Stonehenge Eng'g. Corp v. Employers Ins. Of Wausau
| Decision Date | 13 January 2000 |
| Docket Number | CA-97-156,No. 98-2673,No. 98-2680,98-2673,98-2680 |
| Citation | 201 F.3d 296 |
| Parties | Page 296 201 F.3d 296 (4th Cir. 2000) STONEHENGE ENGINEERING CORPORATION; NATIONAL STONEHENGE CORPORATION, Plaintiffs-Appellees, v. EMPLOYERS INSURANCE OF WAUSAU, Defendant-Appellant. STONEHENGE ENGINEERING CORPORATION; NATIONAL STONEHENGE CORPORATION, Plaintiffs-Appellants, v. EMPLOYERS INSURANCE OF WAUSAU, Defendant-Appellee. ( |
| Court | U.S. Court of Appeals — Fourth Circuit |
Appeal from the United States District Court for the District of South Carolina, at Columbia.
COUNSEL ARGUED: Charles Elford Carpenter, Jr., RICHARDSON, PLOWDEN, CARPENTER & ROBINSON, P.A., Columbia, South Carolina, for Appellant. James Livingston Bruner, BRUNER, POWELL & ROBBINS, L.L.C., Columbia, South Carolina, for Appellees. ON BRIEF: Francis M. Mack, S. Elizabeth Brosnan, RICHARDSON, PLOWDEN, CARPENTER & ROBINSON, P.A., Columbia, South Carolina, for Appellant.
Before TRAXLER, Circuit Judge, HAMILTON, Senior Circuit Judge, and Joseph R. GOODWIN, United States District Judge for the Southern District of West Virginia, sitting by designation.
Affirmed in part, vacated in part, and remanded by published opinion. Senior Judge Hamilton wrote the opinion, in which Judge Goodwin joined. Judge Traxler wrote a separate opinion concurring in part and dissenting in part.
Two corporately related general contractors, Stonehenge Engineering Corporation and National Stonehenge Corporation (collectively Stonehenge) brought this diversity action against Employers Insurance of Wausau (Wausau) seeking indemnification, under three successive standard commercial general liability policies issued by Wausau to Stonehenge, for an amount Stonehenge agreed to pay to settle a lawsuit against it alleging defective construction of condominium units. In its complaint, Stonehenge also alleged two bad faith claims against Wausau, one asserting bad faith refusal to indemnify and defend, the other alleging bad faith refusal to settle.
The district court granted Stonehenge's motion for summary judgment on its breach of contract claim, i.e., its indemnification claim, and granted Wausau's motion for summary judgment on Stonehenge's two bad faith claims. On appeal, Wausau challenges the district court's grant of Stonehenge's motion for summary judgment on the breach of contract claim. Stonehenge cross appeals the district court's grant of Wausau's motion for summary judgment on the two bad faith claims. Stonehenge also assigns error to the district court's refusal to award it interest for the period of time between the settlement of the underlying lawsuit and the date of the entry of judgment on its breach of contract claim.
We affirm the district court in all respects, except we vacate the damage portion of the judgment in favor of Stonehenge and remand for entry of judgment in a specified lesser amount.
During the early to mid-1980s, Stonehenge constructed Phase III of a condominium project known as "Yacht Cove" in Lexington County, South Carolina on the shores of Lake Murray. Phase III consisted of nineteen buildings, totaling 130 residential units. Thirty-two of the units were known as "villa" units, while the remaining ninetyeight units were known as "townhouse" units. Stonehenge completed construction of Phase III in March 1987.
In approximately 1989, the owners of residential units constructed in Phase III began experiencing problems with Phase III buildings. For example, the owners noticed buckled siding, cracks in foundations, and sagging balconies. As a result, the Yacht Cove Owners Association (the Owners Association) hired G. Allen Moore (Moore), a private building inspector, to inspect the buildings at issue and prepare a report. On March 19, 1990, Moore submitted his report (the Moore Report) to the Owners Association. The Moore Report identified defects in the balconies, roofs, foundations, basement walls, porches, decks, handrails, pickets, stairs, siding, and flashing of Phase III buildings. In the fall of 1996, Moore also identified defects in the subflooring of Phase III buildings.
