Portrait Homes - S.C. v. Pa. Nat'l Mut. Cas. Ins. Co.
| Docket Number | Appellate Case No. 2020-000735,Opinion No. 6038 |
| Decision Date | 24 April 2024 |
| Citation | 900 S.E.2d 245 |
| Parties | PORTRAIT HOMES - SOUTH CAROLINA, LLC and Portrait Homes - Persimmon Hill, LLC, Plaintiffs, v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY and The Persimmon Hill Homeowners Association, Inc., Defendants, The Persimmon Hill Homeowners Association, Inc., Third-Party Plaintiff, v. Jose Castillo d/b/a JJA Framing and JJA Construction, Inc. d/b/a JJA Framing, Third-Party Defendants, of which Pennsylvania National Mutual Casualty Insurance Company is the Appellant, and Portrait Homes - South Carolina, LLC, Portrait Homes - Persimmon Hill, LLC, and The Persimmon Hill Homeowners Association, Inc. are the Respondents. |
| Court | South Carolina Court of Appeals |
Appeal From Berkeley County, Roger M. Young, Sr., Circuit Court Judge
David L. Brown and John Irvin Malone, Jr., both of Greensboro, North Carolina, for Appellant.
Phillip Ward Segui, Jr., of Segui Law Firm, of Mount Pleasant, and John T. Chakeris and Alicia Denise Pullano, both of Chak- eris Law Firm, of Charleston, all for Respondent The Persimmon Hill Homeowners Association, Inc.
Stanley Clarence Rodgers, of Law Office of Stanley C. Rodgers, LLC, of Charleston, for Respondents Portrait Homes - SC, LLC and Portrait Homes - Persimmon Hill, LLC.
This very complicated case concerns insurance coverage under commercial general-liability (CGL) insurance policies, including claims of bad faith, arising out of underlying construction defect lawsuits when Penn National Mutual Casualty Insurance Company (Penn National) asserts its insured, a subcontractor, did not notify it of the lawsuits and declined coverage. We affirm.
Persimmon Hill is made up of 388 townhome units contained in 74 buildings located in Goose Creek, South Carolina. The Persimmon Hill community is governed by recorded covenants and restrictions that impose rights and obligations on the Persimmon Hill Homeowners Association, Inc. (the HOA), including the duty to repair and maintain the exteriors of the townhomes and common areas. Portrait Homes1 was the developer and general contractor of Persimmon Hill. JJA Framing was the primary framer for Persimmon Hill and framed the vast majority of the units there; it installed wooden framing components, windows and doors, window and door flashings, and weather barriers in approximately 85% of the units. Jose Castillo owned and operated JJA Framing. JJA Framing worked as a subcontractor for several Portrait Homes projects in the Charleston area.
While JJA Framing was working on the Persimmon Hill project, articles of incorporation for JJA Construction, Inc. were filed with the North Carolina Secretary of State’s Office. According to Castillo, the sole proprietorship known as JJA Framing and JJA Construction, Inc. were the same business and entity, having "the same location, same employees, same trucks, same telephone number[,] and same federal ID number."
Portrait Homes relied exclusively on subcontractors to construct its projects. To reduce the risk of exposure to lawsuits arising from a subcontractor’s defective work, Portrait Homes (1) required each subcontractor to defend and indemnify Portrait Homes for claims arising from the subcontractor’s work and (2) required each subcontractor to have Portrait Homes named as an additional insured on their liability insurance policies.
Portrait Homes accomplished this by entering into two types of contracts with subcontractors. The first, called a. Master Agreement, was a gateway document that qualified a subcontractor to work for Portrait Homes on any project. The second, called a Housing and Purchase Order Contract, was specific to a particular project, such as Persimmon Hill. Both of the contracts had to be in place before a subcontractor could work on a project. While the form of the contracts was periodically updated, the substance of the hold harmless and insurance requirements did not change; the two agreements each required a subcontractor to defend and indemnify Portrait Homes. Both contracts governed a subcontractor’s work at a particular project, and the hold harmless and insurance obligations in the two contracts were intended to be complementary. In 2002, Portrait Homes and JJA Framing signed a Housing and Purchase Order for the Persimmon Hill project as well as a Master Agreement.
