McWhite v. ACE American Insurance Company ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1373
STANLEY MCWHITE,
Plaintiff - Appellant,
v.
ACE AMERICAN INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the District of
South Carolina, at Florence. R. Bryan Harwell, District Judge.
(4:07-cv-01551-RBH)
Argued: December 8, 2010 Decided: February 25, 2011
Before Sandra Day O’CONNOR, Associate Justice (Retired), Supreme
Court of the United States, sitting by designation, and DUNCAN
and AGEE, Circuit Judges.
Affirmed by unpublished opinion. Justice O’Connor wrote the
opinion, in which Judge Duncan and Judge Agee joined.
ARGUED: Stephen J. Wukela, WUKELA LAW FIRM, Florence, South
Carolina, for Appellant. John Robert Murphy, MURPHY &
GRANTLAND, PA, Columbia, South Carolina, for Appellee. ON
BRIEF: Jeffrey C. Kull, MURPHY & GRANTLAND, PA, Columbia, South
Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
O’CONNOR, Associate Justice:
Appellant Stanley McWhite appeals the district court’s
grant of summary judgment to Appellee ACE American Insurance
Company in his suit claiming that his employer’s automobile
insurance policy includes or should be reformed to include
underinsured motorist coverage. For the reasons set forth
below, we affirm the judgment of the district court.
I.
Appellant Stanley McWhite was employed by Ahold Americas
Holdings, Inc. On February 10, 2005, McWhite was driving a
tractor-trailer truck owned by Ahold, when the truck jack-
knifed. McWhite exited the truck, and while setting up warning
triangles along the road, as required by Ahold policy and
Department of Transportation regulations, McWhite was struck and
injured by a vehicle driven by an “underinsured” motorist. 1
After recovering $25,000 from the driver of the vehicle,
see Covenant Not to Execute, J.A. 57, McWhite filed suit against
his employer’s insurance company, Appellee ACE American
1
South Carolina law defines an “[u]nderinsured motor
vehicle” as “a motor vehicle as to which there is bodily injury
liability insurance or a bond applicable at the time of the
accident in an amount of at least that specified in Section 38-
77-140 and the amount of the insurance or bond is less than the
amount of the insureds’ damages.” S.C. Code Ann. § 38-77-30(15)
(2002).
2
Insurance Company, in the Florence County, South Carolina, Court
of Common Pleas. McWhite sought a declaratory judgment that he
is an “insured” for purposes of underinsured motorist (“UIM”)
coverage under a policy issued by ACE to Ahold. ACE removed the
case to the U.S. District Court for the District of South
Carolina on the grounds of diversity of citizenship.
The district court ordered the parties to engage in
discovery on the question of whether Ahold’s insurance policy
contained a UIM endorsement and, if not, whether ACE had made
Ahold a meaningful offer of UIM coverage, as required by South
Carolina law.
After discovery, the district court granted summary
judgment for Appellee ACE. McWhite v. ACE American Ins. Co.,
No. 4:07-cv-01551-RBH, 2010 WL 1027872 (D.S.C. Mar. 17, 2010).
The district court held that Ahold’s insurance policy did not
contain UIM coverage. Id. at *3. The district court further
held that ACE had not made a meaningful offer of UIM coverage
under S.C. Code Ann. § 38-77-350, id. at *4, and noted that it
had “some concern” about whether ACE, alternatively, had made a
meaningful offer pursuant to the South Carolina Supreme Court’s
decision in State Farm Mutual Auto Insurance Company v.
Wannamaker, 354 S.E.2d 555 (S.C. 1986). McWhite, 2010 WL
1027872, at *5. The district court ultimately “[a]ssum[ed]
without deciding” that no meaningful offer had been made and
3
that the policy could be reformed to include UIM coverage. Id.at *5–*6. It concluded, however, that McWhite would not
constitute an “insured” under South Carolina law for purposes of
UIM coverage, and thus that he would not benefit from any
reformation of the contract. Id. at *8.
McWhite appeals the district court’s grant of summary
judgment for ACE.
II.
We review the district court’s grant of summary judgment de
novo, viewing the facts in the light most favorable to McWhite.
