Opinion
Case No. 2:17-cv-02802-BHH-MGB
12-06-2018
Coastal Select Insurance Company, Plaintiff, v. Stephen Rice and John Quick, Jr., Defendants.
REPORT AND RECOMMENDATION
Plaintiff, Coastal Select Insurance Company ("Coastal"), filed this declaratory judgment pursuant to 28 U.S.C. § 2201 et seq. on October 17, 2017, seeking a declaration that it has no duty to defend, indemnify, and/or provide liability insurance coverage to Defendant John Quick, Jr. ("Quick") in relation to Civil Action No. 2017-cv-01274-BHH (the "underlying action"). On April 27, 2018, Coastal filed a Motion for Summary Judgment. (Dkt. No. 21.) Pursuant to the provisions of 28 U.S.C. § 636(b)(1) and Local Rule 73.02(B)(2)(e), D.S.C., all pretrial matters in cases involving pro se litigants are referred to a United States Magistrate Judge for consideration. For the reasons stated herein, the undersigned recommends that the Motion for Summary Judgment be denied at this stage of the litigation.
Quick appears pro se in this action. Rice is represented by counsel.
BACKGROUND
A. Underlying Action
In 2008, Quick was hired as President of M-E-C- Company ("M-E-C"). (Dkt. No. 21-4 at 10:14-19.) At some point in 2011 or 2012, Quick was promoted to Chief Executive Officer ("CEO") of M-E-C. (Id. at 15:3-8.) In 2012, Stephen Rice ("Rice") was contacted by a headhunter and interviewed for the position of Vice President of Sales with M-E-C. (Dkt. No. 21-2 ¶ 22.) During the interview process, Rice claims that Quick told him M-E-C was financially stable and had obtained contract commitments in excess of $40 million. (Id. ¶ 23.) On August 6, 2012, Rice received an official employment offer from M-E-C. (Id. ¶¶ 23-24.) Rice accepted the position and relocated to Bartlesville, Oklahoma, where he bought a home. (Id. ¶ 24.)
Shortly after joining M-E-C, Quick asked Rice to research and identify the best geographical area for a new remote office. (Id. ¶ 25.) Rice determined that Charleston, South Carolina was the best location in light of M-E-C's technical needs, and was tasked with organizing the company's expansion into the city. (Id. ¶¶ 25-26.) Under the company's relocation assistance program, M-E-C was to cover Rice's moving expenses and monthly lease payments for his new residence in Charleston. (Id. ¶ 27.) Based on Rice's concerns regarding the housing market in Bartlesville, Quick promised Rice that M-E-C- would also contribute a minimum of $30,000.00 to the sale of Rice's Oklahoma home. (Id. ¶¶ 26, 49.)
As of January 29, 2018, Rice's house was still on the market, and had a projected loss of $100,000.00 in appraised value. (Dkt. No. 21-2 ¶ 26.)
On March 19, 2013, Quick offered Rice the position of Chief Operating Officer ("COO"), which took effect on April 15, 2013, and included a bonus plan with associated benefits. (Id. ¶ 28.) Rice claims he was entitled to commissions as part of his position, as well as matching contributions of 4% to his 401(k) plan. (Id. ¶¶ 29, 34.) According to Rice, however, he soon came to realize that M-E-C was not financially stable. Specifically, Quick had misrepresented the capabilities of the company and overstated Rice's compensation. (Dkt. No. 25 at p. 3.) Rice claims that M-E-C, per Quick's instructions, failed to pay him proper wages or commissions, and failed to contribute to his 401(k) plan. (Dkt. No. 21-2 ¶ 36.) Rice also claims that M-E-C failed to make timely payments on his leased residence, thereby exposing him to eviction. (Id. ¶ 39.)
On May 3, 2016, Quick resigned from his employment with M-E-C. (Id. ¶ 40.) On May 5, 2016, a member of M-E-C's Board of Directors (the "Board") asked Rice to provide recommendations regarding the company's financial situation, including the potential sale of the company. (Id. ¶ 42.) That same day, Rice claims he requested that M-E-C pay all wages due and owing under his commission agreement. (Id. ¶ 43.)
