Opinion
Memorandum Opinion No. 2011-MO-022
08-22-2011
Liberty Mutual Fire Insurance Company and Employers Insurance of Wausau, a Mutual Company, Plaintiffs, v. J.T. Walker Industries, Inc., f/k/a Metal Industries, Inc.; and MI Windows & Doors, Inc., f/k/a MI Home Products, Inc. and Metal Industries, Inc. of California, Defendants.
Morgan S. Templeton, of Charleston, and J. Mark Langdon, of Elmore & Wall, of Raleigh, North Carolina, for Plaintiffs. Wm. Howell Morrison and Phyllis W. Ewing, of Moore & Van Allen, PLLC, of Charleston, for Defendants. C. Mitchell Brown, of Nelson Mullins Riley & Scarborough, LLP, of Columbia, for Amicus Curiae the Property & Casualty Insurers Association of America.
THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.
CERTIFIED QUESTION
ON CERTIFICATION FROM THE UNITED STATES DISTRICT COURT FOR SOUTH CAROLINA
Margaret B. Seymour, United States District Judge
CERTIFIED QUESTION ANSWERED
Morgan S. Templeton, of Charleston, and J. Mark Langdon, of Elmore & Wall, of Raleigh, North Carolina, for Plaintiffs.
Wm. Howell Morrison and Phyllis W. Ewing, of Moore & Van Allen, PLLC, of Charleston, for Defendants.
C. Mitchell Brown, of Nelson Mullins Riley & Scarborough, LLP, of Columbia, for Amicus Curiae the Property & Casualty Insurers Association of America.
PER CURIAM : We certified the following question from the United States District Court for the District of South Carolina:
Under South Carolina law, when multiple commercial general liability policies are triggered pursuant to Joe Harden Builders, Inc. v. Aetna Casualty & Surety Co., 486 S.E.2d 89 (S.C. 1997), and an insurer is able to allocate indemnity costs to another subsequent insurer, is the insured entitled to prorate the various deductibles in proportion to the allocation of indemnity costs among the triggered policies?We answer the certified question "no," finding Defendants/policyholders were not entitled to prorate their deductibles based on the limited record before us. Our answer to this certified question is a narrow one, for we view the district court's grant of partial summary judgment as binding on this Court. Moreover, subsequent to our acceptance of this certified question, we overruled our decision in Century Indemnity Co. v. Golden Hills Builders, Inc., 348 S.C. 559, 561 S.E.2d 355 (2002). See Crossmann Communities of N.C., Inc. v. Harleysville Mutual Ins. Co., Op. No. 26909 (S.C. Sup. Ct. re-filed August 22, 2011). Nevertheless, given our practice to accept certified questions pursuant to Rule 244, SCACR, we proceed to answer the question based on the limited record before us.
I.
Plaintiffs Liberty Mutual Fire Insurance Company and Employers Insurance of Wausau (collectively, "Liberty Mutual") issued commercial general liability insurance policies to Defendant J.T. Walker Industries, Inc. ("Walker") covering the period between May 1, 1997 and July 1, 2003. Defendant MI Windows & Doors ("MI"), a subsidiary of Walker, was a named insured. These policies offered liability coverage for property damage up to $1,000,000 per occurrence, with a deductible of $500,000 per occurrence. Under the policies, MI would reimburse Liberty Mutual for its defense and indemnity costs up to $500,000, and Liberty Mutual would be responsible for the remainder of the defense costs and for indemnifying MI up to $1 million. Beginning in July 2003, Walker/MI obtained commercial general liability insurance policies from a different insurer, Zurich North America ("Zurich").
The policy documents suggest there might have been a gap in coverage from May to July 1999. No issue with regard to any gap in coverage is before this Court.
From 2002 to 2008, five homeowners' associations commenced actions in South Carolina state courts alleging certain products manufactured by MI and installed in their homes were defective and that these defective products allowed water to intrude into the homes, causing progressive property damage. Liberty Mutual defended MI in these lawsuits, under a reservation of rights. All five lawsuits were settled over MI's objection.
The lawsuit at issue here—Marais Property Owner's Association v. Beach Marais, LLC, et al.—settled for $500,000. While the parties dispute the precise amount of the defense costs (and we are unable to resolve this dispute), the various amounts asserted fall between $390,000 and $435,000. Liberty Mutual and Zurich agreed among themselves to split the defense costs equally and to allocate the responsibility for indemnity payments as follows: 42% ($210,000) to be paid by Liberty Mutual and 58% ($290,000) to be paid by Zurich. This allocation was based on each insurer's "time on risk."
