Croft v. Old Republic Insurance ( 2007 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1782
GENE W. CROFT, JR., as Personal Representative
of the Estate of Gene W. Croft, Sr., Estate of
Gene W. Croft, Sr.,
Plaintiff - Appellee,
versus
OLD REPUBLIC INSURANCE COMPANY,
Defendant - Appellant.
Appeal from the United States District Court for the District of
South Carolina, at Columbia. Matthew J. Perry, Jr., Senior
District Judge. (3:02-cv-03769-MJP)
Argued: March 12, 2007 Decided: May 16, 2007
Before WILKINSON, MICHAEL, and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Clayton Monroe Custer, WOMBLE, CARLYLE, SANDRIDGE & RICE,
Greenville, South Carolina, for Appellant. Richard Ara
Harpootlian, Columbia, South Carolina, for Appellee. ON BRIEF:
William J. Watkins, Jr., WOMBLE, CARLYLE, SANDRIDGE & RICE,
Greenville, South Carolina, for Appellant. Graham L. Newman,
RICHARD A. HARPOOTLIAN, P.A., Columbia, South Carolina, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
The personal representative of the estate of Gene W.
Croft, Sr. (the Croft Estate) brought this action to reform an
insurance policy under South Carolina law due to the alleged
failure of Old Republic Insurance Co. (ORIC) to make a meaningful
offer of underinsured motorist coverage (UIM) to its insured,
Penske Truck Leasing Corp. (Penske). Croft, a Penske employee, was
killed when the Penske truck he was driving was negligently struck
by a passenger car. The negligent driver was underinsured and the
ORIC insurance policy covering the truck did not include UIM.
Under South Carolina law an insurer’s failure to make a meaningful
offer of UIM requires reformation of the policy to provide UIM in
an amount equal to the policy’s liability limits. After receiving
answers to several questions certified to the South Carolina
Supreme Court, the district court concluded that ORIC failed to
make a meaningful offer of UIM to Penske and granted the Croft
Estate’s motion for summary judgment. We affirm.
I.
Penske held a three-year automobile insurance policy with
ORIC that took effect on January 1, 2000. The policy was a
“fronting policy,” under which the deductible equaled the limits of
liability. Although the policy covered a three-year period, ORIC
sent forms to Penske on an annual basis that allowed Penske to
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select or reject uninsured and underinsured motorist coverage. The
annual submission of forms to Penske was meant to accommodate any
intervening changes in state law and to ensure that appropriate
endorsements were in place.
The South Carolina forms consisted of Form Number 2006
issued by the South Carolina Department of Insurance and a
supplemental form created by ORIC containing additional information
regarding available uninsured and underinsured motorist coverage
options. The forms state that the insured has “the right to buy
underinsured motorist coverage in limits up to the limits of
liability coverage which you will carry under your automobile
insurance policy,” J.A. 27, 35, 39, and the supplemental form
provides a list of optional limits. This list includes the option
of limits equal to the $1 million liability limits of the policy.
The forms also state, however, that UIM “is available at Limit(s)
up to the same Limit(s) selected for Uninsured Motorists
[coverage.]” J.A. 29, 33, 42. Each year, Penske chose the minimum
uninsured motorist limits required by South Carolina law (i.e.,
$15,000/$30,000/$10,000) and rejected UIM. Only the 2000-2001 and
2001-2002 forms were returned to ORIC in a timely fashion.
The Croft accident occurred in January 2002. In October
2002 the Croft Estate filed this declaratory judgment action
against ORIC in South Carolina state court, seeking to reform the
Penske policy to include UIM coverage equal to the $1 million
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liability limits of the policy. ORIC subsequently removed the case
to federal court, and in December 2003 the court heard the parties’
cross-motions for summary judgment on the issue of whether ORIC had
made a meaningful offer of UIM to Penske, as required by South
Carolina law. One of ORIC’s arguments was that Penske’s fronting
policy was exempt from the meaningful offer requirement under a
recent South Carolina statute dealing with exempt commercial
policies. The lack of case law on the statute’s interpretation
prompted the district court to certify several questions to the
South Carolina Supreme Court. The South Carolina court determined
that Penske’s fronting policy is an exempt commercial policy, but
that such a policy was still subject to the meaningful offer
requirement. Croft v. Old Republic Ins. Co., 618 S.E.2d 909, 913-
14 (S.C. 2005). The state court held that the same requirement
also applies to all fronting policies. Id. at 917. Moreover, the
state court determined that the insured’s sophistication and
expressed desire not to purchase UIM do not relieve an insurer of
its responsibility to make a meaningful offer. Id. at 918.
