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Harriman v. Associated Industries Insurance Company Inc.

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

April 17, 2019




         The following matter is before the court on defendant Associated Industries Insurance Company, Inc.'s (“Associated Industries”) motion to dismiss the amended complaint, ECF No. 17. For the reasons set forth below, the court denies the motion.

         I. BACKGROUND

         Plaintiff Susan Harriman (“Harriman”) brought this insurance coverage action against Associated Industries to obtain a defense in two lawsuits in Texas. During the relevant time period, Harriman was a Registered Representative and Investment Advisor with IMS Securities, Inc. (“IMS”). She was insured under IMS's professional liability insurance policy that was issued by Associated Industries and valid from July 15, 2015 to July 15, 2016 (“the Policy”). The Policy also incorporates IMS's previous insurance policy through an endorsement. That policy was issued by Endurance Specialty Insurance Co. (“the Endurance Policy”). The parties agree that the language of these two policies is largely the same, other than the inclusion of “Personal and Advertising Injury” as a “Wrongful Act” in the Endurance Policy, which is discussed in more detail below.

         In 2015, Harriman was sued in the United States District Court for the Western District of Texas by Palmaz Scientific (“Palmaz”), a medical technology company (“federal underlying suit”). Palmaz alleged, among other things, that Harriman made false and defamatory statements about Palmaz in her capacity as an IMS Registered Representative and Investment Advisor. The federal suit was dismissed on jurisdictional grounds. Then Harriman sued Palmaz in Texas state court, where Palmaz filed counterclaims against Harriman containing the same allegations as the federal underlying suit (“state underlying counterclaim”) (together with the federal underlying suit, “the underlying suits”).

         Harriman alleges that because the underlying suits stem from Harriman's actions in her capacity as a Registered Representative and Investment Advisor with IMS, Associated Industries has the duty to defend Harriman in the underlying suits pursuant to the Policy. However, Associated Industries has refused to do so. As a result, Harriman filed the instant case on October 9, 2018. Her amended complaint, now the operative complaint, alleges: (1) breach of contract for Associated Industries's failure to defend Harriman; (2) bad faith for Associated Industries's refusal to defend Harriman; and (3) that Harriman is entitled to a declaratory judgment declaring that Associated Industries owes Harriman a duty to defend and indemnify[1] the underlying suits. Associated Industries filed a motion to dismiss the amended complaint for failure to state a claim on January 2, 2019. ECF No. 17. Harriman responded on January 23, 2019, ECF No. 21, and Associated Industries replied on February 1, 2019, ECF No. 22. The court held a hearing on the motion on February 7, 2019. The motion is now ripe for review.

         II. STANDARD

         A Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted “challenges the legal sufficiency of a complaint.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009) (citations omitted); see also Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (“A motion to dismiss under Rule 12(b)(6) . . . does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.”). To be legally sufficient, a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A Rule 12(b)(6) motion should not be granted unless it appears certain that the plaintiff can prove no set of facts that would support his claim and would entitle him to relief. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). When considering a Rule 12(b)(6) motion, the court should accept all well-pleaded allegations as true and should view the complaint in a light most favorable to the plaintiff. Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir.1999); Mylan Labs., Inc., 7 F.3d at 1134. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.


         A. Choice of Law

         As an initial matter, neither party raised the issue of whether Texas or South Carolina law applies here, despite the fact that all of the relevant conduct occurred in Texas. The Policy does not contain a choice-of-law provision, and the parties cited to South Carolina law in their pleadings. At the hearing, counsel for Associated Industries first argued that South Carolina law applies but then said he was not sure whether choice-of-law principles would require the court to apply South Carolina or Texas law. ECF No. 24, Tr. 9:5-7, 10:11-15. Harriman's counsel argued that South Carolina law applies. Tr. 10:20-24. The parties subsequently stipulated that South Carolina law applies to the issues raised in Associated Industries's motion to dismiss. ECF No. 25. Because “[p]arties can within broad limits stipulate the substantive law to be applied to their dispute, ” Mellon Inv'r Servs., LLC v. Longwood Country Garden Centers, Inc., 263 Fed.Appx. 277, 281 (4th Cir. 2008), the court will apply South Carolina law.

         B. Motion to Dismiss

         Associated Industries argues that Harriman's amended complaint must be dismissed because Harriman's alleged conduct in the underlying suits is not covered by the Policy, meaning that Associated Industries has no duty to defend Harriman. “Pursuant to South Carolina law, an insurer's duty to defend is determined by the allegations of the underlying complaint.” Union Ins. Co. v. Soleil Grp., Inc., 465 F.Supp.2d 567, 572 (D.S.C. 2006). “[T]he complaint is construed liberally, with all doubts resolved in favor of the insured.” Id. “If the underlying complaint creates a possibility of coverage under an insurance policy, the insurer is obligated to defend.” Isle of Palms Pest Control Co. v. Monticello Ins. Co., 459 S.E.2d 318, 319 (S.C. Ct. App. 1994) (emphasis added). “However, an insurer has no duty to defend an insured where the damage was caused for a reason unambiguously excluded under the policy.” B.L.G. Enterprises, Inc. v. First Fin. Ins. Co., 514 S.E.2d 327, 330 (S.C. 1999). Here, the causes of action in the underlying suits are tortious interference with existing contracts, tortious interference with prospective and continuing business relations, defamation, and business disparagement. Palmaz alleges that in late 2012, Harriman met with the CEO of Palmaz to offer her services as an IMS agent, which the CEO declined. Harriman allegedly tried to solicit Palmaz's business several other times, which the CEO declined each time. As a result, Palmaz alleges, Harriman began a smear campaign against Palmaz by making false statements to Palmaz's investors and potential investors in order to damage Palmaz's reputation and disrupt its funding and research operations.

         To determine if Associated Industries has a duty to defend the underlying suits, the court must examine the language of the Policy and the Endurance Policy. “An insurance policy is a contract between the insured and the insurance company, and the terms of the policy are to be construed according to contract law.” Auto Owners Ins. Co. v. Rollison, 663 S.E.2d 484, 487 (S.C. 2008). “The cardinal rule of contract interpretation is to ascertain and give legal effect to the parties' intentions as determined by the contract language.” Beaufort Cty. Sch. Dist. v. United Nat'l Ins. Co., 709 S.E.2d 85, 90 (S.C. Ct. App. 2011) (citing Schulmeyer v. State Farm Fire & Cas. Co., 579 S.E.2d 132, 134 (S.C. 2003)). “If the contract's language is clear and unambiguous, the language alone, understood in its plain, ordinary, and popular sense, determines the contract's force and effect.” Id. (citing Schulmeyer, 579 ...

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