THE STATE OF SOUTH CAROLINA 

In The Court of Appeals 

Portrait Homes - South Carolina, LLC and Portrait 

Homes - Persimmon Hill, LLC, Plaintiffs, 

v. 

Pennsylvania National Mutual Casualty Insurance 

Company and The Persimmon Hill Homeowners 

Association, Inc., Defendants, 

AND 

The Persimmon Hill Homeowners Association, Inc., 

Third-Party Plaintiff, 

v. 

Jose Castillo d/b/a JJA Framing and JJA Construction, 

Inc. d/b/a JJA Framing, Third-Party Defendants, 

of which Pennsylvania National Mutual Casualty 

Insurance Company is the Appellant, 

and 

Portrait Homes - South Carolina, LLC, Portrait Homes -

Persimmon Hill, LLC, and The Persimmon Hill 

Homeowners Association, Inc. are the Respondents. 

Appellate Case No. 2020-000735 

Appeal From Berkeley County 

Roger M. Young, Sr., Circuit Court Judge 

Opinion No. 6038 
 

 

 

 

 

 

 

 

Heard May 2, 2023 – Filed December 13, 2023 

AFFIRMED 

David L. Brown and John Irvin Malone, Jr., both of 

Greensboro, North Carolina, for Appellant. 

Phillip Ward Segui, Jr., of Segui Law Firm, of Mount 

Pleasant, and John T. Chakeris and Alicia Denise 

Pullano, both of Chakeris Law Firm, of Charleston, all 

for Respondent The Persimmon Hill Homeowners 

Association, Inc. 

Stanley Clarence Rodgers, of Law Office of Stanley C. 

Rodgers, LLC, of Charleston, for Respondents Portrait 

Homes - SC, LLC and Portrait Homes - Persimmon Hill, 

LLC. 

KONDUROS, J.: This very complicated case concerns insurance coverage under 

commercial general-liability (CGL) insurance policies, including claims of bad 

faith, arising out of underlying construction defect lawsuits when Penn National 

Mutual Casualty Insurance Company (Penn National) asserts its insured, a 

subcontractor, did not notify it of the lawsuits and declined coverage. We affirm. 

FACTS/PROCEDURAL HISTORY 

Persimmon Hill is made up of 388 townhome units contained in 74 buildings 

located in Goose Creek, South Carolina. The Persimmon Hill community is 

governed by recorded covenants and restrictions that impose rights and obligations 

on the Persimmon Hill Homeowners Association, Inc. (the HOA), including the 

duty to repair and maintain the exteriors of the townhomes and common areas. 

Portrait Homes1 was the developer and general contractor of Persimmon Hill. JJA 

1 Portrait Homes is structured as various limited liability companies (LLCs). 

Portrait Homes - SC, LLC and Portrait Homes - Persimmon Hill, LLC 

(collectively, Portrait Homes) are the two named in this lawsuit. All of the Portrait 

Homes entities are subsidiaries of Pasquinelli Construction Company. Pasquinelli 
 

 

 

 

 

 

 

 

 

 

 

 

Framing was the primary framer for Persimmon Hill and framed the vast majority 

of the units there; it installed wooden framing components, windows and doors, 

window and door flashings, and weather barriers in approximately 85% of the 

units. Jose Castillo owned and operated JJA Framing. JJA Framing worked as a 

subcontractor for several Portrait Homes projects in the Charleston area. 

While JJA Framing was working on the Persimmon Hill project, articles of 

incorporation for JJA Construction, Inc. were filed with the North Carolina 

Secretary of State's Office. According to Castillo, the sole proprietorship known as 

JJA Framing and JJA Construction, Inc. were the same business and entity, having 

"the same location, same employees, same trucks, same telephone number[,] and 

same federal ID number." 

Portrait Homes relied exclusively on subcontractors to construct its projects. To 

reduce the risk of exposure to lawsuits arising from a subcontractor's defective 

work, Portrait Homes (1) required each subcontractor to defend and indemnify 

Portrait Homes for claims arising from the subcontractor's work and (2) required 

each subcontractor to have Portrait Homes named as an additional insured on their 

liability insurance policies. 

Portrait Homes accomplished this by entering into two types of contracts with 

subcontractors. The first, called a Master Agreement, was a gateway document 

that qualified a subcontractor to work for Portrait Homes on any project. The 

second, called a Housing and Purchase Order Contract, was specific to a particular 

project, such as Persimmon Hill. Both of the contracts had to be in place before a 

subcontractor could work on a project. While the form of the contracts was 

periodically updated, the substance of the hold harmless and insurance 

requirements did not change; the two agreements each required a subcontractor to 

defend and indemnify Portrait Homes. Both contracts governed a subcontractor's 

work at a particular project, and the hold harmless and insurance obligations in the 

two contracts were intended to be complementary. In 2002, Portrait Homes and 

JJA Framing signed a Housing and Purchase Order for the Persimmon Hill project 

as well as a Master Agreement. 

Penn National issued policies to JJA Framing and JJA Construction, Inc. through 

the W. Lee Taylor Agency. Two policies, policy period 2003-04 and 2004-05, 

Management, LLC and Pasquinelli Homebuilding, LLC are other Pasquinelli 

entities not parties to this appeal but appearing on some of the documents in this 

case. 
 

 

 

 

 

 

 

 

 

 

provided Jose Castillo d/b/a JJA Framing Company as the named insured and 

listed Pasquinelli Construction Company; Pasquinelli Management, LLC; and 

Portrait Homes Construction Company as additional insured under endorsement 

CG 20 37 entitled Additional Insured - Owners, Lessees or Contractors -

Completed Operations. On March 2, 2005, the named insured for the 2004-05 

policy was changed to JJA Construction, Inc. Three policies, 2005-06, 2006-07, 

and 2007-08, listed JJA Construction, Inc. as the named insured and contained the 

additional insured endorsement 71 11 45 entitled Automatic Additional Insureds -

Owners, Contractors and Subcontractors (Completed Operations). 

In 2005, Portrait Homes received a certificate of insurance prepared by the W. Lee 

Taylor Agency relating to the 2005-06 Penn National Policy. It listed JJA 

Construction, Inc. and Jose Castillo as the insureds and Portrait Homes and 

Pasquinelli Management, LLC as additional insureds. 

At some point, the Persimmon Hill townhomes began having issues with water 

intrusion. The professional engineer hired to investigate the issues believed the 

issues began two months after the certificate of occupancy was issued. In October 

2012, a homeowner, on behalf of herself and other homeowners, and the HOA 

each brought suit against Portrait Homes. Both complaints were later amended to 

include Portrait Homes' subcontractors, including Jose Castillo d/b/a JJA Framing 

and JJA Construction, Inc. (collectively, JJA). Litigation continued for several 

years. 

During the underlying Persimmon Hill litigation, Portrait Homes' insurance carrier, 

Admiral Insurance Company, agreed to defend it and retained Hood Law Firm to 

lead the defense. In June 2013, Hood Law Firm notified Penn National it believed 

JJA Framing's work contributed to the damages alleged in the lawsuits and 

demanded a defense and indemnification for Portrait Homes as an additional 

insured, referencing the 2005-06 Penn National policy. 

On April 24, 2014, the HOA's counsel wrote Penn National transmitting both 

amended complaints and advising it if no answer were filed within fifteen days, an 

order of default and judgment would be sought against its insured, JJA. 

In May 2014, after Hood Law Firm received no response from Penn National, it 

sent it another letter, this time referencing the 2004-05 Penn National policy, and 

repeated its demand for a defense and indemnification for Portrait Homes as an 

additional insured. 
 

 

 

 

 

 

 

 

 

On September 30, 2014, Greg Gross responded to Hood Law Firm on behalf of 

Penn National and provided Penn National's coverage determination for Portrait 

Homes and the rationale for the decision: 

This is a completed operations type claim. As such, the 

sole avenue to additional insured status would be through 

an endorsement providing additional insured status for 

completed operations. The above noted policies do not 

contain such an endorsement. Accordingly, the tendering 

party, Portrait Homes-South Carolina, LLC do[es] not 

qualify as an additional insured for this occurrence. 

Therefore, Penn National Insurance is rejecting the 

aforementioned tender for defense and/or indemnity from 

Portrait Homes-South Carolina, LLC at this time. 

Gross's letter was the only written communication Penn National sent in response 

to Portrait Homes' tender. 

On December 29, 2014, while the underlying litigation was ongoing, Portrait 

Homes filed a declaratory judgment action against Penn National,2 asserting it was 

an additional insured under various insurance policies issued to JJA for its work on 

Persimmon Hill. Portrait Homes also named the HOA as a defendant. On 

February 26, 2015, the HOA answered, alleging it was the assignee of Portrait 

Homes' claims for bad faith, and asserted cross-claims against Penn National for 

bad faith. 

Eventually, the HOA settled its claims in the underlying litigation for a total of 

$8,569,790.71 against Portrait Homes and its subcontractors, with the exception of 

the claim against JJA. As part of the settlement, Portrait Homes settled the claims 

brought against it for $3,850,000. Portrait Homes' insurers, rather than Portrait 

Homes itself, paid the settlement. No appearance was made on behalf of JJA, and 

an order of default for JJA was filed December 23, 2014. A judgment of 

$4,156,976.89 was entered for the HOA against JJA on June 14, 2016. 

Subsequently, JJA assigned all of its rights as an insured under Penn National's 

policies, including any claims for bad faith, to the HOA based on the HOA's 

judgment against JJA. 

2 Many other insurance companies were also named as defendants. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

On November 28, 2017, Portrait Homes filed an amended complaint naming Penn 

National and the HOA as the defendants.3 It alleged it was an additional insured 

under insurance policies Penn National had issued and Penn National had breached 

its duty to defend and its duty to indemnify. The HOA filed an answer to the 

amended complaint, again asserting cross-claims for bad faith and also seeking a 

declaratory judgment that Penn National's policies provided insurance coverage to 

JJA, its insured. Penn National filed answers to the amended complaint and to the 

HOA's cross-claims. 

The trial court held a bench trial to determine if Portrait Homes was an additional 

insured under Penn National's insurance policies issued to JJA, whether the 

judgment obtained by the HOA against JJA was covered in whole or in part under 

Penn National's policies and whether Penn National committed bad faith along 

with the determination of damages, if any. Following the trial, the trial court 

issued three well-reasoned and lengthy orders that we will attempt to summarize: 

one deciding the HOA's claims, one deciding Portrait Homes' claims, and one 

deciding Penn National's motion to alter or amend and the HOA's and Portrait 

Homes' claims for punitive damages and attorney's fees. 

The order as to the HOA's claims "addresse[d] the determination of whether the 

judgment the HOA obtained against JJA is covered in whole or in part under Penn 

National's policies and whether Penn National acted in bad faith along with the 

damages, if any, for these claims." 

The trial court found Penn National first became aware of the Persimmon Hill 

construction defect litigation by letter from Portrait Homes' counsel dated June 5, 

2013, which included the amended complaint in the underlying lawsuit and the 

HOA's forensic engineering report. The court provided the letter "put Penn 

National on notice of the HOA's claims against its insured JJA and Portrait[ 

Homes'] demand for additional insured status under the JJA insurance policies." 

The court found Penn National assigned the claim to its adjuster, Gross, "an 

experienced claims handler in adjusting [CGL] claims." The trial court determined 

that at the outset of the claim, Gross and Penn National knew after receiving the 

engineering report JJA's liability exposure in the underlying lawsuit was likely in 

the millions of dollars. The court determined Penn National also knew the HOA's 

pleadings triggered coverage for JJA under the policies. The trial court noted, 

"The HOA's complaint alleged, among other things, water intrusion caused damage 

3 It also referenced the HOA as the third-party plaintiff and Castillo and JJA 

Construction, Inc. as the third-party defendants. 
 

 

 

 

 

 

 

 

 

 

 

 

and deterioration to the townhomes as a result of improper construction to include 

the flashing and window installation performed by JJA" and "asserted claims of 

negligence, gross negligence, breach of warranties, and unfair trade practices 

against Portrait [Homes], JJA and other defendants." 

The court noted that "fifteen . . . days after opening this claim, . . . Gross met with 

his superiors including his regional claim's office team leader, Gary Gibson, and 

Penn National's home office in-house legal counsel, Adam Parsons, to discuss the 

handling of this claim." The trial court found Penn National decided it would not 

retain counsel on JJA's behalf until JJA specifically requested a defense. The court 

determined "Penn National unilaterally imposed [a] requirement" on an insured "to 

specifically request a defense prior to Penn National hiring defense counsel," 

which "is separate and distinct from the notice and cooperation conditions found in 

the insuring agreement." The court observed "Gross testified that 'when a lawsuit 

is filed against a Penn National insured,'" two things must happen—the pleadings 

have to trigger coverage and the "'second hurdle [the insured must] jump through'" 

is "'to request a defense from Penn National.'" The court stated "Gross testified 

that this second hurdle was not a term or condition contained in any of the insuring 

agreements that he had ever seen at Penn National, and that he told management he 

did not believe imposing this requirement of specifically having to request a 

defense was proper." The court recognized Gross provided none of the four other 

insurance companies at which he had previously worked adjusting claims had this 

requirement. 

The trial court found "Penn National's adjusting of the HOA's claims against JJA 

included attempting to send correspondence to JJA on three occasions and hiring 

an independent claims adjuster to cold call JJA to inquire whether JJA wanted 

Penn National to provide a defense." The court also found "Penn National's first 

effort to contact JJA was after its adjuster could not locate JJA's contact 

information in an internet search." The court noted e-mail and phone contact 

information for JJA were available in Penn National's system but it made no 

meaningful effort to locate this information. The court observed "Penn National's 

first correspondence was the first of three Reservation of Rights ('ROR') letters to 

JJA dated September 21, 2013, sent by certified mail to" an address in Ladson, 

South Carolina. The court noted that on that same day, "Penn National's adjuster 

made a claim's log entry: 'Effective 07/29/2009 the insured address is changed to" 

an address in Huntersville, North Carolina. The court also noted that "[t]he first 

sentence of the ROR states, 'Penn National Insurance acknowledges receipt of the 

above referenced claim.'" The court recognized "[t]he ROR further maintained that 

'construction defects appear to be resultant in water intrusion and deterioration as a 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

result' and '[i]t appears from the contracts/purchase orders in the file that 

construction commenced in 2002.'" The court stated "Penn National noted the date 

of loss as December 5, 2003." The court determined, "The ROR was 'cut and 

paste' correspondence that also misapplied policy language for the Duty in the 

Event of an Occurrence Section that had been amended by an Extended Coverage 

Endorsement." The court also noted the ROR "state[d] it was 'not a denial of 

coverage, but rather to inform JJA of potential coverage issues.'" The court 

provided the ROR also stated, "'Any actions taken by Penn National in the 

investigation of this matter, or in negotiating for a compromise settlement, or in 

making any settlement, or in defending this claim, or in any way acting or failing 

to act, shall not constitute an admission of liability or an admission of coverage.'" 

The trial court found that on the morning of Saturday, May 10, 2014, "Gayle 

McLeod[4

] made a cold call on JJA by showing up unannounced and walking into 

the open garage of . . . Castillo's home in Huntersville, North Carolina, and 

knocking on his backdoor." The court noted McLeod testified she spoke with 

Castillo in his garage for ten minutes. The court stated "Castillo had not physically 

mailed the complaint to Penn National although Penn National knew the details of 

the claim." The court found "McLeod asked if JJA wanted Penn National to 

defend JJA in the underlying case but did not disclose any other relevant 

information" that Penn National already knew about the claim.

5 

The trial court noted all of JJA and Penn National's policies contained a Common 

Policy Conditions form. The form included a provision describing how any 

changes could be made to a policy: 

B. Changes 

This policy contains all the agreements between you and 

us concerning the insurance afforded. The first Named 

Insured shown in the Declarations is authorized to make 

4 McLeod was an independent adjuster (IA) Gross hired initially to determine if 

JJA had been served. Later, she was instructed to (1) "[m]ake a cold call to the 

insured to inquire about suit representation," (2) inquire if the insured wanted Penn 

National to handle the suit on the insured's behalf, and (3) "[o]btain contact 

information on Jose Castillo." 

5 McLeod testified she asked Castillo if he wanted Penn National to defend him for 

these suits and he said no. She also testified that when she asked Castillo for 

contact information, he shook his head no. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

changes in the terms of this policy with our consent. 

This policy's terms can be amended or waived only by 

endorsement issued by us and made a part of this policy. 

The trial court found, "It is not disputed that coverage under the JJA policies was 

triggered by the HOA's complaint." The court recognized that the policies stated 

"Penn National 'will have the right and duty to defend the insured against suit.'" 

The court noted Penn National afforded no coverage, including a defense, to JJA 

because "JJA did not specifically ask Penn National to defend JJA in the litigation 

and . . . Penn National claimed JJA did[ no]t comply with the Duties in the Event 

of Occurrence, Claim or Suit section of the policy." The court also noted Penn 

National and JJA's insurance policies did not require JJA to request Penn National 

to defend it. The court found "imposing this additional 'hurdle' to coverage . . . 

