or filed related evidentiary motions, the related portions of the various motions are considered together.[5]

         I. Claims Relating to Above-Deductible Payments Arguments.

         Companion seeks summary judgment on its second cause of action and Defendants' fifth counterclaim. See ECF No. 88 ¶¶ 50-58 (second cause of action); ECF No. 90 ¶¶ 249-57 (fifth counterclaim). As to both the claim and counterclaim, Companion seeks a ruling that it has no obligation to reimburse Defendant AMS for payments made from AMS's funds for claims exceeding AMS's deductible (“Above-Deductible Payments”). Alternatively, Companion asks the court to rule that its obligation does not exceed $66, 141.

         Defendants' fifth counterclaim suggests AMS is seeking in excess of $9 million in unreimbursed Above-Deductible Payments. However, shortly before the dispositive motions deadline, AMS stipulated it is seeking no more than $1, 826, 145 on this counterclaim. ECF No. 196 (filed October 19, 2016). Companion argues even this amount is overstated. In support of this argument, Companion relies on a Declaration by McGimsey (ECF No. 214-6 (“McGimsey Declaration”)), which challenges the accuracy of a spreadsheet prepared by Kara Childress (“Childress Spreadsheet”) and corresponding opinion by Defendants' expert, Key Coleman.[6]McGimsey explains in detail what he believes are multiple errors in Childress's analysis, including a failure to take into account various adjustments. Ultimately, he opines the maximum amount of unreimbursed payments is $66, 141.

         Companion further argues that, regardless of the amount of unreimbursed Above-Deductible Payments, AMS is entitled to no recovery because AMS's co-Defendant and owner, Wood, is ultimately responsible under the Wood Guaranty for any failure by Dallas National to reimburse AMS for Above-Deductible Payments. Finally, Companion argues Defendants are equitably estopped from seeking relief on this counterclaim because they failed to alert Companion to any concerns about reimbursements when Companion might have corrected the problem (most critically before Dallas National went into receivership).

         In their memorandum in opposition to summary judgment (ECF No. 235), as well as in a separate motion to strike (ECF No. 239), Defendants argue McGimsey's Declaration should not be considered. The latter argument is based largely on Companion's failure to offer such opinions prior to the close of discovery.[7] Defendants also argue the Childress Spreadsheet and Coleman's opinion are valid and based on objective, verifiable data and assert McGimsey concedes at least some funds are due.

         Defendants respond to the alternative argument that Wood is ultimately responsible for any failure by Dallas National to reimburse AMS for Above-Deductible Payments by noting Companion still holds collateral to fulfill Dallas National's obligations. They also argue, inter alia, any shortfall in that collateral is the fault of either Companion, or Dallas National's new owner, relieving Wood of any responsibility. Finally, as to the equitable estoppel argument, Defendants argue there is no evidence AMS lulled Companion into believing the Above-Deductible Payments would all be settled by Wood or Dallas National.

         On reply, Companion argues the timing and circumstances relating to Childress's deposition justify any delay in proffering McGimsey's Declaration opinions. It challenges arguments Coleman's opinion and the Childress Spreadsheet are admissible. The latter argument is also addressed in Companion's later Motion to Strike (ECF No. 252). Companion argues it has no obligation to pursue Dallas National or deplete Dallas National's collateral (which Companion maintains is already underfunded) before pursuing Wood on his Guaranty. Finally, it argues silence may support equitable estoppel, and it was given no notice of any concern before December 2013.


         The court has fully considered arguments made in the parties' memoranda in support of and in opposition to Companion's summary judgment motion on its second cause of action and Defendants' fifth counterclaim, as well as related arguments in support of and opposition to Defendants' motions to exclude opinion testimony of McGimsey and to strike his Declaration, and Companion's motion to strike the Childress Spreadsheet. Having done so and for reasons explained below, the court concludes Companion's motion for partial summary judgment should be denied as to this claim and counterclaim because there are genuine issues of material fact as to whether Defendants were fully reimbursed for Above-Deductible Payments made from AMS-funded accounts or received other recoveries offsetting any such payments.

         These are subjects that require analysis of complex and extensive data and on which both sides have offered expert testimony. The court has, therefore, considered the parties' related evidentiary motions in resolving this aspect of Companion's motion for partial summary judgment. Those motions are denied for reasons explained below as they relate to the Above-Deductible Payments issue.

         Defendants' Motions to Strike or Exclude.

