Security Ins. of Hartford v. Campbell Schneider, C.A.2:04-22230-PMD.

• Citation: 481 F.Supp.2d 496
• Decision Date: 02 March 2007
• Docket Number: No. C.A.2:04-22230-PMD.,C.A.2:04-22230-PMD.
• Court: U.S. District Court — District of South Carolina
• Parties: SECURITY INSURANCE COMPANY OF HARTFORD, Plaintiff, v. CAMPBELL SCHNEIDER & ASSOCIATES, LLC; Alan O. Campbell; and Alan J. Schweickhardt, Defendants.

481 F.Supp.2d 496

SECURITY INSURANCE COMPANY OF HARTFORD, Plaintiff, v. CAMPBELL SCHNEIDER & ASSOCIATES, LLC; Alan O. Campbell; and Alan J. Schweickhardt, Defendants.

No. C.A.2:04-22230-PMD.

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

March 2, 2007.

Stephanie H. Burton, Gibbes Burton, Spartanburg, SC, for Plaintiff.

Bradish Johnson Waring, Nexsen Pruet Jacobs Pollard and Robinson, Timothy A. Domin, Clawson and Staubes, Charleston, SC, for Defendants.

ORDER

DUFFY, District Judge.

This matter is before the court upon Defendant Alan O. Campbell's ("Campbell"), Defendant Alan J. Schweickhardt's ("Schweickhardt"), and Defendant Campbell Schneider & Associates, LLC's ("CSA") Motions for Attorney's Fees. For the reasons set forth herein, the court grants Defendants' motions.

BACKGROUND

Campbell, a licensed professional engineer, formed Alan O. Campbell, P.E., Inc. ("AOC") in July of 1995, and Schweickhardt was employed by AOC as a structural engineer. AOC applied for and obtained professional liability coverage from Plaintiff Security Insurance Company of Hartford ("Security") that same month (the "AOC Policy"). The AOC Policy was a claims-made policy with a retroactive date of July 21, 1995. In 1996, Regency Towers Homeowner's Association ("Regency Towers") was experiencing water intrusion and water damage to its oceanfront condominium building located in Myrtle Beach, South Carolina. AOC submitted a proposal in April of 1996 that included an engineering investigation of the building envelope, recommendations and specifications for repairs, and preparation of bid documents. Regency Towers accepted the proposal. Campbell served as Project Manager when AOC began work in 1996, and Schweickhardt assumed these duties in early 1997.

AOC ceased doing business on December 31, 1998. By letter dated February 2, 1999, AOC asked that coverage under the AOC Policy be terminated. Security cancelled the AOC Policy effective January 1, 1999. Campbell formed CSA, which began conducting business on January 1, 1999. In August 1999, CSA applied for and obtained professional liability coverage from Security (the "CSA policy"). The CSA Policy was a claims-made policy with a retroactive date of August 30, 1999.

In early 2001, Regency Towers notified CSA that the building was leaking and identified several areas of water damage. In March 2002, Regency Towers commenced a lawsuit against CSA, Campbell, and Schweickhardt in the Court of Common Pleas for Horry County. The complaint alleges breach of contract, breach of warranties, and negligence arising out of Defendants' professional services performed for Regency Towers. Defendants tendered the claim to Security under the CSA Policy in March 2002 and under the AOC Policy in December 2004.

On September 15, 2004, Security brought this action against Campbell, Schweickhardt, and CSA, seeking a declaration that the two policies it issued do not provide coverage for the claims. This court tried the matter without a jury on October 31, 2006 and issued its Findings of Fact and Conclusions of Law on December 1, 2006. The parties stipulated that Security did not have a duty to defend or indemnify Defendants under the terms of the AOC Policy. (See Order ¶ 67.) The court found that "[w]hile some of Regency Towers' allegations [could] be connected to a period of time before the retroactive date of the CSA Policy, other allegations could be construed as regarding professional services rendered after the retroactive date of the CSA Policy." (Order ¶ 65.) The court stated,

10. Security has a duty to defend Campbell, Schweickhardt, and CSA in the State Action. The State Action is at a preliminary stage, and as of the date of this trial, neither Campbell's nor Schweickhardt's depositions have been taken. It is uncertain exactly what acts or omissions of the Defendants allegedly caused Regency Towers to suffer damages. Although the Defendants provided Regency Towers with some professional services before the effective date of the CSA policy, the allegations in the State Action could also be construed as complaining about professional services Defendants rendered after the policy's effective date. Because Regency Towers' complaint creates the possibility of coverage under the CSA policy, Security is obligated to defend Campbell, Schweickhardt, and CSA in the State Action.

. . .

12. Because no findings of fact have been made in [Regency Towers'] State Action, this Court will not rule on the indemnity issue because that issue is not ripe for adjudication.

(Order ¶¶ 10, 12.)