MI claims to have reimbursed Zurich for $310,208 in defense and indemnity costs. In addition, MI claims to have reimbursed Liberty Mutual for $193,859.25 in defense costs. Liberty Mutual, on the other hand, contends MI "has not reimbursed Liberty Mutual for any defense costs or indemnity payments made to settle the Marais action."
Liberty Mutual brought an action in the United States District Court for the District of South Carolina seeking a declaration of its rights and obligations with regard to the defense and settlement of the state court lawsuits. Following cross-motions for partial summary judgment, the district court entered an order finding that the Liberty Mutual policy "covers the full settlement . . . as do all other policies covering the risk during the progressive damages period":
[U]nder South Carolina law, the Liberty Mutual policy in effect at the time of the injury-in-fact covers the full settlement of each underlying claim, as do all other policies covering the risk during the progressive damages period, see Century Indem. Co. v. Golden Hills Builders, Inc., 561 S.E.2d 355, 357 (S.C. 2002); Joe Harden Builders Inc. v. Aetna Cas. & Sur. Co., 486 S.E.2d 89, 91 (S.C. 1997); [and] Liberty Mutual has a right to seek allocation of payments from other insurers, pro rata, based upon the length of time the risk was covered, see Joe Harden, 486 S.E.2d at 91 . . . .The district court then asked this Court to determine whether MI was "entitled to prorate the various deductibles in proportion to the allocation of indemnity costs among the triggered policies."
II.
It appears to us that the district court's order on partial summary judgment determined Liberty Mutual was required to indemnify MI in full. Proceeding on that premise alone, we are constrained to answer the certified question "no." If MI was entitled to full indemnity from a single insurer, no subsequent agreement among Liberty Mutual and Zurich could impair that right. Neither Liberty Mutual nor Zurich was entitled to charge back any portion of the indemnified loss against MI. SeeJoseph P. Thacker & Richard S. Walinski, Allocation in All-Sums Jurisdictions: Can Insurers Collect from Policyholders?, Coverage, July/August 2007, at 1, 15-16 (explaining that in a jurisdiction where each insurer triggered by a progressive injury is responsible for indemnifying its policyholder in full, a policyholder is "out of the mix once it has been indemnified" and its insurers may not "charge back to the policyholder" any portion of the amount they might subsequently pay to one another). Accordingly, assuming Liberty Mutual was required to indemnify MI in full, MI was required to pay one full deductible to Liberty Mutual in exchange for full indemnity, and MI could not prorate that single deductible.
The district court's determination that Liberty Mutual was required to indemnify MI in full appears to have rested on its interpretation of the principles set forth in Joe Harden Builders, Inc. v. Aetna Casualty & Surety Co., 326 S.C. 231, 486 S.E.2d 89 (1997), and Century Indemnity Co. v. Golden Hills Builders, Inc., 348 S.C. 559, 561 S.E.2d 355 (2002). Our recent decision in Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual Insurance Co. overruled Century Indemnity and clarified the analysis in Joe Harden. We express no opinion regarding the effect of the Crossmann decision on the rights and obligations of the parties in this case, leaving such matters to the district court in the first instance.
If it is true that MI has already paid over $300,000 to Zurich and over $190,000 to Liberty Mutual, it may seem harsh to require MI to pay Liberty Mutual the remainder of its $500,000 deductible. However, the record before us is incomplete and the parties dispute whether these payments were actually made. Factual issues of this kind are beyond the scope of the certified question with which we are presented. If additional action is necessary in order to make MI whole, we trust those matters will be addressed to the district court.
III.
We are constrained to answer the certified question "no" because, pursuant to the district court's order, MI was entitled to receive full indemnity from Liberty Mutual. Proceeding on that premise, MI's insurers could not charge back any portion of the indemnified loss against MI once MI paid its full deductible to Liberty Mutual. Given the limited record before us, and the seemingly binding effect of the partial grant of summary judgment, MI need not pay more than one deductible. Consequently, there is no need for deductible proration.
CERTIFIED QUESTION ANSWERED.
TOAL, C.J., PLEICONES, BEATTY, KITTREDGE and HEARN, JJ., concur.