United States District Court, D. South Carolina, Charleston Division
SUMMER WOOD PROPERTY OWNERS ASSOCIATION, INC. Plaintiff,
PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, Defendant.
OPINION AND ORDER
Bruce Howe Hendricks, United States District Judge.
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.
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”). 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).
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
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.
matter was removed to this Court on December 29, 2017, (ECF
No. 1), after Defendant had filed an answer, (ECF No.
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).
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).
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).
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).
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.
The Issue of Damages
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 ...