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Agape Senior Primary Care, Inc. v. Evanston Insurance Co.

United States District Court, D. South Carolina

January 19, 2018

Agape Senior Primary Care, Inc., Plaintiff,
v.
Evanston Insurance Company, Defendant.

          ORDER

          JOSEPH F. ANDERSON, JR. UNITED STATES DISTRICT JUDGE

         Agape 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 bad faith.

         The 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 physician.

         Now 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 motions.

         I. PROCEDURAL HISTORY

         In 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[1] and a variety of other tort claims against Agape.[2]

         Evanston 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.

         After 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).

         Now 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.

         The 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 moot.[3]

         II. LEGAL STANDARD

         A. SUMMARY JUDGMENT

         Under 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. at 248-49.

         The 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).

         B. BREACH OF CONTRACT

         Under 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)).

         C. THE DUTY TO DEFEND AND TO INDEMNIFY

         “Under 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)).

         The 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)).

         Finally, 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).

         D. BAD FAITH

         The 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 (West 2018).

         III. ANALYSIS ...


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