On May 9, 2016, Rice presented a financial overview of the company to several Board members. (Id. ¶ 44.) Rice claims that some of these members seemed unaware of the company's financial troubles. (Id.) According to Rice, on May 10, 2016, the locks to his office were changed and he received a one-line email stating that he was terminated. (Id. ¶ 45.) Upon his termination, Rice claims he was not permitted to remove any of his personal belongings from his office, and that he was not paid wages or commissions due and owing, among other things. (Id. ¶¶ 45-46.)
On March 23, 2017, Rice filed the underlying action in the South Carolina Court of Common Pleas, Charleston County, alleging various claims against M-E-C, members of the Board, employees of M-E-C, and Quick. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 1-1.) With respect to Quick, Rice alleged that he was liable for breach of contract, breach of contract with fraudulent intent, and detrimental reliance. (Id. ¶¶ 68-78.) Specifically, Rice claimed that Quick promised him M-E-C would contribute $30,000.00 towards the loss of value in Rice's Oklahoma home, and that he would be made whole for any losses. (Id.) Rice further claimed that the "fraudulently presented information" induced him to rely on Quick's various promises. (Id. ¶¶ 72-73.)
On May 17, 2017, the case was removed to the United States District Court for the District of South Carolina. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 1.) On January 29, 2018, Rice filed an Amended Complaint in the underlying action (the "controlling Complaint") for the purpose of correcting a certain defendant's name. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 86.) In addition to changing the individual defendant's name, however, Rice also attempted to charge additional defendants with certain causes of action. Specifically, Rice named Quick in relation to the fourth cause of action, violations of the Employee Retirement Income Security Act ("ERISA"), and the eighth cause of action, intentional infliction of emotional distress. (Id.) Quick filed a Motion for Summary Judgment on January 31, 2018, ("Quick's Motion"), arguing that he acted only in his capacity as an employee of M-E-C and, thus, was not personally liable for Rice's alleged claims. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 88 at pp. 5-8.) On February 19, 2018, Rice filed a Response in Opposition to Quick's Motion, (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 101), and on February 26, 2018, Quick filed a Reply, (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 102).
B. Declaratory Judgment
On October 17, 2017, following Rice's filing of the underlying action, Coastal filed this declaratory judgment against Quick and Rice in the United States District Court for the District of South Carolina seeking a declaration of the rights of the parties with regard to a homeowner's insurance policy issued to Quick and his wife as it relates to the events in the underlying action. (Dkt. No. 1.) The initial policy was issued by Coastal on or about April 15, 2012, for a residence located at 224 Old Hickory Crossing, Johns Island, South Carolina, 29455-3457, with an effective period of April 15, 2015-April 15, 2016. (Dkt. No. 1 ¶ 6.) Quick and his wife renewed the policy two times, with effective periods of April 15, 2016-April 15, 2017, and April 15, 2017-April 15, 2018 (collectively, the "Policies"). (Id. ¶ 7.) The Policies insured Quick and his wife for certain liabilities and, in turn, excluded certain liability risks. (See Dkt. Nos. 1-1, 1-2, and 1-3.)
On April 27, 2018, while Quick's Motion for Summary Judgment in the underlying action was pending, Coastal also filed a Motion for Summary Judgment ("Coastal's Motion"), arguing that the causes of action alleged against Quick in the controlling Complaint are excluded from coverage under the Policies and, thus, Coastal is not obligated to provide liability coverage in relation to the underlying action. (Dkt. No. 21.) On April 30, 2018, the undersigned issued an Order pursuant to Roseboro v. Garrison, 528 F.2d 309 (4th Cir. 1975), advising Quick of the dismissal procedure and the possible consequences if he failed to adequately respond to the motion. (Dkt. No. 23.) On May 5, 2018, Rice filed a Response in Opposition to Coastal's Motion, (Dkt. No. 25), and on May 15, 2018, Coastal filed a Reply, (Dkt. No. 26).
