Croft v. Old Republic Ins. Co.
| Decision Date | 22 August 2005 |
| Docket Number | No. 26032.,26032. |
| Citation | 618 S.E.2d 909 |
| Court | South Carolina Supreme Court |
| Parties | Gene W. CROFT, Jr., as Personal Representative of the Estate of Gene W. Croft, Sr., Plaintiff, v. OLD REPUBLIC INSURANCE COMPANY, Defendant. |
Richard A. Harpootlian and M. David Scott, both of Columbia, for Plaintiff.
Clayton M. Custer, Brent O.E. Clinkscale, and Heather G. Ruth, all of Womble Carlyle Sandridge & Rice, PLLC, of Greenville, for Defendant.
We accepted four questions certified by the United States District Court for South Carolina pursuant to Rule 228, SCACR. The questions involve the applicability of underinsured motorist coverage provisions to exempt commercial policies sold to a commercial insured.
The facts are drawn from the district court's certification order, which includes stipulated facts and findings of fact. Gene Croft, Jr. (Plaintiff), as personal representative of the estate of his father, Gene Croft, Sr. (Decedent) initiated a declaratory judgment action in state court against Old Republic Insurance Co. (Old Republic). Old Republic removed the action to federal court on the basis of diversity jurisdiction.
The underlying complaint alleges Decedent was involved in an automobile wreck while driving a semi-truck belonging to his employer, Penske Truck Leasing Co. (Penske). The driver and passenger in the other vehicle were at fault in causing the wreck. Decedent died as a result of injuries sustained in the wreck. The alleged at-fault driver and passenger had minimum liability coverage of $15,000, which has been tendered to Plaintiff in return for a covenant not to execute.
Plaintiff alleges Old Republic failed to make a required meaningful offer of optional underinsured motorist (UIM) coverage to the named insured, Penske. Plaintiff seeks to have the automobile insurance policy sold by Old Republic reformed to include UIM coverage up to the liability limit contained in the policy.
The insurance policy in question was a three-year policy, renewable on an annual basis, covering the period of January 1, 2000, to January 1, 2003. The wreck occurred January 23, 2002, within the policy's effective dates. The policy contains a deductible equal to the coverage limits contained in the policy. This type of policy is referred to in the insurance industry as a "fronting policy."
The total combined premium paid by Penske for the policy exceeded $50,000 a year. The policy provided coverage in all fifty states. Before commencing this action, Old Republic did not seek or obtain approval from the South Carolina Department of Insurance (Department) to sell the policy as an "exempt commercial policy" as that term is defined in S.C.Code Ann. § 38-1-20(40) (2002).
From 1998 to 2001, Old Republic presented certain forms purporting to make a meaningful offer of optional UIM coverage to Penske. Penske annually rejected UIM coverage, stating, e.g., in a letter to Old Republic that "our company philosophy is to purchase the minimum limits for uninsured/underinsured motorist coverage only where required by statute and reject this extra coverage when permitted by a state" (emphasis in original).
1. Is the Old Republic/Penske policy at issue an "exempt commercial policy" as that term is defined in S.C.Code Ann. § 38-1-20(40)?
2. Assuming the answer to # 1 is "yes," are automobile insurers in South Carolina required to make a meaningful offer of optional UIM coverage when selling an "exempt commercial policy" as that term is defined in Section 38-1-20(40)?
3. Are automobile insurers in South Carolina required to make a meaningful offer of optional UIM coverage when selling a "fronting policy" in which the insured's deductible limits equal the liability limits?
4. In a commercial "fronting policy," is an insurer required to comply with the requirements of State Farm Mut. Auto. Ins. Co. v. Wannamaker, 291 S.C. 518, 354 S.E.2d 555 (1987), in order to make a meaningful offer of optional UIM coverage, when the insured has expressed a desire not to purchase UIM coverage?
In answering a certified question raising a novel question of law, the Court is free to decide the question based on its assessment of which answer and reasoning would best comport with the law and public policies of this state and the Court's sense of law, justice, and right. See I'On, L.L.C. v. Town of Mt. Pleasant, 338 S.C. 406, 411, 526 S.E.2d 716, 719 (2000) (); Osprey, Inc. v. Cabana Ltd. Partnership, 340 S.C. 367, 372, 532 S.E.2d 269, 272 (2000) (same); Clark v. Cantrell, 339 S.C. 369, 378, 529 S.E.2d 528, 533 (2000) (same); Antley v. New York Life Ins. Co., 139 S.C. 23, 30, 137 S.E. 199, 201 (1927) ().
