Trustees of Grace Reformed Episcopal Church v. Charleston Insurance

Citations: 868 F. Supp. 128; 1994 U.S. Dist. LEXIS 19577; 1994 WL 662960Docket: Civ. A. 2:92-2957-22

Court: District Court, D. South Carolina; May 12, 1994; Federal District Court

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The case involves the Trustees of Grace Reformed Episcopal Church (Plaintiffs) suing Charleston Insurance Co. and others, including Gay. Taylor (Defendant), for damages to their church allegedly caused by Hurricane Hugo and a previous windstorm. Jurisdiction is established under diversity of citizenship per 28 U.S.C. § 1332. The court is addressing Gay. Taylor's Motion for Summary Judgment and Motion for Partial Summary Judgment. 

The court denies the Motion for Summary Judgment, ruling that Plaintiffs are not barred from seeking damages against Gay. Taylor despite settling with Charleston Insurance. Under South Carolina law, a settlement with one tortfeasor does not discharge claims against others unless explicitly stated or if full compensation has been received. The covenant not to execute signed by Plaintiffs with Charleston Insurance clarifies that it does not discharge other tortfeasors. Furthermore, as Plaintiffs assert they have not been fully compensated—claiming damages of $383,497.40 and recovering $254,280.12, leaving $129,217.28 potentially uncompensated—the court finds grounds to allow their claims against Gay. Taylor to proceed.

Conversely, the court grants Gay. Taylor's Motion for Partial Summary Judgment regarding the SCUTPA claim, concluding that the alleged unfair trade practices related to insurance claim adjustments are exempt from SCUTPA coverage.

Gay. Taylor's Motion for Partial Summary Judgment is based on S.C. Code Ann. 39-5-40(c) of the South Carolina Unfair Trade Practices Act (SCUTPA), which states that SCUTPA does not apply to unfair trade practices regulated under Title 38, Chapter 55 of the South Carolina Code. This chapter has since been recodified as Chapter 57, which aims to regulate trade practices in the insurance business by defining and prohibiting unfair methods of competition and deceptive acts.

The plaintiffs argue that the 39-5-40(c) exemption does not apply for three reasons: (1) a prior state court ruling on this issue denied Gay. Taylor's motion for summary judgment, and thus should be considered the law of the case; (2) 39-5-40(c) only exempts practices covered under Chapter 55, and courts must adhere to the written statutes; and (3) even if 39-5-40(c) applies to Chapter 57, it does not preclude other practices under the Insurance Code from forming the basis of a SCUTPA claim.

The court responds to these arguments, stating that it is not bound by the prior state court ruling, as such interlocutory decisions are subject to reconsideration. The court finds the plaintiffs' interpretation of 39-5-40(c) flawed, asserting that it would render the statute meaningless. The court notes that Chapter 55 does not cover unfair trade practices in insurance, and thus the General Assembly likely did not intend for 39-5-40(c) to be ineffective. The court aligns with a previous ruling that interpreted 39-5-40(c) as referring to Chapter 57, reinforcing that the Insurance Trade Practices Act regulates all unfair trade practices in the insurance sector and is exempt from SCUTPA.

Judge Shedd highlighted that when the legislature makes a reference error in a statute, courts may correct it if the true legislative intent is clear and would be compromised by strict adherence to the erroneous reference. Specifically, Section 39-5-40(c) exempts unfair trade practices governed by Chapter 57 of Title 38, effectively excluding all unfair trade practices related to the insurance business from SCUTPA's coverage. The Insurance Trade Practices Act, referenced in Section 39-5-40(c), is designed to regulate unfair trade practices in insurance, as indicated in 38-57-10. The preamble of an act can guide the interpretation of legislative intent. Therefore, Section 39-5-40(c) excludes all insurance-related unfair trade practices from SCUTPA's scope, leading to the granting of Gay Taylor's Motion for Partial Summary Judgment on the SCUTPA claim. Additional notes clarify that there was not complete diversity of citizenship at the action's commencement, the concept of "law of the case" is flexible and context-dependent, and Chapter 59 of Title 38, which outlines improper claims practices by insurers, does not affect the exemption in Section 39-5-40(c) since it does not define unfair trade practices. Plaintiffs could pursue claims under Chapter 59 if they chose.