Shiftlet v. Allstate Insurance Co.

• Court: U.S. District Court — District of South Carolina
• Writing for the Court: Patrick Michael Duffy
• Citation: Shiftlet v. Allstate Insurance Co., 451 F.Supp.2d 763 (D. S.C. 2006)
• Decision Date: 10 August 2006
• Docket Number: C.A. No.: 2:04-22851-23.
• Parties: Kathryn E. SHIFTLET, Plaintiff, v. ALLSTATE INSURANCE CO., Defendant.

451 F.Supp.2d 763

Kathryn E. SHIFTLET, Plaintiff, v. ALLSTATE INSURANCE CO., Defendant.

C.A. No.: 2:04-22851-23.

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

August 10, 2006.

COPYRIGHT MATERIAL OMITTED

Edward K. Pritchard, III, Pritchard Law Firm, Philip Alston Middleton, Charleston, SC, for Plaintiff.

Thomas H. Milligan, Milligan Law Firm, Mt. Pleasant, SC, for Defendant.

ORDER

PATRICK MICHAEL DUFFY, District Judge.

Following Allstate Insurance Company's ("Allstate") denial of Plaintiff Kathryn Shiftlet's ("Plaintiff') claim on her Deluxe Mobile Home Policy, Plaintiff brought this action alleging breach of contract, bad faith, intentional infliction of emotional distress/outrage, and violation of South Carolina Code Section 59-38-40 (1976). Defendant Allstate has asserted a counterclaim for a declaratory judgment that it has no obligation to Plaintiff under the subject insurance Policy.

This matter is currently before the court on Defendant Allstate's Motions for Partial Summary Judgment regarding Plaintiffs claims for (1) bad faith, (2) intentional infliction of emotional distress, and (3) damages. Shiftlet has filed a Response to Allstate's Motion. Also before the court is Plaintiff Kathryn Shiftlet's lengthy Motion for Summary Judgment regarding (1) her breach of contract claim and (2) Allstate's declaratory judgment counterclaim.¹ Allstate has not responded to Plaintiff's Motion.

BACKGROUND

On January 4, 2004, Plaintiff Kathryn Shiflet's mobile home and personal belongings were destroyed by fire. The fire originated on the stove, the burner of which had been turned to the highest setting underneath a pan of cooking oil. The heat of the oil ignited and caused the fire, resulting in damage to the home. The fire started at or around 11:30 p.m., while Kathryn Shiftlet, her husband, and eight year-old daughter were at Wal-Mart buying pantyhose for Mrs. Shiftlet. The Shiftlet family returned around 1:00 a.m. to find their mobile home in flames.

At the time of the fire, Plaintiffs mobile home was covered under a Deluxe Mobile Home Policy of insurance (the "Policy") provided by Allstate Insurance. Plaintiff reported the fire to Allstate the next day, January 5, 2004. Allstate immediately advanced the Shiftlets two thousand dollars for the lost contents of their home and placed them in a hotel.

The parties contest what happened at this point. Allstate claims that it sent two adjusters in good faith to examine and determine the extent of the loss. One adjuster, Benjamin Faircloth, testified that while he was at the Shiftlet home, Mr. Shiftlet offered a bribe to him personally. After the bribe was allegedly made, Mr. Faircloth decided that a more thorough investigation of the Shiftlet claim was needed. Plaintiff denies that' a bribe was ever made, and claims that Mr. Faircloth misunderstood the conversation. Plaintiff also claims that Allstate never intended to pay under the Policy, and that Allstate sent the adjusters in bad faith to search for a pretext for denying the claim.

It is undisputed that shortly after visiting the Shiftlets' home, Faircloth reviewed the Shiftlets' claims history and found that they had made three other claims within the previous two years. Allstate asserts that all of the claims were "questionable." The three previous claims are summarized briefly as follows:

(1) On December 30, 2002, the Shiftlets reported roof damage to the mobile home. They claimed that the roof damage was caused by high winds two weeks earlier. Allstate paid the Shiftlets for the alleged damage.

(2) On July 8, 2003, Mrs. Shiftlet reported another case of wind damage to the mobile home. After inspecting the claim, Allstate determined that the alleged damage was caused by defective design and improper maintenance, not by storms or winds. As such, because the damage was not caused by a covered occurrence, Allstate denied the claim. According to the Adjuster's Claims Diary dated August 23, 2003, Mr. Shiftlet told the adjuster when he denied the claim that Mr. Shiftlet would have "a sudden and accidental claim soon because he would make sure it appeared to be sudden."²

(3) On December 3, 2003, one month prior to the fire, the Shiftlets reported that they had been burglarized. They claimed that a window had been broken and that numerous expensive items were stolen, including jewelry and electronics. Allstate paid the claim.

