Court Opinion

ID: 1011160
Source: CourtListenerOpinion
Date Created: 2013-07-04 20:23:00.077637+00
Date Added: 2024-06-11T09:40:52.030513
License: Public Domain

Filed:   July 24, 2003

                   UNITED STATES COURT OF APPEALS

                       FOR THE FOURTH CIRCUIT

                          Nos. 00-2385(L)
                         (CA-98-1987-2-18)

Margaret Fabri,

                                                Plaintiff - Appellee,

          versus

The Hartford,

                                               Defendant - Appellant.

                             O R D E R

     The court amends its opinion filed July 11, 2003, as follows:

     On the cover sheet, section 4, line 3 -- Judge Norton’s name

is deleted, and is replaced by “Leonard D. Wexler, Senior District

Judge, sitting by designation.”

                                         For the Court - By Direction

                                         /s/ Patricia S. Connor
                                                  Clerk
                               UNPUBLISHED

               UNITED STATES COURT OF APPEALS

                     FOR THE FOURTH CIRCUIT
4444444444444444444444444444444444444444444444447
MARGARET FABRI,
     Plaintiff-Appellee,

      v.                                                   No. 00-2385

THE HARTFORD,
     Defendant-Appellant.
4444444444444444444444444444444444444444444444448
4444444444444444444444444444444444444444444444447
MARGARET FABRI,
     Plaintiff-Appellant,

      v.                                                   No. 02-1810

THE HARTFORD,
     Defendant-Appellee.
4444444444444444444444444444444444444444444444448

             Appeals from the United States District Court
            for the District of South Carolina, at Charleston.
           Leonard D. Wexler, SeniorDistrict Judge,
                    sitting by designation.
                           (CA-98-1987-2-18)

                          Argued: June 5, 2003

                         Decided: July 11, 2003

  Before WILKINS, Chief Judge, WIDENER, Circuit Judge, and
Robert R. BEEZER, Senior Circuit Judge of the United States
   Court of Appeals for the Ninth Circuit, sitting by designation.

____________________________________________________________

Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.

____________________________________________________________
                              COUNSEL

ARGUED: Edward Kriegsmann Pritchard, III, THE PRITCHARD
LAW FIRM, INC., Charleston, South Carolina, for Appellant. George
J. Kefalos, GEORGE J. KEFALOS, P.A., Charleston, South Carolina,
for Appellee.

____________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

____________________________________________________________

                               OPINION

PER CURIAM:

   The Hartford appeals a district court order denying its motion for
judgment as a matter of law on Margaret Fabri's claim that it
breached its duty to defend her under a liability insurance policy.
Fabri cross-appeals an order granting The Hartford's motion for judg-
ment as a matter of law on her bad faith claim arising out of the same
refusal to defend. She also cross-appeals an order denying her motion
for a new trial on damages. We affirm in part, reverse in part, and
remand.

                                   I.

   Fabri is an attorney who ran unsuccessfully for a seat on the
Charleston, South Carolina, City Council. Following the election, her
opponent, G. Robert George, and his business, G. Robert George &
Associates, Inc., sued Fabri for defamation, trade disparagement, and
intentional infliction of emotional distress based on the allegation that
Fabri had published false statements about the plaintiffs during the
campaign ("the George suit").

    Fabri requested that The Hartford defend the suit pursuant to a lia-
bility insurance policy that The Hartford had issued her ("the policy").
Fabri asserted that she was entitled to a defense under the policy by

                                   2
virtue of her status as an employee or volunteer of her campaign orga-
nization, Citizens for Margaret Fabri (Citizens). The Hartford refused
to defend Fabri in the George suit, and Fabri eventually hired counsel
herself and successfully defended the suit.

   In May 1998, Fabri sued The Hartford, alleging that it breached its
duty to defend her in the George suit ("the breach of duty claim") and
that it acted in bad faith and without reasonable basis in so doing ("the
bad faith claim"). Her complaint requested actual, consequential, and
punitive damages, as well as attorneys' fees and costs. At trial, at the
close of The Hartford's case, the district court denied a motion by The
Hartford for judgment as a matter of law on the breach of duty claim,
but granted the same motion on the bad faith claim on the basis of the
insufficiency of Fabri's evidence. The jury then found for Fabri on
her breach of duty claim and awarded her $75,000. The district court
subsequently denied The Hartford's renewed motion for judgment as
a matter of law and also denied Fabri's motion for a new trial on the
issue of damages.

