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RLI Insurance Co. v. Architrave, Inc.

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

September 25, 2019

RLI Insurance Company, Plaintiff,
v.
Architrave, Inc., Mount Moriah Missionary Baptist Church, Inc., Defendants.

          ORDER AND OPINION

         This action arises from an insurance contract dispute between Plaintiff RLI Insurance Company, a professional liability insurer, and Defendant Architrave, Inc., an architecture firm. The matters before the court are Plaintiff’s Motion for Judgment on the Pleadings (ECF No. 18) and Defendant Architrave’s Motion for Judgment on the Pleadings (ECF No. 24). For the reasons below, the court DENIES Plaintiff RLI Insurance Company’s Motion for Judgment on the Pleadings (ECF No. 18) and DENIES Defendants’ Motion for Judgment on the Pleadings (ECF No. 24).

         I. FACTUAL AND PROCEDURAL BACKGROUND

         On September 26, 2018, Plaintiff filed a Complaint pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 (2010). (ECF Nos. 1, 5.) On October 8, 2018, Plaintiff amended the Complaint, adding Defendant Mount Moriah Missionary Baptist Church, Inc (“the Church”).[1](ECF No. 5.)

         Plaintiff issued two insurance policies (the “Policies”) to Defendant Architrave: “Professional Liability Policy Design Professionals number RDP0024719 for the Policy Period May 6, 2016 to May 6, 2017” (“Policy 2016-17”) and “Professional Liability Policy Design Professionals number RDP0028866 for the Policy Period May 6, 2017 to May 6, 2018, (“Policy 2017-18”) (Id. at 2 ¶¶ 6, 7.) The Policies are “Claims Made and Reported Polic[ies]” that “provide coverage, pursuant to their terms and conditions, for ‘Damages or Claim Expenses as a result of a Claim for a Wrongful Act’ which is ‘first made against the Insured during the Policy Period . . . .’” (Id. at 6.)

         On September 25, 2017, the Church filed a lawsuit in the Charleston County, South Carolina Court of Common Pleas (“Underlying Lawsuit”) arising from the construction of a worship center. See Mt. Moriah Missionary Baptist Church v. Architrave, Inc., et. al., C/A No. 2017-CP-10-4880 (filed September 25, 2017). (Id. at 5 ¶ 20.) Plaintiff alleges that, on November 6, 2017, “[Defendant] Architrave provided notice of the Underlying Lawsuit to [Plaintiff] under [Policy 2017-18] . . . at which time [Plaintiff] requested information regarding the claim, including requests for ‘any correspondence in your possession pertaining to the issues set forth in the complaint.’” (Id. at 4 ¶ 14.) Defendant Architrave allegedly represented that it communicated the builder, Bobbit Design Build and “attended a meeting in February of 2017 where the Church’s construction problems were discussed and Bobbit offered a proposal to address the issues.” (Id. at 4 ¶ 15.) Plaintiff maintains that “[Defendant] Architrave asserted that after the meeting, it ‘did not hear anything else about the matter or realize that the church was considering a lawsuit until we were served.’” (Id.) On December 1, 2017, Plaintiff agreed to defend Defendant Architrave under Policy 2017-18. (Id. at 4 ¶ 16.) Subsequently, Defendant Architrave provided Plaintiff with the Church’s letters dated October 17, 2016 (“October Letter”) and December 21, 2016 (“December Letter”) (Id. at 4 ¶ 17.) Upon receiving the Church’s letters, Plaintiff issued a supplemental reservation of rights letter to Defendant Architrave (ECF No. 5 at 5 ¶ 21) and filed a Complaint (ECF No. 1).