See Meson v. GATX Tech. Servs. Corp., 507 F.3d 803, 806 (4th
Cir. 2007). “Summary judgment is appropriate when ‘there is no
genuine issue as to any material fact and . . . the movant is
entitled to judgment as a matter of law.’” Merrit v. Old
Dominion Freight Line, Inc., 601 F.3d 289, 295 (4th Cir. 2010)
(quoting Fed. R. Civ. P. 56(c)). In this diversity action, we
must apply South Carolina law. See Twin City Fire Ins. Co. v.
Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th
Cir. 2005). We first address whether the policy contained UIM
coverage and then turn to whether ACE made a meaningful offer of
such coverage.
4
A.
McWhite argues that Ahold’s insurance policy in effect at
the time of the accident in February 2005 includes UIM coverage.
Ahold argues that it does not, and the district court agreed
with Ahold. McWhite, 2010 WL 1027872, at *2–*3.
Both parties point the Court to Endorsement #163, entitled
“Limits of Insurance—Uninsured Motorists/Underinsured Motorists”
for the period from December 1, 2004, to December 1, 2005.
Under a heading for Uninsured Motorists Coverage and
Underinsured Motorists Coverage, Endorsement #163 lists a
$40,000 limit for South Carolina. J.A. 163. The parties offer
different interpretations of the $40,000 notation.
Ahold explains that Endorsement #163 states that it amends
“Item 2 of the Declarations.” Id. Ahold then turns to Item 2
in the insurance policy listing the policy period from May 19,
2004, to December 1, 2004. J.A. 116–117. In Item 2, there is a
box labeled “Underinsured Motorists”; it says “See Endt. 6,”
which Ahold explains was the predecessor to Endorsement #163,
Appellee’s Br. at 54 n.15, and “Financial Responsibility*.” The
asterisk is linked to a footnote at the bottom of the page that
states “where rejection not permitted.” J.A. 117. Ahold
explains that since rejection of UIM coverage is permitted in
South Carolina, reading Endorsement #163 together with Item 2
clearly indicates that Ahold did not desire any UIM coverage.
5
Appellee’s Br. at 54. Ahold explains that the $40,000 in the
Endorsement applies only to uninsured motorist coverage, which
South Carolina does not permit an insured to reject. Id.In contrast, McWhite argues that the “Item 2” in the
original policy is irrelevant because it does not apply to the
period in which the accident occurred. He urges the Court to
look only to the “Renewal Endorsement” for the term from
December 1, 2004, to December 1, 2005. J.A. 153. The Renewal
Endorsement states, “This Endorsement changes the policy.” Id.The Renewal Endorsement has a line for Underinsured Motorists
that states “See Endt. #163,” which, as previously explained,
lists $40,000 in coverage for South Carolina. Id. Based on the
Renewal Endorsement and Endorsement #163, McWhite argues that
there is no provision in the insurance contract for the
applicable period that rejects UIM coverage. Appellant’s Br. at
22–24.
The South Carolina Supreme Court has explained that “[a]
contract is ambiguous when the terms of the contract are
reasonably susceptible of more than one interpretation.” S.C.
Dep’t of Natural Res. v. Town of McClellanville, 550 S.E.2d 299,
303 (S.C. 2001). “It is a question of law for the court whether
the language of a contract is ambiguous.” McGill v. Moore, 672
S.E.2d 571, 574 (S.C. 2009). After considering the parties’
arguments, the district court held that the policy is ambiguous
6
with regard to whether it included UIM coverage in South
Carolina. McWhite, 2010 WL 1027872, *3. We agree.
In light of this ambiguity, we must look to extrinsic
evidence of the intent of the parties to the contract. Dixon v.
Dixon, 608 S.E.2d 849, 852 (S.C. 2005) (“If the vital terms of a
contract are ambiguous, then, in an effort to determine the
intent of the parties, the court may consider probative,
extrinsic evidence.”); see also DeVore v. Piedmont Ins. Co., 142
S.E. 593 (S.C. 1928) (explaining that extrinsic, parol evidence
is permissible to explain the intent of the parties to an
ambiguous insurance contract). Normally, when a contract is
held to be ambiguous, the intent of the parties is a question of
fact for the jury. Garrett v. Pilot Life Ins. Co., 128 S.E.2d
171, 174 (S.C. 1962). In this case, however, the record
contains uncontroverted evidence that neither Ahold nor ACE—the
parties to the contract—intended to include UIM coverage. See
Deposition of Nicholas A. Parillo at 38–40 (J.A. 263–265);
Deposition of Tony Dingrando at 35, 38–39 (J.A. 225, 282–283).
