May 16th, 2018

Sloan is alive and well in South Carolina

By, Laura L. Locklair, Esq.

South Carolina and Florida are not always aligned in their treatment of issues affecting insurers and policyholders, but the states are in agreement that an insurer’s duty to defend is several, personal and not subject to division by or contribution from other carriers. Cont’l Cas. Co. v. United Pac. Ins. Co., 637 So.2d 270, 272-7 (Fla. 5th DCA  1994) (holding that insurer is not entitled, pursuant to right of equitable subrogation or contribution, to recover from another insurer costs of defending mutual insured); Sloan Constr. Co. v. Cent. Nat’l Ins. Co. of Omaha, 269 S.C. 183, 236 S.E.2d 818, 820 (1977) (an insurer is not entitled to divide duty to defend nor require contribution from another absent specific contractual right); Auto-Owners Ins. Co.  v. Travelers Cas. And Sur. Co. of Am., No. 4:12-cv-3423, 2014 WL 3687338 (D.S.C. July 22, 2014 aff’d, 597 (4th Cir. 2015).  As a result, where two or more insurers insure the same risk for the same insureds (be it a named insured or an additional insured) and the policies at issue provide for a defense, the insured is entitled to seek its costs of defense from any or all of the insurers but, absent other contractual rights, the defending insurer(s) cannot require contribution from the other carriers or seek to subrogate the expenses of that defense.

South Carolina and Florida, along with a few other states, find themselves in the minority in the refusal to grant insurers a right to recover portions of the defense costs paid from other carriers.  Id.; Fid. & Cas. Co. of N.Y. v. Ohio Cas. Ins. Co., 482 P.2d 924, 926 (Okla. 1971).   These minority courts recognize that each insurer contracted to defend, at its own expense, any suit within the terms of its policy.  Sloan, 269 S.C. at 186 (finding that an insurer’s duty to defend is irrelevant to the rights and duties existing between the insured and another carrier). As a result, compelling each carrier to provide a full defense to its insured requires no more of the insurer than what it was obligated to do under its insurance contract with the insured.  While potentially draconian from the carriers’ perspective, the minority rule protects the insured’s rights to the full benefits of the insurance policy and entitles the insured to recover 100% of its defense costs from any one carrier. Moreover, because insurers cannot sue one another seeking a pro-rata share of attorneys’ fees incurred in providing a defense to the mutual insured there is a corresponding reduction in the number of lawsuits and burden on the judiciary.  Cont’l Cas. Co., 637 So.2d at 273.  Courts in South Carolina and Florida also have reasoned that the threat of bad faith actions, and the corresponding exposure of policy limits and extra-contractual damages, are sufficient to prevent additional carriers from shirking their defense obligations after one carrier picks up the defense of the shared insured.

The majority of courts which recognize an insurer’s right to contribution or to have defense costs shared in some way include the following: (1) Alaska, Marwell Constr., Inc. v. Underwriters at Lloyd’s, London, 465 P.2d 298, 313 (Alaska 1970); (2) Arizona, Nat’l Indem. Co. v. St. Paul Ins. Cos., 150 Ariz. 458, 724 P.2d 544, 545 (1986); (3) California: Cont’l Cas. Co. v. Zurich Ins. Co., 57 Cal.2d 27, 17 Cal.Rptr. 12, 366 P.2d 455, 460-62 (1961); (4) Colorado: Nat’l Cas. Co. v. Great Sw. Fire ins. Co., 833 P.2d 741, 747-48 (Colo.1992); (5) Connecticut:  Travelers Cas. & Surety Co. of Am. V. Netherlands Ins. Co., 312 Conn 714 (2014); (6) Cargill, Inc. v. Ace American Ins. Co., 784 N. W. 2d 341 (2010); (7) New Jersey: Marshall v. Raritan Valley Disposal, 398 N.J. Super. 168, 940 A.2d 315, 320 (2008); (8) North Carolina: Medical Mut. Ins. Co. of NC v. American Cas. Co. of Reading, PA, 721 F. Supp.2d 447, 464 (E.N. N. C. 2010); (9) Pennsylvania: J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa 29, 626 A.2d 502, 209 (1993); (10) Utah: Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 137-38 (Utah 1997); and (11) Washington: Mut. Of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wash.2d 411, 191 P.3d 866, 872-74 (2008). These cases suggest that permitting contribution and/or subrogation between insurers guarantees that co-carriers honor their obligations to defend their mutual insured and that no one carrier is unfairly saddled with the burden of funding the entire defense.  Specifically, such courts conclude that permitting coinsurers to recover from one another creates strong incentives for prompt and proactive involvement by all responsible carriers, reduces the incidence of carriers that avoid their duty to defend in the hope that other insurers will defend and relieve them of the expense, and promotes the efficient use of resources of insurers, litigants, and the court.

