Court Opinion

ID: 7375135
Source: CourtListenerOpinion
Date Created: 2022-07-28 23:11:10.285464+00
Date Added: 2024-06-11T16:21:06.720470
License: Public Domain

USCA4 Appeal: 20-2001     Doc: 39       Filed: 01/25/2022   Pg: 1 of 17

                                         UNPUBLISHED

                             UNITED STATES COURT OF APPEALS
                                 FOR THE FOURTH CIRCUIT

                                            No. 20-2001

        WESTERN WORLD INSURANCE GROUP,

                           Claimant - Appellee,

                    and

        GUIDEONE NATIONAL INSURANCE COMPANY,

                           Plaintiff,

                    v.

        CHURCH MUTUAL INSURANCE COMPANY,

                           Defendant - Appellant.

        Appeal from the United States District Court for the District of South Carolina, at
        Charleston. Margaret B. Seymour, Senior District Judge. (2:17-cv-01361-MBS)

        Argued: October 28, 2021                                  Decided: January 25, 2022

        Before DIAZ and THACKER, Circuit Judges, and Thomas T. CULLEN, United States
        District Judge for the Western District of Virginia, sitting by designation.

        Vacated and remanded by unpublished per curiam opinion.

        ARGUED: Ainsley Fisher Tillman, Ian Scott Ford, FORD WALLACE THOMSON LLC,
        Charleston, South Carolina, for Appellant. Bradish Johnson Waring, Kenyatta Laffette
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        Gardner, BUTLER SNOW LLP, Charleston, South Carolina, for Appellee. ON BRIEF:
        Stephen P. Groves, Sr., BUTLER SNOW LLP, Charleston, South Carolina, for Appellee.

        Unpublished opinions are not binding precedent in this circuit.

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        PER CURIAM:

              Abundant Faith Lighthouse of Jesus Christ, Inc. (“Abundant Faith”) purchased a

        church building in Conway, South Carolina (“the Property”) from the Refuge at FPHC

        (“the Refuge”), another local church. To make the purchase, Abundant Faith took out a

        mortgage with the Refuge as the mortgagee.       Pursuant to the mortgage agreement,

        Abundant Faith was required to maintain property insurance and assign the proceeds of

        any payment received from the insurance policy to the Refuge.

              When Abundant Faith’s insurance on the Property lapsed, the Refuge, as the

        mortgagee, obtained an insurance policy from Western World Insurance Group (“Western

        World”). In an effort to avoid foreclosure, Abundant Faith also ultimately procured

        insurance for the Property. First, Abundant Faith purchased a policy from GuideOne

        National Insurance Company (“GuideOne”) that listed the Refuge as the mortgagee of the

        Property. Church Mutual Insurance Company (“Church Mutual”) also issued a policy to

        Abundant Faith, but no mortgagee was listed on the Church Mutual policy.

              On July 24, 2016, a fire destroyed the Property. Shortly thereafter, the insurance

        companies began determining what they were required to pay and to whom. In exchange

        for Western World paying the totality of the claim, the Refuge assigned its mortgage

        interest in the Property to Western World. Western World then contacted GuideOne and

        Church Mutual seeking payment for their share of the loss.

              Eventually, GuideOne brought a declaratory judgment action in federal court

        against both Western World and Church Mutual to clarify how the insurance proceeds

        should be distributed. Western World, in turn, raised crossclaims and counterclaims

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        against GuideOne and Church Mutual. But before a final decision was made below,

        GuideOne and Western World settled, with GuideOne agreeing to pay its pro-rata share of

        the loss to Western World. After the settlement between Western World and GuideOne,

        only Western World’s claims against Church Mutual remained in the action before the

        district court. Western World sought to recoup its share of the loss from Church Mutual

        through an equitable lien.

               The district court concluded that Western World possessed an equitable lien on the

        proceeds from the Church Mutual policy. Accordingly, it ordered Church Mutual to pay

        Western World pursuant to the equitable lien. But because the district court did not

        consider any possible defenses Church Mutual may have had before ordering such

        payment, we vacate and remand for further proceedings.