This question is therefore appropriate for summary judgment, and
we affirm the district court’s holding that the insurance
policy, as construed in light of the uncontroverted evidence of
the parties’ intent, does not include UIM coverage.
7
B.
We turn now to whether ACE made a meaningful offer of UIM
coverage to Ahold. South Carolina Code Ann. § 38-77-160
requires an insurer to offer UIM coverage to the insured, 2 and
the South Carolina Supreme Court has explained that the offer
must be “meaningful.” See Floyd v. Nationwide Mut. Ins. Co.,
626 S.E.2d 6, 12 (S.C. 2005). If no meaningful offer is made,
then “the policy will be reformed by operation of law to include
UIM coverage up to the limits of liability insurance carried by
the insured.” Ray v. Austin, 698 S.E.2d 208, 212 (S.C. 2010).
The meaningful offer requirement can be satisfied in one of two
ways: compliance with S.C. Code Ann. § 38-77-350(A) or
satisfaction of the four-part test the South Carolina Supreme
Court established in State Farm Mutual Insurance Co. v.
Wannamaker, 354 S.E.2d at 556. We consider each in turn.
S.C. Code Ann. § 38-77-350(A) establishes requirements for
forms that insurers use to make offers of optional insurance,
2
That section, as applicable at the time of the insurance
contract in this case, provided, as relevant: “Automobile
insurance carriers shall offer . . . at the option of the
insured, underinsured motorist coverage up to the limits of the
insured liability coverage to provide coverage in the event that
damages are sustained in excess of the liability limits carried
by an at-fault insured or underinsured motorist or in excess of
any damages cap or limitation imposed by the statute.” S.C.
Code. Ann. § 38-77-160 (2002).
8
including UIM coverage. At the time of the contract at issue
here, the provision stated:
(A) The director or his designee shall approve a form which
automobile insurers shall use in offering optional
coverages required to be offered pursuant to law to
applicants for automobile insurance policies. The form, at
a minimum, must provide for each optional coverage required
to be offered:
(1) a brief and concise explanation of the coverage,
(2) a list of available limits and the range of
premiums for the limits,
(3) a space for the insured to mark whether the
insured chooses to accept or reject the coverage and a
space for the insured to select the limits of coverage
he desires,
(4) a space for the insured to sign the form which
acknowledges that he has been offered the optional
coverages,
(5) the mailing address and telephone number of the
Insurance Department which the applicant may contact
if the applicant has any questions that the insurance
agent is unable to answer.
S.C. Code Ann. § 38-77-350(A) (2002). At the time of the
contract in question, the statute stated that “[i]f this form is
properly completed and executed by the named insured it is
conclusively presumed that there was an informed, knowing
selection of coverage . . . .” Id. § 38-77-350(B); see also
Grinell Corp. v. Wood, 698 S.E.2d 796, 799 (S.C. 2010) (holding
that if the offer form complies with the statutory requirements,
then there is a “conclusive presumption in favor of the insurer
9
that the insured made a knowing waiver of the option to purchase
additional coverage”).
Appellant McWhite contends that the offer ACE made to Ahold
deviates from the statutory requirements in several ways. He
argues that ACE improperly completed the form by failing to list
the available limits of UIM coverage up to the liability limit
of five million dollars and by failing to specify the range of
premiums for the different coverage limits. Appellant’s Br. at
11–12. He argues that Ahold’s employee, Nicholas Parillo, did
not properly complete and execute the form in the manner
required because he failed personally to mark an “x” in a box
indicating that Ahold did not want UIM coverage and because he
signed the acknowledgement line of the offer form but did not
sign a second line where the form indicates the insured must
sign if it intends to decline coverage. Id. at 12.
The district court held that Parrillo’s failure to sign the
line to decline coverage, in addition to signing the general
acknowledgment line, rendered the form improperly completed such
that, “the insurer cannot rely on the statutory presumption.”
McWhite, 2010 WL 1027872, at *4. It is sufficient, however, to
rely on ACE’s failure to complete the form with “a list of
available limits and the range of premiums for the limits,” as
required by S.C. Code Ann. § 38-77-350(A)(2). The South
Carolina Supreme Court recently held that a nearly identical
10
omission by an insurer meant that “the form failed to comply
with the requirements of section 38-77-350(A)(2),” such that the
insurer “was not entitled to the statutory presumption that a
meaningful offer of UIM coverage was made.” Ray, 698 S.E.2d at
212.
