Auto–Owners Ins. Co. v. Madison at Park W. Prop. Owners Ass'n, Inc.

• Decision Date: 06 July 2011
• Docket Number: C/A No. 2:09–CV–00802–MBS.
• Citation: 834 F.Supp.2d 437
• Court: U.S. District Court — District of South Carolina
• Parties: AUTO–OWNERS INSURANCE COMPANY, Plaintiff, v. MADISON AT PARK WEST PROPERTY OWNERS ASSOCIATION, INC.; Madison at Park West Tarragon LLC; Northland Madison at Park West LLC; Northland Properties Management LLC; Northland Investment Corporation; Elizabeth O'Donnell; Mary Ann Neaton; and John Buiel, Defendants.

834 F.Supp.2d 437

AUTO–OWNERS INSURANCE COMPANY, Plaintiff,

v.MADISON AT PARK WEST PROPERTY OWNERS ASSOCIATION, INC.; Madison at Park West Tarragon LLC; Northland Madison at Park West LLC; Northland Properties Management LLC; Northland Investment Corporation; Elizabeth O'Donnell; Mary Ann Neaton; and John Buiel, Defendants.

C/A No. 2:09–CV–00802–MBS.

United States District Court,

D. South Carolina,

Charleston Division.

July 6, 2011.

Taylor Harrison Stair, Elmore and Wall, Morgan S. Templeton, Charleston, SC, for Plaintiff.

Clayton B. McCullough, George Trenholm Walker, Pratt–Thomas Pearce Epting and Walker, Charleston, SC, Michael S. Seekings, William Jefferson Leath, Jr., Leath Bouch and Seekings, for Defendants.

FINDINGS OF FACT & CONCLUSIONS OF LAW

MARGARET B. SEYMOUR, District Judge.

I. BACKGROUND

The insurance coverage issues in this declaratory judgment suit arise from a class action filed in South Carolina State Court (the “State Action”) by Defendants Elizabeth O'Donnell, Mary Ann Neaton and John Buiel (the “Homeowners” or “Homeowner Defendants”), on behalf of themselves and all others similarly situated. Compl. ¶ 21, ECF No. 1; see also State Ct. Am. Compl., ECF No. 1–4 at 2. The Homeowner Defendants own individual condominium units in the Madison at Park West condominium complex in Mount Pleasant, South Carolina (the “Property”). The Property was an apartment complex until on or about November 10, 2005, when Defendant Madison at Park West Tarragon, LLC (“Tarragon”) purchased it for the purpose of converting it into condominiums. See Stipulations of Fact ¶¶ 1, 8, ECF No. 70. Tarragon owned the Property (and several individual condominium units at the Property) until on or about December 28, 2007, when Tarragon was purchased by Northland Fund II, L.P. (the “Northland Fund”), an affiliate of Defendant Northland Investment Corporation. Id. at ¶¶ 11–12.

Defendant Madison at Park West Property Owners Association, Inc. (the “POA”), a corporation registered in South Carolina, was formed in 2006 pursuant to South Carolina's Horizontal Property Act, S.C.Code Ann. § 27–31–10 et seq.¹ The POA's Master Deed, which was recorded on September 7, 2006 in the Register Mesne Conveyance Office for the County of Charleston, South Carolina, provides that, “[e]xcept as specifically provided to the contrary herein, the [POA] will maintain the Common Elements in first class condition in accordance with proper maintenance procedures ... and will enforce all warranties with respect to the Common Elements ... the [POA] will [also] repair or replace all parts of the Common Elements as necessary.” Master Deed § 7.1, ECF No. 40–3; see also Stipulations of Fact ¶ 5, ECF No. 70. In total, there are 244 individual condominium units within the Property; the individual owners of the units own the Property's common elements “as tenants-in-common” in varying percentages appurtenant to each unit as set forth in the Master Deed. See Master Deed § 3.4 & Ex. B, ECF No. 40–3.

At issue in the instant action is a series of commercial general liability (“CGL”) insurance policies (the “Policies”) that Plaintiff Auto–Owners Insurance Company (“Auto–Owners”) issued to the POA, pursuant to which Auto–Owners agreed to “pay all sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’ ” that is “caused by an ‘occurrence’ that takes place in the ‘coverage territory.’ ” CGL Policy § I, 1(a) & (b), ECF No. 1–1 at 17.² The Policies also include several provisions setting forth specific circumstances under which coverage is expressly excluded; the relevant exclusions are discussed in greater detail infra. The Policies provided coverage for terms of one year each, together running from August 31, 2006 until August 31, 2009. Stipulations of Fact ¶¶ 2, 4, ECF No. 70. The first two Policies were issued in the name of “Madison at Park West POA, Inc. C/O Tarragon Corp.” with an associated address in Orlando, Florida. 1st Policy Declarations, ECF No. 1–1 at 1; 2d Policy Declarations, ECF No. 1–2 at 1. The third and last Policy was issued in the name of “Madison at Park West POA, Inc. C/O Community Management Group,” with an associated address in Charleston, South Carolina.3d Policy Declarations, ECF No. 1–3 at 1. Tarragon is also separately listed as an “additional insured” in an endorsement attached to the First and Third Policies. See 1st Policy Add'l Insured Endorsement, ECF No. 1–1 at 4; 3d Policy Add'l Insured Endorsement, ECF No. 1–3 at 4.

