Amguard Ins. Co. v. SG Patel & Sons II LLC

• Decision Date: 07 June 2021
• Docket Number: No. 20-1246,20-1246
• Parties: AMGUARD INSURANCE COMPANY, Plaintiff - Appellant, v. SG PATEL AND SONS II LLC; Steven Renew, individually as parent of Matthew Renew and as personal representative of the Estate of Matthew Renew; Stephanie Renew, individually and as parent of Matthew Renew and as personal representative of the Estate of Matthew Renew; Luke Pickering; Brittin Ray; Michael A. Edwards; Brian Gibson; John Does 1-50; John Does Inc 1 - 50; John Does LLC 1-50, Defendants - Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

999 F.3d 238

AMGUARD INSURANCE COMPANY, Plaintiff - Appellant,

v.SG PATEL AND SONS II LLC; Steven Renew, individually as parent of Matthew Renew and as personal representative of the Estate of Matthew Renew; Stephanie Renew, individually and as parent of Matthew Renew and as personal representative of the Estate of Matthew Renew; Luke Pickering; Brittin Ray; Michael A. Edwards; Brian Gibson; John Does 1-50; John Does Inc 1 - 50; John Does LLC 1-50, Defendants - Appellees.

No. 20-1246

United States Court of Appeals, Fourth Circuit.

Argued: May 6, 2021

Decided: June 7, 2021

ARGUED: Crystal L. Maluchnik, JANIK L.L.P., Hilton Head Island, South Carolina, for Appellant. Justin Tyler Bamberg, BAMBERG LEGAL, Bamberg, South Carolina, for Appellees. ON BRIEF: Steven G. Janik, JANIK L.L.P., Hilton Head Island, South Carolina, for Appellant. J. Martin Harvey, Barnwell, South Carolina, for Appellees.

Before NIEMEYER, FLOYD, and RUSHING, Circuit Judges.

Reversed and remanded by published opinion. Judge Niemeyer wrote the opinion, in which Judge Floyd and Judge Rushing joined.

NIEMEYER, Circuit Judge:

This appeal presents the question of whether the district court had subject matter jurisdiction over an interpleader action commenced by a liability insurance company, whose policy was exposed to conflicting and excess claims.

Facing numerous claims made against its insured — a convenience store — that exceeded the policy limits, AmGuard Insurance Company, a Pennsylvania corporation with its principal place of business in Pennsylvania, commenced this action in the nature of an interpleader and for a declaratory judgment against its insured and the claimants to the proceeds of its policy, all of whom were South Carolina citizens. For the interpleader claim, AmGuard relied on 28 U.S.C. § 1335 (statutory interpleader), and for its declaratory judgment claim, it relied on 28 U.S.C. § 2201 (creating the declaratory judgment remedy) and 28 U.S.C. § 1332 (establishing diversity jurisdiction). Sua sponte, the district court dismissed the action for lack of subject matter jurisdiction on the ground that no diversity of citizenship existed among the claimants to the AmGuard policy, as required by § 1335(a) (providing jurisdiction in interpleader actions when "[t]wo or more adverse claimants, of diverse citizenship[,] ... may claim to be entitled to [a policy's proceeds]"). The court did not address AmGuard's request for a declaratory judgment and dismissed the action in its entirety.

Because AmGuard disputed the amount that the claimants maintained was available under AmGuard's policy, having acknowledged coverage for only a lesser amount, we conclude that it was a "claimant" adverse to the other claimants to the proceeds of the policy, and accordingly, the diverse citizenship between AmGuard and the South Carolina claimants provided the district court with the minimal diversity needed for jurisdiction under § 1335. We therefore reverse and remand for further proceedings.

I

On Friday evening, July 13, 2018, one of a group of five underage teenagers purchased beer at the "Quick & Easy" convenience store in Barnwell County, South Carolina, which was owned by SG Patel and Sons II LLC, and the five began drinking the beer on the premises. Later that evening — in the early morning hours of July 14 — the five were in a car that was being driven by one of them who was under 18, "severely intoxicated," and driving too fast. Unable to negotiate a bend in the road, the driver crashed into a concrete loading dock, killing one passenger and severely injuring the other four occupants. The five occupants (the deceased through his estate) made claims against the convenience store and AmGuard, its insurer, asserting that the convenience store was liable for their injuries in selling beer to an underaged person. They claimed that their damages far exceeded the policy limits of the AmGuard liability insurance policy issued to the convenience store.

