Myrick v. Prime Insurance ( 2005 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JIMMY MYRICK, 
Plaintiff-Appellee,
v.
 No. 00-1726
PRIME INSURANCE SYNDICATE,
INCORPORATED,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Aiken.
Cameron McGowan Currie, District Judge.
(CA-98-3688-1-22)
Argued: February 28, 2001
Decided: January 26, 2005
Before WIDENER, NIEMEYER, and LUTTIG, Circuit Judges.
Affirmed in part, reversed in part, and remanded with instructions by
published opinion. Judge Widener wrote the opinion, in which Judge
Luttig concurred. Judge Niemeyer wrote a dissenting opinion.
COUNSEL
ARGUED: Thornwell Forrest Sowell, III, SOWELL, GRAY, STEPP
& LAFFITTE, L.L.C., Columbia, South Carolina, for Appellant. John
Frank Hardaway, Columbia, South Carolina, for Appellee. ON
BRIEF: Allen Jackson Barnes, SOWELL, GRAY, STEPP & LAF-
FITTE, L.L.C., Columbia, South Carolina; Scott Seelhoff, HOWELL,
2 MYRICK v. PRIME INSURANCE SYNDICATE
GIBSON and HUGHES, Beaufort, South Carolina, for Appellant.
Robert A. Muckenfuss, MCNAIR LAW FIRM, P.A., Columbia,
South Carolina, for Appellee.
OPINION
WIDENER, Circuit Judge:
Prime Insurance Company (Prime) appeals the district court’s
refusal to grant its motion for judgment as a matter of law, renewed
motion for judgment as a matter of law, and relief under Rules 59 and
60 of the Federal Rules of Civil Procedure following a jury verdict
in Jimmy Myrick’s (Myrick) favor for breach of contract and a bad
faith cause of action under South Carolina law. It also appeals jury
consideration of the district court’s grant of sanctions, attorney’s fees,
and prejudgment interest. For the reasons that follow, we affirm in
part and reverse in part the decisions of the district court and remand
the case for proceedings not inconsistent with this opinion. Because
we decide on the merits all necessary points raised, we do not address
Rules 59 and 60.
I.
In May 1998, Jimmy Myrick and Donald Brandt planned to start
a logging business with each other. Entry into the logging business
requires three pieces of equipment: a fellerbuncher, a skidder, and a
loader.1 Brandt already owned a skidder (Model Franklin 170) and a
fellerbuncher (Model 311C Hydro-Ax). Myrick bought a loader
(Hood Model 2400) in June 1998 in anticipation of this venture.
Greg Matthews (Matthews), a local insurance agent for American
Interstate Insurance Company (American Interstate), helped set up
general liability and workers’ compensation insurance for the new
business, but American Interstate did not write the required kind of
1
A fellerbuncher saws or "fells" trees and gathers the logs into
bunches. A skidder hauls trees out of the woods. A loader loads them
onto a truck.
MYRICK v. PRIME INSURANCE SYNDICATE 3
property and casualty insurance; Matthews therefore contacted John-
son Insurance Associates (Johnson Insurance) to place this coverage.
Johnson Insurance, in turn, contacted MGA Insurance Company,
which issued the insurance effective June 28, 1998. Soon after,
Myrick and Brandt decided to abandon the venture, and they canceled
this insurance without penalty. The three pieces of equipment insured
were the Franklin skidder, the Hood loader, and the Hydro-Ax feller-
buncher.
Myrick subsequently, later in the summer of 1998, decided to enter
business on his own, and he called his new business Palmetto Timber
Products. Because he already owned a loader, he only needed to
acquire a fellerbuncher and a skidder for his business. Myrick bought
a used Model Barko 775 fellerbuncher on July 30, 1998 for $42,000
and spent $8000-$9000 to repair the engine to place it in service. He
also acquired a Model Timberjack 450A skidder in August 1998.
Myrick hired Caroline Harper Rivers as Palmetto’s secretary. He then
called Matthews to arrange insurance on his three pieces of equip-
ment.
Matthews again indicated he could not write the insurance; he
would have to refer the insurance request to Johnson Insurance.
Myrick told Matthews the three pieces of equipment to insure and that
his secretary, Mrs. Rivers, would give him the required serial num-
bers. Matthews stated that he would provide the pertinent information
to Johnson Insurance, including the serial numbers for the three
pieces of equipment. Conflicting stories emerged at trial regarding
which serial numbers were relayed to Matthews. Mrs. Rivers testified
that she telephoned Matthews the following serial numbers:
17109 — Barko 775 (fellerbuncher)
355147 — Timberjack 450A (skidder)
243399 — Hood 2400 (loader)
Matthews testified that Mrs. Rivers may have telephoned only the
addition of a new skidder, and also that he was uncertain whether it
was Myrick who called him, or Myrick’s secretary, Mrs. Rivers.
A fax dated June 25, 1998 from Myrick to Matthews was produced
at trial. The document originally was sent by Myrick to Matthews
4 MYRICK v. PRIME INSURANCE SYNDICATE
regarding insurance for equipment of the abandoned joint venture.
