UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DILMAR OIL COMPANY,

Plaintiff-Appellant,

v.

No. 97-1554

FEDERATED MUTUAL INSURANCE

COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the District of South Carolina, at Florence.

Cameron McGowan Currie, District Judge.

(CA-96-114-4-22)

Argued: October 2, 1997

Decided: November 5, 1997

Before WILKINSON, Chief Judge, RUSSELL, Circuit Judge, and

BOYLE, Chief United States District Judge for the

Eastern District of North Carolina, sitting by designation.

_________________________________________________________________

Affirmed by unpublished opinion. Chief Judge Boyle wrote the opinion, in which Chief Judge Wilkinson and Judge Russell joined.

_________________________________________________________________

COUNSEL

ARGUED: David Eliot Rothstein, NEXSEN, PRUET, JACOBS &

POLLARD, L.L.P., Columbia, South Carolina, for Appellant. Laura

Jean Hanson, MEAGHER & GEER, P.L.L.P., Minneapolis, Minnesota, for Appellee. ON BRIEF: Susan Batten Lipscomb, NEXSEN,
PRUET, JACOBS & POLLARD, L.L.P., Columbia, South Carolina,

for Appellant. Nicholas A. Gumpel, MEAGHER & GEER, P.L.L.P.,

Minneapolis, Minnesota; Richard R. Mehrhof, Jr., ALLGOOD,

CHILDS, MEHRHOF & MILLIANS, Augusta, Georgia, for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

BOYLE, Chief District Judge:

Plaintiff-Appellant Dilmar Oil Co. Inc. (hereinafter"Dilmar"), a

South Carolina corporation, filed this action against Defendant Federated Mutual Insurance Co. ("Federated"), a Minnesota corporation, in

the United States District Court for the District of South Carolina.

Plaintiff's complaint included five causes of action under South Carolina law: breach of contract, declaratory judgment, misrepresentation,

bad faith refusal to pay benefits, and illusory coverage. Defendant

filed an answer and a Motion for Summary Judgment, covering all of

Plaintiff's claims. The district court granted Federated's Motion on all

of Dilmar's claims. Dilmar timely appeals.

FACTS

Dilmar is a petroleum distributor headquartered in Latta, South

Carolina. Dilmar owns convenience stores and gasoline stations

throughout South Carolina, and supplies petroleum products to retailers in the state. As part of its business, Dilmar maintains underground

and above-ground storage tanks to hold its inventory of petroleum

products.

Federated is an insurance company which marketed specialized

pollution liability insurance to companies in the petroleum industry.

Dilmar purchased successive Commercial Package Policies from Fed-

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erated in effect between January 1, 1987, and January 1, 1992. The

policy in effect from January 1, 1989, to July 1, 1989, is the policy

at issue in the present litigation.

The policy was a "claims made" policy, requiring a claim to be

made during the policy period to invoke coverage. It contained three

separate insuring agreements, two of which are at issue here. Insuring

Agreement 2 provides for reimbursement for "clean-up costs" because

of environmental damage which is asserted under statutory authority

of the government of the United States or any political subdivision

thereof. Insuring Agreement 3 was added to the policy by endorsement, and provides "Voluntary `Clean-up Costs' Reimbursement."

Insuring Agreement 3 provides for reimbursement for"`clean-up

costs' initiated at the `insured site' during the policy period that the

insured incurs. . . ."

The policy was subject to the "Coordination of Benefits With Governmental Funding Programs" endorsement ("Coordination of Benefits Endorsement," or "CBE"), which became effective on January 1,

1989. The CBE requires the insured to take all steps necessary to

become eligible to participate in state underground storage tank pollution clean-up funding programs, and provides that failure to secure

otherwise available state funds voids the policy to the extent that the

insured could have obtained such funds. In addition, the CBE provides that if the state program disqualifies underground tank owners

or operators with private liability insurance from participating in the

state program solely because of the existence of such insurance, then

the policy is void, allowing the insured to participate in the state program: "If the inability to secure funds is directly attributable to the

existence of this insurance, coverage shall also be void so as to permit

contribution from any such governmental funding program." Federated informed Dilmar of the existence of this endorsement in a separate letter before the effective date of the policy at issue.

In 1988, the South Carolina legislature enacted the South Carolina

State Underground Petroleum Environmental Response Bank Act of

1988 (the "SUPERB Act"), S.C. Code Ann. § 44-2-10 et seq., which

established a State-administered fund to finance the clean-up of contamination from leaking underground storage tanks. Administration of

the Act is left to the South Carolina Department of Health and Envi-

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ronmental Control ("DHEC"), subject to review by the DHEC Board

and judicial review under the state Administrative Procedures Act.