                                                    I.

                                                    A.

                                         The Insurance Policies

               From 2012 to 2014, the Refuge leased the Property to Abundant Faith. Then, on

        March 13, 2014, Abundant Faith purchased the Property from the Refuge through a

        mortgage agreement with the Refuge listed as the mortgagee. The mortgage agreement

        included a clause that required Abundant Faith, as the mortgagor, to:

                      keep [the Property] insured from loss or damage in the
                      maximum insurable value and assign the policy of insurance to
                      the said Mortgagee, and in case the Mortgagor shall at any time
                      neglect or fail to maintain such insurance, the Mortgagee may
                      cause the same to be insured in his or its own name, and
                      reimburse himself or itself for the premium and expenses of
                      such insurance under this mortgage.

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        J.A. 26. 1

               However, Abundant Faith failed to maintain insurance on the Property. In 2016,

        Abundant Faith’s policy with Stillwater Insurance Company expired, and it did not renew

        the policy or procure new insurance. In response to this lapse, the Refuge purchased

        $500,000 of insurance coverage from Western World to protect its interest in the Property.

        The Refuge also informed Abundant Faith that it intended to begin foreclosure proceedings

        due to Abundant Faith’s nonpayment of the mortgage and failure to maintain insurance

        pursuant to the mortgage agreement.

               To avoid foreclosure, Abundant Faith contacted GuideOne and Church Mutual to

        purchase insurance for the Property. Abundant Faith purchased a $1,500,000 policy from

        GuideOne on June 22, 2016. The Refuge was listed on the GuideOne policy as Abundant

        Faith’s mortgagee. GuideOne does not dispute, nor has it ever disputed, the existence of

        this policy. Abundant Faith made payments on the GuideOne policy, and both parties

        behaved as though they were in an insurer-insured relationship.

               On July 6, 2016, Church Mutual also issued a $795,000 insurance policy for the

        Property to Abundant Faith. But Abundant Faith claimed that it did not intend to purchase

        a policy from Church Mutual and attempted to stop the policy from being issued.

        Therefore, Abundant Faith made no payments on the Church Mutual policy. In response

        to Abundant Faith’s attempt to disclaim the policy, Church Mutual advised Abundant Faith

               1
                   Citations to the J.A. refer to the Joint Appendix filed by the parties in this appeal.

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        that it was bound to purchase the policy because Church Mutual had already begun the

        underwriting process. Despite not making any premium payments on the Church Mutual

        policy, Abundant Faith took no affirmative steps to cancel it.

               When applying for the Church Mutual policy, it is unclear whether Abundant Faith

        represented that there were no mortgages on the Property. In any event, no mortgagee was

        listed on the policy. As such, at least on the face of the policy, Church Mutual was unaware

        of the Refuge’s interest in the Property when it entered into the insurance contract with

        Abundant Faith.

               Just weeks after these insurance policies were purchased, on July 24, 2016, the

        Property was destroyed in a fire. An investigation of the origin of the fire indicated that it

        was set intentionally. Shortly after the fire, Abundant Faith’s pastor was arrested for arson,

        but those charges were later dismissed, and the cause of the fire has never been fully

        litigated.

                                                     B.

                                             Insurance Claims

               On July 27, 2016, Abundant Faith informed Church Mutual that it did not intend to

        make a claim on the Church Mutual policy because it had other insurance, namely the

        GuideOne policy. Consistent with this representation, Abundant Faith filed a claim only

        on the GuideOne policy. Church Mutual nonetheless acted as though Abundant Faith had

        made a claim on the Church Mutual policy and began investigating the fire. For its part,

        the Refuge, which at this point was aware of the Church Mutual policy, asked Church

        Mutual to add the Refuge to the policy as the mortgagee, but Church Mutual did not do so.