Handwritten notations by Matthews replace the skidder from the
Franklin 170 Model to the Timberjack 450A model. No notations
regarding the loader and fellerbuncher were made. On September 2,
1998, Matthews relayed Myrick’s request for insurance and for-
warded the fax with his notations to Johnson Insurance.
Woodrow Wilson Power, Jr. (Power), a producer2 for Johnson
Insurance, filled out an application for coverage from Prime on a sched-
uled,3 inland marine4 insurance policy with the information he
received from Matthews. The application for insurance scheduled the
following items:
355147 — Timberjack 450A (skidder)
311C2377 — Hydro-Ax 311C (fellerbuncher)
243399 — Hood 2400 (loader)
This application listed Brandt’s Hydro-Ax fellerbuncher—the one
Brandt owned for purposes of the abandoned joint venture. Myrick
did not own this fellerbuncher. He never saw the completed applica-
tion. Neither party disputes that the effective date of the policy of
insurance was September 2, 1998 for the listed equipment.
2
A producer is the person who processes insurance applications.
3
A scheduled policy only insures items specifically described and for
the listed values.
4
"Inland marine" is a broad category of insurance that encompasses a
range of specific risks. One treatise states:
It is generally acknowledged to have originated in inland ship-
ping, covering the risks of navigation on lakes, rivers, and
canals. In the early part of the twentieth century, the term was
expanded to include risks of transportation on land (including
such transportation-related structures as bridges), and now
encompasses "transportation" in the form of electronic or similar
communication. The addition of special policies adapted to a
wide variety of particular risks, many of which are in the form
of floaters, renders this classification so broad that it is impossi-
ble to define the term with exactness.
Couch on Insurance, § 130 (3d ed. 1997).
MYRICK v. PRIME INSURANCE SYNDICATE 5
On September 16, 1998, Myrick’s Barko 775 fellerbuncher was
destroyed by fire prior to his receipt of any verification information
regarding the insurance. Myrick called Matthews that day to tell him
of the loss.
On September 17, 1998, Prime learned of the loss, and Myrick
received a letter from Johnson Insurance requesting premium pay-
ments and attaching certificates of insurance. Conflicting stories
emerged regarding which certificates of insurance were included.
Myrick stated that certificates were included only for the loader and
the skidder. Mrs. Waller, of Johnson Insurance, stated that her file
indicated that three certificates had been sent out on September 11,
1998—including one for a Hydro-Ax fellerbuncher.
On September 18, 1998, Power called Prime and indicated in a
voice mail to Rick Lindsey, Prime’s President, that the destroyed fel-
lerbuncher was not the scheduled fellerbuncher.5 Prime then sent
Mitchell Bazen (Bazen), an independent adjuster, to investigate the
claim. Bazen concluded that the fellerbuncher destroyed by the fire
was not scheduled in the policy.
On September 21, 1998, Myrick paid his premium. On September
28, 1998, Lewis Hansen (Hansen), claims manager for Prime, wrote
to Myrick denying coverage for the Barko 775 fellerbuncher. Hansen
stated that an insurance contract existed between the parties,6 but that
the insurance policy listed a 1985 Hydro-Ax 311C fellerbuncher
instead of a 1989 Barko 775 fellerbuncher.
On October 6, 1998, Myrick received an insurance certificate for
a Hydro-Ax fellerbuncher, with Brandt, a loss payee. Myrick subse-
quently scheduled a 1989 Hydro-Ax 511B fellerbuncher effective on
October 29, 1998, and the premium increased.7
5
In the message, Power stated, "On that claim we sent yesterday I think
we may be out of that thing because when he called me with details of
that piece of equipment, we don’t insure nor have we ever insured . . . ."
6
At trial, Prime also conceded that an insurance contract did exist, but
that the destroyed fellerbuncher was not a scheduled item.
7
This Hydro-Ax model was not the piece of equipment that Brandt
owned.
6 MYRICK v. PRIME INSURANCE SYNDICATE
After the denial of the claim, Myrick complained to the South Car-
olina Department of Insurance about Prime’s failure to investigate the
claim, explaining that he had no interest in the fellerbuncher listed in
the policy. South Carolina forwarded the letter to Prime, and Prime
responded to the letter. South Carolina subsequently wrote to Myrick
indicating that it was taking no further action.
On December 11, 1998, Myrick filed a two-count complaint in
South Carolina state court alleging breach of contract and bad faith.
Prime removed8 the action to the district court, answered the com-
plaint, and filed a counterclaim for a declaratory judgment regarding
its non-liability under the policy because the destroyed fellerbuncher
was not scheduled on the policy.
During discovery, Prime did not produce its complete underwriting
and claims file to Myrick. The request for the file was the subject of
a Motion to Compel filed by Myrick on April 5, 1999. Prime pro-
duced a part of the files, but during a subsequent deposition, Myrick
discovered that a tape recording, and electronic information had not
been produced. The tape had not yet been transcribed, and thus was
not part of the file initially. Additionally, the other information was
housed on the hard-drive of a computer, and Prime stated that it inad-
vertently forgot to print the information out. Before trial, and upon a
motion for sanctions, the district court imposed sanctions and allowed
Myrick to question Prime’s witnesses before the jury regarding the
failure to disclose the documents immediately.