S.C. Code Ann. §§ 44-2-115, 44-2-130(E)(1). The SUPERB Act contains an early detection incentive amnesty program to encourage tank

owners to voluntarily examine their tanks and report contamination

promptly. Under this program, tank owners who reported contamination during the amnesty period were eligible to receive reimbursement

for "site rehabilitation" costs. S.C. Code Ann. § 44-2-110.

During the first half of 1989, Dilmar voluntarily tested several of

its sites, discovering contamination at eight sites, including its Northside Texaco facility. Dilmar reported the contamination to DHEC,

seeking reimbursement of site rehabilitation costs under the SUPERB

Act. Dilmar also notified Federated of the contamination, and submitted first-party voluntary clean-up cost claims to Federated. Federated

denied coverage for these claims by letters dated June 15, 1989, and

July 27, 1989, basing the denial on the CBE. Federated informed Dilmar that, "[b]ecause this endorsement applies to this situation, your

policy is voided for the above listed incidents." There is no doubt that

Federated's denials of coverage were proper under the CBE and the

SUPERB Act as they existed at the time.

Effective May 9, 1990, the South Carolina General Assembly

passed two amendments to the SUPERB Act that invalidated provisions, such as Federated's CBE, in liability policies which required an

insured to exhaust funds available under the SUPERB program before

benefits are available from the insurer. S.C. Code Ann. § 44-70(A),

as amended on May 9, 1990, Act 473 § 3, 1990 Statutes at Large

2134-35. DHEC initially took the position that the 1990 Amendments

did not apply retroactively; this position changed in 1991, and the

General Assembly codified the retroactive application of the 1990

Amendments in 1992. Id., as amended July 1, 1992, Act 501, Part II,

§ 43(D), 1992 Statutes at Large 3318-19.

On September 3, 1992, DHEC wrote Dilmar regarding continued

SUPERB funding at one of the latter's sites, Food Chief #24. DHEC

said that it would be seeking reimbursement of funds already spent on

this sight because Federated's CBE was invalidated by the 1990 and

1992 Amendments, and the existence of private insurance made payments from the SUPERB account inappropriate. The letter continued:

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"This office will, in the very near future, provide you with the total

amount of funds owed to the SUPERB Account by Dilmar Oil." In

response to Dilmar's complaints, DHEC later agreed to continue to

provide funding to Dilmar, but noted that the latter may need to enter

into a subrogation agreement with DHEC to assign its right to sue

Federated for reimbursement.

Dilmar heard from DHEC again on December 9, 1993, when

DHEC informed Dilmar that the latter owed $140,910.88 as a reimbursement for clean-up at the Food Chief #24 site (as well as

$219,097.29 for Food Chief #35 site).

Finally, on June 30, 1994, DHEC informed Dilmar that Dilmar's

Northside Texaco site was the most likely source of contamination at

the Rice Planters restaurant, and demanded that Dilmar begin abatement procedures. On August 22, 1994, Dilmar's counsel wrote to

Federated informing the latter of a DHEC "directive" associated with

the Rice Planters restaurant and demanding that Federated defend and

indemnify Dilmar for "any liability incurred in connection with this

location, including site rehabilitation costs and third party bodily

injury and property damage claims." On January 23, 1995, Federated

denied coverage for this claim.

DISCUSSION

Summary judgment disposes of factually unsupported claims or

defenses, and requires the party opposing such a motion to come forward with a showing of the existence of a genuine issue of material

fact for trial. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S.

317, 323-25 (1986). The party moving for summary judgment must

allege the absence of a general issue of material fact in the pleadings

of the other party. Celotex, 477 U.S. at 324. A summary judgment

motion requires the court to look beyond the pleadings and ask

whether there is a need for trial. Matsushita Electric Industr. Co., Ltd.

v. Zenith Radio Corporation, 476 U.S. 574, 487 (1986). A district

court's grant of summary judgment is subject to de novo review.

Carbon Fuel Co. v. USX Corp., 100 F.3d 1124, 1132 (4th Cir. 1996).

A. The Statute of Limitations.

Breach of contract claims are governed by a three-year statute of

limitation in South Carolina. S.C. Code Ann. § 15-3-530(1). As an

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affirmative defense, Dilmar argues, the burden is on the defendant to

establish the expiration of the statutory time. Brown v. Finger, 124

S.E.2d 781, 786 (S.C. 1962). If there is conflicting evidence, the issue

should be decided by the finder of fact at trial and not by court on

summary judgment motion. Garner v. Houck, 435 S.E.2d 847, 849

(S.C. 1993); see Santee Portland Cement Co. v. Daniel Int'l. Corp.,

384 S.E.2d 693 (S.C. 1989).

Dilmar asserts that Federated's contractual duty under its policy to

reimburse Dilmar for costs incurred in cleaning up Dilmar's contaminated sites did not arise until December 9, 1993. The parties agree

that the sole basis for Federated's denials of coverage in 1989 was the

CBE in Dilmar's insurance policy. Dilmar says, however, that the

CBE operated to render the policy conditionally void, only to allow

the insured to become eligible for SUPERB funding. Thus, the 1990

Amendments merely removed the basis on which Federated had previously denied coverage. Because Dilmar did not resubmit its claim

at that time, the argument goes, Federated cannot be said to have

denied coverage yet.