By a letter to AmGuard dated February 14, 2019, the five claimants sought to lay the foundation for a bad-faith claim against the insurance company, as recognized in Tyger River Pine Co. v. Maryland Casualty Co. , 170 S.C. 286, 170 S.E. 346, 348 (1933) (recognizing a bad-faith claim against an insurance company for damages in excess of policy limits). The letter demanded that AmGuard settle with the five claimants for $3 million — the amount they claimed was payable under AmGuard's policy — and stated that the offer would be "immediately and irrevocably withdrawn" after five days. The letter also warned that after the offer was withdrawn, the claimants would file suit seeking damages against the convenience store "in excess of the available policy limits." The letter noted that in a neighboring county, a jury had recently returned a verdict of over $25 million against a convenience store that had sold beer to minors, resulting in an accident.

The policy that AmGuard issued to Patel had liability limits of $1 million for each occurrence and $2 million in the general aggregate for all occurrences, and liquor liability limits of $500,000 for each common cause and $1 million in the aggregate. The policy provided that the $500,000 figure was "the most [AmGuard] [would] pay for all ‘bodily injury’ and ‘property damage’ sustained by one or more persons or organizations as the result of the selling, serving or furnishing of alcoholic beverages to any one person."

Following receipt of the claimants’ letter, AmGuard took the position that the $500,000 liquor liability limit applied and was the maximum for which it could be liable under the policy. Accordingly, it commenced this action against Patel and the five claimants for a declaratory judgment to resolve the dispute over policy limits, for interpleader to have the court distribute the policy limits among the five claimants, and for an injunction protecting it from further claims with respect to the occurrence. In particular, the complaint sought a declaratory judgment under 28 U.S.C. § 2201, requesting the court to "declare the rights and legal relations of the Parties to ... these proceedings" and asserting that AmGuard provided coverage of only $500,000 under the liquor liability limit. It also sought interpleader under 28 U.S.C. § 1335, requesting an order authorizing AmGuard to deposit $500,000 into the registry of the court and post a bond for the additional $2.5 million in dispute, bringing the total to $3 million, "which is the maximum sum sought by Defendants in connection with the Accident." Finally, the complaint sought court orders requiring the defendants to interplead with respect to the deposited sum and, pursuant to 28 U.S.C. § 2361, restraining the defendants from instituting or prosecuting any other proceeding against AmGuard "in any State or United States court affecting the Policy's proceeds, obligations and/or issues involved in this interpleader action."

In alleging jurisdiction, the complaint asserted that AmGuard was a corporation organized under the laws of Pennsylvania with its principal place of business in Pennsylvania; that Patel was a limited liability company organized under the laws of South Carolina with its principal place of business in South Carolina; that the five claimants were citizens and residents of South Carolina; and that the amount in controversy exceeded $75,000. On those allegations, it alleged that the court had subject matter jurisdiction to grant a declaratory judgment pursuant to the complete diversity of citizenship required under § 1332 and that the court had jurisdiction to order the interpleader pursuant to § 1335, which requires only minimal diversity of citizenship among at least two "adverse claimants."

The defendants filed answers to the complaint and, at the same time, motions to dismiss pursuant to Rules 12(b)(1) and 12(h). In their motions, they contended that because the claimants withdrew their "time-sensitive Tyger River settlement demand," the action was "either moot or not currently ripe for adjudication." They argued that "[b]ecause the settlement demand about which AmGuard brings this action is no longer active, and the question of coverage in the policy is entirely dependent on the factual averments in the now non-existent demand — and in turn a non-existent Complaint for the underlying accident — there is no longer a justiciable case or controversy before the Court and it should dismiss AmGuard's action." The defendants did not otherwise dispute the allegations of subject matter jurisdiction contained in AmGuard's complaint.

AmGuard opposed the defendants’ motion to dismiss and filed its own motion for summary judgment for a declaratory judgment and interpleader.

The district court conducted a hearing on the pending motions, during which the defendants reiterated that "the matter is moot." They maintained that "[w]ithout there being an offer on the table, there's no basis for [AmGuard's] [declaratory judgment] and interpleader at this point in time, ... [which] divests this Court of jurisdiction over this matter." AmGuard argued, however, that the continuing dispute over the policy's limits presented an actual case or controversy and therefore that the case was not moot. As it explained to the court, "[t]hey think it's 3 million [dollars]. We think it's a half million. But we're here to pay the limits as the Court orders from that standpoint." AmGuard also argued that the interpleader statute established jurisdiction, authorizing an action against claimants that "may claim to be entitled to such money" from an insurance policy. 28 U.S.C. § 1335(a)(1) (emphasis added). During the dialogue with the court about the depositing of money, AmGuard stated that the action was "not a Rule 22 interpleader, ... because the filing of the original complaint was under 28 U.S.C. § 1335," which requires a deposit of money or a bond. And with respect to § 1335, it asserted that there was "minimal diversity" as required by...