Ellett Brothers v. US. Fidelity & Guaranty Co.
| Decision Date | 27 September 2001 |
| Docket Number | 00-2533,Nos. 01-1130,s. 01-1130 |
| Citation | 275 F.3d 384 |
| Parties | (4th Cir. 2001) ELLETT BROTHERS, INCORPORATED, Plaintiff-Appellant, v. UNITED STATES FIDELITY & GUARANTY COMPANY; FIDELITY AND GUARANTY INSURANCE UNDERWRITERS, INCORPORATED; ST. PAUL MERCURY INSURANCE COMPANY, Defendants-Appellees, and INTERNATIONAL INSURANCE COMPANY; RLI INSURANCE COMPANY; MOUNT HAWLEY INSURANCE COMPANY; UNITED NATIONAL INSURANCE COMPANY, Defendants. AMERICAN INSURANCE ASSOCIATION; NATIONAL SHOOTING SPORTS FOUNDATION; NATIONAL ASSOCIATION OF INDEPENDENT INSURERS, Amici Curiae. ELLETT BROTHERS, INCORPORATED, Plaintiff-Appellee, v. UNITED STATES FIDELITY & GUARANTY COMPANY; FIDELITY AND GUARANTY INSURANCE UNDERWRITERS, INCORPORATED; ST. PAUL MERCURY INSURANCE COMPANY, Defendants-Appellants, and INTERNATIONAL INSURANCE COMPANY; RLI INSURANCE COMPANY; MOUNT HAWLEY INSURANCE COMPANY; UNITED NATIONAL INSURANCE COMPANY, Defendants. AMERICAN INSURANCE ASSOCIATION; NATIONAL SHOOTING SPORTS FOUNDATION; NATIONAL ASSOCIATION OF INDEPENDENT INSURERS, Amici Curiae. Argued: |
| Court | U.S. Court of Appeals — Fourth Circuit |
Appeals from the United States District Court for the District of South Carolina, at Columbia. Dennis W. Shedd, District Judge. (CA-00-1269-3-19) COUNSEL ARGUED: Thornwell Forrest Sowell, III, SOWELL, GRAY, STEPP & LAFFITTE, L.L.C., Columbia, South Carolina, for Appellant. Walter J. Andrews, SHAW PITTMAN, McLean, Virginia, for Appellees. ON BRIEF: Robert H. Jordan, A. Burns Jones, SOWELL, GRAY, STEPP & LAFFITTE, L.L.C., Columbia, South Carolina, for Appellant. Lon A. Berk, Michael S. Levine, SHAW PITTMAN, McLean, Virginia; John E. Johnston, Jr., Laurel R.S. Blair, LEATHERWOOD, WALKER, TODD & MANN, P.C., Greenville, South Carolina, for Appellees. James C. Gray, Susan M. Glenn, NELSON, MULLINS, RILEY & SCARBOROUGH, L.L.P., Columbia, South Carolina; Mark R. Misiorowski, Richard Hodyl, Jr., WILLIAMS & MONTGOMERY & JOHN, LTD., Chicago, Illinois, for Amicus Curiae NAII.
Before WILKINSON, Chief Judge, and LUTTIG and MICHAEL, Circuit Judges.
Affirmed by published opinion. Judge Luttig wrote the opinion, in which Judge Wilkinson joined. Judge Michael wrote an opinion concurring in part and concurring in the judgment.
Ellett Brothers, a handgun manufacturer, is a named defendant in four lawsuits. In three of these lawsuits, the plaintiffs are California municipalities who allege that Ellett's marketing of handguns creates public and private nuisances and violates the California Business and Professions Code. The municipalities request injunctive relief to abate the nuisances and to prevent violations of the Business and Professions Code, restitution to the public of funds obtained in violation of the Code, disgorgement of profits acquired by violating the Code, civil penalties for violating the Code, and costs of suit. One of these three complaints, brought by southern California municipalities, also requests attorneys' fees and "further relief as the Court deems equitable and just." J.A. at 474. The California municipalities do not seek compensatory or punitive damages.
In the fourth lawsuit, the NAACP alleges that Ellett created and maintained an illegal secondary market for guns. J.A. at 587-89. It seeks an injunction requiring Ellett to change its marketing practices, an injunction requiring Ellett to contribute to a fund to supervise gun dealers, attorneys' fees, and "further relief as this Court deems just and proper." J.A. at 594-96. The NAACP similarly does not seek compensatory or punitive damages.
Ellett's commercial general liability policy obligates its insurers to pay "those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage'" and to defend Ellett "against any `suit' seeking those damages." J.A. at 190. Ellett seeks a declaratory judgment that its insurers must defend the above-referenced lawsuits and indemnify Ellett. The district court, concluding that the California municipalities and the NAACP seek only equitable relief, and not damages, against Ellett, granted summary judgment to the insurers on the duty to defend claim. J.A. 16364. The district court also allowed Ellett to dismiss voluntarily its indemnity claim against its insurers pursuant to Fed. R. Civ. P. 41. J.A. at 123.