Even though ACE is not entitled to the statutory
presumption that it made a meaningful offer, it can still
demonstrate that it made a meaningful offer by satisfying the
four-part test the South Carolina Supreme Court established in
Wannamaker. Wannamaker requires that:
(1) the insurer’s notification process is commercially
reasonable, whether oral or in writing; (2) the
insurer must specify the limits of optional coverage
and not merely offer additional coverage in general
terms; (3) the insurer must intelligibly advise the
insured of the nature of the optional coverage; and
(4) the insured must be told that optional coverages
are available for an additional premium.
Wannamaker, 354 S.E.2d at 556. The South Carolina Supreme Court
has held that an insurer must make a meaningful offer of UIM
coverage even in the context of a policy like the one at issue
here, which is a “fronting policy”—a policy that “contains a
deductible equal to the coverage limits contained in the
policy.” 3 Croft v. Old Republic Ins. Co., 618 S.E.2d 909, 911
3
Nicholas Parillo explained that Ahold needed such a policy
because the “fronting carrier” is “admitted to do business” in
the 42 states where Ahold operates and “meets the requirements
of each of those states for providing automobile insurance.”
(Continued)
11
(S.C. 2005); id. at 917. In applying the Wannamaker test,
“evidence of the insured’s knowledge or level of sophistication
is relevant and admissible when analyzing . . . whether an
insurer intelligibly advised the insured of the nature of the
optional . . . UIM coverage.” Id. at 918.
In this case, Ahold and its Vice President for Risk
Management Nicholas Parillo are clearly sophisticated. The
record shows that Parillo has decades of experience in insurance
and risk management, is responsible for procuring Ahold’s
insurance coverage in the 42 states in which it operates, and
has some specific knowledge of South Carolina’s UIM coverage
law, including that UIM coverage is optional in South Carolina.
Deposition of Nicholas A. Parillo at 5–9, 12–13. Despite this,
the district court relied on a South Carolina Court of Appeals
case, Grinnell Corp. v. Wood, 663 S.E.2d 61 (S.C. Ct. App.
2008), which held that “an insurer failed to make a meaningful
offer despite the sophistication of a risk manager where the
operational coverages printed on the form were for amounts far
less than the liability limit” and “the increased premium
Deposition of Nicholas A. Parillo at 19. He further explained
that “[i]f Ahold did not have a fronting insurer, [it] would
have had to have [its] captive insurance company admitted to do
business in each of those 42 states,” which “would have been
prohibitively expensive.” Id.12
charges were left blank,” in addition to other defects.
McWhite, 2010 WL 1027872, *5. Based on the S.C. Court of
Appeals’ opinion in Grinnell, the district court stated that it
had “some concern with whether a meaningful offer was made under
the Wannamaker factors.” Id.Since the district court issued its opinion, however, the
South Carolina Supreme Court reversed the S.C. Court of Appeals’
decision in Grinnell and held that despite technical failures in
compliance with the Wannamaker factors, a meaningful offer was
made because the record was “replete with uncontroverted
evidence that the insured knew its options with respect to
additional . . . UIM coverage in South Carolina and made an
informed decision as to the amount of coverage that best suited
its needs.” Grinnell Corp. v. Wood, 698 S.E. 2d 796, 800 (S.C.
2010). The Court noted that to hold no meaningful offer had
been made in those circumstances would produce an “absurd
result.” Id.The South Carolina Supreme Court relied on the same
reasoning to find that a meaningful offer had been made in Ray
v. Austin, 698 S.E.2d 208, a case with facts very similar to
this one and issued the same day as Grinnell. In Ray, Cintas
Corporation—just like Ahold—“adopted the risk management
strategy of declining . . . UIM in states where such coverage
was not required.” Id. at 210. Lumbermens Insurance provided
13
Cintas with a UIM coverage form that left blank the lines
intended to show the increases in premiums for various levels of
UIM coverage, and Cintas’s employee failed to sign next to the
box where he checked “no” to decline UIM coverage. Id. at 211.