On July 19, Prime moved for summary judgment because Myrick’s
Barko 775 fellerbuncher was not scheduled under the policy. Prime’s
motion was denied, and the matter was tried on February 10 and 11,
2000. At the close of the plaintiff’s case, Prime moved for judgment
as a matter of law. The court denied the motion. The jury returned a
verdict in favor of the plaintiff for breach of contract and awarded
$50,000 in damages. It also found in favor of the plaintiff on the
cause of action for bad faith and awarded $250,000 in punitive dam-
ages.
8
Prime removed pursuant to 28 U.S.C. § 1441 as is permissible
because federal jurisdiction was established by the parties’ diversity of
citizenship.
MYRICK v. PRIME INSURANCE SYNDICATE 7
The district court entered judgment on the jury’s verdict, and Prime
moved for a new trial or judgment as a matter of law on February 18,
2000. On April 5, 2000, the district court denied the motion. The dis-
trict court granted Myrick’s unopposed motion for prejudgment inter-
est and attorney’s fees. The district court calculated interest on the
$50,000 judgment from September 16, 1998 to February 14, 2000 at
an interest rate of 8.75% per year, a total of $6,114.90. The attorney’s
fees and costs added an additional $21,487.16 to the verdicts.
Prime subsequently moved the district court for an order, pursuant
to Rules 59 and 60 to alter or amend the court’s April 5 order. A hear-
ing was held on May 16, 2000, and the court denied Rule 59 and 60
motions. The court then entered a second amended judgment on May
16, 2000, which reaffirmed the jury verdict for actual and punitive
damages, prejudgment interest and attorneys’ fees. Prime timely
appealed from this order.
II.
We exercise jurisdiction pursuant to 28 U.S.C. § 1291. We review
a district court’s denial of a motion for judgment as a matter of law
and renewed motion for judgment as a matter of law de novo. See
Bank of Montreal v. Signet Bank, 193 F.3d 818, 826 (4th Cir. 1999).
If a reasonable jury could reach only one conclusion based on the evi-
dence or if the verdict in favor of the non-moving party would neces-
sarily be based upon speculation and conjecture, judgment as a matter
of law must be entered. See Crinkley v. Holiday Inns, Inc., 844 F.2d
156, 160 (4th Cir. 1988). If the evidence as a whole is susceptible of
more than one reasonable inference, a jury issue is created and a
motion for judgment as a matter of law should be denied. See Hofherr
v. Dart Indus. Inc., 853 F.2d 259, 261-62 (4th Cir. 1988). In making
this determination, we review the evidence in the light most favorable
to the nonmoving party. See Hofherr, 853 F.2d at 261-62.
A. Breach of Contract
We first address whether the district court erred in denying Prime’s
motion for judgment as a matter of law and renewed motion for judg-
ment as a matter of law on Myrick’s breach of contract claim. The
only instructions given to the jury with respect to the breach of con-
8 MYRICK v. PRIME INSURANCE SYNDICATE
tract count and as to the agency relation of the various people con-
nected with this claim were in the special verdict form and
instructions appearing below, to which objection was not and is not
made:
1. As to the claim for breach of contract, we, the jury,
unanimously find:
for the defendant
for the plaintiff9
9
The completed special verdict form follows:
1. As to the claim for breach of contract, we, the jury, unanimously
find:
for the defendant
X for the plaintiff
If you found for the defendant, sign and date the verdict form now. If
you found for the plaintiff, go to question 2.
2. As to the claim for breach of contract, we, the jury, award
actual damages in the amount of Fifty Thousand and No/100-------------
-------(50,000.00).
If you awarded actual damages to the plaintiff, go to question 3.
3. As to the claim for bad faith, we, the jury, unanimously find:
for the defendant
X for the plaintiff
If you found for the defendant, sign and date the verdict form now. If
you found for the plaintiff, go to question 4.
4. As to claim for bad faith, we, the jury, unanimously find, by clear
and convincing evidence, that the plaintiff is entitled to punitive dam-
ages.
No
X Yes
If you answered "No" sign and date the verdict form now. If you
answered "Yes" go to question 5.
MYRICK v. PRIME INSURANCE SYNDICATE 9
And as to the breach of contract claim and agency, the court
instructed the jury:
I will now instruct you on the rules of law that apply in
this case. Plaintiff has two claims or causes of action. The
first claim is for breach of contract. In order for the plaintiff
to recover under a breach of contract theory the plaintiff
must establish three essential elements by the greater weight
or preponderance of the evidence.
One, that the parties entered into a binding insurance con-
tract under which the defendant in return for the plaintiff’s
timely payment of insurance premiums agreed to provide
insurance for the plaintiff. Two, that the defendant breached
or unjustifiably failed to perform under the insurance con-
tract. And three, that the plaintiff suffered damage as a
direct and proximate result of the breach.
An insurance broker is primarily the agent of the person
first employing him, and where the broker is employed to
procure insurance, he is the agent of the insured. However,
whether the broker represents the insured or the insurer
depends upon the facts of each case.
The fact that a broker may receive a commission from the
insurer for placing insurance does not change his character
as agent of the insured when he is employed by the insured.