[wa]s improper and not required to trigger a duty to defend under the JJA policies 

under South Carolina law . . . applicable to this case." 

The trial court recognized that "[s]ubstantial prejudice can occur when an [o]rder 

of [d]efault or [d]efault [j]udg[]ment is entered against the insured and the insurer 

has no notice of the lawsuit." However, the trial court reasoned "[i]t would be 

inequitable to permit an insurer to avoid coverage for an innocent third party just 

because the insured did[ not] notify the insurer of the lawsuit." The court 

explained the purpose of providing notice is to allow the insurer to investigate and 

defend the lawsuit. Further, the court found "Penn National had notice of the claim 

against JJA even before JJA was served with the complaint." The court 

determined JJA's failure to comply with the notice provisions of the insuring 

agreements did not substantially prejudice Penn National because it was not 

prevented from investigating the HOA's claim against JJA. The court found Penn 

National never attempted to investigate the claim even though it had the 

opportunity to do so. 

The trial court examined another lawsuit, Lammey v. Carolina Builders & 

Reconstruction, LLC,

6 which involved construction defects with a single-family 

home, in which Penn National provided JJA a defense. The trial court observed 

that in that case, "Penn National was put on notice by the [p]laintiff's counsel that 

JJA had been sued and served via publication[] and Penn National hired counsel to 

defend JJA." The trial court noted no evidence was presented in that case "that JJA 

specifically contacted Penn National to request a defense or contacted Penn 

6 Lammey v. Carolina Builders & Reconstruction, LLC, 2010-CP-10-00607 

(Charleston Cnty., S.C., Ct. Com. Pl. Sept. 28, 2011). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National otherwise" but Penn National still "hired JJA a lawyer to provide JJA a 

defense."7 The trial court also noted an answer was filed on JJA's behalf in the 

Lammey litigation around two years before Penn National was put on notice of the 

Persimmon Hill claim. The trial court reasoned the allegations against JJA in 

Lammey were similar to those in this case, except that Lammey involved a singlefamily residence instead of 388 townhomes.8 

7 Answer of Defendants JJA Construction, Inc. & Jose A. Castillo to Plaintiffs' 

Amended Complaint, Lammey v. Carolina Builders & Reconstruction, LLC, 2010-

CP-10-00607 (Charleston Cnty., S.C., Ct. Com. Pl. Feb. 18, 2011). 

8 Additional cases exist involving Penn National and JJA. One of those cases is a 

federal district court case in which the district court initially granted summary 

judgment due to JJA's failure to notify Penn National of the lawsuit, thereby 

prejudicing it. Commons of Grand Oaks Homeowners Ass'n v. Pa. Nat'l Mut. Cas. 

Ins. Co., No. 2:16-1668-BHH, 2019 WL 13257665, at *1 (D.S.C. Nov. 22, 2019). 

However, following reconsideration, the district court vacated its grant of summary 

judgment. Id. at *6. In the initial order granting summary judgment, the district 

court found JJA's failure to communicate directly with Penn National had affected 

Penn National's rights under the insurance contract because that failure effectively 

denied Penn National the chance to investigate the claim with JJA's cooperation, 

hire counsel for JJA and experts, assert defenses, settle before entry of default or 

default judgment, and oppose a request for entry of default and a default judgment 

of $5,673,886. Id. at *5. 

However, in the reconsideration order, the court stated at least four lawsuits that 

arose out of similar construction defect claims named JJA as a defendant, which 

Penn National knew as JJA's insurer. Id. The court provided in its case, 

"Plaintiff's counsel first contacted [Penn National] in January 2011, and contacted 

[Penn National] several more times after JJA was served on April 2, 2011. Default 

was entered as to JJA in the underlying lawsuit in January and February 2013." Id. 

(citation omitted). The court noted that "[d]uring this time, Penn National 

defended JJA in a similar construction defect case in Charleston County, in which 

JJA filed an answer in February 2011." Id. Accordingly, the court found Penn 

National "possessed more than mere knowledge of the underlying lawsuit[] and 

rather was in command of the facts pertaining to the claims and parties involved in 

the lawsuit." Id. The court noted Penn National "filed an answer on JJA's behalf 

in one of the several lawsuits concerning alleged construction defects in which JJA 

was a named defendant." Id. The court determined although "Castillo's failure to 

timely tender the summons and complaint to [Penn National] constitutes a breach 

of the policies," that failure "had little bearing on [Penn National's] ability to 
 

 

 

 

 

 

 

 

 

The court further found Penn National's contention it "could not provide a defense 

without the insured specifically requesting one to be without merit and contrary to 

[its] prior actions including specifically with regard to JJA." The trial court found 

unpersuasive Penn National's contention "it was not required to provide JJA with a 

defense or indemnity because it was honoring JJA's wishes of not wanting a 

defense." The court noted that after Penn National knew JJA had been served, it 

hired an IA to cold-call JJA to see if JJA wanted Penn National to provide a 

defense in the litigation. The court found the IA, McLeod, arrived at Castillo's 

home unannounced on a Saturday morning. The trial court found Penn National 

directed McLeod to ask "Castillo an extremely important question for which his 

answer, unknowingly to him at the time, would result in a judgment of 

$4,156,976.89 against JJA." The court stated, "When asked if JJA wanted a 

defense in the pending Persimmon Hill litigation, the trial testimony was that 

Castillo responded that he did not." 

The trial court found, "Important information known only to Penn National and not 

JJA was not disclosed to . . . Castillo when asking him to surrender an important 

and valuable policy benefit that had already been paid for with each of the eight 

years of policies"; "Penn National knew that the liability exposure to JJA was in 

the multi-millions of dollars, the severity of the defects and damages identified in 

inform itself as to whether it should defend JJA in the underlying lawsuit because" 

it already knew many of the relevant facts. Id. 

The district court stated the new evidence of Penn National's behavior, particularly 

that shown in testimony from the present case on appeal here, "pose[d] a pivotal 

question": 

Did [Penn National] embrace a corporate policy by 

which it provided a defense to JJA in the rash of 

construction defect lawsuits in which JJA was a named 

defendant only upon JJA's express request, 

notwithstanding the policy language, [Penn National's] 

duty to defend, or [Penn National's] overall knowledge of 

the nature of the litigation then-pending against JJA. 

Id. Therefore, the district court determined "whether JJA's failure to act, in breach 

of the policies, caused [Penn National] substantial prejudice" presented "a question 

of material fact." Id. 
 

 

 

 

 

 

the engineer's report and that the lawyer that would be providing the JJA defense 

was already a paid for policy benefit." The court observed "Castillo testified [if] 

he [had] been told a lawyer would have been provided to JJA at no cost[,] th[en] he 

would have told the independent adjuster that JJA wanted a lawyer." The court 

determined "Penn National's disclosure of only a small portion of information such 

as this would have changed . . . Castillo's answer to JJA wanting a defense as he 

had testified." 

The trial court further found the record contains no evidence "Penn National 

provided any consideration to JJA in exchange for JJA allegedly agreeing to waive 

the valuable legal right of a defense which JJA had already paid and for which 

Penn National was obligated to undertake." The court noted "the insuring 

agreement specifically provides that policy's terms which include Penn National 

having 'the right and duty to defend the insured against suit . . . ' can be amended or 

waived only by endorsement issued by Penn National and made a part of this 

policy." The court accordingly determined "the duties and obligations of the 

parties to the insuring agreement can[no]t be altered orally." Additionally, the trial 

court found that Penn National "breached the insuring agreement and the implied 

covenant of good faith and fair dealing" "by asking JJA to surrender the right to a 

defense while failing to disclose important and relevant information about the 

claim to its insured." Accordingly, the trial court found "Penn National had a duty 

to defend JJA under each of the eight policies of insurance and that Penn National 

breached its duty to provide a defense." 

The trial court also addressed Penn National's contention "it could not hire counsel 

for JJA without a specific request from JJA for a defense in part because a lawyer 

is ethically prohibited from filing an [a]nswer and defending an insured without 

speaking with the insured and obtaining authorization to do so." The trial court 

first noted that "this argument do[es no]t take into account that JJA and Penn 

National have already agreed that Penn National has the right and obligation to 

defend JJA pursuant to the terms of the insuring agreement," and found "this 

defense is not contained anywhere within the ROR letters, Claims Log Entries, or 

ever been communicated to JJA prior to the judgment being obtained." The court 

determined "this new argument was not part of any consideration for Penn 

National in not providing JJA defense and indemnity in the underlying case, and 

therefore, need not be considered." 

The trial court determined Penn National's breach of all of the insurance 

agreements proximately caused an order of default to be entered against JJA and a 

damages award entered. The trial court found Penn National owed indemnity for 
 

 

 

 

 

 

 

 

 

 

 

the prior judgment in the amount of $4,156,976.89. The court further determined 

Penn National was responsible for the interest that accrued after the entry of the 

judgment and the payment of the accrued interest on the judgment would not 

reduce the policy limits. Accordingly, the court concluded the damages for the 

breach of the duty to defend and duty to indemnify were $4,156,976.899 plus 

postjudgment interest of $1,213,170.40 for a total of $5,370,147.29 for that cause 

of action. 

The trial court found many of Penn National's actions were in bad faith and 

breached the duty of good faith and fair dealing to its insured. The court found 

"Penn National's conduct, in addition to being in conflict with the insuring 

agreements of the policies, is the exact type of conduct that South Carolina bad 

faith law seeks to deter." For the bad faith and breach of duty of good faith and 

fair dealing, the trial court awarded damages of $4,156,976.89, plus postjudgment 

interest of $1,213,170.40 for a total of $5,370,147.29. 

The trial court also addressed Penn National's contention that the judgment should 

be subject to a time-on-risk analysis irrespective of Penn National refusing to 

defend and indemnify its insured. The court reasoned that when the supreme court 

adopted the time-on-risk framework in Crossmann II,

10 it did not have to consider 

the insurer refusing to defend or indemnify because the insurer provided a defense 

in that case; instead, the question concerned only the amount of the indemnity 

obligation. The court also noted the policies here contained different language 

than the policies in Crossmann II. Accordingly, the trial court found the time-onrisk analysis "must be altered so that it is true to the language used in the insurance 

contracts at issue in the present case." Accordingly, the trial court ruled that "the 

progressive property damage caused by continuous or repeated exposure to water 

intrusion occurring after the end of a policy period is deemed to be included in 

what is covered by the policy." 

Additionally, the trial court found each of the eight Penn National policies 

provided coverage in the amount of $500,000 per occurrence. The court therefore 

found $4 million of the HOA's judgment was covered under the Penn National 

policies as well as $1,213,170.40 in interest. Accordingly, the trial court 

determined the HOA, as a judgment creditor, was entitled to damages of $4 

million, plus postjudgment interest of $1,213,170.40, amounting to $5,213,170.40. 

9 This is the amount of damages entered in the default judgment action against JJA. 

10 Crossmann Cmtys. of N.C., Inc. v. Harleysville Mut. Ins. Co. (Crossmann II), 

395 S.C. 40, 59-64, 717 S.E.2d 589, 599-601 (2011). 
 

 

 

 

 

 

 

 

 

The trial court ordered the HOA to submit an election of remedies within ten days 

of the entry of the order choosing between (1) the breach of the duty to defend and 

duty to indemnify and (2) bad faith and the breach of the duty of good faith and 

fair dealing. The trial court found the HOA as assignee of JJA's claims entitled to 

attorney's fees and costs pursuant to section 38-59-40 of the South Carolina Code 

(2015) and Hegler v. Gulf Insurance Co.11 The trial court found both Portrait 

Homes and the HOA as assignee of JJA's policy rights were entitled to recover 

punitive damages against Penn National and a hearing would be conducted at a 

later time to determine the amount of the punitive damages. 

In the trial court's order pertaining to Portrait Homes' causes of action, the trial 

court concluded Penn National breached its duty to defend, breached its duty to 

indemnify, and acted in bad faith by denying Portrait Homes' claim to be an 

additional insured under five Penn National policies. The trial court determined 

Portrait Homes was entitled to recover the attorney's fees and costs it had spent 

defending the underlying lawsuits and the amount paid to settle the claims up to 

the policy limits on the Penn National policies. The trial court also found Portrait 

Homes was entitled to prejudgment interest on both awards, attorney's fees and 

costs, and punitive damages. 

First, the trial court determined Portrait Homes was entitled to additional insured 

coverage under two endorsement types: (1) 71 11 45 entitled Automatic Additional 

Insureds - Owners, Contractors and Subcontractors (Completed Operations) and 

(2) CG 20 37 entitled Additional Insured - Owners, Lessees or Contractors -

Completed Operations. Endorsement 71 11 45 provided additional insured 

coverage in material part as follows: 

Any person(s) or organizations(s) (referred to below as 

additional insured) with whom you are required in a 

written contract or agreement to name as an additional 

insured for the "products-completed operations hazard[,"] 

but only with respect to liability for "bodily injury" or 

"property damage" caused, in whole or in part, by 

"your work[,"] at the location or project designated and 

described in the contract or agreement, performed for that 

additional insured and included in the "productscompleted operations hazard[."] 

11 270 S.C. 548, 550-551, 243 S.E.2d 443, 444 (1978). 
 

 

 

 

 

 

 

 

 

 

 

 

 

A person's or organization's status as an additional 

insured under this endorsement ends when the obligation 

to provide additional insured status for the "productscompleted operations hazard" in the written contract or 

agreement ends. 

The court recognized Portrait Homes asserted it had sufficient written contracts to 

qualify as an additional insured under this endorsement based on the Master 

Agreement and the Housing Purchase Order Contract. However, the court noted 

Penn National's home office counsel, Adam Parsons, disagreed. The court 

observed that prior to Gross sending the denial letter to Portrait Homes, Parsons 

sent Gross an email reasoning that because JJA Construction, Inc. was the named 

insured on the three policies containing Endorsement 71 11 45, and because the 

written contract for the Persimmon Hill project was between Portrait Homes and 

JJA Framing or Jose Castillo d/b/a as JJA Framing, the written contract did not 

qualify Portrait Homes as an additional insured. The court determined that at trial, 

Penn National relied on this argument as the primary basis for denying Portrait 

Homes' tender with respect to Endorsement 71 11 45. 

The trial court found discrepancies in the documents in Penn National's 

underwriting file12 revealed Jose Castillo d/b/a JJA Framing—the named insured 

under the first three Penn National policies—was intended to continue to be 

insured under the policies issued to JJA Construction, Inc. The trial court noted 

that on the declarations page of each JJA Construction, Inc. policy, Penn National 

chose to describe the form of business for the named insured as "INDIVIDUAL." 

The trial court observed that the document submitted to change the named insured 

on the 04-05 policy to JJA Construction, Inc. had information filled in for the 

"name change only" portion but none for the "formation of a new entity" portion. 

The trial court noted the exact same information in the three prior policies 

remained for all of the subsequent policies Penn National issued to JJA 

Construction, Inc. Thus, the trial court stated that "while Parsons was technically 

correct that Portrait Homes did not have a written contract with the named insured 

listed on the 2005-07, 2006-07, and 2007-08 policies, Parsons was substantively 

incorrect because the party with whom Portrait Homes did have a contract—Jose 

Castillo d/b/a JJA Framing—was intended to be insured under those policies." The 

12 The trial court noted Parsons admitted at trial he did not review the documents in 

the underwriting file as a part of his analysis of Portrait Homes' additional insured 

tender. 
 

 

 

 

 

 

 

 

 

 

trial court determined "[t]he evidence convincingly supports the conclusion Jose 

Castillo d/b/a JJA Framing was intended to be insured under the policies issued to 

JJA Construction[,] Inc." 

Additionally, the trial court observed that the underlying lawsuits alleged both Jose 

Castillo and JJA Construction, Inc. were doing business as JJA Framing. The trial 

court noted that "[f]or purposes of determining whether a duty to defend was owed 

to Portrait Homes, Penn National was required to take those allegations as true." 

The trial court cited several exhibits that showed (1) Gross recognized the 

underlying lawsuits alleged both Jose Castillo and JJA Construction, Inc. were 

doing business as JJA Framing and (2) Gross provided that information to Parsons. 

The trial court concluded that "[b]ecause the contracts between Portrait Homes and 

JJA Framing bound both Jose Castillo and JJA Construction[,] Inc., the 

requirement under endorsement 71 11 45 that there be a written contract with the 

named insured was satisfied." 

