Ocean Winds Council of-Owners v. Auto-Owners

• Decision Date: 16 December 2002
• Docket Number: No. CIV.A.2:98-2970-18.,CIV.A.2:98-2970-18.
• Citation: 241 F.Supp.2d 572
• Parties: OCEAN WINDS COUNCIL OF COWNERS, INC., Plaintiff, v. AUTO-OWNERS INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of South Carolina

241 F.Supp.2d 572

OCEAN WINDS COUNCIL OF COWNERS, INC., Plaintiff, v. AUTO-OWNERS INSURANCE COMPANY, Defendant.

No. CIV.A.2:98-2970-18.

United States District Court, D. South Carolina, Charleston Division.

December 16, 2002.

William Jefferson Leath, Jr., Timothy David St. Clair, Charleston, SC, for plaintiff.

Walter Henry Bundy, Jr., Mt. Pleasant, SC, Mark Crawford, Jems Dowell Gandy, III, John C. Hayes, IV, Robert H. Hood, Charleston, SC, for defendant.

ORDER

NORTON, District Judge.

I. Background

This is a first-party insurance action brought by the insured, Ocean Winds Council of Co-Owners, Inc. ("Ocean Winds"), against its insurer, Auto-Owners Insurance Co. ("Auto Owners"). The following facts are undisputed. Ocean Winds is the owner of a condominium complex that was insured from July 1993 to July 2001 under a policy issued by Auto-Owners. Ocean Winds filed a claim with Auto Owners on October 27, 1997, requesting payment for water and termite damage to the buildings under the following "collapse" provision in the insurance contract:

5. Additional Coverages

d. Collapse

We will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building or any part of the building caused only by one or more of the following:

. . . . .

(2) hidden decay;

(3) hidden insect or vermin damage

. . . . .

Collapse does not include settling, cracking, shrinkage, bulging, or expansion.

After Auto Owners did not pay the claim, Ocean Winds filed suit on September 4, 1998, in state court alleging the following causes of action: bad faith refusal to pay benefits; breach of contract; improper claims practices in violation of S.C.Code § 38-59-20 (West 2002); and attorneys' fees under S.C.Code § 38-59-40 (West 2002).¹

After defendant removed the action, this court certified the following question to the South Carolina Supreme Court:

In order to trigger coverage [under the policy quoted above], is it required: 1) that the building or part of the building fall to the ground or be reduced to flattened rubble; or 2) that the building manifest substantial structural impairment, but has not yet fallen to the ground or been reduced to flattened rubble.

The South Carolina Supreme Court held on June 17, 2002, that "a requirement of imminent collapse is the most reasonable construction of the policy clause covering `risks of direct physical loss involving collapse.' We define imminent collapse to mean collapse is likely to happen without delay." Ocean Winds Council of Co-Owners, Inc. v. Auto-Owner Ins. Co., 350 S.C. 268, 565 S.E.2d 306, 308 (2002). During the time in which the certified question was pending, plaintiff paid to have the buildings repaired at a cost of $582,494.52. (Pl's.Mem.Opp.Summ. J. Ex. A.)

II. Summary Judgment Standard

Summary judgment shall be granted when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "At the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). There is no requirement that the trial judge make findings of fact. Id. at 250, 106 S.Ct. 2505. Rather, the threshold inquiry is whether "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. In other words, "to grant summary judgment the court must determine that no reasonable jury could find for the nonmoving party on the evidence before it." See Perini Corp. v. Perini Const, Inc., 915 F.2d 121, 124 (4th Cir. 1990). An issue of fact concerns material facts only if establishment of the fact might affect the outcome of the lawsuit under governing substantive law. Anderson, All U.S. at 248, 106 S.Ct. 2505. All facts and reasonable inferences therefrom are viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88,106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

"[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, All U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R.Civ.P. 56(c)). Once this burden has been met, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial'" Id. (quoting Fed.R.Civ.P. 56(e)); see also Pleasurecrft Marine Engine Co. v. Thermo Power Corp., 272 F.3d 654, 658 (4th Cir.2001).