After receiving the state court’s answers to the
certified questions, the district court granted summary judgment to
the Croft Estate, concluding that ORIC failed to fulfill the
meaningful offer requirement because language in the ORIC forms
effectively precludes a choice of UIM up to the liability limits
when the insured opts for a lesser level of uninsured motorist
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coverage. Specifically, the court determined that, according to
the forms, Penske would not have been able to purchase UIM greater
than the $15,000/$30,000/$10,000 limits it had chosen for its
uninsured motorist coverage. We review de novo a district court’s
grant of summary judgment. Wash. Metro. Area Transit Auth. v.
Potomac Inv. Props., Inc., 476 F.3d 231, 234 (4th Cir. 2007).
II.
South Carolina requires automobile insurers to offer
optional UIM up to the limits of liability coverage. S.C. Code
Ann. § 38-77-160. Such an offer must be meaningful under standards
set forth in S.C. Code Ann. § 38-77-350 or in the South Carolina
Supreme Court’s decision in State Farm Mutual Auto Insurance Co. v.
Wannamaker, 354 S.E.2d 555, 556 (S.C. 1987). See McDowell v.
Travelers Prop. & Cas. Co., 590 S.E.2d 514, 517 (S.C. Ct. App.
2003). If the insurer fails to make a meaningful offer of UIM, a
court will reform the policy to include UIM up to the limits of
liability coverage. Butler v. Unisun Ins. Co., 475 S.E.2d 758, 760
(S.C. 1996).
A.
An insurer is entitled to a conclusive presumption that
it made a meaningful offer of UIM if the insured has signed a form
that uses a state-approved format and meets certain statutory
requirements. S.C. Code Ann. § 38-77-350(B). Forms must (1)
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briefly and concisely explain the nature of the coverage; (2) list
available limits and additional premiums; (3) provide spaces to
accept or reject coverage and to state the desired coverage limits;
(4) provide a space for the insured to acknowledge the offer of
optional coverage; and (5) provide contact information for any
further questions the insured might have. S.C. Code Ann. § 38-77-
350(A). The list of available limits must include the option of
UIM equal to the limits of the insured’s liability coverage.
Butler, 475 S.E.2d at 761.
As a threshold matter, the Croft Estate contends that
ORIC cannot benefit from the statutory presumption because Penske
failed to return the 2002-2003 forms to ORIC within the statutory
time limit. S.C. Code Ann. § 38-77-350(E) states that when an
insured fails to return an executed offer form to the insurer
within thirty days, the insurer shall add on UIM with the same
policy limits as the insured’s liability limits. On December 4,
2001, ORIC sent the 2002-2003 forms to Penske. Penske completed
the forms on December 28, 2001, and returned them to its insurance
broker, AON Risk Services, Inc. (AON). AON, however, failed to
deliver the forms to ORIC until August 2002. The untimely return
of the 2002-2003 forms thus prevents them from giving rise to the
statutory presumption of a meaningful offer.
Although the Croft accident occurred during the period
covered by the ineffective forms, we may look at earlier forms
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submitted for the same policy to find a meaningful offer. An
insurer may rely on effective past offers of UIM when an insured’s
coverage continues. Ackerman v. Travelers Indem. Co., 456 S.E.2d
408, 411 (S.C. Ct. App. 1995) (citing S.C. Code Ann. § 38-77-
350(C)). ORIC may still benefit from the statutory presumption if
it shows that prior forms signed by Penske made an effective offer
of UIM. Both the 2000-2001 and 2001-2002 forms used a state-
approved format and were signed and returned within thirty days.