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               On August 19, 2016, Western World contacted Church Mutual and GuideOne and

        asserted that its policy was excess to theirs. Therefore, according to Western World,

        Church Mutual and GuideOne owed the Refuge compensation on a pro-rata basis because

        their policies contained clauses entitling the mortgagee of the Property -- i.e. The Refuge -

        - to any insurance proceeds in the event of a loss. Thus, Western World made formal

        claims with GuideOne and Church Mutual for payment via the mortgagee clauses. Neither

        company paid the Refuge or Western World. As a result, on October 24, 2016, Western

        World paid the Refuge the entire sum of the Refuge’s interest in the Property, $282,968.36.

        In turn, the Refuge assigned its mortgage interest in the Property to Western World.

               Ultimately, on November 22, 2016, Church Mutual canceled its policy with

        Abundant Faith due to nonpayment of premiums and sent Abundant Faith a letter claiming

        the policy was “voided from its inception.” J.A. 132. Church Mutual also informed

        Abundant Faith that it would not conduct any further investigation into the loss.

               In February 2017, GuideOne denied payment on Abundant Faith’s policy because

        Abundant was not “actually operating as a church” and had made allegedly fraudulent

        statements to GuideOne regarding the church’s operations, the Church Mutual policy, and

        the cause of the loss. J.A. 135-6.

               At that point, only Western World had compensated the Refuge for the loss of the

        Property.

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                                                     C.

                                            Procedural History

               On May 25, 2017, GuideOne filed a declaratory judgment action in federal district

        court seeking a declaration that the GuideOne policy was excess insurance to the other

        policies and that it had no obligation to pay the Refuge because the Church Mutual and

        Western World policies provided sufficient primary coverage for the loss of the Property.

        In response, Church Mutual argued that it offered no coverage because the Refuge was not

        listed as a mortgagee on the Church Mutual policy, and further that its policy was void

        from its inception and not enforceable. Church Mutual also stated it was reserving defenses

        deriving from the policy itself, most notably the criminal-acts exclusion.

               For its part, Western World filed counterclaims and crossclaims seeking

        reimbursement from both GuideOne and Church Mutual for their pro-rata shares of the

        loss. Western World also brought a bad faith claim against GuideOne, asserting that

        GuideOne had unreasonably delayed making decisions on Western World’s claim, failed

        to evaluate the claim, relied on illegal policy provisions, and took other actions which

        Western World claimed were unjustifiable. GuideOne sought summary judgment on

        Western World’s bad faith claim, arguing that it was justified in delaying its decision until

        authorities could conclude their investigation into the fire and that there were reasonable

        grounds for contesting Western World’s claims.

               After considering competing motions for summary judgment from each party, the

        district court issued an order holding: (1) the GuideOne policy was not excess insurance to

        Western World’s policy; (2) the Church Mutual policy was enforceable; (3) Western

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        World’s policy was excess to the GuideOne and Church Mutual policies; (4) Western

        World possessed an equitable lien on the Church Mutual policy; and (5) GuideOne was not

        entitled to judgment as a matter of law on Western World’s bad faith claim asserted against

        it. Pursuant to this order, the district court directed GuideOne to pay Western World

        $183,942.43 and Church Mutual to pay Western World $99,045.93 given the equitable lien

        Western World possessed on the proceeds from the Church Mutual policy. Significantly,

        however, Church Mutual was not afforded the opportunity to raise any potential defenses

        before the district court ordered payment pursuant to the equitable lien.

               On January 22, 2020, the parties informed the district court of a settlement

        agreement between GuideOne and Western World. Pursuant to the settlement agreement,

        Western World assigned its mortgage interest in the Property to GuideOne. In turn,

        GuideOne paid its pro-rata share of the loss to Western World. But Western World

        specifically reserved its right to recover insurance proceeds from Church Mutual.

               Church Mutual then filed a motion pursuant to Rule 59(e) of the Federal Rules of

        Civil Procedure seeking to set aside the equitable lien. Church Mutual argued that the

        settlement agreement between GuideOne and Western World extinguished Western

        World’s interest in the Property as a mortgagee, and, therefore, Western World could not

        hold an equitable lien on the Church Mutual policy proceeds. The district court denied the

        Rule 59(e) motion because Western World specifically reserved the right to recover on the

        equitable lien from Church Mutual when it assigned its mortgage interest to GuideOne in

        the settlement agreement. In this order, the district court also formally dismissed the claims

        between Western World and GuideOne.

