George v. Empire Fire & Marine Insurance

Citations: 545 S.E.2d 500; 344 S.C. 582; 2001 S.C. LEXIS 65Docket: 25278

Court: Supreme Court of South Carolina; April 9, 2001; South Carolina; State Supreme Court

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Ernest George, representing the estates of Kate and Marvelyn George, filed a declaratory judgment action against Empire Fire and Marine Insurance Company, W. Gene Whetsell, and John Shields Autos, Inc. The case arose from a fatal collision involving Angela Farmer, who was driving a loaner vehicle from Shields Auto at the time. George sought to establish that the insurance policy held by Shields Auto provided $1 million coverage for Angela Farmer. The trial court ruled in favor of George, granting summary judgment that the policy covered Angela for $1 million, or alternatively, reformed the policy to reflect that amount due to mutual mistake. However, the Court of Appeals initially upheld this decision but later reversed it, concluding that the insurance policy only provided statutory limits and that there was a factual dispute regarding the intent behind the insurance coverage for customers.

The Supreme Court of South Carolina granted certiorari to evaluate whether the Court of Appeals erred in identifying a factual issue concerning the reformation of the policy. The Court of Appeals had made two key determinations: first, any insurance policy with an invalid endorsement limiting coverage would default to the minimum required statutory limits, and second, there was a factual question about whether the intent was to provide $1 million coverage to Shields Auto's customers. The Supreme Court agreed with the Court of Appeals about the invalid endorsement’s effect but disagreed that there was a genuine issue of material fact regarding the intent of coverage for customers.

The Empire insurance policies include an endorsement that excludes liability coverage for customers like Angela, which is invalid under South Carolina law. Despite the invalidation, it does not automatically provide Angela with $1 million in coverage. The analysis requires reviewing both the Empire policies and Shields Auto's past coverage with Nationwide Mutual Insurance Company, which provided liability insurance of $1 million from 1988 to 1991 and $500,000 in 1991-92 without limiting liability for customers. After Empire began insuring Shields Auto in December 1992, the 1992-93 policy included a $1 million liability limit but restricted coverage for customers based on their own liability insurance.

In 1993-94, Empire issued two policies: a primary policy with limited coverage for certain customers and an excess policy. Angela's personal auto policy met the statutory limits, which, under the endorsement, excluded her from coverage under the Empire policy. However, since the endorsement violates South Carolina law by excluding permissive users, it is deemed invalid. Although petitioners assert that the intent was to maintain consistent coverage from 1992-93 to 1993-94, legal reformation of the policy only provides for the statutory minimum coverage rather than the full limits of the previous policy. Thus, the Court of Appeals determined that the reformation only guarantees the minimum coverage of 15/30/5, not the higher policy limits.

White was entitled to coverage under Potomac's policy up to statutory limits despite an exclusionary endorsement. This conclusion aligns with the ruling in Pennsylvania Nat. Mut. Casualty Ins. Co. v. Parker, which determined that a permissive user was insured against legal liability despite such exclusions. The Potomac ruling indicated that certain statutory provisions must be treated as incorporated into liability policies, specifically defining a permissive user as an insured and mandating minimum liability coverage levels.

Consequently, if a liability policy's exclusion contradicts the statutory definition, it must be reformed to comply with statutory minimums. The Empire policy, thus, provides Shields Auto with coverage for Angela at the statutory minimum limits of 15/30/5, contrary to the trial court's finding of $1 million coverage.

The court also addressed whether the illegal endorsement on the Empire policy should have been activated, questioning the parties' intent regarding customer liability limits. The Court of Appeals identified a genuine issue of material fact regarding the intent to limit coverage, noting Shields' intention to purchase $1 million coverage while Rickel's intent as an agent remained unclear. However, the court concluded that there was a mutual mistake regarding customer coverage, affirming the trial court's reformation of the policy to provide the intended $1 million coverage. The criteria for contract reformation due to mutual mistake require clear and convincing evidence that both parties intended a specific outcome but failed to achieve it due to drafting errors. Relevant deposition testimony was reviewed to determine if a material fact regarding mutual mistake existed.

John Shields testified during his deposition regarding the procurement of insurance from Empire through agent Rickel, emphasizing his intent for customers, like Angela, to be fully covered by the liability policy. Shields confirmed discussions with Rickel about coverage for customers who borrowed cars, stating that it was a primary concern when purchasing insurance. After an accident, he received assurances from Empire's agents that Angela would have $1 million coverage, specifically noting that Esther Levine and Tom Rickel reinforced this coverage, regardless of who was driving.

