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HDMG Entertainment LLC v. Certain Underwriters at Lloyd's of London Subscribing to Policy No L009082

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

November 20, 2018

HDMG Entertainment, LLC, Plaintiff,
v.
Certain Underwriters at Lloyd's of London Subscribing to Policy No. L009082, Defendant.

          ORDER

         This matter is before the Court on Defendant's motion for summary judgment. See ECF No. 64. The Court grants in part and denies in part the motion for the reasons set forth below.[1]

         Background

         The parties do not dispute the following facts. Plaintiff, HDMG Entertainment, LLC, planned to sponsor and produce an entertainment event known as the Swamp Fox Biker Bash (the “Bash”) that was scheduled to occur at the Swamp Fox Entertainment Complex in Marion, South Carolina between May 8 and 15, 2015. Compl. at ¶ 3 [ECF No. 1-1]; Answer at ¶ 3 [ECF No. 27]. As the Court has previously noted, Plaintiff is a limited liability company organized under the laws of Delaware and doing business in Marion County, South Carolina; its principal place of business is in Milford, Connecticut, and its managing member and president is Robert Hartmann, Sr. (“Hartmann”), who is a citizen and resident of Connecticut. [Jan. 25, 2017 Order at 1, ECF No. 14]. Plaintiff leased the Swamp Fox Entertainment Complex from HSGCHG Investments, LLC (“HSGCHG”), a real estate holding company in which Hartmann has a 90% ownership interest. Hartmann Aff. at 1 [ECF No. 72-1].

         In order to produce the Bash, Plaintiff needed a communications system in the venue to provide Internet access, phone service, and other services crucial to the event's success; without it, the Bash could not occur. Mem. in Supp. of Mot. for Summ. J at 3. As owner of the venue, HSGCHG entered into a contract with Time Warner Cable (“Time Warner”) on January 23, 2015, to put a communications system in the venue. Resp. Mem. in Opp'n to Def.'s Mot. for Summ. J. at 10 (citing Time Warner Contract [ECF No. 72-6]). On January 29, 2015, as the work began, Time Warner estimated a March 14, 2015 completion date for the communications system. Mem. in Supp. of Mot. for Summ. J. at 5 (citing Jan. 29, 2015 Email [ECF No. 66-3]). However, this initial estimate was not met. On April 6, 2015, Time Warner told Plaintiff that the installation would occur on April 27. [Apr. 6, 2015 Email, ECF No. 72-8]. However, on April 22, 2015, Time Warner informed Hartmann that “due to unforeseen delays in construction[, ]” installation would not be completed until after the Bash was scheduled to occur, forcing cancellation of the Bash. [Apr. 22, 2015 Letter, ECF No. 72-11]; Compl. ¶ 6.

         Plaintiff had sought event cancellation insurance for the Bash. On February 18, 2015, Gabriel Gornell, executive producer of the Bash, completed an event cancellation application (“the Application”) with Ascend Insurance Brokerage (“Ascend”) on Plaintiff's behalf. See Application [ECF No. 67-4]. In response to Question 12 on the Application-“Will the event require construction work?”-Plaintiff answered in the negative, noting that “[e]lements will require re-certification. But the stage and buildings are fully constructed.” Id. at 2. In response to Question 19-“Have all necessary arrangements for the successful fulfillment of the performance(s) or event(s) to be insured been made?”-Plaintiff answered in the affirmative. Id. at 3. In response to Question 26-“Are there any other material facts or items of information with regard to the proposed performance(s) or event(s) which should be disclosed? (A material fact is one likely to influence acceptance or assessment of this proposal by Underwriters)”-Plaintiff answered in the negative. Id. at 4. The Application includes a declaration “that non-disclosures or misrepresentation of a material fact will entitle the company to void the [i]nsurance” and Plaintiff's affirmation that “the information provided in this application . . . is true” and no material facts were withheld. Id.

         On April 28, 2015, Defendant, Certain Underwriters at Lloyd's of London Subscribing to Policy No. L009082, [2] issued Plaintiff an event cancellation insurance policy with a March 26, 2015 effective date[3] (the “Policy”) under which Defendant agreed to indemnify Plaintiff up to $4, 490, 480.00 for losses resulting from cancellation of the Bash; in exchange, Plaintiff paid a $47, 635.12 premium. Compl. at ¶ 4; Answer at ¶ 4; see Policy [ECF No. 72-2 at 2]. The Policy has certain requirements for coverage to apply, as well as seventeen exclusions and nineteen conditions. Policy [ECF No. 72-2 at 3, 5, 8-14]. The Policy was underwritten by HCC Speciality Underwriters, Inc. (“HCC”) from its office in Massachusetts and delivered to Plaintiff's principal place of business in Milford, Connecticut. [Jan. 25, 2017 Order at 2].