         On November 19, 2018, Plaintiff filed a Motion for Judgment on the Pleadings, claiming that Defendant Architrave “has not met its burden of showing that coverage has been triggered under either policy, and [Plaintiff] owes no duty to defend or indemnify [Defendant Architrave]” in the Underlying Lawsuit. (ECF No. 18 at 1-2.) Plaintiff requests (1) a court order declaring that Plaintiff “owes no duty to defend or indemnify [Defendant Architrave] because the Claim was not first made and reported to [Plaintiff] during an applicable Policy Period” and (2) seeks the recovery of costs and expenses incurred defending Defendant Architrave in the Underlying Lawsuit. (Id. at 3 ¶ 9.) On December 17, 2018, Defendant Architrave filed a Motion for Judgment on the Pleadings, seeking a court order declaring that Plaintiff has a duty to defend and indemnify Defendant Architrave because the Underlying Lawsuit, not the Church’s letters, triggered the Policies. (ECF No. 24 at 1.)

         II. LEGAL STANDARDS

         The Federal Rules of Civil Procedure provide that “[a]fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings is intended to test the legal sufficiency of the complaint and will operate to dispose of claims “where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noted facts.” Cont’l Cleaning Serv. v. UPS, C/A No. 1:98-cv-1056, 1999 WL 1939249, at *1 (M.D. N.C. Apr. 13, 1999 (citing Herbert Abstract v. Touchstone Props., Inc., 914 F.2d 74, 76 (5th Cir. 1990)). “An issue of fact is deemed to be material if the outcome of the case might be altered by the resolution of the issue one way rather than another.” Walker v. Liberty Mut. Ins. Co., C/A No. 4:16-cv-01388-RBH, 2017 WL 1020885, at *1 (D.S.C. Mar. 16, 2017) (citing 5C Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1368 (3d ed. 2011)). “[A] motion for judgment on the pleadings is decided under the same standard as a motion to dismiss under Rule 12(b)(6).” Deutsche Bank Nat’l Trust Co. v. IRS, 361 F. App’x 527, 529 (4th Cir. 2010) (citing Independence News, Inc. v. City of Charlotte, 568 F.3d 148, 154 (4th Cir. 2009)). A motion pursuant to Fed.R.Civ.P. 12(b)(6) “should not be granted unless it appears certain that the plaintiff can prove no set of facts which would support its claim and would entitle it to relief.” Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). “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. (citing Twombly, 550 U.S. at 556). The key difference between a Rule 12(b)(6) motion and a Rule 12(c) motion, the court “consider[s] the answer as well as the complaint” and “documents incorporated by reference in the pleadings.” Fitchett v. Cnty. of Horry, C/A No. 4:10-cv-1648-TLW-TER, 2011 WL 4435756, at *3 (D.S.C. Aug. 10, 2011) (citations omitted).

         Under South Carolina law, insurance policies are contracts and are subject to the general rules of contract construction. Am. Credit of Sumter, Inc. v. Nationwide Mut. Ins. Co., 663 S.E.2d 492, 495 (2008) (citation omitted). When interpreting an insurance application or insurance policy, courts “must give policy language its plain, ordinary, and popular meaning.” Id. Moreover, an “insurance policy is to be liberally construed in favor of the insured and strictly construed against the insurer . . . [and] exclusions in an insurance policy are always construed most strongly against the insurer.” Id. South Carolina courts have concluded that, “[a]n insurance policy is a contract between the insured and the insurance company, and the policy’s terms are to be construed according to the law of contracts.” Williams v. Gov’t Emps. Ins. Co., 762 S.E.2d 705, 709 (S.C. 2014). “The burden of proof is on the insured to show that a claim falls within the coverage of an insurance contract.” Sunex Int’l, Inc. v. Travelers Indem. Co. of Ill., 185 F.Supp. 2d. 614, 617 (D.S.C. 2001). “‘Where the contract’s language is clear and unambiguous, the language alone determines the contract’s force and effect.’” Id. (quoting McGill v. Moore, 672 S.E.2d 571, 574 (S.C. 2009)). “‘It is a question of law for the court whether the language of a contract is ambiguous.’” Id. at 710 (quoting S.C. Dep’t of Nat. Res. v. Town of McClellanville, 550 S.E.2d 299, 302-03 (S.C. 2001)). “‘A contract is ambiguous when it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.’” Id. (quoting Hawkins v. Greenwood Dev. Corp., 493 S.E.2d 875, 878 (S.C. Ct. App. 1997)). “‘Ambiguous or conflicting terms in an insurance policy must be construed liberally in favor of the insured and strictly against the insurer.’” Id. (quoting Diamond State Ins. Co. v. Homestead Indus., Inc., 456 S.E.2d 912, 915 (S.C. 1995)). “In insurance policies, exclusion clauses are to be narrowly construed, and inclusion clauses are to be broadly construed.” See Hutchinson v. Liberty Life Ins. Co., 743 S.E.2d 827, 829 (S.C. 2013); see also McPherson ex rel. McPherson v. Mich. Mut. Ins. Co., 426 S.E.2d 770, 771 (S.C. 1993). “However, these rules of construction, inuring to the benefit of the insured, do not trump clear and unambiguous policy terms because ‘if the intention of the parties is clear, courts have no authority to torture the meaning of policy language to extend or defeat coverage that was never intended by the parties.’” MGC Mgmt. of Charleston, Inc. v. Kinghorn Ins. Agency, 520 S.E.2d 820, 823 (S.C. Ct. App. 1999) (citing Diamond State, 456 S.E.2d at 915).

