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Summer Wood Property Owners Association, Inc. v. Pennsylvania National Mutual Casualty Insurance Co.

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

September 16, 2019



          Hon. Bruce Howe Hendricks, United States District Judge.

         This matter is before the Court on Defendant Pennsylvania National Mutual Casualty Insurance Company's (“Defendant” or “Penn National”) motion for summary judgment. (ECF No. 40). For the reasons set forth in this Order, Defendant's motion for summary judgment is granted in part and denied in part.


         Plaintiff Summer Wood Property Owners Association, Inc. (“Plaintiff”), brings this breach of contract and bad faith action as the assignee of Portrait Homes-South Carolina LLC and Portrait Homes-Summer Wood LLC (“Portrait”), which served as the general contractor for a townhome project known herein as the Summer Wood Project. Plaintiff sued Portrait, among other parties, in state court to recover damages for alleged construction defects related to the Summer Wood Project (“Underlying Litigation”).[1] Portrait required its subcontractors to carry insurance policies providing for the general indemnification of Portrait relating to claims for property damage or bodily injury arising from work performed, materials furnished, or services provided by the subcontractors with respect to the Summer Wood Project. (ECF No. 1-1 at ¶ 19). Pertinent to the claims at issue here, Portrait entered into a contract with JJA Framing aka Jose Castillo aka JJA Construction Inc. (“JJA”) for work to be performed at the Summer Wood Project. (Id. at ¶ 45). Plaintiff asserts that Defendant issued commercial general liability policies to JJA with effective dates of December 5, 2004 through January 31, 2008 (the “Penn National Policies”). (Id. at ¶ 44). The plaintiffs in the Underlying Litigation named JJA as a defendant and asserted claims against Portrait for allegedly defective work performed by JJA. (Id. at ¶¶ 47-48). Portrait ultimately settled the Underlying Litigation by paying $3, 000, 000 to Plaintiff and assigning to Plaintiff “any claims relating to the Portrait Entities' status as an additional insured under the insurance policies issued to the subcontractors.” (Id. at ¶ 24).

         Plaintiff now alleges that during the Underlying Litigation, Defendant failed to recognize Portrait “as an additional insured” and failed “to provide what was due under the policies, ” specifically, indemnification and a defense. (ECF No. 1-1 at ¶¶ 49, 83). Plaintiff further asserts that Defendant acted in bad faith in one or more of the following ways:

Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies, including third-party claims arising under liability policies.
Not attempting in good faith to effect prompt, fair, and equitable settlement of claims, including third-party liability claims, submitted to it in which liability has become reasonably clear.
Compelling policyholders or claimants, including third-party claimants under liability policies, to institute suits to recover amounts reasonably due or payable with respect to claims arising under its policies by offering substantially less than the amounts ultimately recovered through suits brought by the claimants or through settlements with their attorneys employed as a result of the inability of the claimants to effect reasonable settlements with the insurers.
Engaging in other practices which constitute an unreasonable delay in paying or an unreasonable failure to pay or settle in full claims, including third-party liability claims, arising under coverages provided by its policies.

(Id. at ¶ 91). As a result, Plaintiff seeks damages, fees, and costs.

         This matter was removed to this Court on December 29, 2017, (ECF No. 1), after Defendant had filed an answer, (ECF No. 4).[2] The case was reassigned to the undersigned on September 10, 2018. (ECF No. 37). On October 8, 2018, Defendant filed the pending motion for summary judgment arguing that Plaintiff's claims fail as a matter of law because (1) Portrait suffered no damages as a result of Defendant's alleged failure to defend or indemnify Portrait in the Underlying Litigation; and (2) Portrait failed to perform its obligations under the Penn National Policies. (ECF Nos. 40, 40-1). Plaintiff filed a response, (ECF No. 41), to which Defendant filed a reply, (ECF No. 42). The Court exercises jurisdiction under 28 U.S.C. § 1332, and therefore applies South Carolina law to the issues presented below. Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) (holding federal courts in diversity cases apply the law of the forum state).


         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.” Fed.R.Civ.P. 56(a). The movant bears the initial burden of demonstrating that summary judgment is appropriate; if the movant carries its burden, then the burden shifts to the non-movant to set forth specific facts showing that there is a genuine issue for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). If a movant asserts that a fact cannot be disputed, it must support that assertion either by “citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials”; or by “showing . . . that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c)(1).

         Accordingly, to prevail on a motion for summary judgment, the movant must demonstrate that: (1) there is no genuine issue as to any material fact; and (2) that he is entitled to judgment as a matter of law. As to the first of these determinations, a fact is deemed “material” if proof of its existence or non-existence would affect disposition of the case under applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is “genuine” if the evidence offered is such that a reasonable jury might return a verdict for the non-movant. Id. at 257. In determining whether a genuine issue has been raised, the court must construe all inferences and ambiguities against the movant and in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).


         Defendant argues that Plaintiff's claims fail because Portrait suffered no damages, which is a necessary element of both a claim for breach of contract and for bad faith. Additionally, Defendant argues, Portrait failed to comply with the conditions of the Penn National Policies because it did not provide notice to Defendant with respect to the claims asserted in the Underlying Litigation. (ECF No. 40-1 at 6-16). In response, Plaintiff does not dispute that Portrait was fully defended and indemnified by its liability insurer, Admiral Insurance Company (“Admiral”), but contends that Admiral's payments constitute a collateral source that the Court should not consider in determining whether Portrait incurred damages that Plaintiff can recover as assignee. Additionally, Plaintiff asserts, Portrait did in fact request indemnification and a defense from Penn National “long before” Admiral settled the claim. (ECF No. 41 at 1). In reply, Defendant argues that the collateral source rule does not apply to Plaintiff's claims and, furthermore, Defendant has no documentation in its files that Portrait tendered the Underlying Litigation to Penn National. (ECF No. 42).

         At the outset, the Court notes that the Parties do not dispute the terms or temporal scope of the Penn National Policies, Portrait's status as an additional insured under the Penn National Policies, Plaintiff's designation as Portrait's assignee, or that Admiral defended Portrait in the Underlying Litigation and funded the $3, 000, 000 settlement paid to Plaintiff.

         A. The Issue of Damages

         “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. App. 2008) (citing Estate of Revis v. Revis, 484 S.E.2d 112, 116 (S.C. App. 1997)). On the other hand, claims for bad faith refusal to pay first party benefits due under an insurance contract sound in tort. Tadlock Painting Co. v. Maryland Cas. Co., 473 S.E.2d 52, 53 (S.C. 1996) (reaffirming 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, '” and 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”) (quoting Nichols v. State Farm Mut. Auto. Ins. Co.,306 S.E.2d 616 (1983)). The Parties do not dispute that the elements of a breach of contract claim include (1) the existence ...

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