Court Opinion

ID: 9497884
Source: CourtListenerOpinion
Date Created: 2023-08-05 17:02:34.606455+00
Date Added: 2024-06-11T17:58:28.772241
License: Public Domain

SHEDD, Circuit Judge,
concurring:
I agree with Judge King that the summary judgment must be set aside. The Great American test is comprised of three parts: the notice element, the good faith element, and the material prejudice element. See Great Am. Ins. Co. v. C.G. Tate Constr. Co., 303 N.C. 387, 279 S.E.2d 769 (1981) (“Great American I ”); Great Am. Ins. Co. v. C.G. Tate Constr. Co., 315 N.C. 714, 340 S.E.2d 743 (1986) (“ Great American II ”). Although Judge King primarily bases his decision on the notice element, I would vacate the summary judgment on alternate grounds identified briefly in notes 16 and 18 of Judge King’s opinion: that is, the district court’s erroneous conclusions that Federal is entitled to judgment as a matter of law on the Builder’s Risk policy claim based on the material *203prejudice element and on the Operations policy claim based on the good faith element.1
I
Concerning the Builder’s Risk policy claim, the district court concluded that “[e]ven assuming that M/K could demonstrate that it acted in good faith when it failed to report the damage to Federal at the time the damage occurred, ... material prejudice to [Federal] arising from the two-year delay necessitates an award of summary judgment....” J.A. 2659. The district court erred in reaching this conclusion.
Federal, as the insurer, bears the burden of proving material prejudice, Great American I, 279 S.E.2d at 776, and its burden at the summary judgment stage is to establish material prejudice as a matter of law, see Fortress Re, Inc. v. Central Nat’l Ins. Co. of Omaha, 766 F.2d 163, 166-67 (4th Cir.1985) (reversing summary judgment on Great American issue of material prejudice where genuine issues of material fact existed). Among the relevant factors to be considered in deciding the issue of material prejudice are: the availability of witnesses to the pertinent events; the ability to discover other information regarding the conditions of the locale where the events occurred; any physical changes in the location of the events during the period of the delay; the existence of official reports concerning the events; the preparation and preservation of demonstrative and illustrative evidence (such as photographs); and the ability of experts to reconstruct the events. Great American I, 279 S.E.2d at 776. “Proof of the existence of any of the above factors is not determinative; the insurer must also show that the changed circumstance materially impairs its ability to investigate the claim or defend and, thus, to prepare a viable defense.” Id.
The district court did not examine the evidence in the record in accordance with the foregoing standard. Instead, relying on our unpublished opinion in Charter Oak Fire Insurance Company v. Carteret County Board of Commissioners, 91 F.3d 129, 1996 WL 389480 (4th Cir.1996)2 — the district court based its decision on one fact favorable to Federal:
Federal did not have the opportunity to observe the damage or to observe the equipment in operation to assist in determining the cause of the damage because the damage was repaired by mid-1996 and the BCH project was “mothballed” later that year.
Here, as in Charter Oak, it is clear from the record that, regardless of the dispute about the cause of the damage at issue, the damage was indisputably repaired long before M/K notified Federal of the potential claim. The court must conclude, therefore, that the almost two-year delay between the occurrence of the damage at issue and the reporting of the claim to Federal in conjunction with the repair of the damage in the interim, *204materially prejudiced defendant’s ability to investigate the claim.
J.A. 2661.
In reaching its conclusion, the district court did not explain how Federal’s “ability to investigate the claim or defend and, thus, to prepare a viable defense” was materially impaired. Great American I, 279 S.E.2d at 776. Moreover, the district court did not account for the evidence presented by M/K- — including eyewitness, documentary, and photographic evidence— which creates a genuine issue of material fact as to material prejudice.3 See Fortress Re, 766 F.2d at 166 (reversing summary judgment where issues of fact involve “questions of what [the insurer] would have done had it received timely notice and whether its intervention would have produced a more favorable result”). Accordingly, summary judgment on this claim cannot stand.
II
As to the Operations Policy, the district court held: “Given the long, involved and complex history of this case, the court cannot conclude that M/K’s filing of the claim against Federal under the operations policy in May 1999, over six months after learning of the policy’s existence and approximately three years after the alleged business loss, was made in good faith.” J.A. 2663-64. The district court also erred in reaching this conclusion.
The good faith element involves a two-part subjective inquiry: 1) was the insured aware of a possible claim, and 2) did the insured “purposefully and knowingly fail” to notify the insurer. Great American II, 340 S.E.2d at 747. This inquiry “is phrased in the conjunctive: both knowledge and the deliberate decision not to notify must be met for lack of good faith to be shown. If the insured can show that either does not apply, then the trial court must find that the insured acted in good faith.” Id. (emphasis in original).
The district court acknowledged that the good faith inquiry is subjective. J.A. 2663. However, the district court neither identified the second part of the inquiry — i.e., purposeful and knowing failure to give notice — nor explained how M/K’s conduct can be deemed purposeful and knowing as a matter of law. Under these circumstances, the summary judgment on this claim must also be set aside.4

. In Great American II, the Supreme Court of North Carolina stated with respect to the notice element: "In most instances, unless the insurer's allegations that notice was not timely are patently groundless, this first part of the test is met by the fact that the insurer has introduced the issue to the court.” 340 S.E.2d at 747. The district court applied this principle in its analysis of both the Builder’s Risk and Operations policy claims. See J.A. 2658, 2662.

. Regardless of the factual distinctions between this case and Charter Oak, that case is not binding precedent, and citation to it is disfavored. See Local Rule 36(c); Hogan v. Carter, 85 F.3d 1113, 1118 (4th Cir.1996) (en banc).

. See ante at 201 n. 16 ("M/K presented substantial evidence on the condition of the Facilities at the time of the Covered Losses”).

. I recognize that M/K, as the insured, ultimately bears the burden of establishing good faith. However, a fair reading of the record shows that Federal does not appear to have made this argument in its initial summary judgment motion or memorandum. See J.A. 82-84 (summary judgment memorandum, Great American and Charter Oak discussion focused on material prejudice). Instead, as the district court implicitly recognized in its summary judgment order, see J.A. 2663, Federal appears to have first raised this issue in its summary judgment reply memorandum. Consequently, the record appears to be devoid of evidence that directly bears on M/K’s subjective intent. Under these circumstances, the summary judgment cannot stand.