For the reasons that follow, we affirm.
In appeal of the district court's summary judgment to Ellett's insurers, Ellett argues that the term "damages" is susceptible to more than one reasonable interpretation and that the district court therefore erred in construing the term as necessarily limited to claims for "legal" relief, as opposed to claims for either "legal" or "equitable" relief.
We have previously held that the term "damages" in an insurance contract unambiguously means legal damages, and that"[a]s a general rule comprehensive general liability policies do not extend coverage to claims for equitable relief." Cincinnati Ins. Co. v. Milliken and Co., 857 F.2d 979, 981 (4th Cir. 1988). See also Braswell v. Faircloth, 387 S.E.2d 707, 710-11 (S.C. Ct. App. 1989) (citing Milliken with approval). We may well have been without authority, in the context of the single contractual dispute at issue in Milliken, to so define the term "damages" for all contracts in futuro, as each contract is to be interpreted according to the intent of the parties. However, our authority therein to create a default rule of contract interpretation whereby, in the absence of any contrary intent by the parties, the term "damages" in insurance contracts will be interpreted so as not to reference equitable relief, would seem unassailable. And, here, that default rule of contract interpretation is sufficient to sustain the district court's summary judgment, because there is nothing in the contract between Ellett and its insurers that evidences an intention to include equitable, in addition to legal, claims for relief, among those as against which Ellett's insurers must defend.
Ellett makes much of the fact that "damages" is not defined in the policy, Appellant's Br. at 21-22, and that South Carolina insurance contracts are generally construed against the party that prepares them and liberally in favor of the insured. McCracken v. Government Employees Ins. Co., 325 S.E.2d 62 (1985). However, because neither the South Carolina courts nor the parties to this contract have evinced any intent to deviate from the default rule established in Milliken, we hold that the term "damages," as used in this contract, does mean legal damages only, and therefore does not extend to claims for equitable relief.
As to whether the four lawsuits against Ellett seek legal damages, as found by the district court, under South Carolina law a liability insurance company's obligation to defend its insured is determined by the allegations of the underlying complaint. See R.A. Earnhardt Textile Mach. Div., Inc. v. South Carolina Ins. Co., 282 S.E.2d 856, 857 (S.C. 1981). If the suit includes any cause of action covered by the policy, the insurer must defend, even if the suit joins other causes of action beyond the policy's scope. See Town of Duncan v. State Budget & Control Board, 482 S.E.2d 768, 774 (S.C. 1997).
We have no difficulty concluding that none of the complaints seeks "damages" against Ellett. Neither the California municipalities nor the NAACP seek compensation for past injuries. Although they seek money from Ellett in the form of restitution, disgorgement, civil penalties, attorney's fees, cost of suit, and (in the NAACP suit) contribution to a fund to monitor gun dealers, none of these constitutes "damages." Restitution and disgorgement require payment of the defendant's ill-gotten gain, not compensation of the plaintiff's loss. This court has described restitution as an "equitable remedy." See Milliken, 857 F.2d at 980. And civil penalties, likewise, are not "damages" payable to the victim, but fines or assessments payable to the government. The NAACP's proposed fund to monitor gun dealers is forward-looking, prospective relief --not compensation for past injuries inflicted.
The contract itself distinguishes costs and attorneys' fees from "damages," by obligating the insurers to pay these amounts only if the insurer was required to defend the suit in the first place. J.A. 551. The same is true for pre-judgment and post-judgment interest. Id. These cannot be included within the meaning of "damages" in this contract.
Finally, although two of the complaints request "such further relief as this court deems just," such language does not invoke the insurer's duty to defend. Under South Carolina law, the facts of the complaint must allege that Ellett owes legal damages, Earnhardt, 282 S.E.2d at 857, and no such facts are alleged here. A prayer for "such further relief" is not a factual allegation supporting a claim for legal damages.
The district court also granted Ellett's motion to dismiss without prejudice its indemnity claim against its insurers, holding that the claim was not ripe and that Ellett could be irreparably harmed with respect to the underlying suits. J.A. at 123. The insurers cross-appeal, arguing that this was error and that they were entitled to summary judgment on the indemnity claim.
A plaintiff's motion to voluntarily dismiss a claim should not be denied absent plain legal prejudice to the defendant, see Andes v. Versant Corp., 788 F.2d 1033, 1036 (4th Cir. 1986). A district court's decision to grant such a motion is reviewed for abuse of discretion, see Davis v. USX Corp., 819 F.2d 1270 (4th Cir. 1987). We hold that the district court did not abuse its discretion in dismissing Ellett's indemnification claim without prejudice. First, under South Carolina law, while the duty to defend is based on the allegations in the complaint, see Earnhardt, 282 S.E.2d at 857, the duty to indemnify is based on evidence...
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