Dilmar misconceives of the effect of the Amendments. The CBE

caused Federated to deny coverage in 1989; the policy was "void for

that claim." The 1990 Amendments did not render the earlier denial

"ineffective." Rather, they removed the legal basis for the denials, and

gave rise to a cause of action for breach of contract and declaratory

judgment.

Getting beyond the 1990 or 1992 Amendments would be insufficient for Dilmar, since it still needs to get beyond January 12, 1993,

in order to avoid the time bar for its breach of contract claim. Dilmar

proceeds to argue that as long as it was covered by the SUPERB program, Federated had no contractual duty to reimburse Dilmar,

because Dilmar had not yet "incurred" any costs that would be recoverable under the policy. Insuring Agreement 3 provides for reimbursement for clean-up costs initiated at the insured site during the policy

period that the insured "incurs." Dilmar argues that "incur" merely

means "to become liable for," and it had not become liable for any

costs while it was covered by SUPERB.

Dilmar's attempt to finesse the definition of "incur" is unavailing:

when Dilmar hired its own environmental consultants in 1989 it

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incurred its first cost. Dilmar initially paid all such costs out-ofpocket and submitted the bills to DHEC for SUPERB reimbursement.

Dilmar would be the party to whom a contractor would look for ultimate payment if SUPERB failed to reimburse it. Mere reimbursement

by the state does not change the ultimate liability for the costs. As

Federated points out, the SUPERB Act provides for"reimburse[ment]

for reasonable costs incurred in connection with the site rehabilitation.

. . ." S.C. Code Ann. § 44-2-130(A). The state does not reimburse

costs until they are "incurred."

Dilmar was put on notice that it had a claim against Federated no

later than when the 1992 Amendment became effective: the 1990

Amendments invalidated the CBE, and the 1992 Amendment made

this invalidation retroactive. Thus, the costs incurred by Dilmar were

then subject to reimbursement under the insurance policy, and the

contract claim accrued: A cause of action accrues in South Carolina

if the party asserting the claim can maintain an action to enforce it.

That is the moment the plaintiff has a legal right to sue on it. Brown

v. Finger, 124 S.E.2d 781, 785 (S.C. 1962).

Dilmar tries to avoid this by arguing that the discovery rule operated here to toll the running of the statute of limitations. The discovery rule applies to breach of contract actions to toll the running of the

statute of limitations until the injury is discovered or should have

been discovered. Santee Portland Cement Co. v. Daniel Int'l. Corp.,

384 S.E.2d 693, 694 (S.C. 1989). "[T]he statutory period of limitations begins to run when a person could or should have known,

through the exercise of reasonable diligence, that a cause of action

might exist in his or her favor, rather than when a full-blown theory

of recovery is developed." Christiansen v. Mikell, 476 S.E.2d 692,

694 (S.C. 1996). It is immaterial that the claimant did not know the

exact nature of the wrong or extent of the damages at the time. Id.

Here, it is undisputed when Dilmar knew, or should have known,

that the contract had been breached, when the 1992 Amendment were

passed, at the latest. Failure to appreciate the effect of the 1990 and

1992 Amendments cannot toll the running of the statute of limitations. The DHEC even informed Dilmar in the September 3, 1992,

letter that Federated's CBE was invalid and unenforceable. Dilmar

responded to this letter by saying that it could challenge Federated's

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coverage denial, but disclaiming any responsibility to do so. DHEC

subsequently kept paying, but informed Dilmar that DHEC might

itself sue Federated, and subrogation would be needed. At this point,

Dilmar knew that the CBE was invalidated by statute, that it was ripe

for litigation, and that Federated was not going to be paying Dilmar

for costs DHEC said Dilmar owed.

The district court was therefore correct to grant Federated's summary judgment motion on the breach of contract claim because that

claim was time-barred by South Carolina's three-year statute of limitations.