Moreover, a broker acting solely on behalf of the insured
has no authority to bind the insurer. An insurance agent who
is an agent of the insured can be converted into an agent of
5. As to the claim for bad faith, we, the jury, unanimously award
punitive damages in the amount of two hundred fifty thousand and
no/100- ($250,000.00).
Charles S. Smith
Foreperson
Aiken, South Carolina
February 11, 2000
10 MYRICK v. PRIME INSURANCE SYNDICATE
the insurer where there is evidence which creates an infer-
ence that the broker was acting at the instance or request of
the insurer.
A party asserting agency as a basis of liability must prove
the existence of the agency by the greater weight of the evi-
dence, and the agency must be clearly established by the
facts. The test to determine agency is whether the purported
principal has the right to control the conduct of his alleged
agent.
Agency may not be established solely by declarations and
conduct of the alleged agent, but such declarations and con-
duct are evidence which you may consider in connection
with other evidence that may establish the alleged agency.
Agency may be proved by circumstantial evidence showing
a course of dealing between the parties.
The authorized acts of an agent are by their nature the
acts of the principal. By operation of law an agent’s exercise
of authority is regarded as the execution of the principal’s
continuing will. An agent conducting business with the
authority of the principal binds the principal to the same
extent as if the principal personally made the transaction.
The principal would be directly liable to the third party on
the transaction. In other words, the law considers that what
a person does through his agent he has done himself.
A principal may be liable to third persons for fraud,
deceit, concealment, misrepresentation, negligence and
other malfeasance and omissions of duty of the agent acting
within the scope of the agency although the principal did not
authorize, participate in or know of such misconduct.
The relationship of agency need not depend upon express
appointment by the alleged principal and acceptance by the
purported agent. Agency may be implied from the words
and conduct of the parties and the circumstances of the par-
ticular case.
MYRICK v. PRIME INSURANCE SYNDICATE 11
The facts of this case establish that Myrick sought insurance for a
fellerbuncher and that Prime intended to insure a fellerbuncher owned
by Myrick. The facts further show that, during the relevant time
period, Myrick only had an interest in one fellerbuncher—namely, a
Barko 775 Model. In its answer and at trial, Prime admitted that a pol-
icy for insurance existed between Prime and Myrick. There was also
no dispute that this policy of insurance covered a loader, a skidder,
and a fellerbuncher for Myrick’s company. It was also undisputed that
the fellerbuncher named in the policy was Brandt’s Hydro-Ax Model
and not the Barko 775 Model that Myrick owned. Because Prime con-
ceded that a policy for insurance existed between the parties, this case
hinged on whether the erroneous description10 of the fellerbuncher
was material to the risk involved in this scheduled policy.11
Under South Carolina law, an erroneous description of property in
an application for property insurance may avoid coverage when the
erroneous description is material to the risk. See Hinson v. Catawaba
Ins. Co., 78 S.E.2d 235, 236 (S.C. 1953) (holding that premium rate
one-third less than what would have been charged if address had been
correct was material to risk and barred formation of a contract
because the minds of the parties did not meet). The question of mate-
riality is for the jury to decide unless the record conclusively estab-
10
We characterize what occurred in this case as a misdescription
because the record reveals that Myrick owned only one fellerbuncher.
This fact makes the schedule description in this case no different than a
situation in which the wrong model year was listed because there can be
no confusion as to which piece of equipment is referred to in the
schedule—i.e., Myrick’s only piece of equipment. That we happen to
know that the listed equipment actually refers to another identifiable
piece of equipment does not alter this characterization.
11
Because we address the motion for judgment as a matter of law based
on the existence of the written policy, we need not address the agency
questions bound up in the issue of whether an oral contract existed
between the parties. We also note that the jury was not charged on mate-
riality, and neither party requested the court to instruct on it. In a discus-
sion regarding the subject, the court stated that the case was "just going
to have to come down to whether the jury believes that there was a sig-
nificant enough variance to warrant the decision to deny coverage." The
jury returned a special verdict form that stated there was a contract that
was breached.
12 MYRICK v. PRIME INSURANCE SYNDICATE
lishes that the misdescription materially affected the risk assumed by
the insurer. See Lanham v. Blue Cross & Blue Shield, Inc., 526 S.E.2d
253, 255-56 (S.C. Ct. App. 2000).
Prime argues that any misdescription in a scheduled policy bars
coverage. We disagree. Although we recognize that the policy stated,
"This policy covers the property described in the Commercial Inland
Marine Schedule," Prime has not offered South Carolina authority
holding that any erroneous description in a scheduled policy bars cov-
erage. We decline to hold that the South Carolina courts would so
hold.