         On April 30, 2015, Plaintiff provided a notice of claim to HCC, explaining that it was forced to cancel the Bash due to Time Warner's failure to timely complete the communications system. See Notice of Claim [ECF No. 68-1 at 3]. Defendant began to investigate Plaintiff's claim. See June 20, 2015 Letter at 1 [ECF No. 68-4]. On August 27, 2015, Plaintiff provided its proof of loss. See ECF No. 72-12. On April 15, 2016, before a formal denial of the claim from Defendant, Plaintiff initiated this action by filing a complaint in the Court of Common Pleas for Marion County, South Carolina, asserting causes of action for breach of contract, statutory bad faith, and common law bad faith. Compl. at ¶¶ 11-22. On May 6, 2016, after further investigation, Defendant denied Plaintiff's claim, explained the grounds for denial, provided a notice of rescission of the Policy due to alleged material misrepresentations in the Application, and returned Plaintiff's premiums paid. See Notice of Rescission at 1 [ECF No. 68-10].

         On May 20, 2016, Defendant timely removed the action to this Court under diversity jurisdiction. See ECF No. 1. On May 27, 2016, Defendant filed a motion to dismiss for improper venue or in the alternative to transfer venue, which the Court denied on January 25, 2017. See ECF No. 14. Subsequently, on March 6, 2017, Defendant filed an answer and counterclaim for: (1) a declaratory judgment that Defendant had no duty to indemnify because no coverage was triggered under the Policy; and (2) a declaratory judgment for rescission of the Policy due to Plaintiff's alleged intentional concealment and misrepresentation of material facts. Answer & Countercl. at ¶¶ 22-60 [ECF No. 24]. On April 2, 2017, Plaintiff filed an answer to Defendant's counterclaim. See ECF No. 27. On May 30, 2018, Defendant filed the instant motion for summary judgment. On June 18, 2018, Plaintiff filed a response in opposition, and on June 25, 2018, Defendant filed a reply thereto. See ECF Nos. 72 & 73. The matter is now ripe for the Court's consideration.

         Legal Standard

         Summary judgment is appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Reyazuddin v. Montgomery Cty., Md., 789 F.3d 407, 413 (4th Cir. 2015); see Fed. R. Civ. P. 56(a) (“The court shall grant summary judgment 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.”). The moving party has the burden of showing “that there is an absence of evidence to support the nonmoving party's case.” Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Once the movant makes this showing, the opposing party must “go beyond the pleadings” to evince “specific facts showing . . . a genuine issue for trial.” Id. at 324. A genuine issue of material fact-one “that might affect the outcome of the suit under the governing law”-exists if, in viewing the record and all reasonable inferences drawn therefrom in a light most favorable to the non-moving party, a reasonable fact-finder could return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The nonmoving party is required to submit evidence of specific facts by way of affidavits, depositions, interrogatories, or admissions to demonstrate the existence of a genuine and material factual issue for trial. Celotex, 477 U.S. at 322. However, “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, 477 U.S. at 247-48.

         The Court should determine “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law. Id. at 251-52. The Court should not grant summary judgment “unless the entire record shows a right to judgment with such clarity as to leave no room for controversy and establishes affirmatively that the adverse party cannot prevail under any circumstances.” Campbell v. Hewitt, Coleman & Assocs, Inc., 21 F.3d 52, 55 (4th Cir. 1994) (citation omitted). In ruling on a motion for summary judgment, the Court must not resolve disputed facts, weigh the evidence, Russell v. Microdyne Corp., 65 F.3d 1229, 1239 (4th Cir. 1995) (citation omitted), or make determinations of credibility. Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir. 1986). Inferences that are “drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion.” United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam).

         Discussion

         Defendant moves for summary judgment pursuant to Federal Rule of Civil Procedure 56 on the grounds that there is no genuine dispute of material fact, entitling Defendant to judgment as a matter of law in its favor on the complaint and Defendant's counterclaim against Plaintiff. However, before determining if there is a genuine dispute of material fact, the Court must first determine what law governs the Policy.

         I. Governing Law

         Defendant contends that the parties agree that Connecticut law “governs interpretation of the Policy.” Mem. in Supp. of Mot. for Summ. J. [ECF No. 65] at 16. Although Plaintiff “agrees Connecticut substantive law regarding interpretation of the [Policy] applies[, ]” Resp. in Opp'n [ECF No. 72] at 5, it also “submits that South Carolina law applies” to its claims for statutory and common-law bad faith. Id. at 31. For the reasons discussed below, the Court holds that Connecticut law governs the Policy and this dispute.[4]

         “[I]n a diversity case, a district court applies the substantive law of the forum state to resolve a plaintiff's state law claims.” Russell v. McGrath, 135 F.Supp.3d 427, 430 (D.S.C. 2015) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938); Brown v. Am. Broad. Co., 704 F.2d 1296, 1299 (4th Cir. 1983)). Furthermore, when sitting in diversity, the court “appl[ies] the forum state's choice of law rules.” Id. (citing Francis v. Allstate Inc. Co., 709 F.3d 362, 369 (4th Cir. 2013)). In South Carolina, “if the parties to a contract specify the law under which the contract shall be governed, ” the Court must honor this choice so long as the application of foreign law does not violate South Carolina public policy. Nucor Corp. v. Bell, 482 F.Supp.2d 714, 728 (D.S.C. 2007) (citations omitted).

