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Owners Insurance Co. v. Warren Mechanical LLC

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

September 29, 2017




         The following matters are before the court on plaintiff Owners Insurance Company's (“Owners”) motion to compel defendant Warren Mechanical LLC (“Warren”) to pay expert fees, ECF No. 26, Owners's motion for summary judgment, ECF No. 28, and Warren's motion to dismiss, or in the alternative, cross-motion for summary judgment, ECF No. 37. For the following reasons, the court grants in part and denies in part Owners's motion for expert fees, denies both parties' motions for summary judgment, and denies Warren's motion to dismiss.

         I. BACKGROUND

         The instant action arises out of an insurance coverage dispute between Owners and its insured, Warren, regarding certain alleged misrepresentations in Warren's January 21, 2015 application for workers' compensation insurance. ECF No. 28-3, Application. Warren is a medium-sized construction company that specializes in the propane and natural gas industry. ECF No. 28-1, Steve Dep. 12:11- 14. Warren was founded in 2006 by Steve Warren (“Steve”), who is its sole owner. In 2014, one of Warren's major customers required it to obtain an “anti-subrogation endorsement” in its workers' compensation policy. ECF No. 37 at 3. Warren contacted its insurance agent, the Creech Roddy & Watson Insurance Agency (“CRW”), which informed Warren that it would need to switch insurers to obtain the required coverage. Id. Warren's primary contact at CRW, Robert Nalley (“Nalley”), suggested Owners as a replacement insurer. Id.

         Warren maintains that Steve and Nalley met a few days before CRW submitted Warren's application for the new policy, but Nalley forgot to bring the application to the meeting. Steve Dep. 22:10-24:3. Rather than retrieve the application, Nalley asked Steve a number of questions and told Steve he would fill out the application later. Id. Nalley could not provide Steve with a quote for the policy without first completing the application, so the pair arranged for Steve's wife, Raynee Warren (“Raynee”), to deliver a check for the premium amount on the policy to CRW's office at a later date. Id. at 35:14-36:1.

         Nalley did not personally prepare the application. In fact, Nalley was not even present at the time the application was completed. Instead, Aura Lewis (“Lewis”), a newly hired CRW employee, completed the application based on information provided to her through communications with Nalley. Lewis Dep. 9:6- 10:23, 34:11-20. A more senior employee of CRW, Rebecca Hipp (“Hipp”), was also present when Lewis completed the application. Id. at 36:4-7. It was Hipp who ultimately signed the application on CRW's behalf. Application at 4.

         When Raynee arrived at CRW's office to drop off Warren's premium check, the CRW receptionist instructed her to sign the application. ECF No. 37-6, Raynee Dep. 11:6-20. Raynee asked CRW whether it was appropriate for her to sign the application, and was told that it was, at which point she signed the application. Id. at 12:20-25. Raynee now claims that she did not have the authority to sign the application, and only did so because she was “in haste” and “didn't think about it.” Id. at 13:1-6. Indeed, Raynee testifies that she did not even read the application, and that CRW pressured her to sign it by telling her that Warren would not be allowed on a job site unless the application was signed immediately. Id. at 13:20-14:21.

         The application stated that:

(1) [Warren's] business operations consisted of “PLUMBING”;
(2) [Warren] had only two full-time employees - one “Plumbing NOC & Drivers” employee under National Council on Compensation Insurance (“NCCI”) classification code 5183 and one “Clerical Office Employees NOC” employee under NCCI classification code 8810;
(3) [N]one of [Warren's] work was performed above 15 feet; and
(4) [Warren's] business did not give rise to “[a]ny exposure to radioactive materials, flammables, explosives, caustics, fumes, landfills, asbestos, wastes, fuel tanks, etc.”

         Application at 2-3. Steve has unambiguously stated that the latter three of these representations were inaccurate. Steve Dep. 29:2-21, 31:3-21. As noted above, Steve has also described Warren as a construction company that specializes in the propane and natural gas industry. Id. at 12:11-14. While this work certainly involves pipes, Warren has admitted-through its failure to respond to Owners's requests for admission-that neither Warren nor Steve are “licensed plumber[s]” pursuant to S.C. Code § 40-11-410. ECF No. 28-17, Requests for Admission.