                                  II.

    The Hartford first contends that the district court erred in denying
its motion for judgment as a matter of law on the breach of duty
claim. In a related argument, Fabri maintains in her cross-appeal that
the district court erred in granting judgment as a matter of law against
her on the bad faith claim. We conclude that the district court prop-
erly denied judgment as a matter of law to The Hartford on the breach
of duty claim, but that it also should have denied the motion as to the
bad faith claim.

    We review the grant or denial of judgment as a matter of law de
novo. See Konkel v. Bob Evans Farms Inc., 165 F.3d 275, 279 (4th
Cir. 1999). In so doing, we must view the evidence in the light most
favorable to the non-moving party and draw all reasonable inferences
in that party's favor. See Sales v. Grant, 158 F.3d 768, 775 (4th Cir.
1998). We must determine "whether the evidence, viewed in the light
most favorable to [Fabri], would have permitted a jury reasonably to
return a verdict in [her] favor." Id. Judgment as a matter of law is
appropriate if "there can be but one reasonable conclusion as to the
verdict," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986);

                                   3
if reasonable minds could differ, the motion should be denied, see id.
at 250-51.

   The parties agree that South Carolina law controls the substantive
issues in this diversity case. Under South Carolina law, a duty to
defend arises on the part of a liability insurer if a complaint against
an insured "creates a possibility of coverage under [the] insurance
policy." Isle of Palms Pest Control Co. v. Monticello Ins. Co., 459
S.E.2d 318, 319 (S.C. Ct. App. 1994). In interpreting the scope of
insurance coverage, ambiguous terms in a policy are construed
against the insurer. See Diamond State Ins. Co. v. Homestead Indus.,
456 S.E.2d 912, 915 (S.C. 1995).

    Additionally, an insurer can be liable for consequential damages as
the result of a bad faith or unreasonable refusal to award benefits. See
Nichols v. State Farm Mut. Auto. Ins. Co., 306 S.E.2d 616, 619 (S.C.
1983).1 To establish such a claim, a plaintiff must prove that "there
was no reasonable basis to support the decision of the insurance com-
pany." Varnadore v. Nationwide Mut. Ins. Co., 345 S.E.2d 711, 713-
14 (S.C. 1986) (internal quotation marks omitted). When there is con-
flicting evidence concerning the existence of a reasonable basis for
denial of a claim, the issue is generally one for the jury. See State
Farm Fire & Cas. Co. v. Barton, 897 F.2d 729, 731 (4th Cir. 1990)
(applying South Carolina law).

    Because the dispute here centers on the question of whether Fabri
was an insured under the policy with regard to statements she made
as a volunteer or employee of Citizens, we begin our analysis by
reviewing the policy language relevant to that question. The policy
states that "you" and "your" refer to "the Named Insured shown in the
Declarations." J.A. 400 (internal quotation marks omitted). The policy
declarations list Fabri as a named insured. The policy further states,
with some exceptions not applicable here, that "[a]ny organization
you newly acquire or form" also "will qualify as a Named Insured"
for 180 days from the date the organization is acquired or formed. Id.
at 427. Again with certain exceptions not applicable here, the policy
also provides that "[y]our `employees'" are insureds. Id. at 425.
____________________________________________________________
   1
     If the plaintiff can prove the insurer acted wilfully or recklessly, she
can also recover punitive damages. See id.

                                    4
Finally, "[a]ny person(s) who are volunteer worker(s) for you . . .
while acting at the direction of, and within the scope of their duties
for you" are additional insureds under the policy. Id. at 427.

    The district court determined that there was sufficient evidence for
a jury to reasonably conclude that Citizens qualified as a newly
formed organization and therefore was a "named insured" under the
policy. Although it was Fabri and not Citizens that was sued, the court
ruled that the jury could have reasonably found that Fabri was entitled
to coverage as an employee or volunteer of a named insured—
Citizens. With regard to the bad faith claim, the holding of the district
court that Fabri's evidence was insufficient appears to rest on the tes-
timony of Fabri's own expert that he "underst [oo]d" The Hartford's
rationale for refusing to defend Fabri.2 Id. at 233.