The trial court also found the Master Agreement and the Housing and Purchase 

Order Contract both applied to the Persimmon Hill project. The trial court ruled 

the certificate of insurance prepared by the Taylor Agency relating to the 05-06 

policy was "relevant because it show[ed] the parties believed the referenced policy 

(2005-06) provided additional insured coverage to Portrait Homes, and that belief 

could only be true if the parties believed the contracts between JJA Framing and 

Portrait Homes also bound JJA Construction[,] Inc.—the named insured under the 

2005-06 policy." The trial court concluded the Taylor Agency was acting for both 

JJA Framing and Penn National and the information contained on the certificate 

was relevant and could be viewed as a piece of evidence. 

Regarding Endorsement CG 20 37, which was attached to the 2003-04 and 2004-

05 policies, the trial court noted it did not require a written contract or agreement; 

instead, it contained a schedule for a name and location. The court recognized that 

in the endorsements attached to the 2003-04 and 2004-05 policies, the named 

insureds were Pasquinelli Construction, Co.; Pasquinelli Management, LLC; and 

Portrait Homes Construction Company. The court also observed that the location 

of completed operations was listed as 3000 Colvard Parkway, Charlotte 

Mecklenburg, North Carolina 28269. The court noted that in an email to Gross, 

Parsons reasoned Portrait Homes did not qualify as an additional insured under this 

endorsement because it only applied to Castillo's work at 3000 Colvard Parkway. 

The trial court found the address listed was an obvious scrivener's error for two 

reasons: (1) it was Jose Castillo d/b/a JJA Framing's own address and (2) it was 
 

 

 

 

 

 

 

listed as the same address in another policy issued to JJA Framing for a different 

project. The court also noted the certificate of insurance issued by the Taylor 

Agency relating to Endorsement CG 20 37 in the 2004-05 policy had "Work done 

for the above referenced organization" as the location and description of completed 

operations. Therefore, the trial court determined the parties intended the additional 

coverage to apply to all projects where JJA Framing performed work on Portrait 

Homes' behalf and implied that term into Endorsement CG 20 37 to fill in the 

blank left after striking the obvious mistaken location. 

Penn National also argued Portrait Homes did not qualify as an additional insured 

under Endorsement CG 20 37 because the names of the tendering parties did not 

match the names listed on the endorsement. The names of the tendering parties 

were "Portrait Homes - South Carolina, LLC, Portrait Home - Persimmon Hill, 

LLC, Pasquinelli Homebuilding, LLC." The trial court noted the structure of the 

Pasquinelli/Portrait Homes organization, which consisted of a Pasquinelli entity at 

the top, then Portrait Homes Construction Company. Below that, a limited liability 

company was formed for each state, followed by a limited liability company for 

each specific project. The trial court concluded the list of names in the 

endorsement was intended to encompass the state-specific and project-specific 

entities. 

Regarding Portrait Homes' status as an additional insured under the Penn National 

Policies, the trial court also analyzed Gross's denial letter. In the letter, Gross 

stated Penn National was denying coverage because the policies did not contain an 

endorsement providing additional insured status for completed operations. The 

court noted several witnesses testified that reason was inaccurate. The trial court 

also noted the letter was the only communication Penn National ever sent to 

Portrait Homes. 

The trial court discussed our supreme court's decision in Harleysville Group 

Insurance v. Heritage Communities, Inc., which noted: "A reservation of rights 

letter must give fair notice to the insured that the insurer intends to assert defenses 

to coverage or to pursue a declaratory relief action at a later date." 420 S.C. 321, 

338, 803 S.E.2d 288, 297 (2017) (quoting United Nat'l Ins. Co. v. Waterfront N.Y. 

Realty Corp., 948 F. Supp. 263, 268 (S.D.N.Y. 1996)). Accordingly, the trial court 

determined here, "Whatever can be waived by a deficient denial letter has been 

waived by Penn National's denial letter. Penn National has waived the ability to 

assert any exclusions or limitations on coverage." 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regarding the claim for breach of the duty to indemnify, Penn National contended 

it failed as a matter of law because Portrait Homes' insurers, rather than Portrait 

Homes personally, paid the $3,850,000 settlement with the plaintiffs in the 

underlying construction defect. The trial court determined "South Carolina law 

does not support Penn National's argument." 

Next, the trial court found it needed to modify the time-on-risk analysis from 

Crossmann II because the Penn National policies contained different language than 

the policies in that case. The trial court noted the supreme court had adopted the 

time-on-risk doctrine in Crossmann II to approximate "the damage that occurred 

during a particular policy period." The trial court also found the "basis for the 

doctrine rest[ed] in the language of the liability policies at issue in Crossmann II, 

which required coverage only for property damage that occurred during the policy 

period." However, the Penn National policies contained a new provision that the 

policies in Crossmann II did not have. The new provision stated, "'[P]roperty 

damage' which occurs during the policy period . . . includes any continuation, 

change or resumption of that . . . 'property damage' after the end of the policy 

period." 

As a result, the trial court explained "the progressive property damage caused by 

continuous or repeated exposure to water intrusion occurring after the end of a 

policy period is deemed to be included in what is covered by the policy." The trial 

court determined the portion of the overall damages13 recoverable in each of the 

five policy years exceeded the limit of each policy, which was $500,000. The trial 

court concluded the total amount covered by the Penn National policies was $2.5 

million.

14 

Next, the trial court considered whether Penn National's conduct amounted to bad 

faith. The trial court noted "Penn National had a good faith duty to perform a 

reasonable investigation into Portrait[ Homes'] claim for coverage as an additional 

insured." The trial court reiterated that Penn National's "underwriting file 

contained a significant amount of information . . . that was important in" analyzing 

whether the policies covered Portrait Homes and that information "conclusively 

showed . . . Portrait [Homes] should have been treated as an additional insured 

under the JJA policies." The trial court recognized the information also conflicted 

with Penn National's rationale for denying Portrait Homes' claim and Penn 

13 The overall damages were $3.85 million as provided by the settlement amount. 

14 The trial court's posttrial order included an exhibit detailing the allocation of 

damages per unit by year. 
 

 

 

 

 

 

 

National did not meaningfully attempt to review or consider the contents of the 

underwriting file even though it was always available. The trial court also noted 

McLeod failed to ask Castillo any questions about Portrait Homes' claim during 

her brief interaction with Castillo at his home. The trial court also observed Penn 

National took seventeen months to respond to Portrait Homes and in the response 

provided only a false reason for denying coverage. 

The trial court found "Penn National knowingly misrepresented the coverages 

under the policies to Portrait" Homes and unreasonably denied Portrait Homes' 

claim in bad faith. Further, the trial court found Penn National's actions were 

willful and in reckless disregard of Portrait Homes' rights. The court also found by 

clear and convincing evidence punitive damages were appropriate. 

On October 31, 2019, Penn National filed a motion to alter or amend pursuant to 

Rule 59(e), SCRCP. As to Portrait Homes, Penn National asserted the trial court 

"improperly look[ed] beyond the plain terms of the policies and Castillo's contract 

with entities in the Portrait Homes corporate structure to ascertain the parties' 

'intentions' when the contractual terms are unambiguous," "[t]hus, the court's 

finding that Portrait Homes is an additional insured under either of the additional 

insured endorsements (CG 20 37 or 71 1145) attached to the various policies is 

improperly premised on evidence beyond the contracts." Additionally, Penn 

National argued the trial court improperly found (1) "Penn National waived its 

right to contest coverage and that such waiver operated to extend coverage to 

uncovered risks, at odds with South Carolina law"; (2) "Penn National engaged in 

insurance bad faith based upon the behaviors it identified in its order"; and (3) 

"Portrait Homes sustained damages in the amount of its underlying settlement as a 

result of the conduct it found supported its claim against Penn National for 

insurance bad faith." Further, Penn National contended "the entry of damages on 

Portrait Homes' breach of contract claim is at odds with published South Carolina 

case law finding that a party completely indemnified for his loss sustains no 

damage for breach of an insurance contract." Finally, Penn National maintained 

"[t]he court failed to find by clear and convincing evidence that Penn National 

engaged in willful, reckless, or wanton conduct or that Penn National acted in 

willful and reckless disregard of Portrait Homes' policy rights and, as such, its 

award of punitive damages was improper." 

As to the HOA, Penn National argued the trial court erred by failing to (1) 

"account for the legal ramifications of Castillo's declining a defense from Penn 

National, which relieved it of its duty to defend him"; (2) "find that Castillo's 

behavior amounted to a breach of the policy requirement of notice"; (3) "find that 
 

 

 

 

 

 

 

 

 

Castillo's behavior amounted to a breach of the policy requirement of cooperation 

with Penn National's investigation"; (4) "find that Castillo's violation of his duties 

to notify . . . and to cooperate . . . substantially prejudiced Penn National" and 

accordingly "[d]efault judgment was entered against Castillo because of his 

violations of these duties, which [wa]s prejudicial as a matter of law"; and (5) "find 

by clear and convincing evidence that Penn National engaged in willful, reckless, 

or wanton conduct or that Penn National acted in willful and reckless disregard of 

Castillo's or JJA['s] . . . policy rights and" as a result improperly awarded punitive 

damages. Additionally, Penn National asserted the trial court improperly (1) 

"found that Penn National engaged in insurance bad faith based upon the behaviors 

it identified in its order," (2) "found that Castillo sustained damages as a 

consequence of the bad faith behaviors," and (3) "fail[ed] to show how Penn 

National's behavior caused $5,370,147.29 in damages to Castillo and JJA." 

As to both Portrait Homes and the HOA, Penn National contended the trial court 

improperly awarded damages under the time-on-risk doctrine. Penn National 

asserted the court's orders implied the Crossmann II analysis no longer applies but 

did "not specify how it should change or provide the methodology for how it was 

applied in this case." Further, Penn National argued "the proper date upon which 

damage is deemed 'complete' is the date that the responsible party compensates the 

injured plaintiff for the damage (or the date upon which damage is repaired, if 

repairs occur first)." 

A hearing was held on January 15, 2020, to determine the amount of punitive 

damages pursuant to section 15-32-520 of the South Carolina Code (Supp. 2022). 

On March 23, 2020, the trial court issued an order deciding (1) Penn National's 

59(e) motion to alter or amend; (2) Portrait Homes' request for attorney's fees and 

costs; (3) the HOA's request for attorney's fees and costs; and (4) the punitive 

damages. The trial court denied Penn National's 59(e) motion, "[w]ith the 

exception of an issue relating to the interplay between the award to Portrait Homes 

for breach of contract relating to the duty to indemnify and the award to [the] HOA 

as a judgment creditor." The trial court awarded attorney's fees and costs as well 

as punitive damages to both Portrait Homes and the HOA. 

In regards to Penn National's contention the court improperly found it had "waived 

its right to contest coverage and that such waiver operated to extend coverage to 

uncovered risks, in reliance on Harleysville Group Ins[urance]," the trial "[c]ourt 

conclude[d] the requirements discussed in Harleysville applied to coverage 

communications in general from an insurer to an insured, not just to a [ROR] 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

letter." However, the trial court also ruled that if the requirements in Harleysville 

do not apply to denial letters in general, they still applied "to Penn National in this 

case because [it] agreed [to] the obligations to thoroughly and accurately explain 

the grounds for its decision applied to [Gross's] denial letter to Portrait Homes." 

Finally, the court clarified it "did not rule Portrait Homes was entitled to coverage 

under the Penn National policies based on . . . waiver." The court reiterated 

Portrait Homes was obligated "to prove it met the requirements to trigger coverage 

under the additional insured endorsements and the insuring agreements" and it 

found Portrait Homes met its burden of proof. 

As to Penn National's reiteration of its argument "Portrait Homes' claim for breach 

of the duty to indemnify fails as a matter of law because the settlement on behalf of 

Portrait Homes was paid by insurers . . . who issued policies directly to Portrait 

Homes, rather than having been paid by Portrait Homes personally," the trial 

"[c]ourt adhere[d] to its original ruling." The trial court considered a similar 

federal case15 in which the district court granted Penn National summary judgment, 

but it declined to follow the district court's reasoning, noting the federal case had 

actually begun two years after the current case. Additionally, the trial court 

distinguished two cases Penn National cited16 because they involved parties 

seeking to recover for defense costs rather than indemnity. The trial court found 

another case, Otis Elevator, Inc., more instructive. See Otis Elevator, Inc. v. 

Hardin Constr. Co. Grp., 316 S.C. 292, 450 S.E.2d 41 (1994). In that case, our 

supreme court determined the trial court had erred by reducing the jury's verdict to 

offset the amount that an insurer had paid in settlement. Id. at 300, 450 S.E.2d at 

45. Here, the trial court noted the supreme court's statement from Otis Elevator, 

Inc. that "if one party is entitled to indemnity from another, the right to indemnity 

is not defeated by the fact that the loss to be indemnified for was actually paid by 

an insurance company." Id. at 300, 450 S.E.2d at 45-46 (quoting Tillman v. 

Wheaton-Haven Recreation Ass'n, 580 F.2d 1222, 1230 (4th Cir. 1978)). The trial 

court observed that here, Penn National was arguing the opposite: that Portrait 

Homes' right to indemnity from Penn National was defeated by the fact that the 

loss being indemnified for was paid by an insurance company. 

15 Summer Wood Prop. Owners Ass'n v. Pa. Nat'l Mut. Cas. Ins. Co., No. 2:17-cv3504-BHH, 2019 WL 4415805 (D.S.C. Sept. 16, 2019). 

16 Sloan Constr. Co. v. Cent. Nat'l Ins. Co. of Omaha, 269 S.C. 183, 236 S.E.2d 

818 (1977); Harford Accident & Indem. Co. v. S.C. Ins. Co., 252 S.C. 428, 166 

S.E.2d 762 (1969). 
 

 

 

 

 

 

 

 

 

 

 

 

 

As to Penn National's contention in its 59(e) motion that the trial court erred in 

failing to find it was relieved of its duty to defend, the trial court found very few 

similarities between the cases on which Penn National relied17 and the facts of this 

case. The court explained the common thread in those cases was that each of the 

insurers had hired counsel to provide a defense for their insureds, whereas Penn 

National chose not to do that in this case. 

The trial court also found Penn National relied on McLeod to establish it 

"conveyed full and complete information to JJA regarding pertinent facts of the 

claim, policy provisions[,] and information regarding coverages." However, the 

trial court noted McLeod's testimony demonstrates it reasonably found Penn 

National misled Castillo by not providing him with all the information as to 

coverages available to him for which he had already paid premiums as well as not 

disclosing that he faced a multi-million-dollar exposure for this claim. 

In its award of attorney's fees to Portrait Homes, the trial court evaluated the 

factors18 the trial court must consider in awarding attorney's fees. The trial court 

found (1) presentation of the issues was not a simple task; (2) the amount of time 

and labor devoted to the case was reasonable; (3) Portrait Homes' attorney tried the 

case in a competent, well-prepared manner; (4) the contingency of compensation 

did not apply because the fee agreement was a billable hour arrangement; (5) the 

hourly rate of $250, as well as a rate of $125 for travel, was within the range of 

customarily charged in the area; and (6) the results were very beneficial. The trial 

court awarded attorney's fees of $237,462.50 and costs of $12,540.76 for a total of 

$250,003.26 to Portrait Homes. 

As to the HOA's request for attorney's fees and costs, the trial court made findings 

pursuant to Baron Data Systems, Inc. For the HOA's assigned breach of duty to 

defend and duty to indemnify, the trial court found costs of $51,332.03 and 

17 Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 

365 (4th Cir. 2005); State Nat'l Ins. Co. v. Eastwood Constr. LLC, No. 6:16-cv02607-AMQ, 2018 WL 8787543 (D.S.C. Sept. 5, 2018); Tucker v. State Farm 

Mut. Auto. Ins. Co., 232 S.C. 615, 103 S.E.2d 272 (1958). 

18 Those factors are (1) the nature, extent, and difficulty of the legal services 

rendered, (2) the time and labor necessarily devoted to the case, (3) the 

professional standing of counsel, (4) the contingency of the compensation, (5) the 

fee customarily charged in the locality for similar legal services, and (6) the 

beneficial result obtained. Baron Data Sys., Inc. v. Loter, 297 S.C. 382, 384-85, 

377 S.E.2d 296, 297 (1989). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attorney's fees $1,790,049.10 was reasonable and would be awarded if the HOA 

had elected the remedy for the breach of the duties to defend and indemnify. 

However, the trial court noted the HOA filed an election of remedies on November 

1, 2019, in which it elected bad faith and the breach of duty of good faith and fair 

dealing rather than the breach of duty to defend and duty to indemnify. The court 

recognized the supreme court has held attorney's fees pursuant to section 38-59-40 

of the South Carolina Code only apply to breach of contract actions, citing Nichols 

v. State Farm Mutual Auto. Insurance Co., 279 S.C. 336, 306 S.E.2d 616 (1983). 

The trial court awarded punitive damages of $3,892,791.24 to Portrait Homes. The 

court found "Penn National failed to perform a reasonable investigation of th[e] 

claim and knowingly misrepresented coverages under the policies to Portrait 

[Homes] in the claim denial." The court further found "Penn National's claim 

denial was unreasonable and untimely in taking seventeen months . . . following 

Portrait[ Homes'] initial tender to process the doomed claim. The evidence is clear 

and convincing that this conduct of Penn National was willful, wanton, or in 

reckless disregard of Portrait[ Homes'] rights causing harm." 