         Here, Defendant points to Condition 13 of the Policy as evidence that the parties intended for Connecticut law to govern the Policy. See Mem. in Supp. of Mot. for Summ. J. at 16 (“Connecticut [l]aw [g]overns”). Plaintiff does not oppose this interpretation of Condition 13. See Resp. Mem. in Opp'n at 5 (“Under South Carolina choice-of-law princip[le]s, [Plaintiff] agrees Connecticut substantive law regarding interpretation of the insurance policy applies.”). Condition 13, titled “Conformity to Statute, ” provides that: “[t]erms of this policy in conflict with the written laws of any state in which this policy is issued, which are applicable to this policy, are changed to conform to such laws.” Policy [ECF No. 72-2 at 13]. Because the parties do not dispute what this provision means, the Court need not decipher Condition 13 to find the parties' intent. Rather, because the parties' briefs make clear their intention for Connecticut law to govern the Policy, the Court holds that Connecticut law governs the Policy and the causes of actions arising thereunder.

         Despite agreeing that Connecticut law governs the Policy, Plaintiff still asserts that South Carolina law applies to its bad faith claims. See Resp. Mem. in Opp'n at 31 (“[Plaintiff] respectfully submits South Carolina law applies to its second claim . . .”). In seeking this exception, Plaintiff provides no basis for why South Carolina governs only the bad faith claims but not the breach of contract claim. Because the parties' briefs interpret the Policy as if it is governed by Connecticut law, the Court believes that the parties intend for Connecticut law to apply to the Policy and any causes of action arising under it; Plaintiff's assertion to the contrary is not adequately supported. See Fed. R. Civ. P. 56 (e)(2) (“If a party fails to properly support an assertion of fact or fails to properly address another party's assertion of fact . . ., the court may . . . consider the fact undisputed for purposes of the motion.”). However, because Defendant is entitled to summary judgment on the bad faith claims under South Carolina or Connecticut law, as explained below, no further discussion is necessary regarding which law applies to the bad faith claims. Next, the Court uses Connecticut law to determine whether summary judgment is appropriate on the breach of contract claim.

         II. Breach of Contract

         In moving for summary judgment, Defendant does so on the basis that Plaintiff's loss is not covered, meaning that Plaintiff cannot prevail on its breach of contract and bad faith claims. Mem. in Supp. of Mot. for Summ. J. at 2. Both parties agree that the Bash was ultimately cancelled due to Time Warner's failure to timely finish the communications system. Mem. in Supp. of Mot. for Summ. J. at 14; Resp. Mem. in Opp'n at 1; Reply at 1-2. However, the parties dispute whether that failure was beyond Plaintiff's control. Plaintiff alleges that the cancellation was beyond its control, it suffered damages as a result, cancellation was a covered event under the Policy, and that Defendant breached its contract and refused to pay Plaintiff's claim in bad faith. Compl. at ¶¶ 5-10. Conversely, Defendant alleges that cancellation was not beyond Plaintiff's control and the Policy does not cover the loss. Mem. in Supp. of Mot. for Summ. J. at 1. Defendant also contends that even if the loss is covered, several Policy exclusions apply. Id. at 1-2. Finally, Defendant contends that Plaintiff failed to meet three conditions of the Policy, relieving Defendant of any obligation to indemnify. Id.

         At trial, Plaintiff has the burden of proving that its claim is covered under the Policy, then the burden shifts to Defendant to prove that coverage is excluded. Nationwide Mut. Ins. Co. v. Pasiak, 173 A.3d 888, 896 (Conn. 2017) (citation omitted). As explained below, the Court finds that there are genuine issues of material fact with respect to coverage and, thus, must deny summary judgment on the breach of contract cause of action.

         A. Coverage

         In moving for summary judgment, Defendant first asserts that Plaintiff cannot show that its loss is covered by the Policy. Mem. in. Supp. of Mot. for Summ. J. at 2. Plaintiff disagrees. Resp. Mem. in Opp'n at 10.

         The coverage section of the Policy provides in pertinent part:

SECTION I - INSURING AGREEMENT
A. EVENT CANCELLATION
We will indemnify you, up to the Limit of Insurance, for your loss as a direct result of cancellation, abandonment, curtailment, postponement, or relocation of the insured event to which this insurance applies.
B. APPLICATION OF COVERAGES
In order for insurance to apply to Section I, all of the following ...

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