Because South Carolina has not held that any erroneous description
bars coverage under a scheduled policy, we examine the evidence to
determine whether the jury could have concluded that the erroneous
description was not material. The jury heard evidence from Roger
Day (Day), the Vice President of Prime. In response to a hypothetical
question regarding whether an erroneously described fellerbuncher
under a policy could still be covered, Day testified, "Coverage could
exist where an error has been made that was not material to the risk
and the bargain as a hypothetical matter." Power testified that the pre-
mium amounts in the policy were based on the value of the equip-
ment. Specifically, he stated that the insurance value is "a rough
indication of what the actual cash value on the property is." Myrick
testified that he paid $42,000 for the used fellerbuncher and put into
it approximately $8,000 or $9,000 in initial repairs to ready the
machine for service. The policy provided coverage for up to $50,000
—the total price Myrick paid for the Barko 775 fellerbuncher. The
jury could have reasonably concluded that Prime did not have an
increased risk because the insured amount was the actual cash value
of the Barko 775 fellerbuncher. Based on this information, it was not
unreasonable for the jury to conclude that a misdescription of the fel-
lerbuncher in the policy did not make a material change in the policy.
Indeed, in denying the defendant’s motion because materiality had not
been conclusively established, the district court correctly observed
based on the evidence presented at trial, that "the two [fellerbunchers]
were comparable [and] . . . there was no increase in risk by the addi-
tion or the substitution . . . of the second fellerbuncher, and therefore
there does not appear to be a material change in the policy."
MYRICK v. PRIME INSURANCE SYNDICATE 13
Because a jury looking at the evidence presented to it could con-
clude that the erroneous description of the fellerbuncher was not
material to the risk of the insured in the policy, we affirm the district
court’s denial of Prime’s motion for judgment as a matter of law as
well as its renewed motion for judgment as a matter of law. The judg-
ment of the district court on the verdict of the jury awarding $50,000
to Myrick for Prime’s breach of contract is accordingly affirmed.
In this connection, we should say that it is perfectly apparent from
the statement of facts in Part I of this opinion that somewhere along
the line the Hydro-Ax fellerbuncher owned by Brandt and previously
insured by Myrick and Brandt through Matthews and Johnson Insur-
ance got placed in the schedule of the insurance policy involved in
this case due to some mixup, the exact nature of which is not dis-
closed in this record. The jury had to believe that three pieces of
equipment were included, as shown by the testimony of Myrick and
Myrick’s secretary, otherwise there could have been no policy which
admittedly existed. But whether the correct information was given by
Mathews to Power, of Johnson Insurance, who filled out an applica-
tion and gave it to Prime Insurance, the record does not disclose. A
mistake was made somewhere, but where the record does not show.
And no instructions on the law, other than those we have set forth
above, were given to the jury or requested. Thus, the matter was left
entirely in the hands of the jury, so the only real and fundamental
question is whether or not the evidence supports the verdict. We hold
that it does.
B. Bad Faith
We next address whether the district court erred in denying Prime’s
motion for a judgment as a matter of law and renewed judgment as
a matter of law on Myrick’s bad faith cause of action. We conclude
that it did.
Under South Carolina law, an insured may assert against his insur-
ance company a cause of action for the breach of implied covenants
of good faith and fair dealing. See Nichols v. State Farm Mut. Auto.
Ins. Co., 306 S.E.2d 616, 619 (S.C. 1983). This obligation includes
a good faith duty to investigate the claim. See Flynn v. Nationwide
Mutual Ins. Co., 315 S.E.2d 817, 820 (S.C. Ct. App. 1984). The ele-
14 MYRICK v. PRIME INSURANCE SYNDICATE
ments of an action for breach of the covenants of good faith and fair
dealing in an insurance contract under South Carolina law are: 1) the
existence of a mutually binding contract of insurance between plain-
tiff and defendant; 2) a refusal by an insurer to pay benefits due under
the contract; 3) resulting from the insurer’s bad faith or unreasonable
action in breach of an implied covenant of good faith and fair dealing
in the contract; 4) that causes damage to the insured. See Cock-N-Bull
Steak House, Inc. v. General Ins. Co., 466 S.E.2d 727, 730 (S.C.
1996) (enumerating the elements of a claim for bad faith refusal to
pay benefits under an insurance contract). If the insured proves the
insurer’s conduct was willful or in reckless disregard of his rights
under the contract, the insured also may recover punitive damages,
but if there is a reasonable ground for contesting a claim, there is no
bad faith. See Crossly v. State Farm Automobile Ins. Co., 415 S.E.2d
393, 397 (S.C. 1992).
Prime has admitted that there was an insurance contract in effect
in this case,12 and Prime did refuse to pay under it. The question we
address here is whether under South Carolina law, there was cause to
send the issue of Prime’s bad faith to the jury. The Supreme Court of
South Carolina has held that "[i]f there is a reasonable ground for
contesting a claim, there is no bad faith." Crossley, 415 S.E.2d at 397.
We are of opinion and hold that existence of the scheduled policy in
which the destroyed fellerbuncher was not listed provided a reason-
able ground to Prime to deny the claim. Therefore, we should reverse
the district court’s refusal to grant judgment as a matter of law on this
claim unless Prime violated a duty to investigate this claim. See
Flynn, 315 S.E.2d at 820.
Evidence produced at trial established that the fellerbuncher listed
in the policy was not the fellerbuncher that burned. On September 18,
1998, Power left a phone message to Prime indicating that the feller-
buncher that burned was not the item listed in the policy. Bonnie
Clark, the Claims Coordinator for Prime, then sent a letter to Bazen,
an independent adjuster, requesting him to investigate and to verify
12
In Prime’s opening statement, counsel stated, "we don’t contradict
that there was an insurance contract in this case. As a matter of fact, we
admit that there’s an insurance contract, and we agree that it ought to
come into evidence."