After being offered what he considered to be a bribe and after reviewing the allegedly "questionable" claims history, Mr. Faircloth requested a Cause and Origin investigation into the fire damage claim.

On January 22, 2004, Mr. Faircloth received a verbal report from Bill Johnson, the investigator, that his investigation led him to believe that it was not a simple cooking fire. Mr. Johnson's Cause and Origin Report, dated March 3, 2004, explained that the fire started because someone had either intentionally or accidentally turned a burner on high underneath a pan of cooking oil, and left it. "Before ignition, the pan's contents will typically smoke and produce a strong odor. The time line and circumstances of the fire were inconsistent with a cooking fire." After receiving the report that the fire was not consistent with the cooking fire as alleged by the Shiftlets, Mr. Faircloth turned the matter over to the Special Investigations Unit ("SIU") of Allstate.

The SIU adjuster, Mr. Eddie Ganaway, began investigating this matter as a case of potential arson. Mr. Ganaway testified that he found several "red flags," or suspicious facts, surrounding the occurrence of this fire. For example, Mrs. Shiftlet reported losing a large amount of cash in the fire, Mr. Shiftlet had discussed the potential insurance recovery with his neighbor Wesley Gunterman prior to the fire, the mobile home was in poor condition, and neither the family nor the family's eight dogs were in the home when the fire started at 11:30 p.m: Mr. Ganaway testified that these factors are generally considered to be warnings of potential insurance fraud.

On February 6, 2004, Mr. Ganaway met with the Shiftlets and asked that they sign an Authorization and a Non-Waiver Agreement. The Authorization would allow Allstate to access the Shiftlets' financial records which Allstate routinely checks in the course of an investigation. Authorization is necessary, as such records are otherwise protected. The Non-Waiver Agreement is a document alerting the insured that Allstate is investigating the claim. Under the Non-Waiver Agreement, both sides protect and reserve their rights under the policy. A Non-Waiver Agreement protects both parties' rights, as opposed to a Reservation of Rights letter, which protects only the insurance company. At this point, Allstate decided that a Non-Waiver Agreement was more appropriate.

The Shiftlets, wanting to speak with their attorney before signing any documents, refused to sign the documents at that time. On February 19, 2004, the Shiftlets signed and returned the Authorization and Non-Waiver Agreement to Mr. Ganaway; however, they had redacted significant portions of the language of these documents. The Shiftlets felt that Allstate did not need all the documents set forth in the Authorization; therefore, they denied Allstate permission to access those documents they felt to be unnecessary to the investigation. The Shiftlets claim that their attorney John Crumrine advised them that such redactions were `appropriate. Mr. Ganaway, on the other hand, testified that access to these documents was necessary for the investigation and that the redactions made the Authorization almost useless.

In response to the Shiftlets' refusal to sign the unredacted Authorization, Mr. Ganaway sent a Reservation of Rights letter to them on March 11, 2004 by certified mail. This letter explained that the redacted Authorization was unacceptable and warned the Shiftlets that they had an obligation to cooperate with the investigation and that their failure or refusal to do so could result in the denial of their claim. The Shiftlets received and signed for this letter.

Allstate then requested that the Shiftlets provide their Examination Under Oath ("EUO") as required by the Policy. Joe Weston, the attorney for Allstate, testified that his office scheduled the EUO to be at his office at 3:00 p.m. on Friday, April 2, 2004, so as to be convenient for the Shiftlets. He claims that during Mrs. Shiftlet's EUO, he questioned her regarding her finances and she was vague and evasive in responding. He testified that, while he still had thirty minutes worth of questions for Mrs. Shiftlet, Mr. Shiftlet stopped the examination of his wife and had her walk out. Mr. Weston asserts that the Shiftlets gave no reason for their abrupt departure. Mr. Shiftlet did not sit for his EUO at all, and Mr. Weston testified that Mr. Shiftlet "cussed at him" as he left and said that he was not giving any statement.

The Shiftlets' have a very different version of the events at Mr. Weston's office. Plaintiff asserts that, prior to the EUO, she told Mr. Weston's office that it would be necessary for her and Mr. Shiftlet to leave his office in time to pick up their daughter Chrissy from school by 6:00 p.m. She claims that a member of Mr. Weston's staff told her that the EUO should last twenty to thirty minutes, so there would be no difficulty in leaving in time to pick up their daughter. She asserts that she and her husband were both ready and willing to give their EUOs. She claims that Mr. Weston kept them waiting until 3:24 p.m., and that her EUO went on for over an hour and a half. At or around 5:00 p.m., Mr. Weston took a break to speak with Mr. Ganaway. While they were on a break, Mr. Shiftlet told Mr. Weston that they needed to leave, got Mrs. Shiftlet, and the two of them, left.

It is undisputed that on April 8, 2004, Mr. Ganaway drafted a letter to Mrs. Shiftlet, stating,

As you know, your policy with Allstate requires you...