B. Liability for the Rice Planters Clean-up. 

The district court also granted summary judgment with respect to

Federated's argument that it had no liability to Dilmar on DHEC's

ordered clean-up of the Rice Planters restaurant site, holding that

there was no claim during any applicable policy period. There needed

to be a demand from DHEC to Dilmar during an applicable policy

period because the relevant contract provision, Insuring Agreement 2,

requires Federated to cover costs that the insured incurs because of a

governmental demand asserted under statutory authority. Dilmar

argues that the court was incorrect because DHEC's demand with

respect to Rice Planters, made on June 30, 1994, was merely a continuation of Dilmar's previous claim for the Northside Texaco site,

which DHEC said was the "most probable source of contamination"

at Rice Planters.

Because Dilmar voluntarily investigated the Northside Texaco site

in the Spring of 1989, during its initial SUPERB Act-inspired investigations, reported it, and began remediating it at that time, Dilmar

claims that Insuring Agreement 3 applies. That provision covers reimbursement for costs associated with voluntarily initiated clean-up programs. The mere fact that DHEC later wrote Dilmar requesting that

it clean up the contamination from that site which spread to an adjoining property does not relieve Federated of its existing duty to cover

the costs.

Dilmar's claims are incorrect. DHEC's order to clean up the Rice

Planters site constituted a government mandate triggering Insuring

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Agreement 2. This government mandate was only received in June

1994, however, four years after the last Federated policy expired. And

this ordered clean-up was not a continuation of an earlier voluntary

clean-up claim.

Dilmar is attempting to bootstrap the Rice Planters claim onto the

earlier voluntary clean-up coverage for the Northside Texaco site

under Agreement 3. First, the language of the insurance contract is

unambiguous: the insuring agreements are mutually exclusive and

provide coverage for three distinct events. Allowing a claim triggering one insuring agreement to implicate coverage under one of the

other insuring agreements would torture the clear and unambiguous

policy language and extend coverage that was never intended by Federated.

Next, the policy provides no coverage for the Rice Planters claim.

It says that coverage for the Rice Planters claim, if it exists, is only

under Insuring Agreement 2, providing coverage for reimbursement

of government-mandated clean-up costs. This agreement requires that

"[n]otice asserting such obligation must first be received by [the

insured] during the policy period." DHEC only mandated clean-up in

June 1994, well after the "policy period." Dilmar attempts to argue

that this is covered by Insuring Agreement 3, but it must show that

the Rice Planters site was to have been included in the voluntary

clean-up Dilmar was conducting at Northside Texaco. When Dilmar

submitted its 1989 claim for Northside Texaco, however, only Agreement 3 was implicated because there was no government or third

party demand made of Dilmar. The proposed clean-up at Rice Planters is not voluntary--DHEC ordered it. It does not matter whether the

contamination at Rice Planters is from Northside Texaco; the dispositive issue is whether the clean-up is being conducted voluntarily.

Insuring Agreement 3 only applies to voluntary clean-up cost reimbursement, not to government-ordered clean-up, as is the case here.

Allowing Dilmar to obtain coverage for a government-mandated

clean-up under the insuring agreement providing coverage for voluntary clean-up costs incurred would render Insuring Agreement 2 a

nullity.

The district court was thus correct to grant summary judgment for

Federated on Dilmar's demand for coverage of the Rice Planters

clean-up.

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C. Abandonment of the Bad-faith Claim.

In its complaint, Dilmar included a cause of action for bad faith

refusal to pay insurance benefits. Dilmar initially argued that Federated's failure to affirmatively provide notice of the passage of the

1990 Amendments was the basis for the bad faith claim (Dil. Opp. to

Mot. for S.J. at 21). In its supplemental brief to the district court, submitted after the hearing on Federated's Motion for Summary Judgment, Dilmar said, "Although Federated did not voluntarily offer

coverage to Dilmar after the 1990 Amendments became effective,

Federated's failure to volunteer coverage should not be considered a

denial of coverage, because Dilmar never made a demand for coverage at that time" (Dil. Supp. Opp. to Mot. for S.J. at 3). The district

court held that by "acknowledging that Federated's failure to volunteer coverage where no re-tender had been made was not a `denial'

of coverage, Dilmar has necessarily abandoned its bad faith claim."

In arguing bad faith as of the 1990 Amendments at the summary

judgment stage, which Dilmar did in its original opposition to Federated's motion, Dilmar was arguing for a 1990 accrual date for its

claims. Thus, Dilmar had to change its position in the supplemental

brief. However, by changing its argument to say that Federated's failure to volunteer coverage in 1990 was not a denial of coverage, Dilmar was no longer asserting a bad faith claim.

Dilmar abandoned its bad faith cause of action in its supplemental

opposition to Federated's Motion for Summary Judgment. The district

court correctly decided this issue in granting summary judgment.

CONCLUSION

The judgment of the district court is affirmed in its entirety.

AFFIRMED

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