Farmer v. CAGC Ins. Co.

• Decision Date: 23 May 2018
• Docket Number: Opinion No. 5562,Appellate Case No. 2016-000192
• Citation: 424 S.C. 579,819 S.E.2d 142
• Court: South Carolina Court of Appeals
• Parties: Raymond G. FARMER, as Director of the South Carolina Department of Insurance, Petitioner, v. CAGC INSURANCE COMPANY, In Liquidation, Respondent. South Carolina Property and Casualty Insurance Guaranty Association, Appellant, v. CAGC Insurance Company, In Liquidation; Raymond G. Farmer, in his capacity as Ancillary receiver of CAGC Insurance Company, In Liquidation; and CompTrustAGC of South Carolina a/k/a CompTrustAGC of South Carolina, Inc., Respondents.

424 S.C. 579

819 S.E.2d 142

Raymond G. FARMER, as Director of the South Carolina Department of Insurance, Petitioner,

v.CAGC INSURANCE COMPANY, In Liquidation, Respondent.

South Carolina Property and Casualty Insurance Guaranty Association, Appellant,

v.CAGC Insurance Company, In Liquidation; Raymond G. Farmer, in his capacity as Ancillary receiver of CAGC Insurance Company, In Liquidation; and CompTrustAGC of South Carolina a/k/a CompTrustAGC of South Carolina, Inc., Respondents.

Appellate Case No. 2016-000192

Opinion No. 5562

Court of Appeals of South Carolina.

Heard November 8, 2017

Filed May 23, 2018

Rehearing Denied October 18, 2018

Howard A. Van Dine, III, Allen Mattison Bogan, Erik Tison Norton, all of Nelson Mullins Riley & Scarborough, LLP, of Columbia, for Appellant.

Michael A. Molony, Thantus Douglas Concannon, Russell Grainger Hines, all of Young Clement Rivers, of Charleston, for Respondent CompTrustAGC of South Carolina a/k/a CompTrustAGC of South Carolina, Inc., and Geoffrey Ross Bonham, of Columbia, for Respondent Raymond G. Farmer.

HILL, J.:

In this declaratory judgment action, the South Carolina Property and Casualty Insurance Guaranty Association ("Association") appeals the circuit court's grant of CompTrustAGC of South Carolina, Inc.'s ("CompTrust") motions to quash discovery and be dismissed as a party. We reverse, finding CompTrust's dismissal improper.

I.

The Association is a nonprofit entity created by the South Carolina Property and Casualty Insurance Guaranty Association Act ("Guaranty Act"), §§ 38-31-10 to -170 of the South Carolina Code (2015), which controls the Association's duties, liabilities, and obligations. The Association, in statutorily prescribed circumstances, protects insureds of insolvent insurance carriers. S.C. Code Ann. § 38-31-60 (2015) ; S.C. Prop. & Cas. Ins. Guar. Ass'n v. Carolinas Roofing and Sheet Metal Contractors Self-Ins. Fund , 315 S.C. 555, 557, 446 S.E.2d 422, 424 (1994). The Association must "pay covered claims to the extent of the [A]ssociation's obligation and deny all other claims ...." S.C. Code Ann. § 38-31-60(d) (2015). As we will see, what constitutes a "covered claim" as defined by § 38-31-20(8) is the core of this case.

All insurers who write insurance to which the Act applies must become members of the Association. S.C. Code Ann. §§ 38-31-20(11), 40 (2015). The Association is funded by member assessments, which are passed on to consumers in the form of increased premiums. S.C. Code Ann. § 38-31-60(c) (2015).

CompTrust was created in 1982 as a South Carolina unincorporated business trust and operated as a self-insurance trust, providing workers' compensation coverage to its self-insured members ("Self-Insured Coverage"). Self-insured organizations such as CompTrust are not subject to the Guaranty Act, are not members of the Association, and pay no assessments to it.

CAGC Insurance Company ("CAGC") is a North Carolina insurance company established in 2007 by some of CompTrust's principals. In 2008, CAGC became a licensed insurer in South Carolina and began issuing South Carolina workers' compensation liability insurance policies to prior participants in CompTrust. CAGC was a member of the Association and paid assessments to the Association based on the policies it issued.

On December 28, 2010, CompTrust and CAGC executed a Self-Insurance Loss Portfolio Transfer Assumption Agreement (the "LPT Agreement"), wherein, inter alia , CompTrust paid $3,586,527.01 for CAGC to assume all of CompTrust's liabilities on approximately seventy active workers' compensation claims arising out of the Self-Insured Coverage ("Transferred Claims"). The LPT Agreement was approved by the South Carolina Workers Compensation Commission and the North Carolina Department of Insurance. CompTrust voluntarily dissolved on April 1, 2011.

On November 30, 2011, less than a year after execution of the LPT Agreement, the South Carolina Department of Insurance ("Department") determined CAGC was financially unsound. On January 18, 2012, the Department suspended CAGC's authority to transact insurance business in South Carolina. Also in January 2012, CAGC was placed into receivership in North Carolina. On January 6, 2014, a North Carolina court declared CAGC insolvent.