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               Church Mutual timely appealed. In this appeal, Church Mutual challenges the

        district court’s imposition of the equitable lien without giving it an opportunity to raise

        defenses to payment as well as the determination that the Western World policy was excess

        to the Church Mutual policy.

                                                      II.

               We review the district court’s grant of summary judgment de novo. East Coast

        Repair & Fabrication, LLC v. United States ex rel. Dep’t of the Navy, 16 F.4th 87, 90 (4th

        Cir. 2021). Summary judgment is appropriate if, construing the evidence in favor of the

        non-movant, there is no genuine dispute as to any material fact and the movant is entitled

        to judgment as a matter of law. Id. Federal jurisdiction in this case is premised on diversity,

        so the district court applied South Carolina substantive law. See Eshelman v. Puma

        Biotech. Inc., 2 F.4th 276, 281 (4th Cir. 2021). We review the district court’s analysis of

        state law de novo. See Sky Cable, LLC v. DirecTV, Inc., 886 F.3d 375, 385 (4th Cir. 2018).

                                                     III.

                                                      A.

        Western World Holds an Equitable Lien on the Proceeds from the Church Mutual Policy

                                                      1.

               South Carolina law provides, “if the mortgagor is bound by the mortgage to insure

        the mortgaged property, the mortgagee has an equitable lien on the insurance proceeds.”

        Knapp v. Victory Corp., 302 S.E.2d 330, 331 (S.C. 1983). The concept of an equitable lien

        originates from the maxim “equity regards as done what ought to be done,” which applies

        in cases where the party seeking equitable relief establishes “a clear obligation based upon

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        a valuable consideration that another do some act which he has failed to perform.” Regions

        Bank v. Wingard Properties, Inc., 715 S.E.2d 348, 354 (S.C. Ct. App. 2011).

               Here, “what ought to be done” can be found in the mortgage agreement between the

        Refuge and Abundant Faith which obligates Abundant Faith to (1) maintain insurance on

        the Property; and (2) assign the proceeds from any payment from that insurance to the

        Refuge as the mortgagee. It is clear from the record that Abundant Faith failed to fulfill

        either obligation. Indeed, there was a period of time during which Abundant Faith failed

        to maintain any insurance at all. And when it did obtain insurance, Abundant Faith failed

        to list the Refuge as the mortgagee on the Church Mutual policy. 2

                                                      2.

               At its core, Church Mutual’s argument against the equitable lien is that its insurance

        contract with Abundant Faith is not covered by the policy-proceeds assignment clause of

        the mortgage agreement. Church Mutual claims that because the proceeds assignment

        clause is satisfied by other insurance policies, and there was no mortgagee listed on its

        policy, it is not bound to pay the Refuge or its assignees as the mortgagee. In short, Church

        Mutual asserts that any policy-proceeds assignment issue is of no moment because the

        GuideOne and Western World insurance policies can cover the Refuge’s loss.

               2
                  Church Mutual asserts there is no policy. However, Church Mutual’s own actions,
        such as (1) referring to Abundant Faith’s “claim” related to the fire and (2) telling Abundant
        Faith that it had a policy, demonstrate that Church Mutual and Abundant Faith were, in
        fact, in an insurer-insured relationship.

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               Taken to its logical end, Church Mutual’s argument would allow insurance

        companies to avoid paying mortgagees if the mortgagee is not listed on the policy and

        another insurance company provides coverage. But this flies in the face of well-established

        South Carolina law regarding equitable liens, which ensures that the interests of

        mortgagees are protected. See Knapp 302 S.E.2d at 331 (holding that where a party is

        contractually bound to assign its insurance proceeds to its mortgagee, the mortgagee always

        possesses an equitable lien in the policy proceeds). Therefore, Church Mutual’s arguments

        are unavailing.

