Insurance Coverage Corner - Legal Updates, Options and Relevant Information on Insurance Coverage and Bad Faith Litigation

Check out our spring newsletter, which includes an article on the battle regarding Georgia’s apportionment statutes in negligent security premises liability cases.

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In State Farm Fire & Cas. Co. v. Bauman, -- S.E.2d --, 2012 WL 104514 (2012), the plaintiff's daughter was injured while in the care of the insured.  The insured provided after-school childcare services for the daughter most school days. Id. at *1.  The insured did not provide childcare for the daughter during vacations, school holidays, or when the daughter was sick. Id. 

The insured's homeowner's policy excluded liability and medical payments coverage for claims brought against the insured by "any person who is in the care of any insured because of child care services provided by or at the direction of any insured," and "any person who makes a claim because of bodily injury to any person who is in the care of any insured because of child care services provided by or at the direction of any insured." Id. at *2.  By its express terms, the exclusion for child care services did not apply "to the occasional child care services provided by any insured." Id.  

The plaintiff obtained a judgment against the insured and sued the insurer directly. Id. at *1. The trial court denied the insurer's motion for summary judgment, finding that the term "occasional" was ambiguous, creating a jury question as to whether the insured provided "occasional" child care services. Id. at *2.  The insurer appealed and the Georgia Court of Appeals reversed, finding that the policy excluded coverage for the claims against the insured. Id.  The court noted that

"a word or phrase is ambiguous only when it is of uncertain meaning, and may be fairly understood in more ways than one so that it involves a choice between two or more constructions of the contract." Id.

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In this July 2011 decision, Stiltner v. USAA Casualty, the South Carolina Court of Appeals held that a wife had the authority to act as her husband's agent when she signed a form rejecting UIM coverage on his policy.  Although no presumption of agency arises from the mere fact of a marital relationship, the agency relationship can be inferred from the words and conduct of the parties.  Based on the deposition testimony of the husband and wife, the Court found that the wife had authority to sign her husband's insurance documents.  However, the court refused to decide whether the wife acted within the scope of her authority or whether the husband ratified her actions by failing to correct the denial of UIM after receiving policy declarations at the summary judgment stage.

R. Michael Ethridge, Attorney
Katie Sullivan, Attorney
South Carolina Insurance Coverage Practice Group

Interestingly, in an August 29, 2011 decision in South Carolina District Court, Charleston Division (Auto Owners v. Retreat at Edisto), Judge Norton granted a motion to dismiss a declaratory judgment action primarily because the interpretation of what constitutes an "occurrence" in a CGL policy is best addressed by South Carolina Courts.  In addition, the fact that the underlying construction case was pending in state court seemed to factor into the decision.  South Carolina attorney, Morgan Templeton, who argued in opposition to the motion to dismiss at the hearing, explained that Judge Norton was reluctant to weigh in on the definition of occurrence in a CGL policy given the numerous decisions of the South Carolina Supreme Court on the issue.   

Declaratory judgment actions are often filed in federal court requesting a determination of the rights and responsibilities of the parties with regard to insurance coverage.  However, Judge Norton pointed out that the power granted to district courts by the Federal Declaratory Judgment Act is considered nonobligatory and discretionary.  In particular, when a related action in pending in state court, the federal court may abstain from exercising jurisdiction over state-law claims.  

Looking to factors outlined by the Fourth Circuit when related state court litigation is pending, Judge Norton held that the issues raised in the declaratory judgment can be "more efficiently resolved in the state court where the action is pending."  Specifically, Judge Norton noted that "the State of South Carolina has an overwhelming interest in having its courts decide issues related to insurance coverage because those issues are governed purely by South Carolina law."  Judge Norton went on to say that he "cannot imagine an issue creating more federal and state court 'entanglement' than the determination of what constitutes an 'occurrence' in a CGL policy under South Carolina law." 

A motion to reconsider the decision was denied.  Given the propensity of parties looking to resolve coverage issues to file a declaratory judgment action in federal court, it will be interesting to see if other South Carolina District Court judges will follow Judge Norton's lead and will dismiss these actions so that they can be resolved in state court.  

R. Michael Ethridge, Attorney
Katie Sullivan, Attorney
South Carolina Insurance Coverage Practice Group

In a recent September 2011 decision, Liberty Mutual Fire Insurance v. JT Walker Industries, the South Carolina District Court, Charleston Division addressed an issue of first impression in South Carolina and held that an insured "is not entitled to prorate any deductibles, and must pay the full deductible for each policy triggered by the progressive damage."  (Although, the district court submitted this issue to the South Carolina Supreme Court as a certified question, the Supreme Court's answer was so narrow that the district court considered it an issue of first impression.) 

The underlying litigation involved allegations that the windows manufactured by the insured were defective, allowing water to leak into homes causing progressive damage over a six-year period.  The insured window manufacturer maintained six one-year standard CGL policies spanning the time period involved in the underlying litigation. 

The insured argued that the entire progressive water damage during the policies constitutes a single occurrence so each insurer is only liable for part of an occurrence; therefore, the insured argued that "it would be inequitable to force a policyholder to pay a full per-occurrence deductible for indemnification of a partial occurrence.  The insured further argued that it should only be required to pay a singe $500,000 deductible for the resolution of a claim arising from progressive damage spanning 6 policy periods.    

The Court began its analysis by noting that an insured "could not selectively tender its losses arising from progressive damages spanning multiple policies to a single Liberty Mutual policy" and that "Liberty Mutual had the right to compel contribution from other insurers that provided coverage for a portion of the progressive damage period."  After reviewing the policy language and South Carolina case law, the Court concluded that the only reasonable interpretation is that the damage that happens in one policy year constitutes a single occurrence.  Noting that the majority of courts applying a pro rata allocation method have agreed that an insurer is entitled to a full deductible for each triggered policy, the Court concluded that the insured must pay a separate deductible for each triggered policy during progressive damage.

R. Michael Ethridge, Attorney
Katie Sullivan, Attorney
South Carolina Insurance Coverage Practice Group