Shields also mentioned he requested Rickel to obtain coverage equivalent to his previous Nationwide policy, which did not limit liability for customers. Rickel acknowledged familiarity with the prior Nationwide coverage and confirmed that Shields opted for a $1 million limit on the Empire policy in 1992, an increase from the previous $500,000 limit. For the 1993-94 policy renewal, Shields intended to maintain the same liability limits and submitted a blank application for Rickel to complete. Rickel noted a change in policy format from a single policy to two separate policies but asserted that this change did not affect the coverage available to Angela.

The text also outlines the standards for summary judgment, indicating it is appropriate when no genuine issue of material fact exists, and emphasizes the burden on the party seeking summary judgment to demonstrate the absence of such issues. The opposing party must provide specific facts indicating a genuine issue for trial, rather than merely speculative doubts.

Opposing parties in a summary judgment cannot rely solely on allegations or denials in pleadings, as outlined in Rule 56(e) of the SCRCP. Shields clearly testified that he intended for customers, including Angela, to have $1 million coverage, which was the primary topic of his discussion with Rickel. Shields asserted that Rickel confirmed the coverage included all drivers of his vehicle, stating that his car was covered regardless of who was driving. Rickel corroborated that he issued a policy with $1 million coverage for Shields. 

Significantly, Rickel indicated he would have reviewed Shields Auto’s past coverage with Nationwide, which provided full liability coverage beyond statutory minimums. The evidence suggests that an error occurred, where Rickel or another agent of Empire mistakenly limited the coverage for Shields Auto's customers. Empire failed to present specific facts to create a genuine issue of material fact, thus not meeting its burden under Rule 56(e). The situation was deemed a mutual mistake because Shields requested $1 million coverage for any driver, yet the policies limited customer coverage.

The trial court's decision to grant summary judgment was appropriate, as all relevant parties had been deposed, providing Empire ample opportunity to build its case. Clear and convincing evidence of mutual mistake necessitated the reformation of the policy to reflect the intended $1 million coverage for Shields Auto's customers. The appellate court affirmed the trial court's decision, reversing the Court of Appeals. Justice Moore concurred with part of the majority opinion but dissented regarding the summary judgment on mutual mistake.

The majority's conclusion that no factual issue exists regarding a mutual mistake neglects critical deposition testimony from Ken Rickel, the agent who wrote the original Empire policy. Rickel confirmed that when he filled out the application with Mr. Shields, it was their first meeting, and he was unaware of the specifics of Shields' previous Nationwide coverage. During their discussion, Shields indicated he wanted $100,000 in inventory coverage and claimed he felt secure with that limit. Rickel did not review the Nationwide liability policy, which is pivotal since the absence of evidence that he knew the limits of the Nationwide policies undermines any assertion of intent in drafting the Empire policy. The law requires that a mutual mistake be proven by clear and convincing evidence for reformation of an instrument. In this case, the criteria for mutual mistake were not met, thus the summary judgment was improperly granted. The Court of Appeals' decision to remand the case for trial on the issue of reformation based on mutual mistake should be upheld. Shields Auto also brought a cross-claim against Empire and Rickel, alleging negligence and seeking a declaration for $1 million coverage or reformation of the policy. The relevant policies indicated limited liability coverage for customers unless otherwise specified, which was not activated in the Empire policy, further complicating the issue of coverage.

'Insured' is defined as the named insured and any individual using the motor vehicle with the named insured's consent. In this jurisdiction, no automobile insurance policy may be issued unless it includes a provision that covers the insured against legal liability for damages from the ownership, maintenance, or use of the vehicle within the U.S. or Canada, with specified minimum liability limits of 15/30/5. Insurers are permitted to offer coverage exceeding these minimums. The renewal form indicated liability limits of 'CSL 1,000,000.' Empire referenced Rickel's testimony, suggesting that customers would only receive state minimum insurance coverage, implying a lack of coverage for $1 million. However, it is concluded that Rickel's statement merely reflected the policy's explicit provisions and did not clarify Shields' intent regarding customer coverage. Although Empire sought summary judgment, it is treated as the opposing party in this context due to the summary judgment being granted to petitioners.