United States District Court, D. South Carolina
F. ANDERSON, JR. UNITED STATES DISTRICT JUDGE
Senior Primary Care, Inc. (“Agape”), a
conglomerate of nursing homes in South Carolina, initiated
this action against its insurance company, Evanston Insurance
Company (“Evanston”) for breach of contract and
claims arise out of Evanston's conduct in several related
tort claims against Agape. This case is actually a sequel to
an earlier declaratory judgment action before this court,
Evanston Ins. Co. v. Watts, 52 F.Supp.3d 761 (2014)
(the “declaratory judgment action”). That case
required the court to interpret and apply provisions of the
Evanston insurance policy to a unique set of facts arising
out of Agape's employment of an individual who purported
to be a licensed medical practitioner, but who, in reality,
was an imposter assuming the identity of a licensed
before the court are the parties' pivotal cross motions
for summary judgment (ECF Nos. 42, 49), together with various
other procedural motions. On December 20, 2017, oral argument
was heard for the better part of the day on all pending
motions. At the conclusion of argument, the court took all
motions under advisement. This Order shall serve to
memorialize the court's rulings on the summary judgment
2012, patients of Agape brought claims against Agape after it
was discovered that Ernest Addo (“Addo”), one of
Agape's purported physicians, was not a licensed medical
doctor. Addo had fraudulently adopted the identity of Arthur
Kennedy, M.D., a physician licensed in the United States, and
duped Agape into hiring him onto the medical staff.
Eventually, Addo's fraudulent conduct came to light,
prompting a class action lawsuit and a variety of other tort
claims against Agape.
issued a policy of insurance to certain Agape health care
providers, including Dr. Kennedy, under insurance policy
number MM-822351 (the “Policy”) for the policy
period August 1, 2012 to August 1, 2013. In connection with
the issuance of the Policy, Kennedy, along with other medical
providers, was required to sign the insurance application.
Shortly after Addo's fraudulent conduct came to light,
Evanston initiated a declaratory judgment action in this
court, seeking a ruling that the Policy in question was void
ab initio because of Addo's fraudulent
misrepresentations. At the same time, Evanston provided a
defense to the underlying tort actions, reserving the right
to discontinue in the event it was successful in the
declaratory judgment action.
thorough briefing and argument, this court issued a ruling
essentially providing a split decision. Specifically, the
court ruled that the Policy was not void ab initio
as to all medical providers as a result of Addo's
misrepresentations. The court also ruled, however, that
certain claims asserted against Agape were not covered
because of Addo's misconduct. Specifically, claims
asserted against Addo in his individual capacity, as well as
claims against Agape, the corporation, under a theory of
respondeat superior for Addo's conduct, were not covered
under the Policy. Additionally, claims against Agape, the
corporation, for negligent hiring and retention of Addo were
similarly not covered. Left in place by the court's
ruling was coverage for all other medical professionals
(i.e., doctors and nurses) of Agape. This
court's determination of the coverage issue was affirmed
by a panel of the Fourth Circuit Court of Appeals.
Evanston Ins. Co. v. Agape Sr. Primary Care, Inc.,
636 F. App'x 871 (4th Cir. 2016).
before the court are claims by Agape against Evanston arising
out of Evanston's conduct on several underlying tort
claims against Agape. These claims involve Evanston's
refusal to defend and indemnify Agape in the tort claims, as
well as Evanston's conduct in changing defense counsel,
and in participating in several mediation sessions. As will
be seen, the court has determined that Evanston breached its
insurance contract when it refused to continue its
representation of Agape in what the parties have referred to
as the “Watts litigation” and refused to
indemnify Agape for the settlement of that case.
court will dismiss, however, the bad faith claim asserted in
connection with the Watts case, as well as all other bad
faith claims. The court's ruling on the cross motions for
summary judgment makes it unnecessary for the court to rule
on all but one of the various other procedural motions that
have been filed. Thus, those motions are dismissed as
Rule 56 of the Federal Rules of Civil Procedure, summary
judgment is proper when there is no genuine dispute as to any
material fact and the moving party is entitled to judgment as
a matter of law. Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986). A material fact is one that “might
affect the outcome of the suit under the governing
law.” Spriggs v. Diamond Auto Glass, 242 F.3d
179, 183 (4th Cir. 2001) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)). A dispute of
material fact is “genuine” if sufficient evidence
favoring the non-moving party exists for the trier of fact to
return a verdict for that party. Anderson, 477 U.S.
moving party bears the initial burden of showing the absence
of a genuine dispute of material fact. Celotex, 477
U.S. at 323. If the moving party meets that burden and a
properly supported motion is before the court, the burden
shifts to the non-moving party to “set forth specific
facts showing that there is a genuine issue for trial.”