The trial court awarded the HOA, as assignee of JJA's claim, $5,370,147.29 in 

punitive damages. The trial court found "Penn National had the opportunity to 

investigate the claim and provide a defense to JJA but chose not to." The court 

found that because of Penn National's failure to provide a defense, an order of 

default was entered against JJA—nearly nineteen months after Penn National was 

notified of the lawsuit. The court noted that Penn National's insurance expert, 

Bernd Heinze, testified Penn National acted in bad faith in a different matter in 

2007. The court found Heinze provided that in that case, $6 million "in punitive 

damages were awarded against Penn National . . . for purposes of punishing and 

deterring [it] and other insurers in the same position from acting in a similar 

fashion in the future." The court stated "Heinze sought to differentiate what 

appears to be similar conduct by Penn National in the instant case by relying on the 

insured tendering to Penn National in the 2007" case. 

The trial court found punitive damages awards equal to the actual damages 

awarded for bad faith to Portrait Homes and the HOA, as the assignee of JJA's 

claims, were appropriate and not violative of due process. 

The trial court entered a judgment for Portrait Homes in the following amounts: 

Breach of Contract-Duty to Defend $42,791.24 

Breach of Contract-Duty to Indemnify $2,500,000.00 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prejudgment Interest $807,693.50 

Attorney Fees/Costs $250,003.26 

Bad Faith Refusal to Pay $3,892,791.24 

Punitive Damages $3,892,791.24 

Total: $11,386,070.48 

The trial court entered a judgment for the HOA in the following amounts: 

Bad Faith Refusal to Pay $5,370,147.29 

HOA's Judgment Creditor Claim $5,213,170.40 

Punitive Damages $5,370,147.29 

Total: $15,953,464.98 

This appeal followed. 

STANDARD OF REVIEW 

"Declaratory judgment actions are neither legal nor equitable, and therefore, the 

standard of review depends on the nature of the underlying issues." Auto-Owners 

Ins. Co. v. Hamin, 368 S.C. 536, 540, 629 S.E.2d 683, 685 (Ct. App. 2006). 

"When the purpose of the underlying dispute is to determine whether coverage 

exists under an insurance policy, the action is one at law." Id. Our supreme court 

has applied a legal standard of review to the determination of coverage under a 

CGL policy. L-J, Inc. v. Bituminous Fire & Marine Ins. Co., 366 S.C. 117, 120, 

621 S.E.2d 33, 35 (2005). 

"[A]n insurance policy is a contract between the insured and the insurance 

company[,] and the terms of the policy are to be construed according to contract 

law." Auto Owners Ins. Co. v. Langford, 330 S.C. 578, 581, 500 S.E.2d 496, 497 

(Ct. App. 1998). "An action to construe a contract is an action at law . . . ." Pruitt 

v. S.C. Med. Malpractice Liab. Joint Underwriting Ass'n, 343 S.C. 335, 339, 540 

S.E.2d 843, 845 (2001). Additionally, "[a]n action for breach of contract is an 

action at law." Electro-Lab of Aiken, Inc. v. Sharp Constr. Co. of Sumter, 357 S.C. 

363, 367, 593 S.E.2d 170, 172 (Ct. App. 2004). Further, "a separate tort action 

[exists] for an insurer's bad-faith refusal to pay benefits under an insurance policy." 

In re Mt. Hawley Ins. Co., 427 S.C. 159, 169, 829 S.E.2d 707, 713 (2019). "An 

action in tort for damages is an action at law." Longshore v. Saber Sec. Servs., 

Inc., 365 S.C. 554, 560, 619 S.E.2d 5, 9 (Ct. App. 2005). 
 

 

 

 

 

 

 

 

 

 

 

 

"In an action at law tried without a jury, an appellate court's scope of review 

extends merely to the correction of errors of law." Temple v. Tec-Fab, Inc., 381 

S.C. 597, 599-600, 675 S.E.2d 414, 415 (2009). "The [c]ourt will not disturb the 

trial court's findings unless they are found to be without evidence that reasonably 

supports those findings." Id. at 600, 675 S.E.2d at 415. "[T]he trial court's 

findings are equivalent to a jury's findings in a law action. Further, questions 

concerning credibility and the weight to be accorded evidence are exclusively for 

the trial court." McCall v. IKON, 380 S.C. 649, 658, 670 S.E.2d 695, 700 (Ct. 

App. 2008) (citation omitted). "We may not consider the case based on our view 

of the preponderance of the evidence, but must construe the evidence presented to 

the [trial court] so as to support [its] decision wherever reasonably possible." 

Jordan v. Judy, 413 S.C. 341, 348, 776 S.E.2d 96, 100 (Ct. App. 2015) (alterations 

by court) (quoting Sheek v. Crimestoppers Alarm Sys., 297 S.C. 375, 377, 377 

S.E.2d 132, 133 (Ct. App. 1989)). "We must look at the evidence in the light most 

favorable to the respondents and eliminate from consideration all evidence to the 

contrary." Id. (quoting Sheek, 297 S.C. at 377, 377 S.E.2d at 133). 

LAW/ANALYSIS 

I. ISSUES AS TO THE HOA 

A. Award of Coverage 

Penn National argues the trial court improperly awarded coverage to Castillo and 

JJA Construction after Castillo advised Penn National he did not want a defense 

and refused to cooperate with Penn National. It contends Castillo's statement 

combined with his failure to communicate with Penn National was sufficient to 

terminate any duty it had to defend him. Penn National asserts that a policyholder 

may decline the benefits of his policy if he chooses, including a defense. It 

maintains Castillo's refusal operated as a knowing and voluntary relinquishment of 

his rights under the policy that was fully viable under the law. We disagree. 

"Insurance policies are subject to the general rules of contract construction. The 

court must give policy language its plain, ordinary, and popular meaning." S.C. 

Farm Bureau Mut. Ins. Co. v. Dawsey, 371 S.C. 353, 356, 638 S.E.2d 103, 104 

(Ct. App. 2006) (citation omitted). "Although exclusions in a policy are construed 

against the insurer, insurers have the right to limit their liability and to impose 

conditions on their obligations provided they are not in contravention of public 

policy or a statutory prohibition." Id. "The court cannot torture the meaning of 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

policy language to extend coverage not intended by the parties." Id. at 356, 638 

S.E.2d at 105. 

"Questions of coverage and the duty of a liability insurance company to defend a 

claim brought against its insured are determined by the allegations of the 

complaint. If the underlying complaint creates a possibility of coverage under an 

insurance policy, the insurer is obligated to defend." City of Hartsville v. S.C. 

Mun. Ins. & Risk Fin. Fund, 382 S.C. 535, 543, 677 S.E.2d 574, 578 (2009) 

(citation omitted). "An insurer's duty to defend is separate and distinct from its 

obligation to pay a judgment rendered against an insured. However, these duties 

are interrelated." Id. at 544, 677 S.E.2d at 578 (citation omitted). "If the facts 

alleged in a complaint against an insured fail to bring a claim within policy 

coverage, an insurer has no duty to defend. Accordingly, the allegations of the 

complaint determine the insurer's duty to defend." Id. (citation omitted). 

"Although the cases addressing an insurer's duty to defend generally limit this duty 

to whether the allegations in a complaint are sufficient to bring the claims within 

the coverage of an insurance policy, an insurer's duty to defend is not strictly 

controlled by the allegations in the complaint." Id. (quoting USAA Prop. & Cas. 

Ins. Co. v. Clegg, 377 S.C. 643, 657, 661 S.E.2d 791, 798 (2008)). "Instead, the 

duty to defend may also be determined by facts outside of the complaint that are 

known by the insurer." Id. (quoting Clegg, 377 S.C. at 657, 661 S.E.2d at 798). 

"If the facts alleged in the . . . complaint fail to bring a claim within policy 

coverage, [the insurance company] has no duty to defend." Prior v. S.C. Med. 

Malpractice Liab. Ins. Joint Underwriting Ass'n, 305 S.C. 247, 249, 407 S.E.2d 

655, 657 (Ct. App. 1991) (per curiam). "In examining the complaint, we must look 

beyond the labels describing the acts, to the acts themselves which form the basis 

of the claim against the insurer." Id. Our supreme court has found that "[d]espite 

the use of the terms 'negligence' and 'recklessness[]' [in the complaint,] the 

allegations charged the commission of an intentional tort only." S.C. Med. 

Malpractice Liab. Ins. Joint Underwriting Ass'n v. Ferry, 291 S.C. 460, 462, 354 

S.E.2d 378, 379-80 (1987). 

"The defense of such suits by the insurer is a valuable right of the insured for 

which he pays and to which he is entitled by the very words of the policy." 

Nationwide Mut. Ins. Co. v. Simmonds, 315 S.C. 404, 407, 434 S.E.2d 277, 278 

(1993) (quoting Am. Cas. Co. v. Howard, 187 F.2d 322, 327 (4th Cir. 1951)). Our 

supreme court has "accord[ed] with those jurisdictions which distinguish an 

insurer's obligation to provide a defense to its insured with its duty to provide 
 

 

 

 

 

 

 

 

 

coverage." Id. In Allstate Insurance Co. v. Wilson, our supreme court determined 

the insurer's "obligation to defend existed from the time the actions were instituted 

and continued until it fulfilled its obligation under its policy, all of which was done 

under a reservation of rights, notice of which had been given." 259 S.C. 586, 592, 

193 S.E.2d 527, 530 (1972). 

In the present case, evidence supports the trial court's finding Castillo did not 

decline coverage. Castillo's interaction with McLeod during the cold call in his 

garage did not amount to him declining coverage as Penn National contends; 

Castillo had a limited amount of information at the time of that interaction. 

Accordingly, we affirm the trial court's award of coverage to Castillo and JJA. 

B. Policies' Notice and Cooperation Conditions and Prejudice 

Penn National argues the trial court improperly failed to conclude Castillo violated 

the notice and cooperation conditions contained in the policies as a matter of law. 

It further argues because Castillo's violations of those conditions led to entry of 

default and default judgment, the trial court erred in failing to find it suffered 

substantial prejudice as a result. It asserts the trial court incorrectly found the rule 

that entry of a default judgment against an insured substantially prejudices an 

insurer applied only when the insurer had no notice of the suit before default was 

entered. It contends Merit Insurance Co.19 stands for the opposite proposition. It 

asserts that in that case, the insurer had notice of the claim and legal proceedings 

against the insured and was conducting settlement negotiations on the insured's 

behalf. It maintains that in that case, the insured failed to forward copies of the 

pleadings to the carrier, and the court found that entry of default against the insured 

constituted substantial prejudice as a matter of law, even though the insurer was 

aware of the suit. 

Penn National also asserts it could not have unilaterally appointed counsel on 

Castillo's behalf, avoiding entry of default, without his approval. It contends the 

South Carolina Rules of Professional Conduct provide that a prospective client 

must approve counsel before that attorney can act on the client's behalf and courts 

have interpreted that rule as applicable in the insurer-appointed-counsel context. It 

argues its inability to retain counsel on Castillo's behalf is not a ground upon which 

it sought to deny coverage but the inability to hire counsel is the manner in which 

it was prejudiced by Castillo's failure to tender the claim or cooperate, grounds 

specifically mentioned in the ROR letter sent to Castillo following his refusal to 

19 Merit Ins. Co. v. Koza, 274 S.C. 362, 264 S.E.2d 146 (1980). 
 

 

 

 

 

 

 

 

 

 

cooperate with McLeod and in its denial of Castillo's claim. It asserts the trial 

court found consent existed by virtue of the insuring agreement and duty to defend. 

Penn National contends authorities such as Twin City20 and Eastwood 

Construction21 contradict that conclusion and hold the insured must consent to 

counsel appointed by the carrier. It maintains the trial court erred in relying on an 

ethics advisory opinion released eight years after the events in question and after 

this issue was raised by Penn National in this litigation for the proposition that an 

attorney could enter an appearance on behalf of the insured without the insured's 

consent to the representation. It contends the advisory opinion conflicts with the 

governing authority of Twin City and Eastwood Construction. It also asserts the 

advisory opinion requires the insured be missing for the insurer to proceed without 

consent, but Castillo's location was not in dispute. We disagree with Penn 

National's arguments as to prejudice. Accordingly, we need not address whether 

the trial court erred in failing to find Castillo violated the notice and cooperation 

clauses. 

"Nearly every insurance policy contains a provision requiring the insured to timely 

notify its insurer when a lawsuit is filed against the insured." Neumayer v. Phila. 

Indem. Ins. Co., 427 S.C. 261, 266, 831 S.E.2d 406, 408 (2019). "Common sense 

dictates that the insurer must have notice of a claim or lawsuit in order to properly 

investigate and defend against it, and these clauses ensure that the insurer receives 

notice by imposing this obligation on the insured." Id. Recognizing the potential 

inequities in permitting an insurer to avoid coverage to an innocent third party 

merely because the at-fault party—the insured—did not inform its insurer of a 

lawsuit, South Carolina "judicially adopted a notice-prejudice rule, whereby the 

insurer had the burden to show that it was substantially prejudiced by the failure of 

its insured to comply with the notice and cooperation provisions." Id. "This rule 

prevented an insurer from relying on an immaterial breach by its own insured as a 

defense to paying an injured third party." Id. at 267, 831 S.E.2d at 409. 

"[A]n insurer's duty to defend is triggered when the underlying claim is brought 

and thus 'pre-exists any obligation on the part of the insured as to notice or 

compliance with the voluntary payment provision of an insurance contract.'" 

Episcopal Church in S.C. v. Church Ins. Co. of Vt., 53 F. Supp. 3d 816, 828 

20 Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 

365 (4th Cir. 2005). 21 State Nat'l Ins. Co. v. Eastwood Constr. LLC, No. 6:16-cv-02607-AMQ, 2018 

WL 8787543 (D.S.C. Sept. 5, 2018). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(D.S.C. 2014) (quoting Liberty Mut. Ins. Co. v. Black & Decker Corp., 383 F. 

Supp. 2d 200, 205 (D. Mass. 2004)). 

"[A]n insurer, seeking to relieve itself of liability because of the violation by the 

insured of a cooperation clause in the policy, has the burden of showing not only 

that the insured failed to cooperate within the meaning of the policy provision but 

that it was substantially prejudiced thereby." Vaught v. Nationwide Mut. Ins. Co., 

250 S.C. 65, 71, 156 S.E.2d 627, 630 (1967). "Such issue is generally one of fact 

. . . . " Id. 

"[A] liability insurer may successfully defend upon the ground that the insured has 

violated the cooperation clause of the policy only when the breach has been 

material and has resulted in substantial prejudice to the insurer." Twin City Fire 

Ins. Co., 433 F.3d at 374-75 (quoting Evans v. Am. Home Assurance Co., 252 S.C. 

417, 420, 166 S.E.2d 811, 813 (1969)). "In Evans, the insured allegedly refused to 

participate in his defense, as conducted by an attorney that his insurance company 

retained." Twin City Fire Ins. Co., 433 F.3d at 375. "[T]he insured's failure to 

cooperate in Evans was ambiguous and the court held that the insurance company 

had not met its burden of proving that he had refused to cooperate." Id. 

An insurer can raise as a defense against actions brought by injured third parties an 

insured's failure to comply with policy provisions if the insurer has been 

substantially prejudiced by the insured's noncompliance. Merit Ins. Co., 274 S.C. 

at 364, 264 S.E.2d at 147. "Whe[n] the rights of innocent parties are jeopardized 

by a failure of the insured to comply with the notice requirements of an insurance 

policy, the insurer must show substantial prejudice to the insurer's rights." Vt. Mut. 

Ins. Co. v. Singleton ex rel. Singleton, 316 S.C. 5, 12, 446 S.E.2d 417, 421 (1994). 

"The burden of proof is upon the insurer to show not only that the insured has 

failed to perform the terms and conditions invoked upon him by the policy contract 

but in addition that it was substantially prejudiced thereby." Squires v. Nat'l 

Grange Mut. Ins. Co., 247 S.C. 58, 67, 145 S.E.2d 673, 677 (1965). 

"The driving force behind the notice-prejudice rule is that there is 'no sound reason 

. . . to permit a mere technical noncompliance to deprive an innocent third party of 

benefits to which he would otherwise be entitled.'" Neumayer, 427 S.C. at 272, 

831 S.E.2d at 411 (quoting Factory Mut. Liab. Ins. Co. of Am. v. Kennedy, 256 

S.C. 376, 381, 182 S.E.2d 727, 729 (1971)). "Rather than provide a 'technical 

escape-hatch' for the insurer to deny coverage, the notice-prejudice rule balances 

both interests without a wholesale prohibition of these clauses." Id. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Merit Ins. Co., the court found "prejudice is clearly established by the fact that a 

default judgment was entered against the insured." 274 S.C. at 364, 264 S.E.2d at 

147. In that case, "the suit papers in question were never forwarded to [the 

insurer]. However, the evidence [wa]s in direct conflict as to whether [the insurer] 

was notified that the papers had actually been served." Id. at 364-65, 264 S.E.2d at 

147. 

