Weeks & Irvine LLC v. Associated Indus. Ins. Co., No. 2:17-cv-02620-DCN

• Court: United States District Courts. 4th Circuit. United States District Court of South Carolina
• Writing for the Court: DAVID C. NORTON, UNITED STATES DISTRICT JUDGE
• Citation: 433 F.Supp.3d 791
• Parties: WEEKS & IRVINE LLC, Plaintiff, v. ASSOCIATED INDUSTRIES INSURANCE COMPANY, INC., Defendant.
• Decision Date: 06 January 2020
• Docket Number: No. 2:17-cv-02620-DCN

433 F.Supp.3d 791

WEEKS & IRVINE LLC, Plaintiff,
v.
ASSOCIATED INDUSTRIES INSURANCE COMPANY, INC., Defendant.

No. 2:17-cv-02620-DCN

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

Signed January 6, 2020

433 F.Supp.3d 794

George J. Kefalos, George J. Kefalos Law Office, John Allen Massalon, Wills Massalon and Allen, Oana D. Johnson, Oana D. Johnson Attorney at Law, Charleston, SC, for Plaintiff.

Henry Wilkins Frampton, IV, Megan McCune McNeely, Gordon and Rees LLP, Charleston, SC, Peter George Siachos, Gordon and Rees, Florham Park, NJ, for Defendant.

ORDER

DAVID C. NORTON, UNITED STATES DISTRICT JUDGE

This 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.

I. BACKGROUND

This 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 period.

In 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.

On 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

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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.

Weeks 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.

On or 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.

Weeks 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.

On 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.

On 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

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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. 41-12.

On 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.

II. STANDARD

Summary 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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (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, 106 S.Ct. 2505. "[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, 106 S.Ct. 2505. 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, 106 S.Ct. 2505.

"The 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...