The South Carolina Supreme Court held that Lumbermens had
satisfied three of the Wannamaker factors, but may not have
“specified the limits of UIM coverage and not merely offer[ed]
such coverage in general terms.” Id. at 213. The Court
explained that if it were to hold that there was no meaningful
offer, it “would reach the absurd result of reforming the
insurance policy to give Cintas coverage it understood, did not
want, and clearly rejected.” Id. In the face of that outcome,
the Court “refuse[d] to apply the Wannamaker factors in a manner
that contravenes the very purpose behind the meaningful offer
requirement”—“to protect insureds” and “give them the
opportunity ‘to know their options and to make an informed
decision as to which amount of coverage will best suit their
needs.’” Id. (quoting Floyd, 626 S.E.2d at 12). The Court
therefore found that there was a meaningful offer. Id.
The facts of this case are analogous to those in Grinnell
and Ray. ACE’s offer satisfied three of the four Wannamaker
factors. First, ACE notified Ahold, via a broker (McGriff), of
the availability of UIM coverage in a “commercially reasonable”
manner “in writing” by providing Ahold with its standard UIM
14
offer form. See J.A. 238–243. As in Grinnell, even a deficient
form can constitute a “commercially reasonable” offer when the
insured is a sophisticated party, as Ahold’s agent, Parillo, is
here. Grinnell, 698 S.E.2d at 800 (“[T]he record contains ample
evidence that [the insured] knew his options with respect to
additional . . . UIM coverage, thus, based on the sophistication
of the parties, [the insurer] made a commercially reasonable
offer to [the insured].”). Second, the UIM coverage offer form
itself “intelligibly advise[d]” Ahold of “the nature of the
optional coverage.” Offer of Optional Additional Uninsured
Motorist Coverage and Optional Insured Motorist Coverage, J.A.
242 (“Underinsured motorist coverage compensates you . . . for
amounts which you may be legally entitled to collect as damages
from an owner or operator of an at-fault underinsured motor
vehicle. An underinsured motor vehicle is a motor vehicle which
is covered by some form of liability insurance, but that
liability coverage is not sufficient to fully compensate you for
your damages.”); see Ray, 698 S.E. 2d at 213 (“The form itself
intelligibly advised Cintas of the nature of UIM coverage.”).
Finally, the form also informed Ahold that UIM coverage was
available for an “additional premium[].” J.A. 242; see Ray, 698
S.E.2d at 213.
As in Ray, Ahold fails, however, to satisfy the Wannamaker
factor requiring the insurer to “specify the limits of optional
15
coverage and not merely offer additional coverage in general
terms.” Wannamaker, 354 S.E.2d at 556. Like the form at issue
in Ray, ACE left blank the lines on the form for the premiums
for different limits of UIM coverage, and Ahold’s representative
Parillo did not sign the line next to the “no” box, declining
UIM coverage. J.A. 243; Ray, 698 S.E. 2d at 211. Like the
insured in Ray, however, Ahold nonetheless understood the offer
of UIM coverage and “made a business decision to refuse” it with
“full awareness of the nature of the coverage it was rejecting.”
Ray, 698 S.E.2d at 213. Parillo explained in his deposition
that Ahold’s strategy “has always been to only purchase . . .
underinsured motorist coverage in those states where it was
mandated. . . . And where it was not mandated, not to purchase.”
Deposition of Nicholas A. Parillo at 38 (J.A. 263). Parillo
explained that Ahold declined UIM coverage because, due to the
nature of the fronting policy, Ahold itself would have born the
added risk of payouts under the UIM coverage. Id. at 39–40
(J.A. 264–265).
Applying South Carolina’s precedents, we decline to “reach
the absurd result of reforming the insurance policy to give
[Ahold] coverage it understood, did not want, and clearly
rejected.” Ray, 698 S.E.2d at 213. We therefore hold that, in
the circumstances of this case, ACE made a meaningful offer of
16
UIM coverage. There is, therefore, no justification for
reforming the policy to include UIM coverage.
III.
Because we hold that ACE made a meaningful offer of UIM
coverage pursuant to the Wannamaker factors, we need not
consider the district court’s holding that McWhite does not
constitute an “insured” under the policy and South Carolina law.
See Strawser v. Atkins, 290 F.3d 720, 728 n.4 (4th Cir. 2002)
(recognizing that “we may affirm on any ground revealed in the
record”). For the foregoing reasons, the judgment of the
district court is
AFFIRMED.
17