C. Opinion in Underlying Action
On August 16, 2018, the United States District Court for the District of South Carolina issued an Order in the underlying action, denying Quick's Motion for Summary Judgment without prejudice. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 109.) At the outset, the District Court found that Rice did not request permission to amend his Complaint to name additional defendants to the fourth and eighth causes of action. (Id. at pp. 2-3.) The District Court further noted that detrimental reliance is not by itself a separate cause of action. (Id. at p. 2 n.1.) Accordingly, the only claims alleged against Quick in the underlying action are breach of contract and breach of contract accompanied by a fraudulent act. (Id.) With respect to the merits of Quick's Motion, the District Court found that, "although there may ultimately be some merit to Defendant Quick's arguments, the Court agrees with Plaintiff that it would be premature to grant summary judgment at this stage in the litigation." (Id. at pp. 4-5.) The underlying action proceeded to discovery, which is currently ongoing and shall be completed no later than August 11, 2019. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 112.)
LEGAL STANDARD
A. Summary Judgment
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment "shall" be granted "if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Facts are 'material' when they might affect the outcome of the case, and a 'genuine issue' exists when the evidence would allow a reasonable jury to return a verdict for the nonmoving party." The News & Observer Publ'g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). In ruling on a motion for summary judgment, "'the nonmoving party's evidence is to be believed, and all justifiable inferences are to be drawn in that party's favor.'" Id. (quoting Hunt v. Cromartie, 526 U.S. 541, 552 (1999)); see also Perini Corp. v. Perini Constr., Inc., 915 F.2d 121, 123-24 (4th Cir. 1990).
B. South Carolina Insurance Law
"[U]nder South Carolina law, '[q]uestions of coverage and the duty of a liability insurance company to defend a claim brought by an insured are determined by the allegations in the (underlying) complaint.'" Auto Owners Ins. Co. v. Pers. Touch Med Spa, LLC, 763 F. Supp. 2d 769, 776 (D.S.C. 2011) (quoting City of Hartsville v. S.C. Mun. Ins. & Risk Fin. Fund, 382 S.C. 535, 543, 677 S.E.2d 574, 578 (2009)). In addition, the Supreme Court of South Carolina has indicated that orders issued by the underlying trial court may be considered when determining whether the underlying claims create a possibility of coverage under an insurer's liability policy. Allstate Ins. Co. v. Ingraham, No. 7:15-CV-3212-BHH, 2017 WL 976301, at *6 (D.S.C. Mar. 14, 2017).
In South Carolina, the duty to defend is broader than the duty to indemnify. Ross Dev. Corp. v. Fireman's Fund Ins. Co., 809 F. Supp. 2d 449, 457 (D.S.C. 2011). "[T]he duty to defend is triggered where the underlying complaint includes any allegation that raises the possibility of coverage." Auto-Owners Ins. Co. v. Newsome, No. 4:12-CV-00447-RBH, 2013 WL 3148334, at *4 (D.S.C. June 19, 2013) (emphasis added); see also Cincinnati Ins. Co. v. Crossmann Communities of N. Carolina, Inc., No. 4:09-cv-1379-RBH, 2013 WL 1282017, at *11 (D.S.C. Mar. 27, 2013) ("South Carolina law requires that a triggered insurer with a duty to defend the policyholder in a suit must defend the policyholder against all claims in that suit, even those claims that are not covered under the policy."). In short, "[i]f the underlying complaint creates a possibility of coverage under an insurance policy, the insurer is obligated to defend." City of Hartsville, 382 S.C. at 543, 677 S.E.2d at 578 (emphasis added). With respect to indemnification, South Carolina courts have found that "the duty to indemnify is based on evidence found by the factfinder" and is not ripe for adjudication until findings of fact have been made in the underlying lawsuits. Ellett Bros. v. U.S. Fid. & Guar. Co., 275 F.3d 384, 388 (4th Cir. 2001) (citing Jourdan v. Boggs/Vaughn Contracting, Inc., 324 S.C. 309, 476 S.E.2d 708, 711 (1996)).
"[I]nsurance policy exclusions are construed most strongly against the insurance company, which also bears the burden of establishing the exclusion's applicability." Crossmann Communities, 2013 WL 1282017, at *10. "[C]lauses of inclusion should be broadly construed in favor of coverage, and when there are doubts about the existence or extent of coverage, the language of the policy is to be 'understood in its most inclusive sense.'" Cook v. State Farm Auto. Ins. Co., 656 S.E.2d 784, 786 (S.C. Ct. App. 2008) (quoting Buddin v. Nationwide Mut. Ins. Co., 157 S.E.2d 633, 635 (1967)). "Courts should not, however, 'torture the meaning of policy language in order to extend' or defeat coverage that was 'never intended by the parties.'" Cook, 656 S.E.2d at 786-87 (quoting Torrington Co. v. Aetna Cas. & Sur. Co., 216 S.E.2d 547, 550 (S.C. 1975)).