Insurers in South Carolina, Florida and like-minded states continue to look for opportunities to create a cause of action for equitable contribution, permit subrogation, or to otherwise alter the minority rule.  However, the South Carolina District Court for the Charleston Division recently affirmed the Sloan rule in FCCI Insurance Company v. Island Pointe, LLC, et al., Case No. 2:17-cv-1976.  In that declaratory judgment action arising out of the construction of a condominium complex in Charleston, South Carolina, FCCI sought declarations regarding the coverage available to its named insured and general contractor for the project, Complete Building Corporation (“Complete”).  While FCCI agreed to defend Complete in the underlying action, FCCI also sought a declarations that Complete qualified as an additional insured under policies issued to Complete’s subcontractors and that the carriers for Complete’s subcontractors were required to contribute to Complete’s defense fees and costs.  In granting motions to dismiss filed by the carriers for Complete’s subcontractors, the court determined that the doctrines set forth in Sloan and Auto-Owners applied and precluded FCCI’s claims.  Specifically, the court opined that because “FCCI is not a party to any contract between [Complete’s subcontractors and their insurers]” FCCI “cannot compel the [subcontractors’ insurers] to defend Complete in the underlying suit. FCCI at *8-9.  Importantly, while insurers may not have the right in South Carolina to compel participation of the other carriers in the defense of a shared insured, the Island Pointe case does not hold that a policyholder is prohibited from all implicated insurers even when another carrier is already defending it.

Ultimately, under either the majority or minority rule, the insured is entitled to payment of 100% of its defense costs per its policy/policies.  However, the differences in the law can have practical and meaningful effects on the number and scope of the lawsuits to which the policyholder may be a party, its duties in those cases, and potentially even its tender obligations.

May 16th, 2017

Additional Insured Authorized to Sue for Bad Faith under South Carolina Law

By, Mark A. Boyle, Esq.

Under the law of South Carolina, a tort action for an insurer’s bad faith refusal to pay benefits does not extend to third parties who are not insureds under the policy. Kleckley v. Nw. Nat. Cas. Co., 526 S.E.2d 218, 219 (S.C. 2000). The South Carolina Supreme Court has not yet addressed whether a party who is not a named insured, but is an additional insured, is entitled to proceed in bad faith against an insurer which fails to honor its obligations under the insurance contract. In UFP Eastern Division, Inc. vs. Selective Insurance Company of South Carolina, 2017 WL499083 (SDSC 2017) the Court held that South Carolina law does permit an additional insured to bring a claim for bad faith. In so doing the Court noted:

“The South Carolina Court of Appeals addressed an additional insured’s bad faith claim in BMW of N. Am.,LLC v. Complete Auto Recon Services, Inc., 731 S.E.2d 902, 907 (S.C. Ct. App. 2012). The Court of Appeals held that defendant Colony Insurance Company was entitled to summary judgment on the bad faith claim brought by BMW, an additional insured under a policy issued by defendant, because the subject matter of the claim was not covered by the insurance agreement. There is no suggestion that BMW lacked standing to bring a bad faith claim against Colony Insurance at all. Further, this Court can discern no apparent reason why a party identified as an insured in the insurance contract should not be able to bring a bad faith claim regarding the handling of its claim for insurance benefits brought under the insurance contract. The many cases Selective cites to support its position are inapposite because they concern claims by third-party tort victims suing tortfeasors’ liability providers for coverage of underlying tort claims, not additional-insured tortfeasors suing their own insurers for breach of contract.”

Certainly, the ability of an additional insured to bring a bad faith claim should represent a powerful legal deterrent to insurers shirking their obligation to defend additional insureds under South Carolina Law.

 

 

 

 

 

 

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