ORIC does not qualify for the presumption of a meaningful offer,
however, because the forms do not unambiguously offer UIM up to the
policy’s liability limits. The inclusion of the $1 million UIM
option in the Table of Limits and in the explanation of coverage is
negated by the statement that UIM is only “available at Limit(s) up
to the same Limit(s) selected for Uninsured Motorists [coverage.]”
J.A. 29, 33. This statement indicated that Penske could not select
UIM limits equal to its liability limits because it had opted for
minimum uninsured motorist coverage. South Carolina law requires
insurers to offer UIM up to the policy’s liability limits,
regardless of the choice of uninsured motorist coverage. See S.C.
Code Ann. § 38-77-160. ORIC’s forms failed to satisfy this
requirement because they misleadingly suggested that the insured
could not choose any level of coverage that exceeded its uninsured
motorist coverage.
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B.
For similar reasons, ORIC’s offer was not meaningful
under the Wannamaker test. In the absence of a qualifying form,
the insurer’s offer will be deemed meaningful if the insurer shows
that (1) its notification process was commercially reasonable; (2)
it specified the limits of optional coverage; (3) it intelligibly
advised the insured of the nature of the optional coverage; and (4)
the insured was told that optional coverages were available for an
additional premium. Wannamaker, 354 S.E.2d at 556. Both the
written forms and the parties’ oral communications about the
coverage may be considered to determine whether a meaningful offer
was made. We agree with the district court that ORIC never made an
unambiguous offer of UIM up to the policy’s liability limits,
either in writing or orally. The forms contained a misleading
statement that could have prevented an insured from opting for UIM
in the desired amount because of its choice of a lower set of
limits for uninsured motorist coverage. There is no evidence that
discussions between Penske and ORIC did anything to mitigate the
effects of this misstatement. George Frazier, a Penske
representative in charge of the company’s insurance matters,
testified in deposition that he was never offered UIM coverage
equal to the policy’s $1 million liability limits. When asked
“[W]as a million dollars in underinsured coverage ever offered to
Penske Trucking by Old Republic?”, J.A. 257-58, Frazier replied,
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“The answer is, no. It was never offered.” J.A. 258. Frazier
explained that he “never told [ORIC] to offer it. . . . And they
followed my instructions.” J.A. 258. He further testified, “I
understand these policies, and I understand the limits that are
being offered to me. And I understand that I could buy a million
dollars, if I wanted to. And, if they offered it to me, I would
send it back to them . . . .” J.A. 259. Penske’s understanding
and desires, however, do not detract from the admitted fact that
the offer was never made. Nothing in Frazier’s testimony indicates
that his understanding of the full range of UIM options came from
ORIC, as Wannamaker requires, see 354 S.E.2d at 556. Rather, he
maintains throughout his testimony that ORIC never offered $1
million UIM limits. Evidence of Frazier’s sophisticated knowledge
of typical insurance offerings and indications that Penske would
not have purchased the coverage even if it had received an
unambiguous offer are irrelevant. Croft, 618 S.E.2d at 918.
Before looking at the insured’s level of knowledge and
understanding to determine the meaningfulness of an offer, we must
first find that the insurer made an offer. See id. The gist of
ORIC’s misstatement was that UIM coverage up to the liability
limits was unavailable to an insured opting for a lower amount of
uninsured motorist coverage. ORIC thus failed to make a meaningful
offer of UIM to Penske, and the policy must be reformed to provide
UIM up to the policy’s liability limits.
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C.
This conclusion is not changed by ORIC’s meritless
assertion that the district court failed to follow the commands of
the Rules of Decision Act, 28 U.S.C. § 1652. The district court
neither neglected to apply South Carolina law nor impermissibly
generated its own federal rule to decide the case.
III.
Because ORIC failed to satisfy either the statutory
requirements for form offers or the Wannamaker test, ORIC did not
make a meaningful offer of UIM to Penske. The policy must be
reformed to provide UIM coverage up to the policy’s liability
limits. The grant of summary judgment to the Croft Estate is
therefore
AFFIRMED.
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