Kelaher, Connell & Conner, P.C. v. Auto-Owners Ins. Co., C/A No. 4:19-cv-00693-SAL

• Decision Date: 24 February 2020
• Docket Number: C/A No. 4:19-cv-00693-SAL
• Citation: 440 F.Supp.3d 520
• Parties: KELAHER, CONNELL & CONNER, P.C., Plaintiff, v. AUTO-OWNERS INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of South Carolina

440 F.Supp.3d 520

KELAHER, CONNELL & CONNER, P.C., Plaintiff,

v.AUTO-OWNERS INSURANCE COMPANY, Defendant.

C/A No. 4:19-cv-00693-SAL

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

Signed February 24, 2020

Gene McCain Connell, Jr., Kelaher Connell and Connor, Surfside Beach, SC, for Plaintiff.

Morgan S. Templeton, Wall Templeton and Haldrup, Charleston, SC, for Defendant.

ORDER

Sherri A. Lydon, United States District Judge

Before the court is a Motion for Summary Judgment filed by Defendant Auto-Owners Insurance Company ("Auto-Owners") as to all claims asserted by Plaintiff Kelaher, Connell & Conner, P.C. ("Kelaher"). [ECF No. 13.] The dispute concerns whether Kelaher is entitled to coverage pursuant to a civil authority provision in a business interruption insurance policy issued by Auto-Owners. The civil authority order at issue required coastal residents to evacuate in preparation for Hurricane Florence making landfall. Kelaher evacuated, returned to the business 3.5 days later, filed a claim for business losses during the period covered by the evacuation order, and Auto-Owners denied the claim.

Kelaher filed this lawsuit on January 28, 2019, in the Court of Common Pleas for Horry County, alleging breach of contract, breach of contract accompanied by fraudulent act, and bad faith refusal to pay insurance benefits. Auto-Owners timely removed the case to this court on the basis of diversity jurisdiction, 28 U.S.C. § 1332. On June 25, 2019, Auto-Owners filed the motion that is the subject of this Order. The motion was fully briefed and counsel for the parties appeared for a hearing on February 19, 2020.¹ For the reasons outlined, the court finds that there is no genuine dispute as to any material fact, and Auto-Owners is entitled to judgment as a matter of law on all claims.

BACKGROUND AND UNDISPUTED FACTS

The facts are undisputed. Kelaher is a law firm in Horry County, South Carolina. [ECF No. 1-1.] It is insured through a Businessowners Insurance Policy, No.94-302-959-00 (the "policy"), purchased from Auto-Owners, which includes a type of business interruption insurance known as civil authority coverage. [ECF Nos. 1-1, at ¶¶ 3, 5; 4, at ¶¶ 2–3.] The civil authority coverage is found in a coverage extension. The Coverage Extension reads:

A. COVERAGE, 5. Additional Coverages , the following Additional Coverage is added:

5. ADDITIONAL COVERAGES

b. Business Income and Extra Expense(3) Coverage Extension

We extend Business Income and Extra Expense to include the actual loss or damage sustained by you which is a direct result of an interruption of the business covered by this Policy because access to the described business premises is prohibited by order of civil authority because of damage or destruction of property adjacent to the described premises by the perils insured against. Coverage applies while access is denied, but no longer than two consecutive weeks.

[ECF No. 13-1, 54228 (4-13).] The policy was in place on September 10, 2018, as South Carolina was preparing for the threat of Hurricane Florence. [ECF Nos. 1-1, at ¶ 4; 4, at ¶ 3.]

On September 10, 2018, Governor Henry McMaster issued Executive Order 2018-29.² [ECF No. 13-2.] Therein, the Governor noted that Hurricane Florence posed "a significant threat" to South Carolina and required the State to "take timely precautions to protect property, critical infrastructure, communities, and the general safety, security and welfare of the people" of South Carolina. Id. As a result of the threat, the Governor ordered a mandatory evacuation of several coastal areas, including specific zones in Horry County, beginning 12:00 p.m. on Tuesday, September 11, 2018. Id. Kelaher's office is located within a mandatory evacuation zone. [ECF Nos. 1-1, at ¶¶ 6–8; 4, at ¶ 4.] On September 15, 2018, the Governor issued a second Executive Order, No. 2018-36. This second order lifted the first evacuation order, effective as of 9:00 a.m. on Sunday, September 16, 2018. [ECF No. 13-3.] As a result of the two executive orders, Kelaher's office was closed from noon on Tuesday, September 11, 2018, through Friday September 14, 2018, and reopened on Monday, September 17, 2018—a total of 3.5 days. [ECF Nos. 1-1, at ¶ 10; 4, at ¶ 4.]³

On September 18, 2018, Kelaher made a claim for business interruption loss in accordance with the above-referenced Coverage Extension. [ECF No.13-4.] On October 10, 2018, Kelaher made a demand for $47,363.15, representing 3.5 days of business interruption. [ECF No. 13-5.] The claim was denied on December 3, 2018, followed by an amended denial on December 14, 2018. [ECF Nos. 13-6; 13-7.]