On December 5, 2006, Defendant CSA filed a Motion for Attorney's Fees; Defendants Campbell and Schweickhardt filed their Motion for Attorney's Fees on December 6, 2006. Plaintiff filed a Memorandum in Opposition to Defendants' Motions for Attorney's Fees, to which Defendant CSA filed a Reply.

ANALYSIS

Defendants assert they are entitled to an award of attorney's fees pursuant to Hegler v. Gulf Insurance Co., 270 S.C. 548, 243 S.E.2d 443 (1978). In that case, Gulf Insurance Company issued a general automobile liability insurance policy to Hegler; the policy obligated Gulf Insurance to defend Hegler "against any suit seeking damages on account of bodily injury or property damage." Id. at 549, 243 S.E.2d at 443. While this policy was in force, Hegler's vehicle was involved in an accident resulting in injury to a passenger, and the passenger brought suit against Hegler. Id. at 549, 243 S.E.2d at 443. Although Gulf Insurance undertook to defend Hegler in the action, it notified Hegler "that it would bring a declaratory judgment action to determine liability under the policy of insurance and advised him to obtain his own attorney to represent him in the forthcoming action." Id. at 549, 243 S.E.2d at 443. Hegler retained independent counsel, and the declaratory judgment action "was ultimately decided in [Hegler's] favor, upon a finding that coverage existed under the policy." Id. at 549, 243 S.E.2d at 443.

Hegler then brought an action against Gulf Insurance to recover for attorney's fees he incurred in successfully defending the declaratory judgment action. The Supreme Court of South Carolina noted that because Hegler did not assert the right to recover attorney's fees pursuant to a statute, he would recover them, if at all, under a contractual right. Id. at 549, 243 S.E.2d at 444. The policy provisions required Gulf Insurance

(1) to pay on behalf of [Hegler] all sums which [Hegler] shall become legally obligated to pay as damages because of bodily injury or property damage, and

(2) to defend any suit against the insured ([Hegler]) seeking damages on account of such bodily injury or property damage, even if the allegations of the suit are groundless, false or fraudulent.

Id. at 549-50, 243 S.E.2d at 444 (internal quotation marks omitted). The court found Hegler was entitled to an award of attorney's fees:

The declaratory judgment action established [Gulf Insurance's] obligation under the policy to defend the action for damages. If [Gulf Insurance] had refused initially to defend, it would undoubtedly have been liable for the payment of counsel fees incurred by [Hegler] in the defense of the damage action. Instead however of refusing initially, [Gulf Insurance] began the defense and then sought, through the declaratory judgment action, to avoid any obligation to continue to defend. In order to obtain [Gulf Insurance's] continued defense of the action for damages, it was necessary for [Hegler] to employ counsel to resist the contention by [Gulf Insurance] of lack of coverage. There is no material difference in the legal effect between an outright refusal to defend and in undertaking the defense under a reservation of rights until a declaratory judgment is prosecuted to resolve the question of coverage. In either event, an insured must employ counsel to defend in the first instance in the damage action and in the second in the declaratory judgment action to force the insurer to provide the defense. In both, the counsel fees are incurred because of the insurer's disclaimer of any obligation to defend.

Id. at 550, 243 S.E.2d at 444. Applying the law to Hegler's case, the Supreme Court of South Carolina found Hegler's legal fees "in successfully asserting his rights against [Gulf Insurance's] attempt in the declaratory judgment action to avoid its obligation to defend, were damages arising directly as a result of the breach of the contract." Id. at 550-51, 243 S.E.2d at 444.

In the case sub judice, Plaintiff argues the court should not grant Defendants' Motions for Attorney's Fees for several reasons. First, Plaintiff argues Hegler does not apply because "Hegler appears to have been decided pursuant to the South Carolina Uniform Declaratory Judgments Act, not the federal Act. Defendants have not cited any authority that this rule applies in an action commenced pursuant to the federal Act." (Pl.'s Mem. in Opp'n at 4.) While Defendants did not cite authority for the proposition that Hegler applies in an action commenced pursuant to the federal Act, Plaintiff likewise cited no authority for its argument that Hegler is inapplicable.

This action was filed pursuant to the federal Declaratory Judgment Act, and the court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332. (See Compl. ¶ 6; Order ¶ 1.) It is well-settled that in diversity cases, the federal court applies the substantive law of the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 77-78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); see also Limbach Co. v. Zurich American Ins. Co., 396 F.3d 358, 361 (4th Cir.2005); Talkington v. Atria Reclamelucifers Fabrieken BV (Cricket BV), 152 F.3d 254, 260 (4th Cir.1998) ("This case is before us pursuant to diversity jurisdiction, and thus we are bound to apply governing state law, as interpreted by the relevant state's highest court." (citations omitted)). Because a claim under the federal...