    The Hartford does not contend that the complaint in the George
suit ("the George complaint") foreclosed the possibility that Fabri
would be found liable for statements she made as an employee or vol-
unteer of Citizens. Nor does The Hartford argue that the George com-
plaint excluded the possibility that Citizens was "newly . . . form[ed]"
at the relevant time. The Hartford does advance several other argu-
ments, however, that it was not obliged to defend Fabri, and that a
fortiori it had a reasonable basis for refusing to provide a defense. We
will address these arguments seriatim.

   The Hartford first contends that Citizens did not constitute an "or-
ganization" as the term is used in the policy. The policy does not
define "organization," but the ordinary meaning of the word in this
context is "[a] number of individuals systematically united for some
end or work." Funk & Wagnalls Standard Dictionary 556 (1980); see
Fritz-Pontiac-Cadillac-Buick v. Goforth, 440 S.E.2d 367, 369 (S.C.
1994) (stating that insurance policy language is to be given its plain
meaning). The Hartford points to nothing in the George complaint, or
anything else in the record, that would lead to the conclusion that Cit-
izens did not fit this definition. Indeed, Fabri testified that Citizens
____________________________________________________________
    2
      The district court was not clear regarding its reasons for granting The
Hartford's motion on the bad faith claim. However, the court told Fabri's
counsel that "[i]f you reread your own expert's testimony, there's no bad
faith." Id. at 281.

                                   5
had a treasurer, a campaign manager, and a consultant, and that to
maintain the organization, she was required to make several filings
with the government and open a separate bank account.

    The Hartford also argues that because the pertinent sections of the
policy are included in a form titled "Business Liability Coverage
Form," J.A. 416, "organization" refers only to business organizations.
Because "organization" is not defined in the policy, however, it must
be given its plain meaning, which includes all types of organizations,
not just business organizations. And, when the language of a policy
clause has a clear meaning, the caption of the policy may not be used
to compel a different construction. See Provident Life & Accident Ins.
Co. v. Anderson, 166 F.2d 492, 495 (4th Cir. 1948) (applying South
Carolina law). Thus, nothing in the George complaint or elsewhere
demonstrated that Citizens was not an organization—and thus, a
named insured—under the policy. And, a jury could reasonably find
that The Hartford lacked a reasonable basis for asserting otherwise.

    The Hartford further contends that even if Citizens is a named
insured by virtue of being a newly formed organization, and even
though the policy states that "[y]our `employees'" and "volunteer
worker(s) for you" are insured, Citizen's employees and volunteers
could not have been insureds because "you" and "your" in the policy
refer only to "Named Insured shown in the Declarations." J.A. 400
(emphasis added). The Hartford correctly notes that the only named
insured listed in the declarations is Fabri, and that Citizens is not
listed in the declarations. The Hartford essentially argues that reading
"you" and "your" to refer to named insureds not shown in the declara-
tions makes surplusage of "shown in the Declarations." See Burch v.
S.C. Cotton Growers' Co-Op. Ass'n, 187 S.E. 422, 424 (S.C. 1936)
(per curiam) ("A contract should be construed so as to give, if possi-
ble, full force and effect to every part of it."); L-J, Inc. v. Bituminous
Fire & Marine Ins. Co., 567 S.E.2d 489, 492 (S.C. Ct. App. 2002)
(stating that insurance policies are interpreted according to general
rules of contract construction).

   Although The Hartford may be correct that this interpretation
makes surplusage of "shown in the Declarations," the contrary inter-
pretation would make surplusage of "Named" in the subsection pro-
viding that a newly formed organization is a "Named Insured" for 180

                                    6
days after the organization is formed. The Hartford's interpretation
would also produce the anomalous result that although the volunteers
working for the named insured shown in the declarations are insured,
and an organization newly formed by the named insured shown in the
declarations receives temporary coverage, volunteers of the newly
formed organization would receive no coverage whatsoever. For both
of these reasons, we conclude that the policy can reasonably be read
to mean that when an entity is a named insured—as a newly formed
organization is—it is treated as if it were listed in the declarations as
a named insured. And, a reasonable jury could conclude that no rea-
sonable insurer would fail to understand that the policy was at least
ambiguous on this point.

