Flagstar Corp. v. Royal Surplus Lines, 2866.

• Decision Date: 29 June 1998
• Docket Number: No. 2866.,2866.
• Citation: 503 S.E.2d 497,332 S.C. 182
• Parties: FLAGSTAR CORPORATION, Flagstar Companies, Inc., Denny's, Inc., and Denny's Holdings, Inc., Respondents, v. ROYAL SURPLUS LINES and Royal Indemnity Company, Appellants.
• Court: South Carolina Court of Appeals

332 S.C. 182

503 S.E.2d 497

FLAGSTAR CORPORATION, Flagstar Companies, Inc., Denny's, Inc., and Denny's Holdings, Inc., Respondents, v. ROYAL SURPLUS LINES and Royal Indemnity Company, Appellants.

No. 2866.

Court of Appeals of South Carolina.

Heard June 3, 1998.

Decided June 29, 1998.

Rehearing Denied August 20, 1998.

George Trenholm Walker and Andrew K. Epting, both of Pratt-Thomas, Pearce, Epting & Walker, Charleston, for appellants.

George A. Tsougarakis and Norman C. Kleinberg, New York; and Perry D. Boulier, William U. Gunn and William B. Darwin, Jr., all of Holcombe, Bomar, Gunn & Bradford, Spartanburg, for respondents.

CURETON, Judge:

This appeal involves a declaratory judgment action to determine insurance coverage. At issue on appeal is an order granting the respondents' motion for separate trials pursuant to Rule 42(b), SCRCP. We reverse and remand.

BACKGROUND

In July 1993, the respondents (collectively referred to as Flagstar) brought a declaratory judgment action against various insurance companies that provided them primary and excess liability insurance coverage. Royal Surplus Lines (Royal) is one of the excess liability insurers. In the complaint, Flagstar alleged two class action lawsuits had been instituted against it by African-American customers of Denny's restaurants. In these suits, the class representatives asserted they had been denied equal service at the restaurants and had been subjected to racially derogatory comments and treatment. In the declaratory judgment suit, Flagstar claimed the various insurers owed it the duty to defend and to indemnify it with respect to the class action lawsuits.

Royal alleged in its answer that the terms of its excess insurance policy did not obligate it to provide a defense to Flagstar, and it had no obligation to pay until after the underlying insurers had paid or had been held legally liable to pay the full amount of their respective policies. Royal also adopted all defenses asserted by another insurer, International Insurance Company (International), since the Royal policy was to follow form to International's policy, and since Royal's policy provided a layer of coverage above the International policy. International had issued a commercial umbrella policy to Flagstar. In following form to International's policy, Royal agreed in its insuring agreement to indemnify Flagstar for its losses in excess of the underlying limits that would have been payable under the liability coverages provided by the International policies, subject to Royal's endorsements, conditions, and exclusions.

International alleged, among other things, that coverage was excluded under its commercial umbrella policy for the class action suits because of an exclusion for "bodily injury" or "personal injury" that "arises on the basis of race, creed, color, sex, age, [or] national origin." Additionally, International asserted no accident was involved, and there was no coverage due to the intentional act exclusion in its policy.

After the answers were filed by the various insurers, International and Royal filed motions for judgment on the pleadings. They asserted they were entitled to dismissal of the declaratory judgment action because their respective policies contained an exclusion for "bodily injury" or "personal injury" that "arises on the basis of race, creed, color, sex, age, [or] national origin." The trial court denied the motions. The court stated that although the insurers had argued that their policies "specifically and unambiguously exclude coverage" for the class action suits, the pertinent language of the policies did not support that conclusion. In May 1996, Flagstar filed a motion for separate trials under Rule 42(b), SCRCP. The motion stated:

Pursuant to this motion, plaintiffs seek an order of this Court requiring an initial trial on the issue of whether Exclusion C of the Defendants' insurance policy precludes coverage in this matter. Plaintiffs further request that discovery should be limited during this initial phase to the issues pertaining to the application of Exclusion C. The second trial, and related discovery, will consist of all other issues in this litigation.

Exclusion C refers to the policy exclusion for "bodily injury" or "personal injury" that arises on the basis of race, creed, color, sex, age, or national origin. At the hearing on the motion, Flagstar argued the insurers were entitled to judgment in their favor if the exclusion applied. Therefore, it would be more expedient to conduct discovery on that issue and resolve it first. Royal argued there were other dispositive issues in the case besides Exclusion C. Specifically, there were the questions of the number of "occurrences" as defined in the insurance policies, and whether there was any intentional act on the part of management. Royal contended Rule 42 does not permit bifurcation of discovery. Rather, discovery should be conducted on all coverage issues at one time, since many of the same witnesses would be involved, and since discovery would be more cost and time effective if it were conducted only once.

The trial court granted the motion for separate trials. The order states:

The Court finds that bifurcating this matter into separate trials so as to resolve the Exclusion C issue in an initial trial would promote the interest of convenience, expedition and judicial economy. The Court notes that during the early stages of this case, Defendant, along with the other insurance companies originally named as defendants in this action, filed a Motion for Judgment on the Pleadings. Defendants' Motion for Judgment on the Pleadings was based on the argument that Exclusion C, as a matter of law, precludes coverage in this matter. The Court recognizes that there are many issues involved in this case but the Defendants' Motion for Judgment on the Pleadings reflects some recognition on the Defendants' part that Exclusion C and its application in this case are a critical, threshold issue in this case. Furthermore, Plaintiffs have conceded that if this initial trial results in a determination that Exclusion C precludes coverage, then this litigation would be terminated without the need to address all the other issues present in this case.

As part of this Court's Order granting Plaintiffs' Motion for Separate Trials, this Court will also bifurcate discovery. Accordingly, all discovery in this case will be limited to matters relevant to the issue of whether Exclusion C precludes coverage. The Court recognizes that Rule 42(b) of the South Carolina Rules of Civil Procedure does not expressly provide for the bifurcation of discovery. However, such relief clearly was sought in Plaintiffs' Motion for Separate Trials and this Court certainly has discretion pursuant to the applicable provisions of Rule 16 and Rule 26 of the South Carolina Rules of Civil Procedure to control discovery and to issue such Orders concerning discovery which the Court determines will further the fair and expeditious resolution of this case.

ISSUES

Flagstar raises the issue of the appealability of the trial court's order and argues the order is unappealable. Flagstar asserts the order is interlocutory and neither involves the merits of the case nor affects a substantial right of either party.

Royal asserts the trial court erred in granting Flagstar's motion because the requirements for separate trials on separate issues under Rule 42(b), SCRCP, have not been met. Also, Royal argues the court erred in ordering bifurcation of discovery because Rule 42 does not provide for such bifurcation, and it would be substantially prejudiced thereby.

DISCUSSION

This court previously considered the issue of appealability of the circuit court's order pursuant to a motion to dismiss filed by Flagstar and decided to permit the case to proceed to briefing and disposition on the merits. We adhere to that decision. This court has appellate jurisdiction for corrections of errors of law. S.C.Code Ann. § 14-3-330 (1976). We may review "[a]n order affecting a substantial right made in an action when such order (a) in effect determines the action and prevents a judgment from which an appeal might be taken or discontinues the action." S.C.Code Ann. § 14-3-330(2). In South Carolina, orders affecting the mode of trial affect substantial rights and must be appealed immediately. Lester v. Dawson, 327 S.C. 263, 491 S.E.2d 240 ...