In Tucker v. State Farm Mutual Automobile Insurance Co., 232 S.C. 615, 623, 103 

S.E.2d 272, 277 (1958), the supreme court had no doubt the insured's failure to 

cooperate prejudiced the insurer in that case. The supreme court noted the trial 

court correctly found the insurer "attempted to get [the insured] to come in. . . . 

[The insurer] wrote him several letters, and there is no denial that he got the letters, 

but he refused to answer them." Id. at 624, 103 S.E.2d at 277. "[The insured] 

didn't show any cooperation at all and wouldn't show any unless he could be 

assured that the hospital bills would be paid." Id. "That's why he was refusing to 

sign anything . . ." Id. The trial court did not find "any conflict in the evidence . . . 

to go to the jury, to show whether he did not cooperate." Id. The supreme court 

recognized in addition to the trial court's findings, the insured repeatedly told the 

attorney the insurer provided him that he "had decided to have nothing to do with 

the action for damages against him; and he did not, which resulted in default 

judgment." Id. 

"Although South Carolina appellate courts have never held the entry of default 

alone clearly establishes prejudice, the South Carolina Supreme Court has offered 

guidance on how prejudice to an insurer can arise through the entry of default." 

Founders Ins. Co. v. Richard Ruth's Bar & Grill LLC, 761 F. App'x 178, 183 (4th 

Cir. 2019) (citing Hatchett v. Nationwide Mut. Ins. Co., 244 S.C. 425, 434, 137 

S.E.2d 608, 612-13 (1964)). In Hatchett, an insured brought suit against an 

uninsured motorist. 244 S.C. at 428, 137 S.E.2d at 609. The insured did not notify 

its insurer of the suit until the uninsured motorist was in default. Id. at 434, 137 

S.E.2d at 613. The South Carolina Supreme Court noted the insured had made no 

effort to establish a reason for his "failure to comply with the terms of the contract" 

requiring him to give notice "as soon as practicable." Id. at 434, 137 S.E.2d at 

612-13. The court found the insurer had the right to provide a defense to the 

uninsured motorist but the insured "refused to waive the default and permit an 

answer to be filed" by the insurer. Id. at 432-34, 137 S.E.2d at 612-13. Instead, 

the insured "chose to rest his position upon the rights he had acquired through 

default which operated to the prejudice of the" insurer. Id. at 434, 137 S.E.2d at 

613. The court found the insurer was "deprived of the opportunity . . . to 

investigate promptly, to negotiate a settlement without the handicap of a default 
 

 

 

 

 

 

 

 

 

 

 

 

position, or to" provide a defense, to make certain the insured recovered a fairly 

established amount. Id. 

"In Episcopal Church . . . [a South Carolina district court] examined whether, 

under South Carolina law, an insured has the right to select counsel for its insured 

based on [certain] language . . ." Eastwood Constr. LLC, 2018 WL 8787543, at 

*10. "[T]he insurance policy examined in Episcopal Church did not specifically 

state that the insurer has the right to select counsel. However, the policy stated that 

the insurer has '"the right and duty to defend a lawsuit seeking damages which may 

be covered under the Commercial Liability Coverage."'" Id. (citation omitted) 

(quoting Episcopal Church, 53 F. Supp. 3d at 823). The district court recognized 

"South Carolina courts have found that where a policy provides an insurer with the 

right and duty to defend, the insurer has 'the right and the duty to control the 

defense until such time as it [i]s determined that it ha[s] no liability insurance 

coverage.'" Episcopal Church, 53 F. Supp. 3d at 823 (emphasis added by court) 

(alterations by court) (quoting Allstate Ins. Co. v. Wilson, 259 S.C. 586, 592, 193 

S.E.2d 527, 530 (1972)). The district court found the policy language provided the 

insurer "the right to defend [the insured], and . . . under established South Carolina 

law, that right includes the right to control the defense and select defense counsel." 

Id. 

In Eastwood Construction, "the . . . [p]olicies confer[red] upon [the insurer] 'the 

right and duty to defend the insured against any "suit" seeking damages.'" 

Eastwood Constr. LLC, 2018 WL 8787543, at *11. The district court determined, 

"Based upon prevailing South Carolina law, this language gives [the insurer] the 

right to select counsel. . . . [The insurer] has the right to select counsel to defend 

[the insured] in the . . . lawsuit . . . ." Id. (citing Episcopal Church, 53 F. Supp. 3d 

at 823). 

Even though the insurer may have a duty to defend, "an insured must consent to 

the counsel assigned by the insurance company." Twin City Fire Ins. Co., 433 

F.3d at 374. The South Carolina Rules of Professional Conduct state, "A lawyer 

shall not accept compensation for representing a client from one other than the 

client unless: (1) the client gives informed consent . . . ." Rule 1.8(f), RPC, Rule 

407, SCACR. In Twin City Fire Insurance Co., the Fourth Circuit Court of 

Appeals determined that "[i]f the insured does not consent to counsel selected by 

the insurance company, the insured may refuse the defense and pay for its own 

defense. Stated differently, 'having refused the contractual terms of the policy, the 

insured foregoes its right to compensation for defense fees.'" 433 F.3d at 374 

(quoting Finley v. Home Ins. Co., 975 P.2d 1145, 1155 (Haw. 1998)). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This court has previously found instructive an ethics advisory opinion directly 

addressing an issue before the court, while recognizing the advisory opinion was 

not binding on this court. Brooks v. S.C. Comm'n on Indigent Def., 419 S.C. 319, 

330 n.3, 797 S.E.2d 402, 408 n.3 (Ct. App. 2017). In the Ethics Advisory Opinion 

cited by the trial court, the insurance carrier had retained an attorney to defend the 

insured in a lawsuit alleging negligent construction of a condominium project. 

S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 19-04, 2019 WL 5853809, 

at *1 (2019). The "[p]laintiff's counsel could not locate the [i]nsured," and the 

"[i]nsured was served by publication." Id. "Despite repeated attempts, neither [the 

i]nsurance [c]arrier nor [the a]ttorney c[ould] locate [the i]nsured regarding the 

pending lawsuit." Id. 

The opinion determined the attorney could appear on behalf of and defend the 

insured at the insurance carrier's request if the carrier's contract with the insured 

gave it the right to retain counsel to defend claims made against the insured. Id. 

The opinion explained that when by contract, including insurance contracts, a 

person "delegate[s] authority to another to choose counsel [and] conduct the 

defense of a claim, . . . an attorney may reasonably rely upon the instruction of the 

person's agent, in this situation [the i]nsurance [c]arrier, to appear and conduct the 

defense of the case in the absence of any" contrary instructions by the missing 

insured. Id. at *2 (footnote omitted). The opinion concluded the "[i]nsured's 

contracting with [the i]nsurance [c]arrier through the insurance policy for a defense 

constitutes consent (in the absence of any further communications from the 

[i]nsured to the contrary) for [the a]ttorney to receive compensation from [the] 

insurance [c]arrier for undertaking defense for [the i]nsured subject to [Rule] 

1.8(f)." Id. 

Here, Castillo did not notify Penn National of the lawsuit. However, in addition to 

showing Castillo did not provide it with notice, Penn National must also show 

prejudice because this case involves an innocent third party. Penn National clearly 

received notice of the suit despite Castillo's failure to notify it. The trial court did 

not err in finding Penn National was not substantially prejudiced by Castillo's 

failure to notify it of the lawsuit. Because Penn National knew of the lawsuit well 

before Castillo, it was not prejudiced by Castillo's failure to forward the paperwork 

or contact it. Penn National had the opportunity to respond to the suit; it even filed 

a motion for an extension to file an answer. It did not make any attempt to 

investigate. Penn National had defended Castillo in similar suits in the past. 

Based on its own knowledge of the suit, Penn National had opportunities, of which 

it did not take advantage, to at least attempt to protect itself. Accordingly, the trial 
 

 

 

 

 

 

 

 

 

 

 

 

court did not err in finding Penn National was not substantially prejudiced due to 

lack of notice by Castillo. 

Additionally, Penn National has not shown it was prejudiced by Castillo's alleged 

lack of cooperation. While it asserts it was prejudiced because it was ethically 

unable to appoint counsel here without Castillo's express permission, we note that 

both Twin City and Eastwood Construction are federal court opinions. 

Accordingly, the trial court is not bound by them. See Laffitte v. Bridgestone 

Corp., 381 S.C. 460, 473 n.9, 674 S.E.2d 154, 162 n.9 (2009) ("[A] federal court 

decision interpreting state law is not binding on this [c]ourt."). Further, the trial 

court found the facts in those cases were distinguishable from those here. Here, 

the record contains no evidence of Penn National attempting to assign counsel to 

Castillo. Therefore, the cases in which the insurer attempted to assign counsel to 

the insured do not decide this case. Additionally, the ethics opinion relied upon by 

the trial court, while not controlling, is instructive and persuasive authority, and it 

did not serve as the only basis for the court's decision. Moreover, as Penn National 

never attempted to hire an attorney for Castillo, we are unpersuaded by its 

assertion it was prejudiced because it could not ethically do so. 

Based on our finding Penn National has not shown it was prejudiced, we do not 

need to address its arguments on Castillo's failure to notify or failure to cooperate. 

See Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 613, 518 

S.E.2d 591, 598 (1999) (declining to address an issue when other issues are 

dispositive of the matter). 

C. HOA's Claim for Indemnification as a Judgment Creditor 

Penn National argues the HOA's claim for indemnification as a judgment creditor 

of the insureds fails because the insureds are not entitled to coverage. Penn 

National asserts the HOA, as a judgment creditor of the Castillo entities' rights 

under the policies, stands in the shoes of Castillo and JJA Construction in seeking 

coverage under the policies and is only entitled to satisfy its award or judgment to 

the extent the insureds would be entitled to coverage. It contends the HOA is not 

entitled to coverage because Penn National appropriately denied coverage. It 

asserts the Castillo entities are not entitled to coverage under the policies because 

they breached the conditions for coverage under the policies by failing to tender 

the Persimmon Hill litigation to Penn National or to cooperate with Penn National 

in its investigation and defense of such litigation. We disagree. 
 

 

 

 

 

 

 

 

 

 

"[A]n injured party who brings suit against a liability carrier in order to collect on a 

judgment previously acquired against an insured is possessed of all rights of the 

insured and subject to all defenses that exist as between the insured and the 

insurance carrier." Lee v. Gulf Ins. Co., 248 S.C. 296, 298, 149 S.E.2d 639, 640-41 

(1966). "[T]he injured person[] has no greater right under the liability insurance 

policy than has the insured or his estate." Crook v. State Farm Mut. Auto. Ins. Co., 

235 S.C. 452, 460, 112 S.E.2d 241, 245 (1960). When the insurer never afforded 

any coverage to the insured, the "judgment creditors [could not recover because 

they] have no greater rights under the binder herein involved than" the insured. S. 

Farm Bureau Cas. Ins. Co. v. Ausborn, 249 S.C. 627, 648, 155 S.E.2d 902, 913 

(1967). 

Penn National's argument relies on the premise that JJA was not entitled to 

coverage because he declined that coverage. As described above, JJA was entitled 

to coverage, and the trial court did not err in relation to this argument. 

Accordingly, we affirm as to this issue. 

D. Bad Faith Claim 

Penn National argues the trial court's findings were insufficient to satisfy the legal 

standards for a bad faith claim. It asserts its "Failure to Conduct an Investigation" 

was not unreasonable conduct as a matter of law. It maintains mailing ROR letters 

to an incorrect address cannot sustain a bad faith claim because that act did not 

"Result In" a denial of benefits. It further argues that asking Castillo whether he 

wanted a defense was a reasonable behavior as a matter of law. Additionally, it 

asserts no competent evidence supports the trial court's finding Penn National 

"Violated its Own Policies and Procedures." Moreover, it contends its references 

to denying the claim in its claim notes did not "Result In" the denial of the claim. 

Finally, it maintains the trial court's finding Penn National requested an extension 

of Castillo and JJA Construction's answer deadline without intention to respond is 

unsupported by the evidence and cannot support the bad faith claim. It maintains 

competent evidence does not support the trial court's conclusion it "violated its 

own policies and procedures" because no evidence of its policies and procedures 

was authenticated or admitted at trial. It contends this finding is based upon the 

trial court's conclusion it violated its "claims manual" by failing to take Castillo's 

recorded statement during McLeod's meeting with him. Penn National contends 

this finding of fact is completely unsupported by evidence in the record, as no 

"claims manual" was ever introduced as evidence. We disagree. 
 

 

 

 

 

 

 

 

 

 

 

 

 

"In this jurisdiction it has long been recognized that insurance is a business 

affected with a public interest." In re Mt. Hawley Ins. Co., 427 S.C. 159, 169, 829 

S.E.2d 707, 713 (2019) (quoting Hinds v. United Ins. Co. of Am., 248 S.C. 285, 

291, 149 S.E.2d 771, 774-75 (1966)). "In furtherance of this policy, [our supreme 

c]ourt has recognized, in addition to a breach of contract action, a separate tort 

action for an insurer's bad-faith refusal to pay benefits under an insurance policy, 

whether for a first-party claim or a third-party claim." Id.; see also Liberty Mut. 

Fire Ins. Co. v. JT Walker Indus., Inc., 554 F. App'x 176, 186 (4th Cir. 2014) 

("South Carolina recognizes a common law tort action for an insurer's bad faith in 

exercising duties owed to policyholders."). 

"Bad faith is a knowing failure on the part of the insurer to exercise an honest and 

informed judgment in processing a claim." Am. Fire & Cas. Co. v. Johnson, 332 

S.C. 307, 311, 504 S.E.2d 356, 358 (Ct. App. 1998). 

Bad faith refusal to pay first party benefits under a 

contract of insurance includes: (1) the existence of a 

mutually binding contract of insurance between the 

plaintiff and the defendant; (2) refusal by the insurer to 

pay benefits due under the contract; (3) resulting from the 

insurer's bad faith or unreasonable action in breach of an 

implied covenant of good faith and fair dealing arising on 

the contract; (4) causing damage to the insured. 

Howard v. State Farm Mut. Auto. Ins. Co., 316 S.C. 445, 451, 450 S.E.2d 582, 586 

(1994). "Whether an insurance company is liable for bad faith must be judged by 

the evidence before it at the time it denied the claim or if the insurance company 

did not specifically deny the claim by the evidence it had before it at the time the 

suit was filed." Id. at 448, 450 S.E.2d at 584. "An insured may recover damages 

for a bad faith denial of coverage if he or she proves there was no reasonable basis 

to support the insurer's decision to deny benefits under a mutually binding 

insurance contract." Cock-N-Bull Steak House, Inc. v. Generali Ins. Co., 321 S.C. 

1, 6, 466 S.E.2d 727, 730 (1996) (quoting Dowling v. Home Buyers Warranty 

Corp., 303 S.C. 295, 297, 400 S.E.2d 143, 144 (1991)). 

An insurer acts in bad faith when no reasonable basis supports the insurer's 

decision to contest a claim. BMW of N. Am., LLC v. Complete Auto Recon Servs., 

Inc., 399 S.C. 444, 453, 731 S.E.2d 902, 907 (Ct. App. 2012). "However, whe[n] 

an insurer has a reasonable ground for contesting a claim, there is no bad faith." 

Id. "Additionally, this good faith obligation includes an insurer's duty to 
 

 

 

 

 

 

 

 

 

 

investigate a claim." Id. "Importantly, an insured need not prove a breach of an 

express contractual provision as a prerequisite to bringing a bad faith cause of 

action." Id. "An insurer is not insulated from liability for bad faith merely because 

there is no clear precedent resolving a coverage issue raised under the particular 

facts of the case." Mixson, Inc. v. Am. Loyalty Ins. Co., 349 S.C. 394, 400, 562 

S.E.2d 659, 662 (Ct. App. 2002). 

"[I]f an insured can demonstrate bad faith or unreasonable action by the insurer in 

processing a claim under their mutually binding insurance contract, he can recover 

consequential damages in a tort action. Actual damages are not limited by the 

contract." Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 340, 306 

S.E.2d 616, 619 (1983). 

The record contains evidence to support the trial court's finding of bad faith. Some 

of the instances of bad faith the trial court found were Penn National's failure to 

investigate; its failure to check its own records for Castillo's contact information; 

its knowledge Castillo never received any of its RORs; its application of terms not 

in the policy (requiring Castillo to request a defense); and its not informing Castillo 

of all of the pertinent information known to it about the claim. The trial court did 

not err in finding Penn National acted in bad faith. Accordingly, we affirm the 

award of damages for the bad faith cause of action to the HOA. 