III. Law/Analysis

A. Breach of Contract

Defendant argues that there is no genuine issue of material fact whether the buildings were in danger of "imminent collapse" as defined by the South Carolina Supreme Court. As an initial matter, the parties differ on the standard set forth by the South Carolina Supreme Court. Plaintiff highlights a passage from the court's opinion that says the policy "appears to cover even the threat of loss from collapse." 565 S.E.2d at 308 (emphasis added). Plaintiff is correct that the court used this language to explain that actual collapse was not necessary to trigger coverage under the policy. Id. However, the court further defined this "threat" to include only "imminent collapse," which means "collapse is likely to happen without delay." Id. The court explained that "collapse coverage should not be converted into a maintenance agreement by allowing recovery for damage which, while substantial, does not threaten collapse." Id. Thus, the precise standard set forth by the South Carolina Supreme Court is whether the buildings were under a threat of "imminent collapse," which means "collapse is likely to happen without delay." Id.

Applying this standard, defendant points to the following passage from plaintiffs expert, Mr. Peter E. Sherrat: "I am not sure whether imminent means tomorrow or not, but in a short timeframe. And whether that timeframe is in three months or six months, but it was not at the stage meaning the next day I thought it was going to fall down."² In addition, defendant argues that in the five years between the time the suit was filed and the repairs were made, the buildings did not collapse and were never vacated for safety reasons. Plaintiff submits affidavits from Robert Norman, Robert Sisnroy, and Brett E. Carlson purporting to show that the collapse of the buildings was imminent. (Pl's Opp. Mem. Exs. A, B. and C.) However, defendant points out that each of these affiants testified that the buildings were under a threat of collapse with a significant weather or seismic event. (Nornan Aff. 1112, Sisnroy Aff. 115; Carlson Aff. 114.) This testimony is not sufficient to create a genuine issue of material fact whether the buildings were faced with "imminent collapse without delay." Many buildings are subject to collapse in the event of a "significant weather or seismic event." This type of structural threat, although it may be serious and require repair, does not rise to the level of "imminent collapse" as defined by the South Carolina Supreme Court. Therefore, viewing the evidence in the light most favorable to plaintiff, it has failed to meet its burden of presenting evidence showing there is a genuine issue of material fact whether the condominium complex was under the threat of imminent collapse without delay. As a result, there is no genuine issue of material fact whether defendant breached its insurance contract.

B. Bad Faith

Defendant has moved for summary judgment on plaintiffs bad faith refusal to pay cause of action on the grounds that it cannot be held liable for a bad faith refusal to pay when it had no duty to pay under the contract. Plaintiff argues that even if there was no breach of the insurance contract, defendant exercised bad faith in processing its claim. "[T]here is an implied covenant of good faith and fair dealing in every insurance contract that neither party will do anything to impair the other's rights to receive benefits under the contract." Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498, 473 S.E.2d 52, 53 (1996) (internal citations and quotation marks omitted.) In general, "[a]n insured may recover damages for a bad faith denial of coverage if he or she proves there was no reasonable basis to support the insurer's decision to deny benefits under a mutually binding insurance contract." Cock-N-Bull Steak House, Inc. v. Gen. Ins. Co., 321 S.C. 1, 466 S.E.2d 727, 730 (1996). However, "the benefits due an insured are not limited solely by those expressly set out in the contract." Tadlock, 473 S.E.2d at 55. "[T]he covenant of good faith and fair dealing extends not just to the payment of a legitimate claim, but also to the manner in which it is processed." Mixson, Inc. v. American Loyalty Ins. Co., 562 S.E.2d at 662 (citing Tadlock, 473 S.E.2d at 52). "[I]f an insured can demonstrate bad faith or unreasonable action by the insurer in processing a claim under their mutually binding insurance contract, he can recover consequential damages in a tort action." Tadlock, 473 S.E.2d at 53 (quoting Nichols, 306 S.E.2d at 619) (emphasis in original). Thus, breach of an express contractual provision is not a prerequisite to bringing a bad faith cause of action. Tadlock, 473 S.E.2d at 54.

Plaintiff argues...