Through the State Action, the Homeowners seek damages from Northland Madison at Park West LLC (“Northland Madison”), Northland Properties Management, LLC, and Northland Investment Corporation (together, the “Northland Defendants”), Tarragon, and the POA for injuries arising out of alleged “negligence, gross negligence, recklessness, wilfulness, bad faith, breach of warranties, negligent misrepresentations, [and] unfair trade practices” all related to the development, sale, and maintenance of the Property. State Ct. Am. Compl. ¶ 13, ECF No. 1–4 at 5–6. In their complaint, the Homeowners allege, inter alia, that “design and construction defects have resulted in repeated water intrusion into the [Homeowners'] residences, failure of the components of the exterior envelope, failure of the structural system(s), and other consequential damages to the common elements of the [POA] and to the interior of the units.” Id. at ¶ 18. The POA timely notified Auto–Owners of the State Action and Auto–Owners agreed to defend the POA, pursuant to a reservation of rights. Compl. ¶¶ 11, 12, ECF No. 1.

Auto–Owners filed this declaratory judgment action on March 30, 2009, seeking a ruling that the Policies do not provide liability insurance coverage in the State Action. The POA filed a counterclaim against Auto–Owners on May 15, 2009 asserting that, if this Court finds that the Policies do not cover the damages alleged in the State Action, the POA is “entitled to reformation of the [P]olicies to cover such damage.” Answer & Countercl. ¶ 28, ECF No. 15. On October 23, 2009 Auto–Owners filed a motion for summary judgment and, on November 3, 2009, the Homeowner Defendants filed a cross-motion for summary judgment. Pl.'s Summ J. Mot., ECF No. 40; Homeowner Defs.' Cross–Mot. For Summ. J., ECF No. 43. The Court denied the parties' summary judgment motions on April 23, 2010, finding that “material issues of fact remain[ ] as to whether, and to what extent, Plaintiff is entitled to provide coverage to Defendants under the CGL policies.” Text Order, ECF No. 64. The parties were later able to reach agreement on several of these issues and, on June 18, 2010, jointly filed stipulations of fact to this effect. See Stipulations of Fact, ECF No. 70. The Court then held an evidentiary hearing at which it heard testimony regarding any remaining issues of material fact, as well as the parties' summations. Most recently, on March 21, 2011, the Court granted Auto–Owners' motion for leave to file post-trial briefing in light of recent developments in South Carolina insurance law. Text Order, ECF No. 89.

This matter is now fully briefed and ripe for decision. Having carefully considered the record in this case, including the papers submitted by the parties and the evidence presented and arguments made at the hearing referenced above, the Court hereby finds and rules as follows.

II. APPLICABLE LAW

The Court retains “wide discretion” in deciding whether to issue a declaration regarding the rights and obligations of parties to insurance agreements in an action brought pursuant to the federal Declaratory Judgment Act. Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir.1996); see also28 U.S.C. § 2201(a) (“[A]ny court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration....”). The Fourth Circuit has “frequently approved the use of federal declaratory judgment actions to resolve disputes over liability insurance coverage, even in advance of judgment against the insured on the underlying claim for which coverage is sought.” Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 375–76 (4th Cir.1994) (citing cases) (abrogated in part on other grounds by Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995)). In deciding whether a declaratory judgment is appropriate, the Court should consider whether the relief requested will “(1) ... serve a useful purpose in clarifying and settling the legal relations in issue, and (2) ... terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir.1937). Furthermore,

[W]hen an insurer comes to federal court seeking a declaratory judgment on coverage issues while the underlying litigation against its insured is pending in the state courts, considerations of federalism, efficiency, and comity should also figure into the discretionary balance, and may, in certain circumstances, require the federal court to refuse to entertain the action, even when the declaratory relief sought would serve a useful purpose.

Nautilus, 15 F.3d at 376 (citing Mitcheson v. Harris, 955 F.2d 235, 237–41 (4th Cir.1992)). After carefully considering the above factors, the Court finds that it is appropriate to issue a declaratory judgmentdeciding the coverage issues presently before it.

The parties agree that South Carolina law applies to the substantive insurance questions at issue in this dispute. In South Carolina, insurance policies are contracts subject to the general rules of contract construction. See B.L.G. Enters., Inc. v. First Fin. Ins. Co., 334 S.C. 529, 514 S.E.2d 327, 330 (1999) (citing cases). As such, courts “must give policy language its plain, ordinary, and popular meaning.” Id. (citing Fritz–Pontiac–Cadillac–Buick v. Goforth, 312 S.C....