               Abundant Faith, as the mortgagor, had an obligation set forth in the mortgage

        agreement to maintain insurance on the Property and to assign the insurance proceeds to

        the Refuge as the mortgagee, in the event of a covered loss. The Refuge then assigned its

        mortgage interest to Western World in exchange for Western World paying the Refuge for

        the loss of the Property. At this point, Western World became entitled to any insurance

        proceeds from any policy that Abundant Faith held. In turn, when Western World settled

        with GuideOne, Western World relinquished its mortgagee interest in the Property to

        GuideOne. However, because Western World expressly reserved the right to be considered

        the mortgagee for the purpose of collecting the Church Mutual policy proceeds, Western

        World maintains its mortgagee status in that regard. Therefore, the district court correctly

        determined that Western World is the rightful holder of the equitable lien.

                                                     3.

               Church Mutual further attempts to avoid the equitable lien by arguing that the

        district court should not have invoked equity at all because the legal remedies in the case

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        were adequate. To support this argument, Church Mutual relies on the equitable maxim

        that “equity supplement[s] the law and does not displace it.” Wigfall v. Tideland Utilities

        Inc., 580 S.E.2d 100, 108 (S.C. 2003). Church Mutual argues that because Abundant Faith

        obtained a policy from GuideOne which was sufficient to cover the Refuge’s loss, the

        mortgagee’s interest is fully covered contractually and, therefore, equity has no place here.

               However, this argument misapprehends the issue. It is true that if there is a complete

        legal remedy in a case, courts should not apply an equitable remedy. See Wigfall 580

        S.E.2d at 108. In this case, though, equity is necessary in order to provide a complete

        remedy to the parties. Critically, what matters in this case is that the Refuge, and later its

        assignee, Western World, are ultimately paid the proper amount from each party -- a result

        that can only occur by imposing an equitable lien. The amount of the loss to the Refuge

        was $282,968.36. Western World paid this entire sum to the Refuge. But because the

        district court held the Western World policy was excess insurance, Western World was not

        obligated to pay the Refuge anything. 3 Accordingly, the district court ordered GuideOne

        to pay Western World $183,942.43 and Church Mutual to pay Western World $99,045.93. 4

               3
                 Church Mutual also challenges the finding that the Western World policy was
        excess insurance. We find no merit in this argument because the Western World and
        Church Mutual insurance policies protect different interests, with Western World’s
        protecting the mortgagee’s interest, and Church Mutual’s the mortgagor’s interest. The
        only “insured” seeking to collect in this case is the Refuge, and later its assignee Western
        World, and the only excess insurance clause that protects the interest of the insured is the
        one in the Western World policy. Therefore, the district court did not err in holding that
        the Western World policy was excess to the Church Mutual policy.
               4
                  These sums total $20 more than Western World paid the Refuge for the loss. The
        district court did not provide a reason for this discrepancy.

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               No mortgagee is named in the Church Mutual policy, and literally speaking, because

        the Refuge obtained the total amount owed to it via the Western World settlement, it would

        be simple to view the loss as settled. But when Western World became the mortgagee, it

        found itself in the unenviable position of covering a loss that the district court determined

        it did not owe. And given that no mortgagees appear in the Church Mutual policy, Western

        World cannot seek contractual reimbursement from Church Mutual via the policy.

        Therefore, Western World is left with only equitable remedies.

               As noted above, an equitable lien exists to ensure that the mortgagee’s interests are

        protected even if the original policy holder fails to include the mortgagee on its insurance

        policy. That is precisely the case here. As a result, we hold that Western World holds an

        equitable lien in the Church Mutual insurance policy proceeds.

                                                      B.

                    Church Mutual’s Potential Defenses, If Any, Must Be Considered

               Granting insurance proceeds to a party through an equitable lien involves a three-

        step process. First, the court must determine whether an equitable lien applies. See

        Farmers & Merch. Nat’l Bank of Lake City v. Moore, 133 S.E. 913, 918 (S.C. 1926).

        Second, the court must determine the extent of the equitable relief available, if any,

        considering the defenses the insurer would have against the original insured.              See

        Rosemond v. Campbell, 343 S.E.2d 641, 645 (S.C. Ct. App. 1986); Farmers & Merch.