The parties' dispute surrounds whether the Coverage Extension provides coverage for Kelaher's business income losses arising out of the Governor's order for a mandatory evacuation of Horry County. The court finds that it does not.

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate if a party "shows 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(a). "In determining whether a genuine issue has been raised, the court must construe all inferences and ambiguities in favor of the nonmoving party." HealthSouth Rehab. Hosp. v. American Nat'l Red Cross , 101 F.3d 1005, 1008 (4th Cir. 1996). The party seeking summary judgment shoulders the initial burden of demonstrating to the court that there is no genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Once the moving party makes this threshold demonstration, the non-moving party may not rest upon mere allegations or denials averred in the pleading, but rather must, by affidavits or other means permitted by the Rule, set forth specific facts showing that there is a genuine issue for trial. See Fed. R. Civ. P. 56 ; see also Celotex Corp. , 477 U.S. at 323, 106 S.Ct. 2548. A party asserting that a fact is genuinely disputed must support the assertion by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed. R. Civ. P. 56(c)(1)(A). A litigant is unable to "create a genuine issue of material fact through mere speculation or the building of one inference upon another." Beale v. Hardy , 769 F.2d 213, 214 (4th Cir. 1985). "[W]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, disposition by summary judgment is appropriate." Teamsters Joint Council No. 83 v. Centra, Inc. , 947 F.2d 115, 119 (4th Cir. 1991).

DISCUSSION

The issue before the court is one of contract interpretation. If the court finds that the Coverage Extension is unambiguous and requires a nexus between the issuance of the civil authority order and existing damage or destruction to property, Auto-Owners is entitled to judgment as a matter of law on all three claims.

I. Breach of Contract Claims.

Kelaher asserts claims for breach of contract and breach of contract accompanied by fraudulent act. [ECF No. 1-1, at ¶¶ 1–20.] Auto-Owners claims it is entitled to summary judgment on these claims because Kelaher cannot establish loss falling within the terms of the Coverage Extension and, therefore, cannot establish a breach of the policy. Specifically, Auto-Owners claims there are two requirements to trigger the Coverage Extension: (1) interruption of business because of an order of civil authority and (2) the order of civil authority is issued "because of" damage or destruction of an adjacent property. [ECF No. 13, at p.7.] Auto-Owners claims that the second requirement is not met. Applying general principles of contract law and the interpretation of similar provisions, this court agrees with Auto-Owners.

A. Basic Principles of Contract Construction.

In South Carolina, "[i]nsurance policies are subject to the general rules of contract construction." B.L.G. Enters., Inc. v. First Fin. Ins. Co. , 334 S.C. 529, 514 S.E.2d 327, 330 (1999). "The cardinal rule of contract interpretation is to ascertain and give legal effect to the parties' intentions as determined by the contract language." Schulmeyer v. State Farm Fire and Cas. Co. , 353 S.C. 491, 579 S.E.2d 132, 134 (2003). "An insurance contract is read as a whole document so that ‘one may not, by pointing out a single sentence or clause, create an ambiguity.’ " Id. (citing Yarborough v. Phoenix Mut. Life Ins. Co. , 266 S.C. 584, 225 S.E.2d 344, 348 (1976) ). "The meaning of a particular word or phrase is not determined by considering the word or phrase by itself, but by reading the policy as a whole and considering the context and subject matter of the insurance contract."

State Farm Fire and Cas. Co. v. Morningstar Consultants, Inc. , No. 6:16-cv-01685, 2017 WL 2265919, at *2 (D.S.C. May 24, 2017) (citing Yarborough v. Phoenix Mut. Life Ins. Co. , 266 S.C. 584, 225 S.E.2d 344, 349 (1976) ). "When a contract is unambiguous, clear and explicit, it must be construed according to the terms the parties have used, to be taken and understood in their plain, ordinary and popular sense." C.A.N. Enters., Inc. v. South Carolina Health & Human Servs. Fin. Comm'n , 296 S.C. 373, 373 S.E.2d 584, 586 (1988). An insurer's duty under a policy is "defined by the terms of the policy and cannot be enlarged by judicial construction." South Carolina Ins. Co. v. White , 301 S.C. 133, 390 S.E.2d 471, 474 (S.C. Ct. App. 1990).

Ambiguities, in contrast, are resolved in favor of the insured. Greenville Cnty. v. Insurance Reserve Fund , 313 S.C. 546, 443 S.E.2d 552, 553 (1994) ("Where the words of an insurance policy are capable of two reasonable interpretations, that construction will be adopted which is most favorable to the insured." (citing McPherson v. Michigan Mut. Ins. Co. , 310 S.C. 316, 426 S.E.2d 770, 771 (19...