MYRICK v. PRIME INSURANCE SYNDICATE 15
the year, model, make, and serial number of the destroyed equipment.
At trial, Power testified that the report of Bazen concluded that the
Hydro-Ax fellerbuncher named in the policy was not, in fact, the
Barko 775 model fellerbuncher that was destroyed by fire. A letter
introduced at trial that was sent by Hansen, Prime’s Claims Manager,
to Myrick denied coverage on this ground. Specifically, the letter
stated:
The schedule of the insurance policy listed a 1985 Hydro Ax
311C Fellersbuncher [sic] with a serial number of 243399.
The damaged machine that you have reported was a 1989
Fellersbuncher [sic] which is a different machine entirely
than the one that you have insured because it was a different
year model (1989) (Barko 775)) [sic] and had a different
serial number of 17109 . . . . [This] lead[s] us to the logical
conclusion that Prime Insurance Syndicate Inc. [should]
deny coverage to this case based upon the facts we are
aware of at the present time.
Prime adequately investigated the claim and closed its investigation
upon receipt of Bazen’s report. This was an adequate investigation
under the circumstances. Although a jury ultimately found Prime lia-
ble on the policy because of the erroneous description, we cannot hold
that its actions in investigating the claim were done in bad faith. The
same remarks we made above with respect to who caused the mis-
taken description in the policy and why it was caused apply here.
Even after a two-day trial when all of the people involved testified,
the record is uncertain as to exactly what happened. The district court
made no finding to that effect, and neither do we. On this record the
insurance company should not be held to have more or different infor-
mation than that disclosed at trial, which does not support a finding
of bad faith. Accordingly, the judgment of the district court entering
judgment for the plaintiff on the special verdict claim for bad faith is
reversed.
For the same reasons, we also conclude that Prime’s conduct was
not willful or in reckless disregard of Myrick’s rights under the con-
tract. Accordingly, we remand the case to the district court with
instructions to vacate the jury’s award of $250,000 in punitive dam-
ages.
16 MYRICK v. PRIME INSURANCE SYNDICATE
III.
We discuss briefly the other points raised in this appeal.
The district court awarded $6,114.90 in pre-judgment interest. In
South Carolina such an award of pre-judgment interest is a proper ele-
ment of damage in the discretion of the trial court. Jacobs v. Ameri-
can Mut. Fire Ins. Co., 343 S.E.2d 142, 143 (S.C. 1986). We are of
opinion and hold that the district court did not abuse its discretion in
this award.
The district court awarded attorney’s fees and costs in the amount
of $21,487.16 to the plaintiff. Such an award is by virtue of S.C. Code
Ann. § 38-59-40(1)(1989 & 2000 supp.). This Code section provides
that such an award of attorney’s fees be made upon a refusal by an
insurance company to pay within 90 days "without reasonable cause
or in bad faith." Because we have vacated the judgment for bad faith,
and are of opinion that the fact that the fellerbuncher burned was not
the same fellerbuncher appearing in the policy was a reasonable cause
to deny payment, the award of attorney’s fees is vacated.
The only objection to the introduction of evidence preserved on
appeal was that the district court permitted the jury to consider its
decision holding Prime guilty of failing to comply with discovery
rules. While this is a question of relevance, Prime takes exception
because it claims that such was "not relevant to Prime’s decision to
deny coverage," and complains of permitted argument that such was
"evidence of bad faith." Br. p.4. While such evidentiary rulings as to
relevance are within the discretion of the district court, and this was
discretion on top of discretion in awarding sanctions, we express no
opinion on the question raised here because, even if erroneous, any
error was harmless because we have decided Prime’s decision to deny
coverage was not made in bad faith and was reasonable. So the objec-
tion is dismissed as moot.
IV.
The dissent is based largely, even if not wholly, on its definitely
implied, although not openly advocated, disagreement with the jury
verdict.
MYRICK v. PRIME INSURANCE SYNDICATE 17
For example, the dissent states on p.2:
Moreover, neither Matthews nor Myrick’s office added to
the list the recently purchased 1989 Barko 775 fellerbun-
cher.
And on p.2:
There is no evidence that Myrick made any request or pro-
vided any information to Johnson Insurance Associates or to
Prime Insurance to insure the 1989 Barko 775 fellerbuncher.
And on p.4:
There is not one scintilla of evidence to support the notion
that a misdescription was involved. (Italics in original.)
Those statements of fact just above quoted are a key to the dissent
and are belied by the record and especially by the testimony of Mrs.
Rivers, Myrick’s secretary, which was admitted without objection:
I, Caroline Harper [now Rivers] called Greg Matthews at
American Interstate Insurance on August twenty-eight, nine-
teen ninety-eight to inform him of three pieces of equipment
that needed to be insured for Palmetto Logging. The equip-
ment included a Barko 775 with the serial number 17109;
a Timberjack 450A with the serial number 355147; and a
Hood 2400 with the serial number 243399. I spoke person-
ally to Greg Matthews and he has acknowledged the phone
conversation to Jimmy [Myrick].
J.A. 186-87.