The Owners Association subsequently sent a copy of the Moore Report to the developer of Yacht Cove, Equitable Real Estate Investment Management, Inc., which in turn sent a copy to Stonehenge on September 25, 1990. Stonehenge investigated the alleged defects identified in the Moore Report and responded in writing to the report on November 12, 1990. In its response, Stonehenge completely denied responsibility for the alleged defects on the basis that it constructed Phase III in accordance with the building code in effect for Lexington County at the time of construction, and on the basis that the damage identified in the Moore Report resulted from lack of proper owner maintenance and/or owner alteration of certain portions of Phase III buildings. Stonehenge admitted the existence of a "riser" code violation on the front of a particular Phase III building, but attributed its existence to settlement of the right corner of the adjacent sidewalk.
On April 16, 1992, the Owners Association notified Stonehenge by letter that if a representative of Stonehenge did not contact its attorney within ten days, it would assume that Stonehenge did not intend to voluntarily address the defects identified in the Moore Report, thus requiring it to take legal action against Stonehenge. The record does not disclose whether Stonehenge responded to this letter, but shortly after receiving it, Stonehenge notified Maryland Casualty Insurance Company (Maryland Casualty) of the Owners Association's claims. Maryland Casualty insured Stonehenge under a commercial general liability policy from July 1, 1986 to November 1, 1987. Of relevance to this appeal, several other general liability insurance carriers successively insured Stonehenge under commercial general liability policies from November 1, 1987 until November 1, 1995. Aetna Casualty and Surety Company (Aetna) insured Stonehenge from November 1, 1987 to November 1, 1991. Home Insurance Company (Home) insured Stonehenge from November 1, 1991 to November 1, 1992. Finally, Wausau insured Stonehenge under three annual standard commercial general liability policies for the time period November 1, 1992 to November 1, 1995 (the Three Wausau Policies).1
After receiving notice of the Owners Association's claims against Stonehenge, Maryland Casualty investigated Phase III buildings under a reservation of rights and requested additional information from Stonehenge. Maryland Casualty conducted an on-site investigation that revealed, inter alia, some problems with the lightweight concrete floors in two villa units, primarily in the kitchen area underneath the vinyl flooring.2 On September 29, 1992, Stonehenge submitted an extensive written response to a request by Maryland Casualty for more information. In its response, Stonehenge stated that its first notice of any problems with Phase III buildings was its receipt of the Moore Report in September 1990.
Stonehenge notified Aetna of the Owners Association's claims on October 21, 1992. Like Maryland Casualty, Aetna investigated the claims under a reservation of rights.
On April 6, 1993, the Owners Association filed suit against Stonehenge in the Court of Common Pleas for Lexington County, South Carolina. The suit alleged that in constructing Phase III buildings, Stonehenge was negligent and breached its implied warranty to perform work in a careful, diligent, and workmanlike manner. The Owners Association sought 1.27 million dollars in damages, with the bulk of this figure constituting the amount the Owners Association believed would be necessary to re-side the exterior of every building in Phase III and replace the light-weight concrete floors in every villa unit.
By March 1996, the Owners Association could ill afford to pay the ongoing fees generated by its attorneys, who had taken the case on an hourly-rate basis, rather than on a contingency-fee basis. As a result, the Owners Association offered to settle its suit against Stonehenge for $400,000 with a "drop dead" date to accept the offer by April 11, 1996. Stonehenge refused the settlement offer.
Wausau did not receive notice of the Owners Association's suit against Stonehenge or its pre-suit claims until late March 1996, just after Stonehenge received the settlement offer.3 By copy of a letter to Aetna dated July 12, 1996, the claims adjuster at Wausau handling Stonehenge's claim, Charles Gause, informed Stonehenge that Wausau was not in a position to contribute to any settlement without the following: "Evidence of `Property Damage' caused by an `Occurrence' which took place during our policy period or case law in South Carolina which in some way requires us to contribute to a settlement."4 (J.A. 318).
A year later, with a trial set for March 17, 1997 rapidly approaching, Wausau was asked again to participate in settlement discussions, but Wausau refused for the same reason given before. Just prior to trial and after extensive trial preparation, the Owners Association was willing to accept $625,000 to settle its $1.27 million suit. Maryland Casualty agreed to contribute $100,000, Aetna agreed to contribute $300,000, and Home agreed to contribute $75,000. These figures represented the amount each carrier believed constituted its pro-rata share of the proposed settlement figure.
On March 17, 1997, Stonehenge entered into a settlement agreement (the Settlement Agreement) with the Owners Association. In accordance with the Settlement Agreement, each Stonehenge entity confessed judgment for $750,000 in favor of the Owners Association on April 17, 1997. In accordance with the amounts each carrier agreed to contribute toward the $625,000 settlement figure, Maryland Casualty made a $100,000 cash payment, Aetna made a $300,000 cash payment, and Home made a...
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