         III. ANALYSIS

         A. The Parties’ Arguments

         Plaintiff claims that Defendant Architrave failed to timely notify and report the Church’s letters and therefore did not trigger coverage under the Policies. (ECF No. 5.) Plaintiff asserts that the Church’s letters are “a Claim under the plain language of [the Policies]” which is defined as “a demand received by the Insured for money or services . . . include[ing] but is not limited to lawsuits, petitions, arbitrations [, ] or other alternative dispute resolution requests filed against the Insured . . . and which alleges a Wrongful Act.” (ECF No. 27 at 3.) (emphasis added). Furthermore, Plaintiff asserts that the Church’s letters and the Underlying Lawsuit “are one Claim, first made on October 17, 2016 – prior to the inception of the [2017-18 Policy].” (ECF No. 18-1 at 12, 15.) Plaintiff also claims that “there is no coverage under the 2016-17 Policy because the Claim was not first reported during the 2016-17 policy period” because “although the Claim was first made against [Defendant] Architrave during the 2016-17 Policy Period, [2] the Claim was not first reported to [Plaintiff] until six months after the 2016-17 Policy lapsed.” (ECF No. 18-1 at 18.) (emphasis in original).

         Defendant Architrave asserts that the Demand Letters “cannot reasonably be construed as alleging a ‘Claim for a Wrongful Act, ’” thus “it had no duty under the applicable policies to provided [Plaintiff] with notice of such letters.” Defendant Architrave also opposes the policy interpretation advanced by Plaintiff. Specifically, Defendant Architrave claims that the Church’s letters “do not contain any allegation of a ‘Wrongful Act’” under any reasonable construction of the pleadings. (ECF No. 24 at 1.)

         B. The Policies’ Terms and Conditions

         Plaintiff’s Amended Complaint includes the following excerpt of the Policies’ terms and conditions:

PROFESSIONAL LIABILITY POLICY DESIGN PROFESSIONALS
This is a Claims Made and Reported Policy. This Policy requires that a Claim be first made against the Insured during the Policy Period and reported to the Insurer, in writing, during the Policy Period or Automatic Extended Reporting Period.
This Policy contains provisions which limit the amount of Claim Expenses the Insurer is responsible to pay in connection with Claims. Claim Expenses shall be subject to any Deductible amount. The payment of Claim Expenses will reduce the Limits of Liability stated in Item 3. of the Declarations.
In consideration of the payment of the premium, stated and in reliance upon the statements made to the Insurer in the Application forming a part hereof and its attachments and the material incorporated therein, RLI insurance Company, herein called the ...

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