Source: https://sccourts.org/opinions/displayOpinion.cfm?caseNo=25278
Timestamp: 2020-07-10 17:09:28
Document Index: 795780406

Matched Legal Cases: ['§ 38', '§ 38', '§ 38', '§ 38', 'art 1', 'art 2', '§ 38']

Ernest George, Personal Representative of the Estate of Kate George and Marvelyn Ernette George, Petitioner,
Empire Fire and Marine Insurance Company, W. Gene Whetsell, Personal Representative of the Estate of Angela Farmer, and John Shields Autos, Inc., Defendants,
of whom W. Gene Whetsell, Personal Representative of the Estate of Angela Farmer, and John Shields Autos, Inc. are Petitioners,
and Empire Fire and Marine Insurance Company is Respondent,
Ken Rickel and Williams and Stazzone Insurance Agency, Third-Party Defendants.
Opinion No. 25278
James E. Reeves, of Barnwell, Whaley, Patterson & Helms, and Thomas J. Wills, of Wills & Massalon, both of Charleston, for respondent Empire Fire & Marine Insurance Company.
Petitioner John Shields Autos, Inc. (Shields Auto), a used car dealership, loaned its customer, Angela Farmer, a car to use while hers was being repaired at the dealership. While driving the loaner vehicle on August 1, 1994, Angela had a head-on collision with another vehicle. Marvelyn George was driving the other car, in which her daughter, Kate, was a passenger. Angela, Marvelyn, and Kate were all killed as a result of the accident.
As personal representative for the estates of his wife and daughter, petitioner Ernest George brought this declaratory judgment action against Respondent Empire Fire and Marine Insurance Company (Empire), Angela's estate, (1) and Shields Auto. George sought declaration that Shields Auto's insurance policy with Empire covered Angela in the amount of $1 million or, alternatively, that the policy be reformed to provide $1 million in coverage. (2)
George and Empire filed cross motions for summary judgment, and the trial court granted summary judgment in favor of George. The trial court found that the policy provided $1 million coverage for Angela. In the alternative, the trial court decided that if the liability policy was limited to $15,000, then reformation based on mutual mistake was granted to provide $1 million in coverage. (3)
The Empire policies contain an endorsement which excludes liability coverage for customers such as Angela. Although the parties agree that the exclusion is invalid under South Carolina law, they disagree as to the effect of removing the illegal exclusion from the policy. We agree with Empire, and the Court of Appeals, that the legal effect of invalidating the exclusion does not provide $1 million coverage for Angela. A full understanding of this issue necessitates a review of both the Empire policies and Shields Auto's previous liability policies with Nationwide Mutual Insurance Company (Nationwide).
From 1988 to 1992, Nationwide covered Shields Auto. For the first three policies (1988-89, 1989-90, 1990-91), Shields Auto had liability insurance in the amount of $1 million. The 1991-92 policy had a liability limit of $500,000. Significantly, in all the Nationwide policies, liability was not limited in any way for Shields Auto's customers. (4)
Empire began insuring Shields Auto in December 1992. For 1992-93, Shields Auto had a garage liability policy in the amount of $1 million. In this policy, however, liability for customers was limited. (5) This limitation excluded customers as "insureds," with two exceptions. First, if the customer had no liability insurance of her own, then the policy would provide liability coverage up to the statutory minimum limits. (6) Second, if the customer had liability insurance for less than the statutory minimum limits, the policy would provide liability coverage for the difference between the customer's coverage and the statutory minimum limits. The effect of the endorsement was to completely exclude liability coverage under the Empire policy for customers who had their own personal liability insurance in an amount equal to or greater than the statutory limits.
Shields Auto renewed its insurance with Empire for 1993-94. For this year, however, Empire provided Shields Auto with two policies - a primary and an excess policy. The primary policy covered "Garage Operations - 'Auto' Only" in the amount of $15,000/30,000/5,000, and "Garage Operations - Other than 'Auto' Only" in the amount of $1 million. The excess policy covered named insureds up to $1 million. As in the previous year, the 1993-94 policy contained an endorsement which limited liability coverage for certain customers and completely excluded coverage for other customers. (7)
Petitioners argue that when Shields Auto renewed its coverage with Empire for the 1993-94 term, all parties intended to provide Shields Auto with the same coverage as the 1992-93 policy. Petitioners further argue that although the 1992-93 policy contained the endorsement which excludes customers such as Angela, the legal effect of invalidating the endorsement is that Angela would be covered for the amount of the 1992-93 policy, i.e., $1 million.
The reasoning of Potomac mandates this result. In Potomac, the Court found that an endorsement which excluded liability coverage for a customer, who was a permissive user driving a loaned vehicle, violated the provisions of the South Carolina Financial Responsibility Act. The Potomac Court noted that two sections of the statute are considered as though written into the liability policy. Potomac, 254 S.C. at 111, 173 S.E.2d at 655 (citing Pacific Ins. Co. of New York v. Fireman's Fund Ins. Co., 247 S.C. 282, 147 S.E.2d 273 (1966)). The first defines a permissive user as an insured. See S.C. Code Ann. § 38-77-30(7) (Supp. 2000). (8) The second requires minimum statutory liability limits in every automobile insurance policy. See S.C. Code Ann. § 38-77-140 (1989). (9)
Following the rationale of Potomac, when a liability policy contains an exclusion which conflicts with § 38-77-30(7), then the policy must be reformed as a matter of law to comply with § 38-77-140. Accordingly, the Empire policy, without the illegal endorsement, provides Shields Auto with coverage for Angela up to the statutory minimum limits of 15/30/5.