        Nat’l Bank, 133 S.E. at 918. Finally, the court orders relief. The district court erred in this

        case by conducting only steps one and three of this process and failing to consider step two.

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               In determining how much relief to provide on an equitable lien, the court must first

        determine whether contractual language limits the amount of insurance proceeds available

        to the mortgagee. See Knapp, 302 S.E.2d at 331. Absent such a limitation between the

        parties, the mortgagee is generally entitled to receive the full amount of proceeds secured

        by the policy. See id. In situations where the mortgage agreement or another instrument

        limits the amount of insurance proceeds available to the mortgagee, however, relief is

        capped at that amount. See id. For example, in Knapp, the mortgage agreement stated that

        the property was to be insured up to $160,000. Id. The South Carolina Supreme Court held

        that this limitation restricted the amount to which the mortgagee was entitled through an

        equitable lien. See id. Therefore, the maximum amount available through an equitable

        lien is either set through a limitation in the mortgage agreement or is the entire amount of

        the insurance proceeds.

               Unlike the contract in Knapp, the mortgage agreement here does not limit the

        amount that the mortgagee is entitled to collect. In the case at hand, the mortgage

        agreement entitles the mortgagee to the entire amount of the insurance proceeds. This is

        because the mortgage agreement contains a simple assignment of all rights to proceeds by

        Abundant Faith to the mortgagee stating: “keep [the Property] insured from loss or damage

        in the maximum insurable value and assign the policy of insurance to the said Mortgagee”

        J.A. 26. Thus, any proceeds derived from an insurance policy held by Abundant Faith

        belong to the mortgagee. Still, that does not end the analysis.

               Pursuant to South Carolina law, an assignee enjoys the same rights as the assignor.

        See Rosemond, 343 S.E.2d at 645. As a result, “the assignee of a debt takes the obligation

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        subject to all claims and defenses the obligor may have against the assignor.” Id. In other

        words, the assignee steps into the shoes of the assignor, and the assignee’s right to proceeds

        rises or falls with the assignor’s rights. See Farmers & Merch. Nat’l Bank, 133 S.E. at 918

        (holding that in the insurance context, a party may only collect proceeds as if it were the

        party originally entitled to the proceeds).

               This means that Western World, acting as the assignee of the Church Mutual policy

        proceeds can only collect the Church Mutual policy proceeds to the extent that Abundant

        Faith could collect those proceeds itself. Further, Western World’s right to proceeds is

        subject to all defenses Church Mutual could raise to deny coverage to Abundant Faith.

        Therefore, to determine the amount of proceeds, if any, to which Western World is entitled

        through the equitable lien, the district court was required to first consider any possible

        defenses Church Mutual could have raised against Abundant Faith.

               Church Mutual preserved several defenses to paying the claim, including the

        criminal-acts exclusion in the policy, lack of meeting of the minds to create a valid

        insurance contract, lack of consideration, and mistake. Nonetheless, the district court held

        that the Church Mutual policy was enforceable, and in turn rejected the latter three

        defenses. Specifically, the district court held that the parties reached a meeting of the minds

        because Church Mutual “inform[ed] Abundant Faith it had pushed the button,” that is,

        begun the underwriting process, that no consideration was required because “the facts

        support a finding that Church mutual waived payment of a premium,” and that there was

        “no evidence that Abundant Faith induced any mistake on the part of Church Mutual.” J.A.

        557. However, the district court did not analyze whether Church Mutual had any legitimate

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        defenses to paying the policy beyond enforceability, most notably the arson defense, i.e.,

        the criminal-acts exclusion. We conclude this was error.

                                                   IV.

               The district court properly invoked an equitable lien in this case. However, it did

        not afford Church Mutual the opportunity to raise all defenses it could have raised against

        Abundant Faith before ordering payment pursuant to the equitable lien. This was error.

        Therefore, we vacate the judgment and remand to the district court for further proceedings.

                                                                   VACATED AND REMANDED

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