Along the same line are the statements of the dissent with respect
to materiality of the risk to the insurance company. On p.5 is the
statement:
The majority also assumes that the "misdescription" was not
material to Prime Insurance’s underwriting risks. Yet, the
only evidence on materiality is to the contrary.
18 MYRICK v. PRIME INSURANCE SYNDICATE
Even if a part of Day’s testimony could be construed as does the dis-
sent, it is doubtful at best. The dissent omits quoting or consideration
of those parts of Day’s testimony in which he accepts that Prime
Insurance should pay the claim if a mistake in the description of the
fellerbuncher had been made, for example.
Q: So the premium in this case was based on the fellerbun-
cher being valued at fifty-thousand dollars?
A: I believe so. J.A. 136.
****
Q. If a mistake was made in describing the fellerbuncher,
would you expect Prime Insurance Company or do you
believe Prime Insurance Company should provide coverage
if such a mistake was made?
A. Yes. J.A. 142.
Power, the insurance broker who obtained the insurance policy from
Prime Insurance, also testified that the premium was based on "what
you expect to get" if the insured property were destroyed.
Q. And that’s what the premium is based on, is that cor-
rect?
A. That’s correct. J.A. 302
The district court, as noted, accepted the plaintiff’s understanding of
the testimony and held that there was no increase in risk by the substi-
tution of the second fellerbuncher:
In fact at this point the evidence is that the two items were
comparable, that there was no increase in risk by the addi-
tion or the substitution, I would say, of the second fellerbun-
cher, and therefore there does not appear to be a material
change in the policy. J.A. 256-57.
MYRICK v. PRIME INSURANCE SYNDICATE 19
Although the question of materiality is a question of fact, see Lan-
ham v. Blue Cross & Blue Shield, Inc., 526 S.E.2d 253, 255-56 (S.C.
Ct. App. 2000), Prime Insurance did not even ask that the question of
materiality be submitted to the jury, as it could have done. Neither has
it raised the question on appeal, relying, instead, on the proposition
"As a matter of law, the scheduling of items on an Inland Marine pol-
icy is material to the risk, and other items may not be substituted,
even where there is a mistake." Br. p.26. This is obviously the course
the dissent would like to take, but it is not in accord with South Caro-
lina law. (italics added)
V.
Accordingly, the judgment of the district court on contract damages
is affirmed; the judgment of the district court with respect to punitive
damages is reversed; the judgment of the district court with respect
to attorney’s fees is reversed; the judgment of the district court with
respect to pre-judgment interest is affirmed; and the case is remanded
to the district court for entry of a final order not inconsistent with this
opinion.
The present award of costs in the district court apparently including
attorney’s fees, upon remand, the district court should reconsider the
taxable costs in that court. Upon this appeal, we decide that each side
will bear its own costs.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED WITH INSTRUCTIONS
NIEMEYER, Circuit Judge, dissenting:
The facts presented to the jury in this case do not permit a jury rea-
sonably to conclude that Prime Insurance Syndicate, Inc. breached its
contract of insurance with Jimmy Myrick when it denied coverage for
the loss by fire of Myrick’s 1989 Barko 775 fellerbuncher (Serial No.
17109). The policy of insurance, that issued to "Jimmy Myrick dba
Palmetto Logging" on September 2, 1998, insured a 1985 Hydro Ax
311C fellerbuncher (Serial No. 311C2377), not the 1989 Barko 775
that was destroyed on September 17, 1998. As the record demon-
20 MYRICK v. PRIME INSURANCE SYNDICATE
strates, the 1985 Hydro Ax fellerbuncher insured by Prime Insurance
was in fact the fellerbuncher that had been purchased by Donald
Brandt for use in an earlier joint venture between Brandt and Myrick,
and indeed Brandt was named as a loss payee in Prime Insurance’s
policy. When the joint venture of Myrick and Brandt failed to get off
the ground, Myrick decided in July 1998 to enter the logging business
by himself, purchasing the 1989 Barko 775 fellerbuncher.
The record shows that when Brandt and Myrick planned to pursue
the logging business together, they intended to use the 1985 Hydro
Ax fellerbuncher that had belonged to Brandt. Accordingly, on behalf
of the joint venture, Myrick obtained insurance to protect the business
for loss of that fellerbuncher. Indeed, a fax dated June 25, 1998, from
Myrick to Gregg Matthews, Myrick’s insurance agent, describes the
three pieces of equipment that the joint venture of Brandt and Myrick
was insuring, including the 1985 Hydro Ax fellerbuncher.
When Myrick and Brandt decided not to pursue business together,
Myrick purchased another fellerbuncher — a used 1989 Barko 775 —
which he reconditioned. When Myrick sought insurance from Mat-
thews for his new business, either Matthews or Myrick’s office modi-
fied the June 25 fax, by deleting a Franklin 170 skidder and
substituting for it a 1986 Timberjack skidder and by adding at the top
of the fax, "Jimmy Myrick, dba/Palmetto Logging," to indicate who
was to be the named insured. But the fax as modified left on the list
the 1985 Hydro Ax 311C fellerbuncher that had been insured earlier
for the business with Brandt. Moreover, neither Matthews nor
Myrick’s office added to the list the recently purchased 1989 Barko
775 fellerbuncher. Thus, when the marked-up June 25 fax was used
by Matthews to obtain insurance for Myrick, it did not include a
request for insurance on the 1989 Barko 775.