Plaintiff argues the policy at issue is not an "exempt commercial policy" as that term is defined in S.C.Code Ann. § 38-1-20(40) because Old Republic never sought or obtained Department's approval before selling such a policy. Old Republic contends the policy is an exempt commercial policy under the definition in effect at the time of Decedent's death in January 2002.
The Legislature, defining the term for the first time, provided in 2000 that
"[e]xempt commercial policies" means policies for large commercial insureds where the total combined premiums to be paid for these policies for one insured is greater than $50,000 annually and as may be further provided for in regulation or in bulletins issued by the director. Exempt commercial policies include all property and casualty coverages except for commercial property and insurance related to credit transactions written through financial institutions.
Act No. 235 § 1, 2000 S.C. Acts 1680 (effective March 7, 2000, and codified at S.C.Code Ann. § 38-1-20(40) (2002)). This provision was in effect at the time of the fatal wreck.1
Act No. 235 further provided
[i]t is unlawful for an insurer doing business in this State to issue or sell in this state any exempt commercial policy, contract or certificate until it has been filed with and approved by the director or his designee. A filing that is filed with the department is deemed to have met the requirements of this chapter unless it (1) does not meet the requirements of law, (2) contains any provisions which are unfair, deceptive, ambiguous, misleading, or unfairly discriminatory, or (3) is going to be solicited by means of advertising, communication, or dissemination of information which is deceptive or misleading. If a filing is not in compliance with this chapter the director or his designee shall issue an order specifying in detail the provisions with which the insurer has not complied and stating the time within which the insurer has to comply with the order before the filing is no longer valid. An order issued by the director pursuant to this section must be on a prospective basis only and may not affect a contract issued or made before the effective date of the order.
Act No. 235 § 4, 2000 Acts 1681 (codified at S.C.Code Ann. § 38-61-25 (2002)). Under this provision, it is apparent the Legislature intended to allow issuers of exempt commercial policies to file a policy form with Department, and it would be deemed approved unless Department subsequently issued an order to the contrary. See also Act No. 235 § 3, 2000 Acts 1680 (providing that insurers which issue exempt commercial policies are not required to obtain approval from Department before selling them) (codified at S.C.Code Ann. § 38-61-20(A) (Supp.2004)).
The Legislature further provided that sellers of exempt commercial policies are not required to file rate schedules and plans with Department. Act No. 235 §§ 6-7, 2000 Acts 1682-83 (codified at S.C.Code Ann. §§ 38-73-340 and -520 (Supp.2004));2 see also Act No. 235 § 8, 2000 Acts 1683 (providing that statute requiring notice of hearings on rate increases does not apply to exempt commercial policies, which "are not subject to prior approval" by Department) (codified at S.C.Code Ann. § 38-73-910(G) (2002)).
Department has promulgated regulations which for the most part track the language of the previously cited statutes. The regulations provide that "[n]o insurer of exempt commercial policies will be required to file any classification, rate, rule, or rating plan, or modifications thereof, for any exempt commercial insurance line prior to its use in this state." An insurer issuing an exempt commercial policy must file the policy form with Department and must maintain a desk file of such forms for examination by Department upon request. Department, after reviewing such a policy form, may disapprove the form for continued use on a prospective basis. S.C.Code Ann. Reg. 69-64 (Supp.2004) (effective June 27, 2003).
Lastly, the Legislature amended a provision contained in Chapter 73 of Title 38, which deals with the filing and approval of certain insurance rates. The Legislature added a subsection in the "Declaration of Purpose" provisions to state that a purpose of the chapter is to "provide for reasonable competition for commercial property and casualty insurers of insureds who make large purchases of insurance." Act No. 235 § 5, 2000 Acts 1681 (codified at S.C.Code Ann. § 38-73-10(a)(4) (2002)); see also Act No. 181 § 783, 1993 Acts 2079 (setting forth previous version of § 38-73-10(a)).
Based on the above provisions and focusing primarily on Act No. 235 which took effect in 2000, we answer Question 1 "yes," the policy at issue is an "exempt commercial policy" pursuant to ...
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