Metanoia v. XL Ins. Am.
| Decision Date | 19 January 2023 |
| Docket Number | 2:21-cv-01291-DCN |
| Parties | METANOIA and THE CITY OF NORTH CHARLESTON, Plaintiffs, v. XL INSURANCE AMERICA, INC. Defendant. |
| Court | U.S. District Court — District of South Carolina |
This matter is before the court on plaintiffs Metanoia and the City of North Charleston's (the “City”) (together, “plaintiffs”) motion for partial summary judgment, ECF No. 55, and defendant XL Insurance America Inc.'s (“XL Insurance”) motion for summary judgment, ECF No. 56. For the reasons set forth below, the court denies plaintiffs' motion for partial summary judgment, and grants in part and denies in part XL Insurance's motion for summary judgment.
Metanoia is a nonprofit organization incorporated for the purpose of building leaders, establishing quality housing, and generating economic development in North Charleston, South Carolina. A significant part of Metanoia's efforts have been devoted to revitalizing the Chicora-Cherokee neighborhood in North Charleston, which has one of the highest concentrations of child poverty in the state. Metanoia has enjoyed great support from the City, and the two have been working together for approximately twenty years.
Metanoia's efforts include a large-scale project to redevelop an abandoned elementary school known as the Old Chicora School (“Old Chicora”). The Charleston County School District (the “School District”) ceased using Old Chicora in 2012 after it acquired property to build a brand new, modern school, and the City acquired title to Old Chicora and the property that it was located on (collectively, “the Old Chicora property”) from the School District. ECF No. 56-38, MacConnell Dep. at 22:1-13. Old Chicora has been vacant since 2012. In approximately 2016, the City began searching for a partner to help turn the “historic building” into a “strategic building block” for North Charleston. ECF No. 55-1 at 1. The City identified Metanoia as a potential partner, and the two entities eventually settled on a plan to convert Old Chicora into a multi-use facility encompassing a performing arts center, an early childhood learning center, affordable artist work studios, and an educational space for the community, the entirety of which would be owned by Metanoia (the “Project”).
To fund the Project, Metanoia needed to raise funds, secure tax credits, and acquire tax credit investment. Metanoia was able to successfully raise millions of dollars in cash donations and pledges. Metanoia also secured $11,923,650 in federal and state tax credits. Metanoia planned to ultimately purchase Old Chicora from the City in January 2020, but the closing on the transfer of title was later rescheduled to March 2020.
On February 28, 2017, the City and Metanoia signed an “option to lease” document that provided Metanoia with a lease option through February 28, 2019. ECF No. 59-2 at 4. In 2019, Metanoia paid $10,000 to extend the lease option for another year.[1] No written lease was ever signed. However Metanoia and the City began to proceed as though the City had effectively given Metanoia “complete control” of the Old Chicora property. ECF No. 59-4, Summey Dep. at 48:25. For example, Metanoia engaged USI Insurance Services (“USI”) to serve as its insurance broker for builders risk insurance in November 2019. USI approached XL Insurance about providing insurance for the Project. In doing so, USI's representative told XL Insurance's representative that Metanoia had already purchased Old Chicora and that construction work on the Project was “imminent.” ECF No. 56-7 at 2; ECF No. 56-33, Hockinson Aff. ¶¶ 4, 6.
In preparation for construction on the building, Metanoia and its general contractor-Trident Construction, LLC (“Trident Construction”)-determined that they would need to commence demolition at the property prior to any construction work. Metanoia and the City agreed that Metanoia's lease option allowed it to begin the demolition work, even though no written lease had been signed. On November 18, 2019, the Office of Mayor Keith Summey issued a letter to Metanoia confirming the City's belief that Metanoia was permitted to begin the demolition work. ECF No. 55-12. In the same letter, the City wrote that “[i]t is understood by all parties that The City of North Charleston will be listed as additionally insured on the general liability and builder's risk policy.” Id.
XL Insurance issued the Builder's Risk Policy (the “Policy”) on January 2, 2020 and bound coverage for the Project. ECF No. 55-2. The Policy named Metanoia and Trident Construction, LLC as named insureds. Id. at 14. The Policy did not expressly name the City. ECF No. 55-2 at 57. The Policy insured the Project for a total policy amount of up to $21,400,000, including $8,400,000 for damages to existing structures. ECF No. 55-2 at 15. Metanoia paid the insurance premium of $98,870.