E. Punitive Damages 

Penn National argues the trial court's findings of fact do not support a punitive 

damages award. It asserts the bad faith conduct identified by the trial court, even if 

taken as true, does not rise to the level of willfulness or reckless disregard of 

Castillo's and JJA Construction's rights sufficient to merit an award of punitive 

damages. It contends its election not to retain experts, interview witnesses, or 

conduct a recorded statement with Castillo about the merits of the case was a 

reaction to Castillo's silence with regard to the claim and ultimately, to his 

declination of a defense. Penn National further contends no evidence in the record 

supports the finding that its asking Castillo whether he wanted its assistance in the 

matter was done in knowing contravention of his policy rights. It maintains the 

record shows it affirmatively sought Castillo's response on that issue following his 

failure to contact it for more than six months after receiving the suit papers. It 

argues no evidence in the record shows it deliberately mailed its ROR letters to an 

incorrect address; it asserts Gross admitted he made a mistake in addressing the 

letter to only one of the two addresses on file for Castillo but did not admit to any 

deliberate or conscious decision to improperly mail the letter to an old address. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Penn National maintains that prospectively asking Castillo whether he wanted a 

defense was reasonable as a matter of law given that the question followed months 

of silence following his failure to contact it for months after being notified of the 

lawsuit pending against him and his corporation. Additionally, Penn National 

asserts that all letters were copied to Castillo's agent, which suggests there was no 

willing or reckless attempt to have Castillo waive any benefits due under the 

policy. We disagree. 

"An award of punitive damages is left almost entirely to the discretion of the jury 

and trial judge." Jordan v. Holt, 362 S.C. 201, 207, 608 S.E.2d 129, 132 (2005). 

The basis for allowing the trial court this discretion is because it "heard the 

evidence and was more familiar than we with the evidentiary atmosphere at trial," 

which gives it a more informed view than an appellate court. Id. (quoting Lucht v. 

Youngblood, 266 S.C. 127, 138, 221 S.E.2d 854, 860 (1976)). In reviewing a 

damages award, we do not weigh the evidence, but determine if any evidence 

supports the award. Austin v. Specialty Transp. Servs., Inc., 358 S.C. 298, 311, 

594 S.E.2d 867, 873 (Ct. App. 2004). "This [c]ourt must affirm the trial court's 

punitive damages finding for the Respondents if any evidence reasonably supports 

the [trial court's] factual findings." Id. at 314, 594 S.E.2d at 875. This court "must 

affirm the trial court's finding of punitive damages if any evidence reasonably 

supports the [trial court's] factual findings." Jordan, 362 S.C. at 207, 608 S.E.2d at 

132. 

In Jordan, the trial court awarded a party punitive damages on one of its claims 

following a bench trial. Id. at 204, 608 S.E.2d at 130. The supreme court found 

because the trial court awarded punitive damages on a cause of action that was an 

action at law, the case was one at law and the trial court's findings would be upheld 

on appeal unless no evidence supported the findings. Id. at 205, 608 S.E.2d at 131. 

The supreme court reversed the court of appeals in that case because it "improperly 

assessed the facts of th[e] case based on its own view of the evidence instead of 

determining whether the trial court's findings lacked evidentiary support." Id. 

"If the[] elements [of a cause of action for bad faith] are pleaded and proved, the 

insured's remedy is not limited to the face amount of the contract." Crossley v. 

State Farm Mut. Auto. Ins. Co., 307 S.C. 354, 360, 415 S.E.2d 393, 397 (1992). 

"[I]f [an insured] can demonstrate the insurer's actions were willful or in reckless 

disregard of the insured's rights [in a bad faith action], he can recover punitive 

damages." Nichols, 279 S.C. at 340, 306 S.E.2d at 619. 
 

 

 

 

 

 

 

 

 

 

 

"The purposes of punitive damages are to punish the wrongdoer and deter the 

wrongdoer and others from engaging in similar reckless, willful, wanton, or 

malicious conduct in the future" as well as "to vindicate a private right of the 

injured party by requiring the wrongdoer to pay money to the injured party." Clark 

v. Cantrell, 339 S.C. 369, 378-79, 529 S.E.2d 528, 533 (2000). "At least three 

important purposes are served by a punitive damages award: (1) punishment of the 

defendant's reckless, willful, wanton, or malicious conduct; (2) deterrence of 

similar future conduct by the defendant or others; and (3) compensation for the 

reckless or willful invasion of the plaintiff's private rights." Mellen v. Lane, 377 

S.C. 261, 290, 659 S.E.2d 236, 251 (Ct. App. 2008). "The paramount purpose for 

awarding punitive damages is not to compensate the plaintiff but to punish and set 

an example for others." Id. 

To receive a punitive damages award, "the plaintiff has the burden of proving by 

clear and convincing evidence the defendant's misconduct was willful, wanton, or 

in reckless disregard of the plaintiff's rights." Welch v. Epstein, 342 S.C. 279, 301, 

536 S.E.2d 408, 419 (Ct. App. 2000). "A tort is characterized as reckless, willful[,] 

or wanton if it was committed in such a manner or under such circumstances that a 

person of ordinary reason and prudence would have been conscious of it as an 

invasion of the plaintiff's rights." Taylor v. Medenica, 324 S.C. 200, 221, 479 

S.E.2d 35, 46 (1996). "A conscious failure to exercise due care constitutes 

willfulness." McCourt ex rel. McCourt v. Abernathy, 318 S.C. 301, 308, 457 

S.E.2d 603, 607 (1995). 

The trial court did not err in finding Penn National's behavior warranted the 

imposition of punitive damages in favor of the HOA. The trial court found that 

Penn National took a position unsupported by the policies or law that Castillo had 

to request a defense before it would provide one to him, despite the fact that his 

policies and his payments entitled him to one. In the previous section, we affirmed 

the trial court's finding of bad faith. Based on that finding, the award of punitive 

damages was justified. Additionally, it appears from Heinze's testimony Penn 

National has engaged in similar behavior before. Accordingly, we affirm the 

award of punitive damages to the HOA. 

II. ISSUES AS TO PORTRAIT HOMES 

A. Award of Coverage 

Penn National argues the trial court improperly awarded coverage to Portrait 

Homes as an additional insured. First, Penn National asserts the trial court 
 

 

 

 

 

 

 

 

 

improperly considered parol evidence to interpret unambiguous language in the 

Penn National policies. Alternatively, Penn National contends the documents in its 

underwriting file do not establish Castillo intended to remain a named insured after 

he formed JJA Construction, Inc. Penn National also maintains Portrait Homes did 

not have a contract with JJA Construction, Inc. even if JJA Construction, Inc. did 

business as JJA Framing. Additionally, Penn National argues the trial court 

improperly relied on certificates of insurance to find Portrait Homes qualified as an 

additional insured. Finally, Penn National posits the trial court incorrectly found 

the Master Agreement governed JJA's Work at Persimmon Hill.22 We disagree. 

22 In Penn National's 59(e), SCRCP, motion, it argued the trial court "improperly 

look[ed] beyond the plain terms of the policies and Castillo's contract with . . . 

Portrait Homes . . . to ascertain the parties' 'intentions' where the contractual terms 

are unambiguous." Penn National's motion asserted "the court's finding that 

Portrait Homes is an additional insured under either of the additional insured 

endorsements . . . is improperly premised on evidence beyond the contracts." The 

only issue Penn National raised with the consideration of the other evidence was 

the trial court should not have considered it because the contracts were not 

ambiguous. "[A]n appellate court cannot address an issue unless it was raised to, 

and ruled upon by, the trial court." Smith v. Phillips, 318 S.C. 453, 455, 458 

S.E.2d 427, 429 (1995) (per curiam). The transcript from the posttrial hearing— 

along with much of the transcript from trial—was not included in the record on 

appeal. However, the trial court's posttrial order referenced the argument the 

Master Agreement should not be considered because it was signed after the 

Housing and Purchase Order Contracts and expressly rejected the argument. Thus, 

Penn National presumably raised this argument to the trial court to some extent, 

and the trial court did in fact rule on it. 

Accordingly, we will err on the side of caution and address the argument as to the 

timing of the signing of the Master Agreement because the trial court had the 

opportunity to consider it and actually ruled on it. See Queen's Grant II Horizontal 

Prop. Regime v. Greenwood Dev. Corp., 368 S.C. 342, 372-73, 628 S.E.2d 902, 

919 (Ct. App. 2006) ("Error preservation principles are intended to enable the trial 

court to rule after it has considered all relevant facts, law, and arguments. The 

rationale for the rule is that until the trial court considers the matter and makes a 

ruling, an appellate court is unable to find error." (citation omitted)); Atl. Coast 

Builders & Contractors, LLC v. Lewis, 398 S.C. 323, 329, 730 S.E.2d 282, 285 

(2012) ("Issue preservation rules are designed to give the trial court a fair 

opportunity to rule on the issues, and thus provide us with a platform for 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

"In construing or interpreting a contract, 'it is axiomatic that the main concern of 

the court is to ascertain and give effect to the intention of the parties.'" Bluffton 

Towne Ctr., LLC v. Gilleland-Prince, 412 S.C. 554, 570, 772 S.E.2d 882, 891 (Ct. 

App. 2015) (quoting Progressive Max Ins. Co. v. Floating Caps, Inc., 405 S.C. 35, 

46, 747 S.E.2d 178, 184 (2013)). "If [a contract's] language is plain, unambiguous, 

and capable of only one reasonable interpretation, no construction is required and 

the contract's language determines the instrument's force and effect." Id. (quoting 

Progressive Max Ins. Co., 405 S.C. at 46, 747 S.E.2d at 184). "In construing and 

determining the effect of a written contract, the intention of the parties and the 

meaning are gathered primarily from the contents of the writing itself, or, as 

otherwise stated, from the four corners of the instrument . . . ." Silver v. Aabstract 

Pools & Spas, Inc., 376 S.C. 585, 591, 658 S.E.2d 539, 542 (Ct. App. 2008) 

(quoting McPherson v. J.E. Sirrine & Co., 206 S.C. 183, 204, 33 S.E.2d 501, 509 

(1945)). "If a contract is unambiguous, extrinsic evidence cannot be used to give 

the contract a meaning different from that indicated by its plain terms." Watson v. 

Underwood, 407 S.C. 443, 455, 756 S.E.2d 155, 161 (Ct. App. 2014) (quoting 

Bates v. Lewis, 311 S.C. 158, 161 n.1, 427 S.E.2d 907, 909 n.1 (Ct. App. 1993)). 

"Whe[n] the language of a contract is plain and capable of legal construction, that 

language alone determines the instrument's force and effect." Id. (alteration by 

court) (quoting Jordan v. Sec. Grp., Inc., 311 S.C. 227, 230, 428 S.E.2d 705, 707 

(1993)). 

"Under the parol evidence rule, extrinsic evidence is inadmissible to vary or 

contradict the terms of a contract. 'However, if a contract is ambiguous, parol 

evidence is admissible to ascertain the true meaning and intent of the parties.'" HK 

meaningful appellate review." (quoting Queen's Grant II Horizontal Prop. Regime, 

368 S.C. at 373, 628 S.E.2d at 919)). 

However, Penn National did not raise in its 59(e) motion the argument that the 

certificate of insurance's limiting language rendered it inappropriate to consider 

and the record does not contain any argument by Penn National to that affect. 

Therefore, we find this argument unpreserved and do not address it. See Palmetto 

Wildlife Extractors, LLC v. Ludy, 435 S.C. 690, 705, 869 S.E.2d 859, 867 (Ct. 

App. 2022) ("When a party receives an order that grants certain relief not 

previously contemplated or presented to the trial court, the aggrieved party must 

move, pursuant to Rule 59(e), SCRCP, to alter or amend the judgment in order to 

preserve the issue for appeal." (alteration omitted) (quoting In re Timmerman, 331 

S.C. 455, 460, 502 S.E.2d 920, 922 (Ct. App. 1998))). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Plan Exch. Prop. Owner I, LLC v. Coker, 375 S.C. 18, 23-24, 649 S.E.2d 181, 

184 (Ct. App. 2007) (citation omitted) (quoting Koontz v. Thomas, 333 S.C. 702, 

709, 511 S.E.2d 407, 411 (Ct. App. 1999)). "Resort to construction by a party is 

only done when the contract is ambiguous or there is doubt as to its intended 

meaning." Watson, 407 S.C. at 455, 756 S.E.2d at 161-62 (quoting Jordan, 311 

S.C. at 230, 428 S.E.2d at 707). 

"A contract is ambiguous only when it may fairly and reasonably be understood in 

more ways than one." Id. at 455, 756 S.E.2d at 161 (quoting Jordan, 311 S.C. at 

230, 428 S.E.2d at 707). "A contract is ambiguous when the terms of the contract 

are reasonably susceptible to more than one interpretation. The uncertainty in 

interpretation can arise from the words of the instrument, or in the application of 

the words to the object they describe." Pee Dee Stores, Inc. v. Doyle, 381 S.C. 

234, 242, 672 S.E.2d 799, 803 (Ct. App. 2009) (citations omitted). An ambiguous 

contract is one that "is capable of more than one meaning when viewed objectively 

by a reasonably intelligent person who (1) has examined the context of the entire 

integrated agreement; and (2) is cognizant of the customs, practices, usages, and 

terminology as generally understood in the particular trade or business." Laser 

Supply & Servs., Inc. v. Orchard Park Assocs., 382 S.C. 326, 334, 676 S.E.2d 139, 

144 (Ct. App. 2009). 

Whether a contract's language is ambiguous is a question of law for the court. 

Williams v. Gov't Emps. Ins. Co. (GEICO), 409 S.C. 586, 594, 762 S.E.2d 705, 710 

(2014). "The construction of a clear and unambiguous contract is a question of law 

for the court to determine." Id. "If the court decides the language is ambiguous, 

however, evidence may be admitted to show the intent of the parties, and the 

determination of the parties' intent becomes a question of fact for the fact-finder."23 

Id. 

23 Portrait Homes refers to the alleged ambiguities as latent, as opposed to patent. 

"A patent ambiguity is one that arises upon the words of a will, deed, or contract. 

A latent ambiguity exists when there is no defect arising on the face of the 

instrument, but arising when attempting to apply the words of the instrument to the 

object or subject described." Beaufort Cnty. Sch. Dist. v. United Nat'l Ins. Co., 392 

S.C. 506, 526, 709 S.E.2d 85, 95 (Ct. App. 2011) (citation omitted). This court has 

previously held the "[i]nterpretation of an unambiguous policy, or a policy with a 

patent ambiguity, is for the court," while the "[i]nterpretation of a policy with a 

latent ambiguity is for the jury." Id. at 526, 709 S.E.2d at 95-96. Portrait Homes 

acknowledges recent South Carolina jurisprudence has disregarded the distinction 

between the types of ambiguities and left the interpretation of both types to the 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"Noncontradictory terms and conditions may be implied in a contract when the 

circumstances warrant it to effectuate the manifest intention of the parties." S. 

Realty & Constr. Co. v. Bryan, 290 S.C. 302, 311, 350 S.E.2d 194, 199 (Ct. App. 

1986). "[T]he literal interpretation of policy language will be rejected where its 

application would lead to unreasonable results and the definitions as written would 

be so narrow as to make coverage merely 'illusory.'" S.C. Farm Bureau Mut. Ins. 

Co. v. Kennedy, 398 S.C. 604, 615, 730 S.E.2d 862, 867 (2012). "Court[s] will 

look to the reasonable expectations of the insured at the time when he entered into 

the contract if the terms thereof are ambiguous or conflicting . . . ." Bell v. 

Progressive Direct Ins. Co., 407 S.C. 565, 580, 757 S.E.2d 399, 407 (2014) 

(quoting Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925, 927 (Del. 

1982)). 

"Common sense and good faith are the leading touchstones of construction of the 

provisions of a contract; where one construction makes the provisions unusual or 

extraordinary and another construction which is equally consistent with the 

language employed would make it reasonable, fair and just, the latter construction 

must prevail." C.A.N. Enters., Inc. v. S.C. Health & Human Servs. Fin. Comm'n, 

296 S.C. 373, 377, 373 S.E.2d 584, 586 (1988). "In the construction of insurance 

contracts, it is vitally essential that the courts do not ignore the fact that the 

primary object of all insurance is to insure, and . . . such contracts must be liberally 

construed in favor of the insured." Parker v. Jefferson Standard Life Ins. Co., 158 

S.C. 394, 397, 155 S.E. 617, 618 (1930). "[A]n ambiguity must be resolved in 

favor of the insured and construed most strongly against the insurer." Columbia 

Coll. v. Pa. Ins. Co., 250 S.C. 237, 253, 157 S.E.2d 416, 425 (1967). "The 

construction placed upon a contract by the parties themselves, if not determinative, 

is entitled to great weight." Payne v. Duke Power Co., 304 S.C. 447, 451, 405 

S.E.2d 399, 401 (1991). "Ambiguous language in a contract should be construed 

liberally and most strongly in favor of the party who did not write or prepare the 

contract and is not responsible for the ambiguity . . . ." Ecclesiastes Prod. 