Penn National issued policies to JJA Framing and JJA Construction, Inc. through the W. Lee Taylor Agency. Two policies, policy period 2003-04 and 2004-05, provided Jose Castillo d/b/a JJA Framing Company as the named insured and listed Pasquinelli Construction Company; Pasquinelli Management, LLC; and Portrait Homes Construction Company as additional insured under endorsement CG 20 37 entitled Additional Insured - Owners, Lessees or Contractors – Completed Operations. On March 2, 2005, the named insured for the 2004-05 policy was changed to JJA Construction, Inc. Three policies, 2005-06, 2006-07, and 2007-08, listed JJA Construction, Inc. as the named insured and contained the additional insured endorsement 71 11 45 entitled Automatic Additional Insureds - Owners, Contractors and Subcontractors (Completed Operations).
In 2005, Portrait Homes received a certificate of insurance prepared by the W. Lee Taylor Agency relating to the 2005-06 Penn National Policy. It listed JJA Construction, Inc. and Jose Castillo as the insureds and Portrait Homes and Pasquinelli Management, LLC as additional insureds.
At some point, the Persimmon Hill townhomes began having issues with water intrusion. The professional engineer hired to investigate the issues believed the issues began two months after the certificate of occupancy was issued. In October 2012, a homeowner, on behalf of herself and other homeowners, and the HOA each brought suit against Portrait Homes. Both complaints were later amended to include Portrait Homes’ subcontractors, including Jose Castillo d/b/a JJA Framing and JJA Construction, Inc. (collectively, JJA). Litigation continued for several years.
During the underlying Persimmon Hill litigation, Portrait Homes’ insurance carrier, Admiral Insurance Company, agreed to defend it and retained Hood Law Firm to lead the defense. In June 2013, Hood Law Firm notified Penn National it believed JJA Framing’s work contributed to the damages alleged in the lawsuits and demanded a defense and indemnification for Portrait Homes as an additional insured, referencing the 2005-06 Penn National policy.
On April 24, 2014, the HOA’s counsel wrote Penn National transmitting both amended complaints and advising it if no answer were filed within fifteen days, an order of default and judgment would be sought against its insured, JJA.
In May 2014, after Hood Law Firm received no response from Penn National, it sent it another letter, this time referencing the 2004-05 Penn National policy, and repeated its demand for a defense and indemnification for Portrait Homes as an additional insured.
On September 30, 2014, Greg Gross responded to Hood Law Firm on behalf of Penn National and provided Penn National’s coverage determination for Portrait Homes and the rationale for the decision:
This is a completed operations type claim. As such, the sole avenue to additional insured status would be through an endorsement providing additional insured status for completed operations. The above noted policies do not contain such an endorsement. Accordingly, the tendering party, Portrait Homes-South Carolina, LLC do[es] not qualify as an additional insured for this occurrence. Therefore, Penn National Insurance is rejecting the aforementioned tender for defense and/or indemnity from Portrait Homes-South Carolina, LLC at this time.
Gross’s letter was the only written communication Penn National sent in response to Portrait Homes’ tender.
On December 29, 2014, while the underlying litigation was ongoing, Portrait Homes filed a declaratory judgment action against Penn National,2 asserting it was an additional insured under various insurance policies issued to JJA for its work on Persimmon Hill. Portrait Homes also named the HOA as a defendant. On February 26, 2015, the HOA answered, alleging it was the assignee of Portrait Homes’ claims for bad faith, and asserted cross-claims against Penn National for bad faith.
Eventually, the HOA settled its claims in the underlying litigation for a total of $8,569,790.71 against Portrait Homes and its subcontractors, with the exception of the claim against JJA. As part of the settlement, Portrait Homes settled the claims brought against it for $3,850,000. Portrait Homes’ insurers, rather than Portrait Homes itself, paid the settlement. No appearance was made on behalf of JJA and an order of default for JJA was filed December 23, 2014. A judgment of $4,156,976.89 was entered for the HOA against JJA on June 14, 2016. Subsequently, JJA assigned all of its rights as an insured under Penn National’s policies, including any claims for bad faith, to the HOA based on the HOA’s judgment against JJA.
On November 28, 2017, Portrait Homes filed an amended complaint naming Penn National and the HOA as the defendants.3 It alleged it was an additional insured under insurance policies Penn National had issued and Penn National had breached its duty to defend and its duty to indemnify. The HOA filed an answer to the amended complaint, again asserting cross-claims for bad faith and also seeking a declaratory judgment that Penn National’s policies provided insurance coverage to JJA, its insured. Penn National filed answers to the amended complaint and to the HOA’s cross-claims.
The trial court held a bench trial to determine if Portrait Homes was an additional insured under Penn National’s insurance policies issued to JJA, whether the judgment obtained by the HOA against JJA was covered in whole or in part under Penn National’s policies and whether Penn National committed bad faith...
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