First Fin. Ins. Co. v. Brumbaugh

• Decision Date: 08 January 2014
• Docket Number: No. 12-2452,12-2452
• Parties: FIRST FINANCIAL INSURANCE COMPANY, Plaintiff - Appellant, v. TONYA BRUMBAUGH, as Personal Representative for the Estate of Wanda Elaine Malmede Holland, Defendant - Appellee, and CHAD WAYNE KESSING, SR.; EDWARD STEVE ENGLISH; GARY DENAUX; GAREY G. GOREY; WHOLESALE TRANSMISSIONS AND AUTO REPAIR; GHA LLC, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

FIRST FINANCIAL INSURANCE COMPANY, Plaintiff - Appellant, v. TONYA BRUMBAUGH, as Personal Representative for the Estate

of Wanda Elaine Malmede Holland, Defendant - Appellee,

and

CHAD WAYNE KESSING, SR.; EDWARD STEVE ENGLISH; GARY DENAUX;

GAREY G. GOREY; WHOLESALE TRANSMISSIONS

AND AUTO REPAIR; GHA LLC, Defendants.

No. 12-2452

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: September 18, 2013

Decided: January 8, 2014

UNPUBLISHED

Appeal from the United States District Court for the District of South Carolina, at Charleston. Richard M. Gergel, District Judge. (2:11-cv-00554-RMG)

Before SHEDD, DUNCAN, and KEENAN, Circuit Judges.

Vacated and remanded by unpublished opinion. Judge Keenan wrote the majority opinion, in which Judge Duncan joined. Judge Shedd wrote a dissenting opinion.

ARGUED: Mark S. Barrow, SWEENY, WINGATE & BARROW, PA, Columbia, South Carolina, for Appellant. William Mullins McLeod, Jr., MCLEOD LAW GROUP, Charleston, South Carolina, for Appellee. ON BRIEF: William R. Calhoun, Jr., Aaron J. Hayes, SWEENY, WINGATE & BARROW, PA, Columbia, South Carolina, for Appellant. Julie L. Moore, MCLEOD LAW GROUP, LLC, Charleston, South Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

BARBARA MILANO KEENAN, Circuit Judge:

In this appeal, we consider whether the district court properly applied principles of equitable estoppel under South Carolina law in requiring that an insurance carrier provide coverage to a third party not otherwise entitled to coverage under the terms of the policy at issue. Upon our review, we conclude that the district court abused its discretion in using the doctrine of estoppel to create coverage under these circumstances. We therefore vacate the district court's judgment.

I.

Appellant First Financial Insurance Co. (First Financial) issued a liability insurance policy to Gary Denaux, formerly the sole proprietor of Wholesale Transmission, an automotive transmission business located in Moncks Corner, South Carolina. The policy issued to Denaux (the policy or the Denaux policy) listed the named insured as "Gary Denaux DBA Wholesale Transmission." The term "insured" was defined in the policy to include the named insured as well as his employees.¹

In the section of the policy declarations entitled "form of business," the policy listed "individual," rather than alternative options including "partnership" and "limited liability company." Under the policy, First Financial agreed to "pay all sums an 'insured' legally must pay as damages because of 'bodily injury' or 'property damage' . . . caused by an 'accident' and resulting from 'garage operations.'"

By its terms, the policy was effective from May 23, 2007 through May 23, 2008. Under the heading "Transfer of Your Rights and Duties Under this Policy," the policy provided:

Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.

(Emphasis added).

Midway through the term of the policy, Denaux ceased operating his business. A former coworker, Edward English, opened a new automotive transmission business in the same location, also named Wholesale Transmission. English and a friend, Garey Gorey, operated the new business through a newly formed limited liability company. Upon receiving a bill addressed to Denaux at the business' address, English paid the last installment of the Denaux policy premium in February 2008.

Denaux did not attempt to cancel the policy or to transfer his coverage under the policy to English. In April 2008, as the policy was nearing its termination date, First Financial sent byfacsimile a blank insurance application to Lee Ann Wise, the independent insurance agent who had obtained the policy for Denaux and who also was acting as English's agent. Wise thought that the application was for a renewal of the Denaux policy, which was to expire on May 23, 2008.

On May 2, 2008, Wise sent a completed application for a policy in English's name to an underwriter for First Financial. Her facsimile transmission included a cover sheet, which stated:

Gary Denaux is no longer the owner of this company. I made the changes on the app[lication]. I am not sure if you will need to re-quote it w[ith] the new owner [and] drivers. Please call me if you have any questions.