See Fed. R. Civ. P. 56(e); Celotex, 477
U.S. at 323. All inferences must be viewed in a light most
favorable to the non-moving party, but he “cannot
create a genuine issue of material fact through mere
speculation or the building of one inference upon
another.” Beale v. Hardy, 769 F.2d 213, 214
(4th Cir. 1985).
BREACH OF CONTRACT
South Carolina law, a plaintiff seeking to establish breach
of contract “must establish three elements: (1) a
binding contract entered into by the parties; (2) breach or
unjustifiable failure to perform the contract; and (3) damage
as a direct and proximate result of the breach.”
Advanced Pain Therapies, LLC v. Hartford Fin. Servs.
Group, Inc., No. 3:14-CV-0050-MGL, 2014 WL 4402800, at
*2 (D.S.C. Sept. 3, 2014) (citing Bank v. How Mad,
Inc., No. 4:12-CV-3159-RBH, 2013 WL 5566038, at *3
(D.S.C. Oct. 8, 2013)).
DUTY TO DEFEND AND TO INDEMNIFY
South Carolina law, ‘the obligation of a liability
insurance company to defend and indemnify is determined by
the allegations in the complaint.'” Liberty
Mut. Fire Ins. Co. v. General Info. Servs., Inc., 22
F.Supp.3d 597, 600 (E.D. Va. 2014) (citing Collins
Holding Corp. v. Wausau Underwriters Ins. Co., 397 S.C.
573, 577, 666 S.E.2d 897, 899 (2008)). “If the facts
alleged in the complaint fail to bring a claim within the
policy's coverage, the insurer has no duty to
defend.” Id. “The insured must show that
the underlying complaint creates a ‘reasonable
possibility' of coverage under the insurance
policy.” Id. at 600-01 (citing Gordon
Gallup Realtors Inc. v. Cincinnati Ins. Co., 274 S.C.
468, 471, 265 S.E.2d 38, 40 (1980)). “The burden of
proof is on the insured to show that a claim falls within the
coverage of an insurance contract, ” and “[t]he
insurer bears the burden of establishing exclusions to
coverage.” Id. at 601 (internal quotations
omitted) (citing Sunex Int'l, Inc. v. Travelers
Indem. Co., 185 F.Supp.2d 614, 617 (D.S.C. 2001)).
duty to defend is triggered where the underlying complaint
includes “any allegation” that raises the
possibility of coverage. Auto-Owners Ins. Co. v.
Newsom, No. 4:12-CV-447-RBH, 2013 WL 3148334, at *4
(D.S.C. June 19, 2013). (“South Carolina law requires
that a triggered insurer with a duty to defend the
policyholder in a suit must defend the policyholder against
all claims in that suit, even those claims that are not
covered under the policy.”). “In short, if there
is even one aspect of the claim which must be defended, the
insurer must defend the entire suit.” Baran, Inc.
v. Landmark Am. Ins. Co., No. 2:09-CV-1556-PMD, 2010 WL
233861, at *4 (D.S.C. Jan. 14, 2010) (citing Isle of
Palms Pest Control Co. v. Monticello Ins. Co., 319 S.C.
12, 15, 459 S.E.2d 318, 319 (Ct. App. 1994)).
the duty to defend is broader than the duty to indemnify.
Ross Dev. Corp. v. Fireman's Fund Ins. Co., 809
F.Supp.2d 449, 457 (D.S.C. 2011).
Supreme Court of South Carolina has determined that
“there is an implied covenant of good faith and fair
dealing in every insurance contract ‘that neither party
will do anything to impair the other's rights to receive
benefits under the contract.'” Tadlock Painting
Co. v. Maryland Cas. Co., 322 S.C. 498, 500, 473 S.E.2d
52, 53 (1996) (citing Nichols v. State Farm Mut. Auto.
Ins. Co., 279 S.C. 336, 339, 306 S.E.2d 616, 618
(1983)). The court has also held that “if an insured
can demonstrate bad faith or unreasonable action by the
insurer in processing a claim under their mutually binding
insurance contract, he can recover consequential damages in a
tort action.” Nichols, 279 S.C. at 340, 306
S.E.2d at 619. Moreover, South Carolina law provides for a
recovery of attorneys' fees where an insurer has refused
to pay a claim in bad faith. S.C. Code Ann. § 38-59-40