         The concerns identified by Defendants in both their motion to exclude McGimsey's opinion testimony (as it relates to the issue of Above-Deductible Payments) and motion to strike McGimsey's Declaration are primarily matters for cross examination at trial. The court is, moreover, persuaded that the nature of McGimsey's Declaration (as rebuttal to Coleman's expert opinion), combined with Companion's delayed opportunity to question Childress about her spreadsheet (and, consequently, the foundation for Coleman's opinion), support consideration of the McGimsey Declaration for purposes of summary judgment.[8]

         Companion's Motion to Strike.

         The court also denies Companion's motion to strike the Childress Spreadsheet (and implicit challenge to Coleman's opinion to the extent it relies on that spreadsheet). ECF No. 252 § IV. The concerns Companion and McGimsey raise are appropriate for cross examination at trial but do not, at least at this stage, support exclusion. Neither do they warrant a declaratory judgment that the maximum amount of unreimbursed Above-Deductible Payments is $66, 141 as asserted by McGimsey, given that Defendants have had no opportunity to test McGimsey's analysis through cross examination.

         In sum, the rulings as to the evidentiary motions leave both sides with challenged expert testimony on the amount, if any, of unreimbursed Above-Deductible Payments. In making these rulings, the court has resolved any close questions (as to both sides' motions) in favor of allowing rather than excluding expert testimony at this stage and deferring any final determination of admissibility until the court may consider the proffered testimony in context at trial.

         Alternative Grounds for Summary Judgment.

         Companion's alternative arguments also fail to support summary judgment. The argument Wood is ultimately responsible fails to recognize that, despite common ownership, Wood and AMS are separate entities. Thus, even if Wood must ultimately reimburse Companion for any amount Companion owes to AMS, it would not defeat this counterclaim. Defendants' arguments as to the continued availability of Dallas National collateral, and the possible reasons for any deficiencies, also raise concerns which preclude summary judgment. See also infra § V (addressing related argument regarding application of the Wood Guaranty to Dallas National's obligations).

         The court also finds the equitable estoppel argument unavailing as a basis for summary judgment. To the extent and for whatever period AMS was receiving timely and adequate reimbursement or credit from Dallas National, it presumably had no reason to alert Companion to any concern. While AMS concedes some amounts may have been unpaid prior to June 2013, it suggests the problem with non-payment (particularly for Florida policies) arose after that date. Thus, any claim for estoppel would presumably have to arise during this period. There is, however, no specific evidence or argument advanced to support a claim of estoppel arising during this period, and certainly no evidence or argument that supports a ruling as a matter of law.

         For the reasons set forth above, the court (1) denies Companion's motion for summary judgment on its second cause of action and Defendants' fifth counterclaim; (2) denies Defendants' motion to strike McGimsey's Declaration; (3) denies Defendants' motion to exclude opinion testimony of McGimsey (to the extent his testimony relates to this subject matter); and (4) denies Companion's motion to strike to the extent it relates to the Childress Spreadsheet (or Coleman's related opinion). The rulings on evidentiary motions do not preclude the parties from testing and challenging the adequacy of expert testimony and underlying foundation at trial.

         II. Claims Relating to Below-Deductible Payments

         Both sides seek summary judgment on Companion's third cause of action for breach of contract. ECF No. 202 Argument § II; ECF No. 201-1§ II.C. This cause of action seeks damages for Defendants' alleged failure to reimburse Companion for payments made for Below-Deductible claims (“Below-Deductible Payments”). ECF No. 88 ¶¶ 59-65. Companion also seeks summary judgment on Defendants' related first through third counterclaims.[9] Those counterclaims seek relief for Companion's alleged misuse or improper retention of collateral held for the purpose of satisfying Defendants' Below-Deductible obligations. ECF No. 90 ¶¶ 231-35 (asserting claims for breach of contract, breach of special relationship, and conversion). The arguments in these motions and related aspects of Defendants' motion to exclude McGimsey's expert opinions (ECF No. 199) are summarized below.

         Companion's Arguments.

         Companion argues the 2006 Coverage Agreement requires Defendants to regularly reimburse Companion for amounts disbursed for Below-Deductible Payments. While Companion agrees it has the right to use collateral to pay claims under that agreement, it argues it is not required to do so. Companion asserts it has made over $15 million in unreimbursed Below-Deductible Payments. It does not, however, assert it is out-of-pocket for this amount. Companion, instead, asserts that it has, at Defendants' insistence, paid claims from AMS's collateral account since roughly October 2013. This has resulted in the collateral account being underfunded by over $2 million as of June 30, 2015, after which date over $2 million in additional claims have been paid. Companion relies on McGimsey's proffered expert opinion and an underlying actuarial report for the collateral account calculations.

