United States District Court, D. South Carolina, Charleston Division
C. NORTON, UNITED STATES DISTRICT JUDGE
matter is before the court on defendant Associated Industries
Insurance Company, Inc.'s (“AIIC”) motion for
summary judgment, ECF No. 35. For the reasons set forth
below, the court grants the motion.
case arises out of a dispute over two insurance policies.
From October 27, 2015 to October 27, 2016, Weeks & Irvine
LLC (“Weeks”) held a Lawyers Professional
Liability Insurance Policy with AIIC (the “2015-2016
Policy”). On or around September 16, 2016, Weeks
submitted an application for renewal of its professional
liability insurance with AIIC. AIIC renewed the policy with
effective dates of October 27, 2016 to October 27, 2017 (the
“2016-2017 Policy”). In short, this coverage
dispute results from an insured committing and failing to
report a mistake during the former policy period and seeking
coverage for the resulting claim during the latter policy
March 2016, Prairie Son Properties LLC (“Prairie
Son”), the original plaintiff in this matter, hired
Weeks to handle the closing of a $400, 000 loan from Prairie
Son to Moss Construction of the Lowcountry, LLC (“Moss
Construction”). Weeks was insured by AIIC during this
time. To secure the loan, Moss Construction issued a mortgage
to Prairie Son on a property in Beaufort County, South
Carolina (the “Property”). Under the terms of
this agreement, Prairie Son would be in first lien position
on the Property.
March 11, 2016, Weeks closed the loan and the funds were
disbursed by Prairie Son to Moss Construction. Weeks alleges
that it promptly sent the mortgage and filing fee to the
Beaufort County Register of Deeds but that instead of being
filed, the mortgage was returned to Weeks because the payment
exceeded the fee required for recording. By the time Weeks
resubmitted the mortgage for filing with the correct fee and
had the recording perfected on May 23, 2016-over 70 days
after the closing-three additional mortgages on the Property
had been recorded. As a result, the Prairie Son mortgage had
fourth priority on the Property.
alleges that on August 1, 2016, it discovered that the
Prairie Son mortgage was in fourth priority, not first. ECF
No. 41-2. Weeks claims that it discussed the issue with
Prairie Son's attorney, who Weeks believed had come to an
agreement with the intervening mortgagees to subordinate
their superior-priority mortgages to Prairie Son's
mortgage (the “Subordination Agreement”). The
Subordination Agreement, Weeks believed, would put Prairie
Son back in first priority position. ECF No. 41-3; ECF No.
41-16, Weeks Aff. ¶ 7.
about September 16, 2016, Weeks submitted an application for
renewal of its professional liability insurance with AIIC
(the “Renewal Application”). Question 35 of the
Renewal Application asked whether Weeks was “aware of
any fact, circumstance, incident, error, situation or
accident that may result in a claim.” ECF No. 35-3 at
4. Weeks answered “no” to this question and now
claims that it did so because at the time it submitted the
application, it believed that the Subordination Agreement had
resolved any potential issues from the Prairie Son case that
could potentially result in a claim.
states that it learned in November 2016 that the
Subordination Agreement fell through after Moss Construction
declared bankruptcy. On November 23, 2016, Weeks contacted
its insurance agent and advised him that there was an
incident that needed to be reported, which may or may not
turn into a claim. ECF No. 41-5. The insurance agent advised
that Weeks would need to file a Supplemental Claim
Application, which Weeks received from the agent on November
28, 2016, with instructions to complete it and “email
it back to us [and] we will get the matter reported to Am
Trust and then they will assign a claims representative and
will contact you.” ECF No. 41-6. Weeks completed the
form and emailed it to its insurance agent on December 9,
2016. ECF No. 41-7; ECF No. 41-8.
December 16, 2016, Prairie Son's attorney sent Weeks a
demand letter in connection with the loss of mortgage
priority (“December 2016 Demand Letter”). ECF No.
35-5. This letter stated that Prairie Son
“understand[s] from our discussions that [Weeks] has
placed its professional liability insurance carrier on notice
of this claim [and] hereby demands that the principal be paid
and made whole at this time.” Id. Prairie
Son's letter demanded “that the principal be paid
in the amount of $400, 000.00, accrued interest in the amount
of $23, 333.31, accrued late charges in the amount of $1,
166.66, attorney's fees in the amount of $10, 340.00, for
a total of $434, 839.97, as of December 15, 2016.”
Id. Weeks did not provide the December 2016 Demand
Letter to AIIC, because, Weeks claims, AIIC had not responded
to Weeks' submission of the Supplemental Claim
Application and had not requested any documentation regarding
the potential claim.
September 28, 2017, Prairie Son filed suit against Weeks, at
which point Weeks submitted the claim to AIIC (the
“Prairie Son Claim”). In November 2017, AIIC
agreed to provide a defense to the underlying suit under a
reservation of rights. On November 30, 2017, Weeks received
another demand letter from Prairie Son, which it forwarded to
AIIC along with a copy of the December 2016 Demand Letter. In
January 2018, AIIC denied coverage for Weeks in the
underlying suit, asserting that “there is no coverage
under the Associated Policy for the [Prairie Son] Lawsuit,
given that the Insured had knowledge of the Wrongful Act
prior to the inception Date of the Policy.” ECF No.
