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Westchester Surplus Lines Insurance Co. v. Dart Shelter LLC

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

December 17, 2019




         This matter is before the court on plaintiff Westchester Surplus Lines Insurance Company's (“Westchester”) motion to partially dismiss defendant DART Shelter LLC's (“DART”) counterclaims, ECF No. 19. For the reasons set forth below, the court grants the motion.

         I. BACKGROUND

         This declaratory judgment action arises from a state court lawsuit filed by defendant Samantha L. Antley (“Antley”). That lawsuit (“the underlying action”) alleges that in September 2015, DART served Preston Yelverton (“Yelverton”) alcohol even though he was visibly intoxicated. Yelverton and Antley then allegedly engaged in an altercation in which Antley was injured. As a result, Antley filed the underlying action against DART and Yelverton to recover for her injuries.

         Westchester issued a Commercial General Liability policy to DART for a policy period of August 10, 2015 to August 10, 2016 (“the Policy”). The Policy has limits of $1, 000, 000 per occurrence/$2, 000, 000 aggregate. In its complaint, Westchester alleges that on December 12, 2017, Antley served her amended complaint for the underlying action upon DART's owner and registered agent. No. answer was filed in the underlying action, so on February 5, 2018, the state court in the underlying action entered an order of default against DART and set a hearing on damages. On March 8, 2018, allegedly unbeknownst to Westchester, DART filed a motion to set aside the entry of default and to stay the damages hearing. Then on March 14, 2018, DART's personal counsel allegedly contacted Westchester to inform Westchester that the underlying action had been filed against DART, that DART was in default, and that DART filed a motion to set aside default and to stay the damages hearing. According to Westchester, this was the first time Westchester learned of the filing of the underlying action. Westchester informed DART that there may be coverage issues but that it would assign counsel under a reservation of rights. Westchester issued a reservation of rights letter on or about March 29, 2018. The state court in the underlying action denied DART's motion to set aside default, and judgment was entered against DART in the amount of $882, 025. DART filed various motions to amend or seek relief from the judgment, all of which were denied.

         The allegations in DART's counterclaims tell a different version of the events at issue. DART alleges that Westchester became aware of Antley's claim on or about November 3, 2015. DART alleges that on or about October 12, 2017, a member of DART received a damages packet, letter of representation, and draft complaint (“the complaint packet”) from Antley's attorney. Then on or about November 1, 2017, DART allegedly informed Westchester that Antley would be making a claim against DART. Westchester allegedly assigned a claims associate to the matter, who emailed a member of DART on November 10, 2017 to advise that he had “been assigned to handle the above loss for [DART]” and to request a copy of the complaint packet. ECF No. 11, DART Counterclaims ¶ 69. On the same day, DART's general counsel allegedly emailed a copy of the complaint packet to Westchester.

         As noted above, Antley filed her amended complaint on December 12, 2017. DART alleges that it reasonably relied on Westchester's representation that it would “handle the [Antley] loss” and reasonably expected Westchester to provide defense counsel to defend DART in the underlying action. DART Counterclaims ¶ 73. DART alleges that once Westchester became aware of DART's default, Westchester retained counsel under a reservation of rights. That counsel never filed an answer on behalf of DART, but Westchester allegedly actively attended and participated in a mediation on July 13, 2018. Westchester did not make an offer to settle Antley's claim at that time. DART also alleges that before and after the damages hearing, Westchester led DART to believe that it would pay any judgment entered against DART but that Westchester has failed to do so despite the fact that the judgment is within the Policy's coverage limits.

         Westchester filed this declaratory judgment action seeking a declaration that it owes no duty to defend or indemnify DART in the underlying action. DART answered the complaint and filed counterclaims for: (1) a declaratory judgment that Westchester does owe a duty to defend and indemnify; (2) breach of contract; (3) negligence, (4) bad faith; and (5) a violation of the South Carolina Unfair Trade Practices Act (“SCUTPA”). On October 10, 2019, Westchester filed a motion for partial dismissal that seeks to dismiss DART's negligence and SCUTPA counterclaims. ECF No. 19. DART responded on October 31, 2019, ECF No. 23, and Westchester replied on November 13, 2019, ECF No. 33. 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.


         Westchester asks the court to dismiss DART's negligence and SCUTPA counterclaims. In DART's response to Westchester's motion, DART concedes that its SCUTPA counterclaim should be dismissed. Therefore, the court dismisses DART's SCUTPA counterclaim and only considers whether DART's negligence counterclaim can survive.

         DART alleges that Westchester owed DART a duty to initiate a prompt investigation and settlement of Antley's claim and to act in good faith in handling the claim. DART further alleges that Westchester breached those duties by failing to promptly investigate the claim despite timely notice, negligently representing that it would “handle the [Antley] loss” and otherwise defend DART, failing to make a reasonable settlement offer during mediation, engaging in deceptive claims handling practices, and failing to promptly respond to Antley's claim and appoint defense counsel. DART Counterclaims ¶ 96. Westchester argues that DART's negligence claim must be dismissed because Westchester had no legal duty to DART independent of the Policy, meaning DART cannot bring a tort claim arising from the Policy. DART disagrees, arguing that Westchester voluntarily undertook a duty separate from the Policy when it agreed to “handle the loss.” Therefore, the question that arises is whether an insurance company can be liable to its insured for negligence by voluntarily undertaking a duty independent of its insurance policy and subsequently breaching that duty.

         To state a claim for negligence, a plaintiff must allege “(1) a duty owed to the plaintiff by the defendant, (2) a breach of that duty by the defendant, and (3) damages proximately resulting from the breach of duty.” Hurst v. E. Coast Hockey League, Inc., 637 S.E.2d 560, 562 (S.C. 2006). It is within the court's province to determine if “the law recognizes a particular duty.” Id. If no such duty exists, then the negligence action will fail as a matter of law. Id. “An affirmative legal duty exists only if created by statute, contract, relationship, status, property interest, or some other special circumstance.” Hendricks v. Clemson Univ., 578 S.E.2d 711, 714 (S.C. 2003). “Ordinarily, the common law imposes no duty on a person to act[, ]” but “[w]here ...

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