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Neumayer v. Philadelphia Indemnity Insurance Co.

Supreme Court of South Carolina

July 24, 2019

Andrew P. Neumayer, Respondent,
v.
Philadelphia Indemnity Insurance Company, Primary Colors Child Care Center, Jocelyn Knox DeMartelare, and Asia N. Partman, Defendants, Of Whom Philadelphia Indemnity Insurance Company is the Appellant. Appellate Case No. 2016-001710

          Heard March 5, 2019

          Appeal from Richland County L. Casey Manning, Circuit Court Judge.

          Phillip E. Reeves, of Gallivan, White & Boyd, PA, of Greenville, Curtis W. Dowling and Matthew G. Gerrald, both of Barnes, Alford, Stork & Johnson, LLP, of Columbia, for Appellant.

          Blake A. Hewitt, of Bluestein Thompson Sullivan LLC, and Gerald Eugene Reardon, both of Columbia, for Respondent.

          HEARN JUSTICE.

         In this case, we decide whether notice clauses in automobile insurance policies are rendered meaningless by Section 38-77-142(C) of the South Carolina Code (2015)[1]. The trial court found the clause in this policy[2] void and accordingly required the insurance company to pay the full default judgment entered against its insured. The insurer appealed, and we now reverse.

         FACTS

         On January 25, 2013, a bus driven by Defendant Asia Partman struck Respondent Andrew Neumayer while he was a pedestrian in Cayce, South Carolina. EMS transported Neumayer to Lexington Medical Center where he was diagnosed with a ruptured spleen, broken left ribs, left humerus fracture, left pneumothorax, and a punctured lung. After eight days in the hospital and medical costs of approximately $122, 000, Neumayer was released.

         Partman worked for Defendant Primary Colors Child Care Center, and in November of 2013, Neumayer filed a lawsuit against both defendants, alleging negligence against Partman and Primary Colors. The defendants did not answer or respond in any fashion, and after a default judgment was entered, the court held a damages hearing, where it awarded Neumayer $622, 500.

         Over eighteen months after the entry of default, Philadelphia Indemnity Insurance Co. (Philadelphia), Primary Colors' insurance carrier, received notice that its insured was involved in a lawsuit that culminated in a default judgment. While the record is unclear as to why it took eighteen months to notify Philadelphia, it ultimately received notice when Neumayer's counsel faxed documents seeking to collect $622, 500. Philadelphia declined to pay that amount, instead asserting its indemnification obligation was limited to $25, 000 because South Carolina jurisprudence requires an insurer to pay only the minimum limits when it is substantially prejudiced by its insured's failure to provide notice of a lawsuit. Further, Philadelphia contended the failure to receive notice of the underlying lawsuit prevented an opportunity to investigate and defend.

         Thereafter, Neumayer filed this declaratory judgment action asking the court to require Philadelphia to pay the judgment in full. Philadelphia answered and asserted a counterclaim against Neumayer and cross-claims against officials at Primary Colors, arguing that its indemnity obligation was limited to $25, 000. Both parties moved for summary judgment, and after a hearing, the court found in favor of Neumayer. The circuit court framed the issue as "whether or not Philadelphia can properly reduce the available coverage to the statutory minimum through a cooperation provision in the Policy." Relying on section 38-77-142(C), the court held an insured's breach of a notice clause cannot reduce the amount of available coverage. Further, the court cited to this Court's decision in Williams, where we held a family step-down provision was void under section 38-77-142(C) because it purported to reduce coverage from the policy's liability limits to the minimum amounts prescribed in section 38-77-140.[3] Philadelphia appealed to the court of appeals, and we certified the case pursuant to Rule 204(b), SCACR.

         ISSUE

         Did the circuit court err in finding section 38-77-142(C) invalidated the notice and cooperation clause in a policy providing higher limits than statutorily required?

         STANDARD ...


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