Matthews in fact obtained insurance for Myrick’s new business in
the form stated in the marked-up June 25 fax. Because Matthews did
not underwrite the type of insurance that Myrick needed, he contacted
Johnson Insurance Associates, Inc., the agency for Prime Insurance,
to obtain a binder, effective September 2, 1998. On the same day that
Johnson Insurance received the information from Matthews, Johnson
Insurance contacted Prime Insurance to have it issue the binder that
day. Prime Insurance indeed did so and issued an insurance policy to
MYRICK v. PRIME INSURANCE SYNDICATE 21
"Jimmy Myrick dba Palmetto Logging," effective September 2, 1998,
insuring Myrick’s business and equipment, including the 1985 Hydro
Ax 311C fellerbuncher. It also named Donald Brandt as a loss payee,
indicating that he had an interest in the equipment as mortgagee.
Accordingly, the policy issued by Prime Insurance covered precisely
the equipment that was sought to be covered by the modified June 25
fax, including the 1985 Hydro Ax fellerbuncher, but not the 1989
Barko 775. The description of the equipment covered by Prime Insur-
ance was in no way a "misdescription," but rather an accurate
description of the fellerbuncher that had been involved in the business
between Brandt and Myrick. There is no evidence that Myrick made
any request or provided any information to Johnson Insurance Asso-
ciates or to Prime Insurance to insure the 1989 Barko 775 fellerbun-
cher.
The evidence shows that, by whatever mistake that Myrick or Mat-
thews made, they insured the 1985 Hydro Ax fellerbuncher previ-
ously insured by Myrick for his joint venture, and not Myrick’s 1989
Barko 775 fellerbuncher. While the facts might show that Myrick
insured the wrong fellerbuncher from his point of view, the fellerbun-
cher insured was not "misdescribed."
Obviously, when Myrick later sought payment from Prime Insur-
ance for loss of the 1989 Barko 775 fellerbuncher, Prime Insurance
denied coverage, and properly so.
The district court let the jury in this case rewrite the insurance pol-
icy, denying Prime Insurance’s motion for summary judgment, its
motion for judgment during trial, and its motion for judgment as a
matter of law following trial. And the majority now affirms this
rewriting of the policy, despite the fact that there is not one scintilla
of evidence to support the notion that a misdescription was involved.
The 1985 Hydro Ax, including its serial number, was correctly
described; it was simply not the fellerbuncher that Myrick purchased
in July 1998 and that fire destroyed in September 1998.
The majority assumes that there was only one fellerbuncher in
question and that therefore the description of a fellerbuncher in the
policy had to be a "misdescription":
22 MYRICK v. PRIME INSURANCE SYNDICATE
We characterize what occurred in this case as a misdescrip-
tion because the record reveals that Myrick owned only one
fellerbuncher. This fact makes the schedule description in
this case no different than a situation in which the wrong
model year was listed because there can be no confusion as
to which piece of equipment is referred to in the schedule
— i.e., Myrick’s only piece of equipment.
Ante at 11 n.10. This, of course, overlooks the fact that there were two
different fellerbunchers and that the fellerbuncher that Myrick actu-
ally insured, albeit by mistake, was the fellerbuncher that he had pre-
viously insured as part of his business with Brandt. His mistake is
further confirmed by the fact that Myrick had Prime Insurance list
Brandt as an additional loss payee.
Thus, at bottom, Myrick insured the wrong property through a mis-
take that occurred somewhere between Myrick’s office and Gregg
Matthews’ office. But the mistake of insuring the wrong fellerbuncher
is not the same as a "misdescription" of a single fellerbuncher.
The majority also assumes that the "misdescription" was not mate-
rial to Prime Insurance’s underwriting risks. Yet, the only evidence
on materiality is to the contrary. First, not only were the two feller-
bunchers different models and different brands, but they were also of
different ages. In addition, the 1989 Barko 775 fellerbuncher that
Myrick purchased in July 1998 was not working and had to be recon-
ditioned at a cost of $8000 - 9000. The only witness to testify directly
about the relative risks, Roger Day, an officer of Prime Insurance,
stated that the underwriting risks for the two machines were different.
When questioned by Myrick’s counsel to suggest that both fellerbun-
chers had a similar value and therefore would have been insured for
the same premium, Day rejected the suggestion, stating that one could
not draw such a conclusion. Obviously different machines of different
ages and conditions pose different risks. Because this was the only
evidence with respect to materiality, Myrick failed to carry his burden
of proving that there was no material difference in underwriting risk
for insuring the two fellerbunchers.
I believe it is fundamentally unjust to allow a judgment to be
entered against Prime Insurance for loss of the 1989 Barko 775 when
MYRICK v. PRIME INSURANCE SYNDICATE 23
it issued a policy — in the form exactly as requested — insuring only
the 1985 Hydro Ax fellerbuncher that had been part of the business
between Myrick and Brandt and which was correctly described.
Accordingly, I respectfully dissent.