On January 17, 2014, Raymond G. Farmer, Director of Department, petitioned the Richland County Circuit Court to commence this ancillary receivership for CAGC in South Carolina. That court appointed Farmer the Ancillary Receiver of CAGC.

As a result of CAGC's insolvency, claims made by South Carolina workers' compensation claimants against CAGC were brought to the Association. The Association agrees the Guaranty Act requires it to pay claims submitted under policies issued by CAGC, but disputes its obligation to continue paying the Transferred Claims, i.e. those arising under the Self-Insured Coverage provided by CompTrust prior to the LPT Agreement.

To resolve responsibility for the disputed Transferred Claims, the Association moved to intervene in the ancillary receivership, and join CAGC, the Ancillary Receiver, and CompTrust as parties to seek a declaratory judgment as to the Association's responsibility under the Guaranty Act. On June 9, 2014, the Association's motion for joinder and intervention was granted, and service of the declaratory judgment action on CAGC, the Ancillary Receiver, and CompTrust was authorized.

While discovery was proceeding, CompTrust filed a motion to quash pursuant to Rule 26(c), SCRCP, and a motion to dismiss based on Rules 12(b) and 21. Meanwhile, the Association moved for summary judgment, claiming the Transferred Claims could not be considered covered claims under § 38-31-20(8) as they were: (1) initially claims against a self-insured entity and not a direct insurer obligated to pay into the Association's fund; and (2) they constituted "insurance written on a retroactive basis" to cover claims "known to the insurer at the time the insurance is bound" pursuant to § 38-31-30(6).

After hearing arguments, the circuit court issued an order granting CompTrust's motions to quash discovery and be dismissed from the action, and denying the Association's motion for summary judgment. The circuit court found: (1) the motions raised novel issues, including whether an unincorporated business trust can be sued after it has voluntarily dissolved, (2) any claims against CompTrust relating to the LPT Agreement were barred by the statute of limitations, (3) CompTrust's dissolution rendered any grant of effectual relief against CompTrust or its shareholders impossible, and (4) the Association's complaint asserted no cause of action or prayer for relief against CompTrust. It further ruled that, because CompTrust did not retain any records regarding the transferred claims, "neither the argument nor the resolution of the legal question presented in the Complaint would be prejudiced if [CompTrust] were dismissed as a party."

In denying the Association's motion for summary judgment, the circuit court found the Transferred Claims were "covered claims," therefore the Association was responsible for their payment. The Association did not—and could not—appeal this interlocutory ruling. Ballenger v. Bowen , 313 S.C. 476, 477–78, 443 S.E.2d 379, 380 (1994) ("A denial of a motion for summary judgment decides nothing about the merits of the case [and] does not establish the law of the case ... [t]herefore, an order denying a motion for summary judgment is not appealable.").

The Association now appeals the grant of CompTrust's motions to quash discovery and be dismissed as a party.

II.

Initially, CompTrust contends the Association's appeal is untimely because the Association did not serve the presiding judge with a copy of its Rule 59(e), SCRCP, motion. In the alternative, CompTrust argues the Association’s arguments on appeal are barred by the two issue rule because it did not appeal the circuit court's finding that the service failure independently warranted dismissal of the Rule 59(e), SCRCP, motion. CompTrust's timeliness argument was answered by Gallagher v. Evert , 353 S.C. 59, 63, 577 S.E.2d 217, 219 (Ct. App. 2002) ("There is no indication that the failure to transmit a copy of the [ Rule 59(e), SCRCP, motion] to the circuit court affects the tolling provision of Rule 203(b)(1), SCACR. Therefore, the time for filing the notice of appeal did not begin to run until after the circuit court denied the motion ...."). We likewise find CompTrust's reliance on the two issue rule meritless. See, e.g. , Jones v. State , 382 S.C. 589, 594, 677 S.E.2d 20, 22 (2009)abrogated on other grounds by Smalls v. State , 422 S.C. 174, 810 S.E.2d 836 (2018) (evaluating the merits of the State's appeal, despite the PCR judge's dismissal of the State's motion for reconsideration for failure to comply with Rule 59(g), SCRCP ).

III.

We next consider the propriety of using Rule 21, SCRCP, to dismiss CompTrust. A motion to dismiss a party under Rule 21, SCRCP, is addressed to the court's discretion. Demian v. S.C. Health & Human Servs. Fin. Comm'n , 297 S.C. 1, 5, 374 S.E.2d 510, 512 (Ct. App. 1988). Rule 21, SCRCP, provides:

Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just. Any claim against a party may be severed and proceeded with separately.

Because few South Carolina decisions have interpreted our Rule 21, and none to any degree pertinent here, we look to federal cases construing their almost identical Rule 21. Like many of the Federal Rules of Civil Procedure, Rule 21 was designed to remove the traps of common law pleading, where a slight procedural misstep like misjoinder could doom the entire action. 7 Wright & Miller, Federal Practice and Procedure § 1681 (3d ed.). Rule 21 should be viewed by the company it keeps; its neighbors, Rules 17, 19, and 20, are provisions that also tell us...