INSURANCE POLICY
The Policies issued by Coastal provided in pertinent part:
DEFINITIONS
B. ...certain words or phrases are defined as follows:
2. "Bodily injury" means bodily harm, sickness, or disease, including required care, loss of services and death that results.
3. "Business" means:
a. A trade, profession or occupation engaged in on a full time, part time or occasional basis. . . .
8. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results in the policy period, in:
a. "Bodily Injury"; or
b. "Property Damage."
(Dkt. No. 21-1 at pp. 3-4.)
9. "Property damage" means physical injury to, destruction of, or loss of use of tangible property.
SECTION II — LIABILITY COVERAGES
A. COVERAGE E. — PERSONAL LIABILITY
If a Claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage" caused by an "occurrence" to which this coverage applies, we will:
(Id. at p. 4.)1. Pay up to our limit of liability for the damage for which an "insured" is legally liable. . . ; and
2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false, or fraudulent. We may investigate and settle any claim on suit that we decide is appropriate. Our duty to settle or defend ends when our limit of liability for the "occurrence" has been exhausted by payment of a judgment or settlement.
Personal liability coverage does not extend, however, to the following:
SECTION II — EXCLUSIONS
E. COVERAGE E — PERSONAL LIABILITY AND COVERAGE — MEDICAL PAYMENTS TO OTHERS
Coverage[ ] E . . . [does] not apply to the following:
1. Expected or Intended Injury
"Bodily Injury" or "property damage" which is expected or intended by an "insured," even if the resulting "bodily injury" or "property damage":
a. Is of a different kind, quality or degree than initially expected or intended; or
b. Is sustained by a different person, entity or property than initially expected or intended.
However, this Exclusion [ ] does not apply to "bodily injury" or "property damage" resulting from the use of reasonable force by an "insured" to protect persons or property;
2. "Business"
a. "Bodily injury" or "property damage" arising out of or in connection with a "business" conducted from an "insured location" or engaged in by an "insured," whether or not the "business" is owned or operated by an "insured" or employs an "insured."
(Dkt. No. 1 at p. 5.)
This Exclusion [ ] applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the "business."
DISCUSSION
Coastal argues that it is entitled to summary judgment on the grounds that (1) there is no bodily injury or property damage caused by an occurrence; and (2) coverage is excluded by the "business" exclusion. (Dkt. No. 21-1 at pp. 7-12.) In response, Rice argues that Coastal's Motion should be denied as premature, as the parties have not yet completed discovery in the underlying action. (Dkt. No. 25 at pp. 10-13.) For the reasons set forth below, the undersigned agrees with Rice and finds that the evidence provided thus far is not sufficient at this stage of the case to conclude that coverage for the claims against Quick is entirely excluded under the Policies.
As a general rule, if a party believes that more discovery is necessary in order to demonstrate a genuine issue of material fact, the proper course is to file a Rule 56(f) affidavit under the Federal Rules of Civil Procedure, stating the non-moving party "could not properly oppose a motion for summary judgment without a chance to conduct discovery." Evans v. Technologies Applications & Service Co., 80 F.3d 954, 961 (4th Cir. 1996). However, when the nonmoving party has had little opportunity to conduct discovery, and when fact-intensive issues, such as intent, are involved, courts do not require a Rule 56(f) affidavit "if the nonmoving party has adequately informed the district court that the motion is premature and that more discovery is necessary." See Inv'rs Title Ins. Co. v. Bair, 232 F.R.D. 254, 256 (D.S.C. 2005) (collecting cases). Here, Rice's objections to Coastal's Motion serve the "functional equivalent of an affidavit." Id. (citing First Chicago Int'l v. United Exchange Co., 836 F.2d 1375, 1380-81 (D.C. Cir. 1988)).