April 4, 2018, then third-party plaintiff Weeks filed a
third-party complaint against AIIC, seeking a declaratory
judgment that AIIC must provide coverage under the policies
and asserting causes of action for breach of contract and bad
faith. ECF No. 25. On August 16, 2018, AIIC filed a motion
for summary judgment. ECF No. 35. On September 17, 2108,
Weeks filed its response. ECF No. 41. On September 27, 2018,
AIIC filed a reply. ECF No. 45. On October 1, 2018, the
parties filed a consent stipulation of partial dismissal of
all claims among and between Prairie Son, Weeks, and Stewart
Title Guaranty Company; this stipulation realigned the
parties such that third-party plaintiff Weeks became the only
plaintiff, and third-party defendant AIIC became the only
defendant. ECF No. 48. On December 12, 2018, the court held a
hearing on the matter where the court dismissed Weeks's
bad faith cause of action. On December 13, 2018, AIIC filed a
sur-reply. ECF No. 56. On January 11, 2019, Weeks replied.
ECF No. 58. Thus, the motion has been fully briefed and is
ripe for the court's review.
judgment is appropriate if the pleadings, the discovery and
disclosure materials on file, and any affidavits show that
“there is no genuine dispute as to any material fact
and that the movant is entitled to judgment as a matter of
law.” Fed.R.Civ.P. 56(c). “By its very terms,
this standard provides that the mere existence of some
alleged factual dispute between the parties will not defeat
an otherwise properly supported motion for summary judgment;
the requirement is that there be no genuine issue of material
fact.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247-48 (1986). “Only disputes over facts that
might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment.”
Id. at 248. “[S]ummary judgment will not lie
if the dispute about a material fact is ‘genuine,'
that is, if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.” Id.
“[A]t the summary judgment stage the judge's
function is not himself to weigh the evidence and determine
the truth of the matter but to determine whether there is a
genuine issue for trial.” Id. at 249. The
court views the evidence in the light most favorable to the
non-moving party and draw all inferences in its favor.
Id. at 255.
party seeking summary judgment shoulders the initial burden
of demonstrating to the district court that there is no
genuine issue of material fact.” Major v.
Greenville Hous. Auth., 2012 WL 3000680, at *1 (D.S.C.
Apr. 11, 2012). Nevertheless, “when a properly
supported motion for summary judgment is made, the adverse
party ‘must set forth specific facts showing that there
is a genuine issue for trial.'” Id.
(quoting Fed.R.Civ.P. 56(e)). The plain language of Federal
Rule of Civil Procedure 56(c) “mandates the entry of
summary judgment, after adequate time for discovery and upon
motion, against a party who fails to make a showing
sufficient to establish the existence of an element essential
to that party's case, and on which that party will bear
the burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986). “[C]onclusory
allegations or denials, without more, are insufficient to
preclude the granting of the summary judgment motion.”
Major, 2012 WL 2000680, at *1.
argues that summary judgment is warranted because the
2016-2017 Policy does not extend coverage to the Prairie Son
Claim as a matter of law. AIIC denies that coverage exists on
two related grounds. First, AIIC contends that Weeks'
omission of its mistake with respect to the Prairie Son
mortgage in the Renewal Application precludes coverage for
the claim under the 2016-2017 Policy. Alternatively, AIIC
contends that the terms of the 2016-2017 Policy do not extend
coverage to the Prairie Son Claim because Weeks had knowledge
of the claim's underlying “wrongful act”
prior to the policy's inception date. Because the court
agrees with AIIC's latter argument, summary judgment is
appropriate. The court discusses each argument in turn.
Exclusion of Coverage Based on the Renewal
submitted the Renewal Application on September 16, 2016,
seeking coverage for the following year. ECF No. 35-3.
Question 35 of the application asked Weeks if it was
“aware of any fact, circumstance, incident, error,
situation, or accident that may result in a claim being made
against the firm.” Id. at 4. Weeks responded
“No.” Id. AIIC subsequently issued the
2016-2017 Policy to Weeks, under which Weeks now seeks
coverage for the Prairie Son Claim. AIIC argues that it does
not owe coverage to Weeks for the Prairie Son Claim because
Weeks made a misrepresentation on its Renewal Application. As
AIIC points out, the 2016-2017 Policy states: “[i]f any
of the statements, representations or information in the
Application are not true and accurate, there shall be no
coverage for any Claim under this Policy with respect to any
Insured Person who knew . . . of such information that was
not truthfully and accurately disclosed in the
Application.” ECF No. 35-9 at 23-24.
response, Weeks argues that its answer on the Renewal
Application was true and accurate because of the words
“may result in a claim being made against the
firm.” ECF No. 35-3 at 4 (emphasis added). According to
Weeks, in September 2016, when it submitted the Renewal
Application, it did not believe that its mistake would result
in Prairie Son bringing a claim against it. Weeks contends
that it held this belief because, at that time, the
Subordination Agreement was going to put Prairie Son back
into first priority position, thus remedying Weeks'
recording mistake. Therefore, according to Weeks, when it
submitted the Renewal Application, it did not believe that
its mistake would result in a claim and thus did not disclose
it. In November 2016, when Weeks learned that something was
wrong with the Subordination Agreement, it contends, it
concluded that a claim may result from its mistake and
Weeks made a misrepresentation on the Renewal Application
requires a factual determination. If Weeks did not believe
that its recording error “may [have] result[ed] in a
claim, ” then its “no” response to Question
35 of the Renewal Application was truthful, and coverage is
not precluded. If Weeks' belief was not genuine, and it
hid its “wrongful act” from AIIC to prevent
higher premium costs, as AIIC contends, then coverage for the
Prairie Son Claim would be precluded. This is an issue of
fact that implicates credibility determinations. As such, it
is within the sole purview of the factfinder. See United
States v. Burgos, 94 F.3d 849, 868 (4th Cir. 1996)
(“Determining credibility of witnesses and resolving
conflicting testimony falls within the province of the
factfinder . . . .”). Therefore, summary judgment on
this ground is inappropriate.
analysis of this issue under South Carolina insurance law,
rather than the terms of the 2016-2017 Policy, leads the
court to the same conclusion. In South Carolina, an insurer
may decline to provide ...