Ministries v. Outparcel Assocs., LLC, 374 S.C. 483, 499-500, 649 S.E.2d 494, 502 

(Ct. App. 2007) (quoting Myrtle Beach Lumber Co. v. Willoughby, 276 S.C. 3, 8, 

jury. This court has explicitly recognized and applied this trend. See Harbin v. 

Williams, 429 S.C. 1, 8, 837 S.E.2d 491, 495 (Ct. App. 2019) ("Following our 

supreme court's recent trend . . . , we find the ambiguity . . . presented a question of 

fact, and the trial court did not err in submitting the ambiguity to the jury."). 

Because this case was resolved by bench trial, the trial court was responsible for 

interpreting any ambiguities and that interpretation was a question of fact. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

274 S.E.2d 423, 426 (1981)). "[A]ny ambiguity in a contract, doubt, or uncertainty 

as to its meaning should be resolved against the party who prepared the contract or 

is responsible for the verbiage." Id. (quoting Myrtle Beach Lumber Co., 276 S.C. 

at 8, 274 S.E.2d at 426). 

"Under South Carolina law, two contracts executed at different times relating to the 

same subject matter, entered into by the same parties, are to be construed as one 

contract and considered as a whole." Moshtaghi v. The Citadel, 314 S.C. 316, 321, 

443 S.E.2d 915, 918 (Ct. App. 1994). "[W]here the instruments have not been 

executed simultaneously but relate to the same subject matter and have been 

entered into by the same parties, the transaction comprising the contract will be 

considered as a whole." Klutts Resort Realty, Inc. v. Down'Round Dev. Corp., 268 

S.C. 80, 88, 232 S.E.2d 20, 24 (1977). "This is true even though the transaction 

consumed more than one day; the date of the writings constituting such transaction 

is immaterial." Id. 

"A contract is good between the parties, no matter how incorrect the names used in 

the paper may be, if it appears they were intended as the names of the parties to be 

bound by the contract or to receive its benefits." Cobb & Seal Shoe Store v. Aetna 

Ins. Co., 78 S.C. 388, 389, 58 S.E.2d 1099, 1099 (1907). "A corporation, as well 

as individuals, may have or be known by several names in the transaction of its 

general business so that it may enforce, as well as be bound by, contracts entered 

into in an adopted name other than the regular name under which it was 

incorporated." Long v. Carolina Baking Co., 190 S.C. 367, 377, 3 S.E.2d 46, 50 

(1939). "If a corporation has acquired a name by usage, an adjudication against it 

by the name so acquired is valid and binding." Id. (emphasis omitted). 

First, whether the policies contained ambiguities was a question of law for the trial 

court. "In an action at law tried without a jury, an appellate court's scope of review 

extends merely to the correction of errors of law." Temple v. Tec-Fab, Inc., 381 

S.C. 597, 599-600, 675 S.E.2d 414, 415 (2009). "The [c]ourt will not disturb the 

trial court's findings unless they are found to be without evidence that reasonably 

supports those findings." Id. at 600, 675 S.E.2d at 415. The policies listed JJA 

Construction, Inc. as an individual and Jose Castillo d/b/a JJA's Framing's business 

address as the work location's address. Therefore, the trial court did not err in 

finding the contract ambiguous. Accordingly, the trial court was not bound to the 

four corners of the contracts and could look at extrinsic evidence to interpret the 

policies. Thus, the trial court did not err in considering parol evidence. 
 

 

 

 

 

 

 

 

 

 

Regarding the three policies with Endorsement 71 11 45, the trial court did not err 

in finding Portrait Homes was entitled to coverage because Jose Castillo d/b/a JJA 

Framing qualified as a named insured under the policies. On March 2, 2005, Penn 

National received a two-page document requesting it to change the name on the 

policy to "JJA Construction, Inc." The trial court noted this document had answers 

filled in for the portion that stated "[n]ame change only" and remained blank for 

the portion that stated "[f]ormation of a new entity." Additionally, the trial court 

observed the only change between the policies after Penn National processed the 

request was JJA Construction, Inc. becoming the named insured; the policy 

number, form of business, business description, and premium basis all remained 

the same. Therefore, Penn National's underwriting file indicated Jose Castillo 

d/b/a JJA Framing was the same business as JJA Construction, Inc. Indeed, 

Castillo testified that was the case at trial. 

The trial court also did not err in alternatively finding Portrait Homes was entitled 

to coverage under the policies with Endorsement 71 11 45 because the contracts 

between Portrait Homes and Jose Castillo d/b/a JJA Framing also bound JJA 

Construction, Inc. The trial court noted that the underlying lawsuits alleged both 

Castillo and JJA Construction, Inc. did business as JJA Framing. The trial court 

also cited several exhibits that showed Gross recognized the underlying lawsuits 

alleged both Castillo and JJA Construction, Inc. were doing business as JJA 

Framing and provided that information to Parsons. Additionally, Castillo testified 

that JJA Construction, Inc. did business as JJA Framing. Therefore, the 

requirement for a written contract with a named insured was satisfied because the 

contracts bound JJA Framing, and JJA Construction, Inc. did business as JJA 

Framing. 

Regarding the two policies with Endorsement CG 20 37, the trial court did not err 

by concluding the parties intended the policies to cover all work JJA Framing did 

for Portrait Homes and implying that term into the contract. The policies had 

latent ambiguities because they listed the work location as JJA Framing's business 

address instead of the construction site. The trial court considered the certificate of 

insurance, which listed the location as "work done," and determined the parties 

intended the policies to cover all work JJA Framing did for Portrait Homes. It did 

not err by implying that term into the void left by eliminating the scrivener's error. 

Additionally, the trial court did not err in finding the parties intended to encompass 

the state and project specific entities like Portrait Homes by listing the names of 

the parent companies in the policies. 
 

 

 

 

 

 

 

 

 

 

 

Finally, Penn National argues the trial court improperly considered the Master 

Agreement because (1) it became effective about six months after Castillo 

executed the Housing and Purchase Order Contract; (2) it does not mention the 

Persimmon Hill project; and (3) it only applies prospectively and does not impact 

preexisting Housing and Purchase Order Contracts. In the order ruling on Penn 

National's Rule 59(e) motion, the court noted it had "found as a matter of fact that 

the Master Agreement and the Housing and Purchase Order Contract both apply to 

the Persimmon Hill project." The court was "unpersuaded by Penn National's 

contention that the Master Agreement did not apply to the Persimmon Hill project 

simply because it was signed after the Housing and Purchase Order Contract was 

initially signed." Further, the court determined, "Even if the Master Agreement . . . 

[wa]s determined not to have applied to the Persimmon Hill project because [of the 

timing], two other independent grounds support the [c]ourt's finding that the 

contract between Portrait Homes and JJA Framing required the additional insured 

coverage to include completed operations." The court found, "First, the evidence 

at trial establishes as a matter of fact that there would have been another Master 

Agreement in place between Portrait Homes and JJA Framing before the Housing 

and Purchase Order Contract was initially signed." The court also found, "Second, 

. . . the certificate of insurance . . . relating to additional insured coverage under 

endorsement 71 11 45 shows that everyone involved . . . believed Portrait Homes 

was covered for completed operations because endorsement 71 11 45 was attached 

to the certificate of insurance and was titled 'Automatic Additional Insured --

Owners, Contractors And Subcontractors (Completed Operations).'" (emphasis 

added by trial court). Our standard of review instructs us to affirm the trial court's 

findings if any evidence supports them. See Temple, 381 S.C. at 600, 675 S.E.2d 

at 415 ("The [c]ourt will not disturb the trial court's findings unless they are found 

to be without evidence that reasonably supports those findings."). The record 

contains evidence to support the court's findings as to the Master Agreement. 

Accordingly, we affirm the award of coverage to Portrait Homes as an additional 

insured. 

B. Waiver of Right to Contest 

Penn National argues the trial court incorrectly concluded Penn National waived its 

right to contest Portrait Homes' additional insured status. We disagree. 

"[A]n insurer [that] has denied coverage on some other basis is precluded from 

defending against an action on a liability policy on the ground that the insured 

failed to comply with its requirements as to notice and forwarding of suit papers." 

Washington v. Nat'l Serv. Fire Ins. Co., 252 S.C. 635, 641, 168 S.E.2d 90, 92 
 

 

 

 

 

 

 

 

 

(1969). "[W]aiver cannot create coverage and cannot bring into existence 

something not covered in the policy." Laidlaw Env't Servs. (TOC), Inc. v. Aetna 

Cas. & Sur. Co., 338 S.C. 43, 53, 524 S.E.2d 847, 852 (Ct. App. 1999) (quoting 

Alverson v. Minn. Mut. Life Ins. Co., 287 S.C. 432, 434, 339 S.E.2d 140, 142 (Ct. 

App. 1985)). 

The trial court's reason for discussing waiver in this case is unclear. Penn National 

did not assert that any policy exclusions barred coverage for Portrait Homes. 

Nevertheless, the trial court made clear that it did not rule Portrait Homes was 

entitled to coverage under the Penn National policies based on the doctrine of 

waiver. In the posttrial order, the trial court reiterated that it ruled that Portrait 

Homes had met its burden of proving it met the requirements to trigger coverage 

under the additional insured endorsements and the insuring agreements. Therefore, 

we affirm as to this issue. See McCall v. Finley, 294 S.C. 1, 4, 362 S.E.2d 26, 28 

(Ct. App. 1987) ("[W]hatever doesn't make any difference, doesn't matter."). 

C. Damages for Breach of Duty to Indemnify 

Penn National argues that Portrait Homes sustained no damages for breach of the 

duty to indemnify because it was fully indemnified by its own insurer. We 

disagree. 

"[I]f one party is entitled to indemnity from another, the right to indemnity is not 

defeated by the fact that the loss to be indemnified for was actually paid by an 

insurance company." Otis Elevator, Inc. v. Hardin Constr. Co., 316 S.C. 292, 300, 

450 S.E.2d 41, 45-46 (1994) (quoting Tillman v. Wheaton-Haven Recreation Ass'n, 

580 F.2d 1222, 1230 (4th Cir. 1978)). In Otis, our supreme court determined the 

trial court had erred in reducing the damages the jury awarded by the amount an 

insurer had paid in settlement. Id. at 300, 450 S.E.2d at 45. 

The trial court did not err in determining Portrait Homes sustained damages from 

Penn National's breach of the duty to indemnify. Like the trial court, we note that 

Penn National's argument is not supported by binding South Carolina precedent. 

Penn National cites two South Carolina cases that are distinguishable from this 

case because they dealt with a breach of the duty to defend rather than the duty to 

indemnify. Additionally, while Portrait Homes acknowledged that any recovery 

for Penn National's breach of the duty to indemnify would flow back to Admiral, 

Portrait Homes would benefit because that would replenish its policy limits with 

Admiral. Therefore, the trial court did not err in deciding Portrait Homes sustained 

damages from the breach of the duty to indemnify. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D. Bad Faith Claim 

Penn National argues the trial court erred in finding that Portrait Homes proved its 

bad faith claim. Penn National asserts it did not perform its investigation in bad 

faith, it did not fail to respond to claim communications, and its incomplete 

statement of the grounds for denial did not support the bad faith claims. We 

disagree. 

Bad faith refusal to pay first party benefits under a 

contract of insurance includes: (1) the existence of a 

mutually binding contract of insurance between the 

plaintiff and the defendant; (2) refusal by the insurer to 

pay benefits due under the contract; (3) resulting from the 

insurer's bad faith or unreasonable action in breach of an 

implied covenant of good faith and fair dealing arising on 

the contract; (4) causing damage to the insured. 

Howard, 316 S.C. at 451, 450 S.E.2d at 586. "Whether an insurance company is 

liable for bad faith must be judged by the evidence before it at the time it denied 

the claim or if the insurance company did not specifically deny the claim by the 

evidence it had before it at the time the suit was filed." Id. at 448, 450 S.E.2d at 

584. "An insured may recover damages for a bad faith denial of coverage if he or 

she proves there was no reasonable basis to support the insurer's decision to deny 

benefits under a mutually binding insurance contract." Cock-N-Bull Steak House, 

Inc., 321 S.C. at 6, 466 S.E.2d at 730 (quoting Dowling, 303 S.C. 295, 297, 400 

S.E.2d 143, 144). 

An insurer acts in bad faith when no reasonable basis supports the insurer's 

decision to contest a claim. BMW of N. Am., LLC, 399 S.C. at 453, 731 S.E.2d at 

907. "However, whe[n] an insurer has a reasonable ground for contesting a claim, 

there is no bad faith." Id. "Additionally, this good faith obligation includes an 

insurer's duty to investigate a claim." Id. "Importantly, an insured need not prove 

a breach of an express contractual provision as a prerequisite to bringing a bad 

faith cause of action." Id. Further, "[a]n insurer is not insulated from liability for 

bad faith merely because there is no clear precedent resolving a coverage issue 

raised under the particular facts of the case." Mixson, Inc., 349 S.C. at 400, 562 

S.E.2d at 662. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Also, "it is axiomatic that an insured must be provided sufficient information to 

understand the reasons the insurer believes the policy may not provide coverage." 

Harleysville Grp. Ins. v. Heritage Cmtys., Inc., 420 S.C. 321, 337-38, 803 S.E.2d 

288, 297 (2017). "A reservation of rights letter must give fair notice to the insured 

that the insurer intends to assert defenses to coverage or to pursue a declaratory 

relief action at a later date." Id. at 338, 803 S.E.2d at 297 (quoting United Nat'l 

Ins. Co. v. Waterfront N.Y. Realty Corp., 948 F. Supp. 263, 268 (S.D.N.Y. 1996)). 

The explanation must be unambiguous and "[g]rounds not identified in the 

reservation of rights may not be asserted later by the insurer." Id. at 339, 803 

S.E.2d at 298 (quoting Desert Ridge Resort LLC v. Occidental Fire & Cas. Co. of 

N.C., 141 F. Supp. 3d 962, 966-68 (D. Ariz. 2015)). 

The trial court did not err in finding that Penn National acted in bad faith. The 

record contains evidence to support the trial court's finding that Penn National 

failed to respond to Portrait Homes' request for policy benefits for seventeen 

months. Additionally, Penn National acknowledged in the posttrial hearing its 

response was untimely. Moreover, Penn National also admitted it provided an 

inaccurate reason for denying coverage to Portrait Homes. Further, Penn National 

failed to reasonably investigate Portrait Homes' request for additional insured 

status because Penn National did not review the underwriting file or other 

information it had available before it decided to deny coverage. Because evidence 

supports the trial court's findings, we affirm the court's decision Penn National 

acted in bad faith. 

E. Punitive Damages 

Penn National argues no competent evidence supports the trial court's finding of 

willful conduct or reckless disregard in support of the punitive damages award. 

We disagree. 

"The purposes of punitive damages are to punish the wrongdoer and deter the 

wrongdoer and others from engaging in similar reckless, willful, wanton, or 

malicious conduct in the future." Clark, 339 S.C. at 378, 529 S.E.2d at 533. 

"Punitive damages also serve to vindicate a private right of the injured party by 

requiring the wrongdoer to pay money to the injured party." Id. at 378-79, 529 

S.E.2d at 533. 

The trial [court] is vested with considerable discretion over the amount of a 

punitive damages award." Austin, 358 S.C. at 317, 594 S.E.2d at 877. Appellate 
 

 

 

 

 

 

 

 

courts' "review of the amount of punitive damages is limited to correction of errors 

of law." Id. 

The trial court did not err in awarding punitive damages to Portrait Homes. Many 

of the trial court's findings that support its bad faith determination also support its 

determination that Penn National's conduct was willful and reckless. Penn 

National took seventeen months to respond to Portrait Homes, Penn National sent 

Portrait Homes an incorrect reason for denying coverage, and Penn National did 

not review its underwriting file before deciding to deny coverage. Additionally, 

Gross testified he denied all but one of the roughly thirty claims he handled at Penn 

National for additional insured status, and the trial court noted that Penn National 

internally indicated it was likely going to deny coverage two months before any 

coverage analysis took place. Accordingly, we affirm the award of punitive 

damages to Portrait Homes. 

III. ISSUES COMMON TO PORTRAIT HOMES AND THE HOA 

A. Time-On-Risk Formula 

Penn National argues the trial court failed to apply the supreme court's time-on-risk 

formula from Crossmann II for apportioning damages to Penn National's policy 

periods. We disagree. 