     The Hartford next contends that Fabri could not have been an
insured by virtue of her status as a volunteer or employee of Citizens
because the policy states under Section C, "WHO IS AN INSURED,"
subsection (1), that "[i]f you are designated in the Declarations as
. . . [a]n individual, you and your spouse are insureds, but only with
respect to the conduct of a business of which you are the sole owner."
J.A. 425 (second emphasis added). Because Fabri was designated in
the declarations as an individual, and because Citizens was not a busi-
ness, The Hartford argues that Fabri could not be an insured under
any subsection of the policy. We do not read that language to require
that result, however. Rather, we believe the language is most reason-
ably read as limiting only Fabri's coverage as an insured under that
subsection but not foreclosing the possibility that Fabri could be an
insured by virtue of subsection (C)(2), under which she claims cover-
age. If The Hartford had wanted the language in subsection (C)(1) to
serve as a limitation on coverage provided not only in that subsection,
but also in other parts of the policy, it could have identified it as an
exclusion instead of including it with other general coverage provi-
sions. See 2 Couch on Insurance § 22:31 (3d ed. 2003) (stating that
"[a]n exclusion should . . . be . . . prominently placed and . . . clearly
phrased"). The Hartford not having done so, we conclude that a jury
could reasonably find that this language did not serve as an appropri-
ate basis for The Hartford's refusal to defend Fabri, and that it did not
even constitute a reasonable basis for the refusal to defend.

   Finally, The Hartford maintains that Fabri could not have been an
insured in her capacity as an employee or volunteer of Citizens

                                   7
because Citizens was not named as a defendant in the George suit.
That Citizens was not named as a defendant is irrelevant, however, as
the district court correctly concluded that Fabri herself was an insured
by virtue of her status as an employee or volunteer of Citizens. Thus,
a reasonable factfinder could conclude this was not a reasonable basis
justifying The Hartford's refusal to defend.

   For all these reasons, we conclude that a jury could have reason-
ably found that the George complaint left open the possibility that
The Hartford would be required to indemnify Fabri for liability aris-
ing out of the George suit and that The Hartford had no reasonable
basis for taking a contrary position. We therefore affirm the denial of
The Hartford's motion for judgment as a matter of law on the breach
of duty claim and reverse the grant of The Hartford's motion for judg-
ment as a matter of law on the bad faith claim.3

                                  III.

   Fabri also argues on cross-appeal that the district court erred in
denying her motion for a new trial on the issue of damages. We dis-
agree.

   We review for abuse of discretion a decision by the district court
regarding whether to grant a motion for partial new trial. See Atlas
Food Sys. & Servs., Inc. v. Crane Nat'l Vendors, Inc., 99 F.3d 587,
599 (4th Cir. 1996). When it appears that the verdict was the result
of a compromise between liability and damages, a new trial on dam-
ages is not appropriate. See id.

   Here, Fabri's attorney testified as to the reasonableness of her
defense and the cost, $147,524.45. The sole damages issue that The
Hartford contested was the reasonableness of Fabri's counsel's $250
____________________________________________________________
    3
      We note that the district court appeared to base its decision on the bad
faith claim on the fact that Fabri's expert testified that he "underst[oo]d"
The Hartford's position. J.A. 233. However, the fact that the expert
understood The Hartford's position does not mean that he found it to be
reasonable. We therefore believe that nothing in the expert's testimony
would have precluded a finding by the jury that there was no reasonable
basis for The Hartford's refusal to defend.

                                   8
hourly rate. The Hartford asserted that the reasonable cost of Fabri's
defense was approximately $103,000. The jury, however, awarded
only $75,000.

   Under these circumstances, the jury verdict appears to have been
a compromise between a finding for The Hartford and a finding for
Fabri for nearly $150,000. Alternatively, the jury may simply have
discredited both parties' positions regarding the amount of a reason-
able fee and independently determined that $75,000 was a reasonable
amount.4 Thus, the district court did not abuse its discretion in deny-
ing Fabri's motion for a new trial on damages.

                                 IV.

   For the foregoing reasons, we affirm the denial of The Hartford's
motion for judgment as a matter of law on the breach of duty claim.
We also affirm the denial of Fabri's motion for a new trial on dam-
ages. However, we reverse the grant of The Hartford's motion for
judgment as a matter of law on the bad faith claim and remand to the
district court for resolution of this claim.

    AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
____________________________________________________________
   4
     The jury was instructed that damages would be the amount of the rea-
sonable cost of Fabri's defense. It was not instructed that such cost could
be no less than the amount that The Hartford advocated.

                                  9