         Owners-unaware of these misrepresentations-issued a policy providing the requested coverage for the period of January 22, 2015 to January 22, 2016 (the “Policy”). ECF No. 10 ¶ 11. Around a month after the Policy was issued, Warren hired Scott Gerhard (“Gerhard”). Gerhard was injured on December 7, 2015 when nitrogen was released from a propane tank he was working on nearly 20 feet above the ground, causing him to fall and suffer second degree burns. ECF No. 28 at 4-5; ECF No. 34 at 6. Gerhard made a claim to Owners for workers' compensation benefits, which Owners denied on the ground that there was no valid policy in place. ECF No. 37-10, Owners's Denial Letter. Gerhard then filed a hearing request with the South Carolina Workers' Compensation Commission (“SCWCC”). Despite denying coverage, Owners initially hired an attorney to represent Owners and Warren in connection with Gerhard's claim. ECF No. 37-11, Email to Aura Lewis. On April 7, 2016, another attorney appeared in Gerhard's SCWCC case solely on Owners's behalf, and asked the court to find that the Policy did not cover Gerhard's claim. ECF No. 37 at 6. Owners later filed a motion in the SCWCC proceedings to have the Policy declared void ab initio. Id. This motion was denied, pending discovery. ECF No. 44, Dworjanyn Letter. Gerhard's case before the SCWCC was then settled, without the SCWCC making any decision regarding the Policy.

         On March 2, 2016, Owners filed the instant federal action seeking to have the Policy declared void ab initio. ECF No. 1 ¶¶ 20-23. On April 11, 2016, recognizing the jurisdictional problems presented by its request, Owners amended its complaint to state that “[n]o employees' rights are involved in this action, as this is solely a dispute between Owners and the insured, Warren Mechanical. The issues in this case are not proper before the [SCWCC].” ECF No. 10 ¶ 14. Owners has further clarified that “this litigation was initiated to provide for the determination as to Owners' duties and obligations under the policy as to any other potential claims that may arise under the policy at issue, ” and as such, the court need not “address issues relating to any [of Gerhard's] claims.” ECF No. 39 at 2.

         Owners filed its motion to compel Warren to pay expert fees on December 15, 2016. ECF No. 26. Owners then filed its motion for summary judgment on December 20, 2016. ECF No. 28. Warren filed a response to the motion to compel on December 29, 2016, ECF No. 34, and Owners filed a reply on January 3, 2017, ECF No. 35. On January 9, 2017, Warren filed a motion to dismiss, or in the alternative, for summary judgment in lieu of a response to Owners's motion for summary judgment. ECF No. 37. Owners filed a joint reply in support of its motion for summary judgment and in response to Warren's motion for summary judgment on January 20, 2017. ECF No. 39. Warren filed a reply on January 27, 2017. ECF No. 41. The matters have been fully briefed and are now ripe for the court's review.

         II. STANDARD

         A. Subject Matter Jurisdiction

         The determination of subject matter jurisdiction must be made at the outset before any decision on the merits. Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998). “The plaintiff bears the burden of persuasion if subject matter jurisdiction is challenged under Rule 12(b)(1).” Williams v. United States, 50 F.3d 299, 304 (4th Cir. 1995). If the plaintiff cannot overcome this burden, then the claim must be dismissed. Welch v. United States, 409 F.3d 646, 651 (4th Cir. 2005). When a party contends that “the complaint [] fails to allege facts upon which subject matter jurisdiction can be based[, ] . . . all the facts alleged in the complaint are assumed to be true.” Luna-Reyes v. RFI Const., LLC, 57 F.Supp.3d 495, 499 (M.D. N.C. 2014) (quoting Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)). “[A] trial court should dismiss under Rule 12(b)(1) only when the jurisdictional allegations are ‘clearly . . . immaterial, made solely for the purpose of obtaining jurisdiction or where such a claim is wholly unsubstantial and frivolous.'” Kerns v. United States, 585 F.3d 187, 193 (4th Cir. 2009) (quoting Bell v. Hood, 327 U.S. 678, 682 (1946)).

         B. Summary Judgment

         Summary judgment shall be granted “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). “By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Id. at 248. “[S]ummary judgment will not lie if the dispute about a material fact is ‘genuine, ' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

         “[A]t 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. v. Catrett, 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. The court should view the evidence in the light most favorable to the non-moving party and draw all inferences in its favor. Anderson, 477 U.S. at 255.

         C. Motion to Compel Payment of Expert Fees

         Federal Rule of Civil Procedure 26(b)(4)(E) states that:

“Unless manifest injustice would result, the court must require that the party seeking discovery: (i) pay the expert a reasonable fee for time spent in responding to discovery under Rule 26(b)(4)(A) or (D); and (ii) for discovery under (D), also pay the other party a fair portion of the fees and expenses it reasonably incurred in obtaining the expert's facts and opinions.”

Fed. R. Civ. P. 26(b)(4)(E).

         Courts generally rely on the following factors to determine whether an expert fee is “reasonable”:

(1) the witness's area of expertise; (2) the education and training that is required to provide the expert insight that is sought; (3) the prevailing rates for other comparably respected available experts; (4) the nature, quality and complexity of the discovery responses provided; (5) the cost of living in the particular geographic area; (6) the fee being charged by the expert to the party who retained him; (7) fees traditionally charged by the expert on related ...

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