On February 8, 2020, a large fire broke out at Old Chicora. The fire destroyed the auditorium and caused significant damage to other areas of the building. Metanoia estimated that it would cost approximately $7,176,605 to repair and replace the parts of the building that had been destroyed. Metanoia immediately filed a claim with XL Insurance. Ten days later, on February 18, 2020, USI asked XL Insurance to endorse the Policy to add the City as an additional insured. USI had not previously raised the request with XL Insurance and did so for the first time after the fire. By letter dated March 20, 2020, XL Insurance cancelled the Policy, with an effective date of May 25, 2020. ECF No. 56-5.
XL Insurance retained an outside adjusting firm, Engle Martin & Associates (“Engle Martin”), to assist with investigating the loss. USI and a third-party public adjuster, Jim Pfohl (“Pfohl”), represented Metanoia. During XL Insurance's investigation of the claim, it discovered that several of the representations made during the underwriting process were incorrect. These misrepresentations included the fact that Metanoia had not yet purchased Old Chicora, that Metanoia did not have a written lease from the City, that construction was not imminent, and that the property was only partially fenced on the date of the fire.[2] Representatives of XL Insurance and Metanoia engaged in substantial back-and-forth regarding the terms of the coverage. For example, on April 16, 2020, a representative from the XL Insurance wrote a letter to Pfohl noting its determination that Metanoia did “not actually have a written lease for the property” and had “not yet exercised its option to purchase the property.” ECF No. 55-3. Then, on August 7, 2020, Engle Martin sent a letter to Metanoia stating that its investigators had developed a preliminary repair estimate of $2,243,870.98. ECF No. 56-20 at 2. Engle Martin also hired an appraiser, who determined that the value of the property before the fire was $1,245,500. Id. Engle Martin explained that XL Insurance was only required to reimburse the latter amount-the actual cash value (as opposed to the replacement cost value)-because Metanoia had not yet completed repairs. Id. As such, XL Insurance ultimately resolved to pay $1.235 million, which was the actual cash value, less the policy deductible of $10,000. Id. The letter also reiterated XL Insurance's belief that Metanoia possessed a limited insurable interest in the property. Id. XL Insurance noted that Metanoia would not be entitled to any further recovery unless it provided information showing it had a greater interest in the Property than what the then-existing information indicated. On December 2, 2020, XL Insurance sent a letter to Pfohl confirming that the company would not be paying replacement cost value. ECF No. 5624. On May 2, 2020, the City filed its own insurance claim but stated that any recovery for the City should be paid to Metanoia. ECF No. 56-29.
Once it became apparent that XL Insurance would not cover the entirety of the claimed damages, tax credit investors walked away from the Project and many donors rescinded their pledged money. Metanoia eventually purchased Old Chicora from the City in April 2021. ECF No. 55-9. However, it has not undertaken any significant repairs to Old Chicora, insisting that XL Insurance's refusal to pay coverage has left it with “a multi-million-dollar hole that need[s] to be filled.” ECF No. 55-1 at 3.
On April 30, 2021, plaintiffs filed the instant action against XL Insurance. ECF No. 1-1. On July 1, 2021, plaintiffs filed an amended complaint. ECF No. 20, Amend. Compl. The amended complaint, now the operative complaint, alleges causes of action for insurance bad faith, breach of contract, and negligence. Additionally, plaintiffs bring a declaratory judgment action and seek to reform the Policy to include the City as an insured. Id. ¶¶ 66, 74. On July 15, 2021, XL Insurance filed its answer to the amended complaint and raised a counterclaim for its own declaratory judgment. ECF No. 24, Ans.
On September 27, 2022, plaintiffs filed their motion for partial summary judgment. ECF No. 55. On October 17, 2022, XL Insurance responded in opposition. ECF No. 60. Plaintiffs did not file a reply, and the time to do so has now elapsed. On September 30, 2022, XL Insurance filed its motion for summary judgment. ECF No. 56. Plaintiffs responded in opposition on October 14, 2022, ECF No. 59, and XL Insurance replied on October 21, 2022, ECF No. 62. The court held a hearing on the motions on January 5, 2023. ECF No. 68. As such, both motions have been fully briefed and are now ripe for review.
Summary judgment shall be granted if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material...
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