Generally, "summary judgment [must] be refused where the nonmoving party has not had the opportunity to discover information that is essential to his opposition." Inv'rs Title Ins. Co. v. Bair, 232 F.R.D. 254, 256 (D.S.C. 2005) (citing Anderson, 477 U.S. at 250 n.5); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552 (1986) (noting that summary judgment is appropriate only after adequate time for discovery). Pursuant to the current Scheduling Order in the underlying action, entered on September 28, 2018, discovery is ongoing until August 11, 2019. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 112.) Coastal filed its Motion for Summary Judgment on April 27, 2018, before the Scheduling Order was even issued and over one year before the close of discovery in the underlying action. (Dkt. No. 21.)
Viewing the facts before the Court in the light most favorable to the non-moving parties, the undersigned finds that the remaining period for discovery could provide unavailable facts essential to Rice's opposition and, thus, summary judgment is premature. Specifically, with respect to whether Quick's allege breach of contract constitutes an occurrence, Coastal must demonstrate not only that the act causing the loss was intentional, but that the results of the act were also "intended." Allstate Ins. Co. v. Ingraham, No. 7:15-CV-3212-BHH, 2017 WL 976301, at *14 (D.S.C. Mar. 14, 2017) (referencing State Farm Fire & Cas. Co. v. Blanton, No. 4:13-CV-2508-RBH, 2015 WL 9239788, at *10 (D.S.C. Dec. 17, 2015)). Based on the information before the Court at this time, the undersigned finds that there are factual issues as to whether Quick intended for his alleged actions to cause the type of injury purportedly suffered by Rice and, thus, continued discovery is needed to fully understand Quick's state of mind during the relevant events. Further, although Coastal argues that there is no bodily injury or property damage alleged in the underlying action, the undersigned notes Rice's claims regarding emotional stress, difficulty sleeping, and the need to see a cardiologist—the severity and details of which have yet to be fleshed out in discovery. (Dkt. No. 21-3 at 44:4-23, 52:3-23.)
Some insurance companies have revised their policies to exclude, not only injuries expected or intended by the insured, but also injuries resulting from intentional acts with unexpected results, thereby eliminating the second prong of the "occurrence" test above. See Allstate Ins. Co. v. Ingraham, No. 7:15-CV-3212-BHH, 2017 WL 976301, at *14 (D.S.C. Mar. 14, 2017). Although the Policies' inclusion of language regarding bodily injury that is "of a different kind or degree than intended or reasonably expected" appears to be an attempt to prevent the exclusion from being interpreted in an overly narrow manner, this District Court recently found that the same language is not sufficient to exclude coverage for "unexpected" results. Id. Accordingly, Coastal must show that the specific harm alleged by Rice was intended by Quick. --------
Moreover, Rice has made certain allegations that could potentially fall outside of Quick's capacity as an employee of M-E-C. (See, e.g., Dkt. No. 25-1 ¶ 7, alleging that Quick wrote himself personal checks from company funds when purchasing his home in Charleston.) Indeed, a similar issue was presented before the District Court in the underlying action in Quick's Motion for Summary Judgment, in which Quick argued that he acted only on behalf of the business, and not in his personal capacity. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 88.) As stated above, the District Court noted that although Quick's arguments ultimately may have merit, the parties must engage in discovery before the Court can assess the issue presented. (Civil Action No. 2017-cv-01274-BHH, Dkt. No. 109.) Thus, in keeping with the District Court's decision, the undersigned is not prepared to find as a matter of law that Quick's alleged actions arose solely out of his employment with M-E-C.
As Rice correctly notes, the parties have not yet had an opportunity to complete the discovery necessary to uncover all the facts in the underlying action—facts that will have a direct impact on whether the insurance policy exclusions apply to Quick's conduct. Accordingly, the undersigned concludes that summary judgment would be premature at this time given the possibility of coverage, and recommends that Coastal's Motion be denied. See Insurance Inv'rs Title Ins. Co., 232 F.R.D. at 257 (denying insurance company's motion for summary judgment where there were four months of discovery remaining).
CONCLUSION
Based on the foregoing, the undersigned recommends that Coastal's Motion for Summary Judgment (Dkt. No. 21) be DENIED.
IT IS SO RECOMMENDED. December 6, 2018 Charleston, South Carolina
/s/_________
MARY GORDON BAKER
UNITED STATES MAGISTRATE JUDGE