In addition to the above-discussed insurance policies themselves, we review the relevant deposition testimony to resolve whether there is a material issue of fact regarding mutual mistake. At John Shields's deposition, he testified about the initial procurement of insurance from Empire, through agent Rickel. Shields made clear that he intended customers such as Angela to be fully covered by the liability policy:
Q. . . . Have you ever discussed with any agent or sales person who was selling you insurance for John Shields Autos, Inc., a garage liability policy, the coverage that would exist for a customer to whom you loaned a car?
(Emphasis added). Additionally, Shields testified that he asked Rickel to get the same coverage as Shields Auto had "before," i.e., with Nationwide. As discussed above, the Nationwide policies did not limit liability in any way for Shields Auto's customers.
(Emphasis added). Rickel stated that Shields "went with the million dollar limit" on the Empire policy in 1992, which was up from the $500,000 liability limit of the previous year's policy with Nationwide.
Regarding the renewal of coverage with Empire for the 1993-94 year, Rickel testified that Shields wanted the same liability limits and sent Rickel a blank application which Rickel subsequently filled out. (10) Rickel acknowledged that "the policy forms changed," i.e., coverage went from a single policy to two separate policies. Rickel stated that moving from the single policy format to two policies would not have changed the insurance coverage for Angela.
JUSTICE MOORE: I concur in Part 1 of the majority opinion regarding reformation based on an invalid endorsement. I disagree, however, with the holding in Part 2 affirming the grant of summary judgment on the issue of reformation based on mutual mistake. Accordingly, I dissent from that portion of the opinion.
In concluding there is no factual issue regarding a mutual mistake, the majority overlooks pertinent deposition testimony by Empire's agent, Ken Rickel, who wrote the original Empire policy. In context, Rickel testified as follows:
A: He told me he had half a million dollars of coverage and we went over the inventory coverage on (sic) the garage liability. We went over his inventory coverage. I didn't feel he was carrying enough but he told me - he specifically said that that's what he wanted. He wanted the $100,000, I believe, for inventory coverage. That he felt he was definitely safe with that limit. And then we went over his property coverage also.
Q: Okay. Did you see his Nationwide policy?
A: I know that I saw his Nationwide policy on the property. I don't recall - I'm not sure if I saw the Nationwide policy on the liability.
Q: Okay. And this would have been in the context of the discussions prior to the filling out of the application?
In my opinion, summary judgment was inappropriately granted. I would affirm the Court of Appeals' ruling remanding the case for trial on the issue of reformation based on mutual mistake.
2. Shields Auto in turn brought a cross-claim against Empire, as well as a third-party complaint against Ken Rickel, the insurance agent who procured the policy, and the Williams and Stazzone Insurance Agency. In the event that Empire denied $1 million coverage, Shields Auto alleged that Empire, Rickel, and the agency were negligent. As relief, Shields Auto also sought declaration that the policy provided $1 million coverage for this accident, or alternatively, that the policy be reformed to provide $1 million in coverage.
3. This was Judge Whetstone's decision. Subsequently, Judge Dennis granted summary judgment, on the basis of reformation, to Shields Auto and Angela against Empire.
4. Item Five of the policies, entitled "LIABILITY COVERAGE FOR YOUR CUSTOMERS," stated the following, in relevant part: "Liability coverage for your customers is limited unless indicated below by an 'X' [in the appropriate box]." The box was checked on all four Nationwide policies. Thus, the endorsement at issue in this case was not activated on the Nationwide policies.
5. The Empire policy contained the same standard language as the Nationwide policies. See footnote 4, supra. In the Empire policy, however, the box in Item Five was not checked, thereby activating the endorsement which limited liability for customers.
6. The statutory minimum limits at the time the accident took place were $15,000/30,000/5,000. See S.C. Code Ann. § 38-77-140 (1989).
7. That is, the box in Item Five again was not checked. See footnotes 4 and 5, supra.
8. This section defines "Insured" as "the named insured . . . and any person who uses with the consent, expressed or implied, of the named insured the motor vehicle to which the policy applies . . . ."
11. Empire points to Rickel's testimony that "a customer driving a car is still going to be afforded the state minimum limits of insurance under the standard ISO form or under the way the policy was written with the split limits." Empire contends this statement shows Rickel believed customers would not be covered for $1 million. We find that the only logical inference from Rickel's statement is that he was testifying as to what the policy on its face provided for customers. This comment in no way addresses the intent of Shields regarding customer coverage, or Rickel's understanding of that intent.
12. Although Empire also moved for summary judgment, for purposes of our Rule 56 analysis, we treat Empire as the opposing party because summary judgment on this issue was granted for petitioners.