"An insurance company fails to defend at its own peril, but it is obligated to defend 

only actions involving claims covered by the insuring contract." Stroup Sheet 

Metal Works, Inc. v. Aetna Cas. & Sur. Co., 268 S.C. 203, 212-13, 232 S.E.2d 885, 

888 (1977). "[T]he terms of an insurance policy must be construed most liberally 

in favor of the insured and where the words of the policy are ambiguous, or where 

they are capable of two reasonable interpretations[,] that construction will be 

adopted which is most favorable to the insured." Kingman v. Nationwide Mut. Ins. 

Co., 243 S.C. 405, 411, 134 S.E.2d 217, 220 (1964). "[T]he provisions of an 

insurance policy are to be liberally construed in favor of the insured and strictly 

construed against the company which prepared the policy." Whittington v. Ranger 

Ins. Co., 261 S.C. 582, 587, 201 S.E.2d 620, 622 (1973). 

In Crossmann II, our supreme court abandoned the joint and several/all sums 

approach for determining insurance coverage for progressive property damage 

cases because that approach ignored "critical language limiting the insurer's 

obligation to pay to sums that are attributable to property damage that occurred 

during the policy period." 395 S.C. at 60, 717 S.E.2d at 599. Our supreme court 
 

 

 

 

 

 

 

 

 

 

 

 

found that "the scope of an insurer's duty to indemnify was limited to damages 

accrued during the insurer's time on the risk, overruling earlier case law that held 

an insurer's liability was joint and several." Heritage Cmtys., Inc., 420 S.C. at 335, 

803 S.E.2d at 296 (citing Crossmann II, 395 S.C. at 59-64, 717 S.E.2d at 599-601). 

"An ideal application of the 'time on risk' approach would require the finder of fact 

to determine precisely how much of the injury-in-fact occurred during each policy 

period and precisely what quantum of the damage award in the underlying suit was 

attributable to that injury." Crossmann II, 395 S.C. at 64, 717 S.E.2d at 601. 

"Unfortunately, it is often 'both scientifically and administratively impossible' to 

make such determinations." Id. (quoting Bos. Gas Co. v. Century Indem. Co., 910 

N.E.2d 290, 301 (Mass. 2009)). 

In cases where it is impossible to know the exact measure 

of damages attributable to the injury that triggered each 

policy, courts have looked to the total loss incurred as a 

result of all of the property damage and then devised a 

formula to divide that loss in a manner that reasonably 

approximates the loss attributable to each policy period. 

Id. at 64-65, 717 S.E.2d at 602. 

However, our supreme court noted that "[t]his formula is not a perfect estimate of 

the loss attributable to each insurer's time on the risk. Rather, it is a default rule 

that assumes the damage occurred in equal portions during each year that it 

progressed." Id. at 65, 717 S.E.2d at 602. "If proof is available showing that the 

damage progressed in some different way, then the allocation of losses would need 

to conform to that proof. However, absent such proof, assuming an even 

progression is a logical default." Id. "[W]he[n] it is impracticable to calculate the 

exact measure of damages attributable to the injury that triggered each policy, the 

default rule is that an insurer's pro rata share of the damages is a function of the 

total number of years damages progressed and the portion of those years a 

particular insurer provided coverage." Heritage Cmtys., Inc., 420 S.C. at 336, 803 

S.E.2d at 296 (citing Crossmann II, 395 S.C. at 64-65, 717 S.E.2d at 602). 

In Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual 

Insurance Co. (Crossmann III), the trial court "computed the pro rata allocation [of 

damages] based on a daily loss rather than an annual loss" because one insurer had 

coverage for less than a year and another had coverage for less than two years. 411 

S.C. 506, 522, 769 S.E.2d 453, 462 (Ct. App. 2015). This court found the trial 

court did not err in the methodology it employed to calculate the time at risk. Id. 
 

 

 

 

 

 

 

 

 

 

 

The court noted, our supreme court in Crossmann II ruled that "the default rule is 

subject to alteration at the discretion of the trial court." Id. 

Here, the trial court did not err in its damages calculations. Crossmann III 

explained that the Crossmann II formula is the default rule but the trial court can 

alter it at its discretion. The trial court found that it needed to modify the time-onrisk analysis in this case because the Penn National policies contained different 

language than the policies in Crossmann II. The trial court noted that the policies 

stated that "[p]roperty damage which occurs during the period of a Penn National 

policy 'includes any continuation, change or resumption of that . . . 'property 

damage' after the end of the policy period." Therefore, the trial court concluded 

that "the progressive property damage caused by continuous or repeated exposure 

to water intrusion occurring after the end of a policy period is deemed to be 

included in what is covered by the policy." The trial court determined that the 

recoverable damages of $3,850,000 exceeded the $500,000 limit of the five Penn 

National policies and ruled that the total amount covered by the polices was 

$2,500,000. We find no error in the trial court's reasoning and calculations. 

Therefore, the trial court did not abuse its discretion in modifying the time-on-risk 

formula from Crossmann II. Accordingly, we affirm as to this issue. 

B. Attorney's Fees 

Penn National argues the trial court improperly awarded Portrait Homes and the 

HOA attorney's fees. It contends Castillo and JJA Construction incurred no 

attorney's fees. It also asserts Penn National owed the HOA no duty to defend. It 

further contends Portrait Homes was defended in the underlying case and does not 

satisfy the requirements of Hegler.

24 It further contends South Carolina courts 

"have not awarded attorneys' fees as consequential damages in [insurance bad 

faith] tort actions." It also asserts the HOA's request for an additional contingency 

fee goes far beyond the scope of Hegler. We disagree. 

Generally, attorney's fees are not recoverable unless authorized by contract or 

statute. Baron Data Sys., Inc. v. Loter, 297 S.C. 382, 383, 377 S.E.2d 296, 297 

(1989). The award of attorney's fees under a contract is left to the discretion of the 

trial court and will not be disturbed unless the court abused that discretion. Id. at 

384, 377 S.E.2d at 297. "An abuse of discretion occurs when the decision is 

controlled by some error of law or is based on findings of fact that are without 

24 Hegler v. Gulf Ins. Co., 270 S.C. 548, 550-551, 243 S.E.2d 443, 444 (1978). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evidentiary support." Degenhart v. Burriss, 360 S.C. 497, 500, 602 S.E.2d 96, 97 

(Ct. App. 2004). 

The determination of whether statutory attorney fees 

should be awarded is treated as one in equity. See Brown 

v. State Farm Mut. Ins. Co., 275 S.C. 276, 269 S.E.2d 

769 (1980) (wherein the supreme court treated as 

equitable the trial court's determination of whether to 

award attorney fees under . . . [section] 38-9-320 [of the 

South Carolina Code] (1976) for bad faith failure to pay 

insurance claim). 

Kilcawley v. Kilcawley, 312 S.C. 425, 427, 440 S.E.2d 892, 893 (Ct. App. 1994). 

"In reviewing the award in issue, therefore, this court may take its own view of the 

preponderance of the evidence." Id. "Even whe[n] this court may find facts in 

accordance with its own view of the preponderance of the evidence, we are not 

required to disregard the factual findings of the trial judge who saw and heard the 

witnesses and was in a better position to judge their credibility and demeanor." Id. 

"An insurer is liable to the policy holder for all reasonable attorneys' fees for the 

prosecution of the case against the insurer if the trial judge finds the refusal to pay 

the policyholder's claim was without reasonable cause or in bad faith." Mixson, 

Inc., 349 S.C. at 400-01, 562 S.E.2d at 663 (citing S.C. Code Ann. § 38-59-40 

(Supp. 2001)). "Determination of an insurer's liability for attorneys' fees pursuant 

to . . . section 38-59-40 . . . is a matter for decision by the trial judge. In making 

this determination, the trial judge must ascertain whether or not an insurer's refusal 

to pay a claim was without reasonable cause or in bad faith." Dorman v. Allstate 

Ins. Co., 332 S.C. 176, 181, 504 S.E.2d 127, 130 (Ct. App. 1998) (citations 

omitted). "The factual finding of unreasonableness or bad faith is a condition 

precedent to an award of attorney's fees under . . . section [38-59-40]." Flynn v. 

Nationwide Mut. Ins. Co., 281 S.C. 391, 393, 315 S.E.2d 817, 819 (Ct. App. 1984). 

"The determination of whether attorney's fees should then be awarded is one in 

equity, made without the aid of a jury. Thus, we are free to find facts in 

accordance with our view of the preponderance of the evidence." Id. 

In Town of Winnsboro v. Wiedeman-Singleton, Inc., 307 S.C. 128, 131, 414 S.E.2d 

118, 120 (1992), our supreme court allowed a contractor to recover attorney's fees 

and costs expended in defending the negligence of its subcontractor when the 

subcontractor negligently performed its contract with the contractor and because of 
 

 

 

 

 

 

 

 

 

 

 

that negligence and breach of contract directed toward the contractor, the 

contractor was forced to defend an action. 

In Addy v. Bolton, 257 S.C. 28, 33, 183 S.E.2d 708, 709 (1971), the supreme court 

noted "the lossors seek to recover from the contractor the attorneys' fees incurred 

by them in defending themselves against the claim asserted by the tenants." The 

court determined, "The weight of authority sustains their right of recovery, either 

on the theory of an implied contract to indemnify, or because they were put to the 

necessity of defending themselves against the lessees' claim by the tortious conduct 

of the contractor, or by his breach of contract." Id. 

The supreme court explained: 

It is generally held that where the wrongful act of the 

defendant has involved the plaintiff in litigation with 

others or placed him in such relation with others as 

makes it necessary to incur expense to protect his 

interest, such costs and expenses, including attorneys' 

fees, should be treated as the legal consequences of the 

original wrongful act and may be recovered as damages. 

In order to recover attorneys' fees under this principle, 

the plaintiff must show: (1) that the plaintiff had become 

involved in a legal dispute either because of a breach of 

contract by the defendant or because of defendant's 

tortious conduct; (2) that the dispute was with a third 

party—not with the defendant; and (3) that the plaintiff 

incurred attorneys' fees connected with that dispute. If 

the attorneys' fees were incurred as a result of a breach of 

contract between plaintiff and defendant, the defendant 

will be deemed to have contemplated that his breach 

might cause plaintiff to seek legal services in his dispute 

with the third party. 

Id. at 33, 183 S.E.2d at 709-10 (quoting 22 Am. Jur. 2d Damages § 166). 

In Hegler, the supreme court looked at the right to recover attorney's fees under 

contract. 270 S.C. at 549-51, 243 S.E.2d at 444. The supreme court found that 

attorney's fees should have been awarded "for the defense of the declaratory action 

brought by [the insurer] to avoid coverage under the policy." Id. at 549, 243 

S.E.2d at 444. The supreme court stated: 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The applicable policy provisions require the [insurer] (1) 

to pay on behalf of [the insured] all sums which [the 

insured] shall become legally obligated to pay as 

damages because of bodily injury or property damage, 

and (2) "to defend any suit against the insured . . . 

seeking damages on account of such bodily injury or 

property damage, even if any of the allegations of the suit 

are groundless, false[,] or fraudulent." 

Id. at 549-50, 243 S.E.2d at 444. 

The supreme court noted that "[w]hile [the insurer] agreed, under a reservation of 

rights, to defend the action for damages brought against [the insured], it 

simultaneously brought the declaratory judgment action seeking a determination 

that it was not liable under the policy or obligated to defend." Id. at 550, 243 

S.E.2d at 444. The court found the insured "was, therefore, forced to employ 

counsel to defend against [the insurer's] denial of any obligation to continue the 

defense of the damage action." Id. The supreme court stated, "The declaratory 

judgment action established [the insurer's] obligation under the policy to defend the 

action for damages. If [the insurer] had refused initially to defend, it would 

undoubtedly have been liable for the payment of counsel fees incurred by [the 

insured] in the defense of the damage action." Id. The supreme court observed the 

insurer did not refuse from the beginning, but instead "began the defense and then 

sought, through the declaratory judgment action, to avoid any obligation to 

continue to defend." Id. The court found the insured had "to employ counsel to 

resist the contention by [the insurer] of lack of coverage" "[i]n order to obtain [the 

insurer's] continued defense of the action for damages." Id. 

The supreme court held: 

There is no material difference in the legal effect between 

an outright refusal to defend and in undertaking the 

defense under a reservation of rights until a declaratory 

judgment is prosecuted to resolve the question of 

coverage. In either event, an insured must employ 

counsel to defend in the first instance in the damage 

action and in the second in the declaratory judgment 

action to force the insurer to provide the defense. In 
 

 

 

 

 

 

 

 

 

 

 

 

both, the counsel fees are incurred because of the 

insurer's disclaimer of any obligation to defend. 

Id. 

The court determined in Hegler "[t]he action of [the insurer] amounted to a 

wrongful breach of its contractual obligation to defend." Id. "The legal fees 

incurred by [the insured], in successfully asserting his rights against [the insurer's] 

attempt in the declaratory judgment action to avoid its obligation to defend, were 

damages arising directly as a result of the breach of the contract." Id. at 550-51, 

243 S.E.2d at 444. 

"Courts applying South Carolina bad faith law have not awarded attorney's fees as 

consequential damages in tort actions." JT Walker Indus., Inc., 554 F. App'x at 

191. The only case that speaks directly to this issue is a federal district court case 

in which "the court held that a plaintiff could not recover attorney's fees incurred in 

prosecuting a bad faith insurance claim." Id. (citing Andrews v. Cent. Sur. Ins. Co., 

271 F. Supp. 814, 821 (D.S.C. 1967)). 

"Our case law and court rules make clear that when a contract or statute authorizes 

an award of attorney's fees, the trial court must make specific findings of fact on 

the record for each of the required factors to be considered." Griffith v. Griffith, 

332 S.C. 630, 646, 506 S.E.2d 526, 534-35 (Ct. App. 1998). The factors a trial 

court should consider in determining reasonable attorney's fees are "(1) nature, 

extent, and difficulty of the legal services rendered; (2) time and labor devoted to 

the case; (3) professional standing of counsel; (4) contingency of compensation; 

(5) fee customarily charged in the locality for similar services; and (6) beneficial 

results obtained." Blumberg v. Nealco, Inc., 310 S.C. 492, 494, 427 S.E.2d 659, 

660 (1993). 

"Where an attorney's services and their value are determined by the trier of fact, an 

appeal will not prevail if the findings of fact are supported by any competent 

evidence." Williamson v. Middleton, 374 S.C. 419, 431, 649 S.E.2d 57, 64 (Ct. 

App. 2007) (quoting Baron Data Sys., Inc., 297 S.C. at 384, 377 S.E.2d at 296), 

aff'd in part, rev'd in part, 383 S.C. 490, 681 S.E.2d 867 (2009). 

The trial court did not err in the award of attorney's fees to Portrait Homes. In 

Hegler, our supreme court decided that "legal fees incurred by [the insured], in 

successfully asserting his rights against [insurer's] attempt in the declaratory 

judgment action to avoid its obligation to defend, were damages arising directly as 
 

 

 

 

 

 

 

 

 

 

a result of the breach of the contract." 270 S.C. at 550-51, 243 S.E.2d at 444. 

Here, the trial court found Penn National breached its duties to defend and 

indemnify Portrait Homes and Portrait Homes sustained damages as a result. 

Therefore, the trial court was permitted to award attorney's fees. In the posttrial 

motions and punitive damages order, the trial court found (1) presentation of the 

issues was not a simple task; (2) the amount of time and labor devoted to the case 

was reasonable; (3) Portrait Homes' attorney tried the case in a competent, wellprepared manner; (4) the contingency of compensation did not apply because the 

fee agreement was a billable hour arrangement; (5) the hourly rate of $250, as well 

as a rate of $125 for travel, was within the range of customarily charged in the 

area; and (6) the results were very beneficial. The trial court awarded to Portrait 

Homes attorney's fees of $237,462.50 and costs of $12,540.76 for a total of 

$250,003.26. This award is reasonable. Accordingly, we affirm the award of 

attorney's fees to Portrait Homes. 

As to the HOA, the trial court's award of attorney's fees was for the assigned 

breach of duty to defend and duty to indemnify. The court indicated case costs of 

$51,332.03 and attorney's fees of $1,790,049.10 were reasonable and "would be 

awarded should the HOA have elected the remedy of Breach of the Duty to Defend 

and Indemnify." The trial court noted the HOA filed an election of remedies, 

electing to recover for the bad faith and the breach of the duty of good faith and 

fair dealing rather than the breach of the duty to defend and duty to indemnify. 

The court recognized the supreme court has held attorney's fees under section 38-

59-40 only apply to breach of contract actions. Accordingly, because the trial 

court did not actually award the HOA attorney's fees based on the HOA's election, 

we need not address the arguments concerning the HOA's attorney's fees. See 

Finley, 294 S.C. at 4, 362 S.E.2d at 28 ("[W]hatever doesn't make any difference, 

doesn't matter."). 

CONCLUSION 

For the forgoing reasons, the learned trial court's orders are 

AFFIRMED. 

VINSON, J., and LOCKEMY, A.J., concur.