         Based on these arguments, Companion seeks three alternative summary judgment rulings: (1) Defendants be found liable for $15 million in unreimbursed Below-Deductible Payments; (2) Defendants be found liable for the amount the collateral account was underfunded as of June 30, 2015 (over $2 million), plus additional claims (also over $2 million) paid since that date; or (3) Defendants be found liable on Companion's third cause of action and the matter proceed to trial only as to damages. Companion also asks the court to grant summary judgment that it has no liability on Defendants' first through third counterclaims because it properly took funds from the collateral account to make Below-Deductible Payments. Companion argues there is no support for any claim it improperly paid non-AMS claims with AMS funds, and it has no obligation to release any remaining collateral at this time.

         Defendants' Arguments.

         Defendants argue the parties agreed sums in the collateral account could be used to reimburse Companion for claims payments. They maintain Companion has no injury because it has made all Below-Deductible Payments from AMS collateral and over $12 million remains in the collateral account. Defendants further argue some disbursements from the AMS collateral account ($873, 000) were improper because they were used to pay non-AMS claims. Defendants also argue McGimsey's testimony should be excluded, leaving Companion with no support for its claim the collateral account is underfunded.

         In reply in support of their own motion for partial summary judgment, Defendants argue Companion has understated the collateral held and overstated what may be required to cover future claims. They note the estimate is outdated and suggest subsequent events (including closure of some claims) should reduce the required collateral.

         Defendants' Motion to Exclude Opinion Testimony of McGimsey.

         Defendants also seek to exclude McGimsey's testimony as to Below-Deductible Payments and related collateral through their separate motion to exclude. They argue McGimsey's opinion Companion was injured by Defendants' non-reimbursement of Below-Deductible Payments is barred by his admission Companion reimbursed itself from collateral funds. They argue McGimsey's opinion as to any collateral deficiency lacks an adequate foundation because he relied on the actuarial report of another (thus is improperly seeking to offer one expert's opinion through another expert).

         Defendants also argue the actuarial report provides an inadequate foundation because it is marked “draft.” Companion responds with a Declaration from the individual who prepared the actuarial report, Patrick L. Whatley, who explains the “draft” designation is used within the industry even for documents that are final reports. Whatley avers the document at issue reflects his final analysis. Companion also asserts it was proper for McGimsey to rely on this report because the 2006 Coverage Agreement allowed Companion to require actuarial reports based on whatever methodology it approved. Thus, the very fact Companion received the report supports McGimsey's reliance on it.


         For reasons explained below, the court finds genuine issues of material fact preclude summary judgment on Companion's third cause of action and Defendants' first through third counterclaims. The court, nonetheless, notes one subordinate issue that is no longer in dispute, assuming it ever was: Companion did not breach a contract, breach a special relationship, or convert AMS's funds (counterclaims I-III) simply because it used AMS collateral to make AMS's Below-Deductible Payments. This conclusion does not resolve any claim or counterclaim, because issues remain as to whether (1) Companion improperly paid claims from the AMS collateral account (e.g., by paying non-AMS claims or making Above-Deductible Payments that were not later reimbursed); and (2) the collateral account was, ultimately, under or over-funded as a result. Resolving these issues is largely dependent on expert witness testimony and analysis of detailed underlying claims and payment data as well as calculation of required collateral.

         Obligation to Reimburse Claims.

         As Companion argues, the 2006 Coverage Agreement requires Defendants both to maintain fully-funded collateral accounts, which are to be reviewed and adjusted quarterly, and to reimburse claims paid on a periodic or monthly basis.[10] This agreement does not expressly address how claims are to be handled in Run-Off (that is, if new or renewal policies are not being written). Most critically, it does not suggest Defendants may stop reimbursing Companion or the third party administrator for claims paid, and insist that claims be paid from collateral. However, as Defendants argue and Companion effectively concedes, the amount of collateral required to satisfy future claims goes down during Run-Off as claims are satisfied, though there may not be a direct correlation between claims paid and collateral required for future payments.[11] Thus, while Run-Off may not excuse a failure to strictly comply with the claims-reimbursement provisions of the 2006 Coverage Agreement, it may mean a failure of strict compliance causes no injury.

         Companion's Use of ...

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