On June 6, 2008, First Financial issued a new policy to "Steve Edward English DBA Wholesale Transmission" (the English policy), retroactively effective as of May 23, 2008, the same day that the Denaux policy expired.

Eleven days before the expiration of the Denaux policy, but before the English policy went into effect, one of English's employees, Chad Kessing, was involved in a vehicle collision that resulted in the death of Wanda Holland (the accident). Tonya Brumbaugh, the personal representative of Holland's estate, filed a wrongful death action in a South Carolina state court against Kessing, Wholesale Transmission, Denaux, English's limited liability company, and English. First Financial later brought the present action in federal district court againstKessing, English, Denaux, Gorey, Wholesale Transmission, English's limited liability company, and Brumbaugh, seeking a declaration that the Denaux policy did not provide coverage in the underlying liability lawsuit.

The district court entered default judgment against all of the defendants except Brumbaugh. ² The defaulting defendants therefore admitted the following:

Mr. Denaux, the named insured under First Financial's policy, cannot be liable—directly or vicariously—for the injuries to or death of Ms. Holland. He had sold the business and left it entirely approximately four months before Kessing's accident.

Kessing was not an insured under Denaux's policy at the time of the accident. He did not fit into the policy's "Who is an Insured" provision because he was not an employee of Denaux when the accident occurred; he was employed by Steve English in a different business than that owned by Gary Denaux. Mr. Denaux had no "power or right to control and direct" Mr. Kessing at the time of the accident.

Mr. Denaux could not, and did not, transfer his rights and duties under the policy to Steve English; [Garey] Gorey; GHA, LLC; or Wholesale Transmission and Auto Repair. Denaux did not seek, and did not obtain, First Financial's written consent to transfer any rights under [the policy] to any other party.

See DIRECTV, Inc. v. Rawlins, 523 F.3d 318, 322 n.2 (4th Cir. 2008) (citing Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001)) (explaining that, when a defendant defaults, he admits the plaintiff's factual allegations astrue). The district court thereafter entered a default judgment order holding that the Denaux policy did not provide coverage for any of the defaulted defendants.

After entering the default judgment order, and after considering the cross-motions for summary judgment filed by First Financial and Brumbaugh, the district court held as a matter of law that the Denaux policy did not provide coverage for the accident, because First Financial had not consented in writing to the transfer of Denaux's rights under the policy to English and his employees. Following this determination, the district court held a bench trial to resolve the court's additional question whether First Financial "should be equitably estopped from denying coverage, notwithstanding the fact that coverage does not technically exist under the terms of the Policy."

At the conclusion of the bench trial, the district court reiterated that the Denaux policy did not cover the accident, but nevertheless held that First Financial was equitably estopped from denying coverage because, by its conduct, First Financial had reasonably induced English to believe that Denaux's rights under the policy had been transferred. First Financial timely appealed from the district court's judgment imposing equitable estoppel in this case.

II.

We review the district court's decision to apply equitable estoppel for abuse of discretion. Am. Bankers Ins. Grp. v. Long, 453 F.3d 623, 629 (4th Cir. 2006). Under the facts of this case, we note at the outset that English never was a named insured under the Denaux policy, and was not otherwise a party to an insurance contract with First Financial at any time before the accident.³ See Auto-Owners Ins. Co. v. Rhodes, No. 27316, 2013 S.C. LEXIS 248, at *21-22 (S.C. Sept. 25, 2013) (citations omitted) (citing cases for the proposition that, when an insurance policy is issued for a sole proprietorship, the policy is considered to be issued to the proprietor personally).

Under South Carolina law, the doctrine of equitable estoppel applies when the party to be estopped (1) engages in "conduct which amounts to a false representation, or conduct which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) [has] the intention that such conduct shall be acted upon by the other party; and (3)[has] actual or constructive knowledge of the real facts." Strickland v. Strickland, 650 S.E.2d 465, 470 (S.C. 2007). Estoppel can be established through a party's silence when that party owes the other a duty to speak but "refrains from doing so and thereby leads the other to believe in the existence of an erroneous state of facts." S. Dev. Land & Golf Co. v. S.C. Pub. Serv. Auth., 426 S.E.2d 748, 751 (S.C. 1993) (citation omitted). The party asserting estoppel must demonstrate "(1) lack of knowledge, and the means of knowledge, of the truth as to the facts in question; (2) reliance upon the conduct of the party estopped; and (3) a prejudicial change of position in reliance on the conduct of the party being estopped." Strickland, 650 S.E.2d at 470.

Although estoppel is a flexible doctrine that requires consideration of the relative equities between the parties, see Pitts v. N.Y. Life Ins. Co., 148 S.E.2d 369, 371-72 (S.C. 1...