Filed: Jan. 08, 2014
Latest Update: Mar. 02, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2452 FIRST FINANCIAL INSURANCE COMPANY, Plaintiff - Appellant, v. TONYA BRUMBAUGH, as Personal Representative for the Estate of Wanda Elaine Malmede Holland, Defendant – Appellee, and CHAD WAYNE KESSING, SR.; EDWARD STEVE ENGLISH; GARY DENAUX; GAREY G. GOREY; WHOLESALE TRANSMISSIONS AND AUTO REPAIR; GHA LLC, Defendants. Appeal from the United States District Court for the District of South Carolina, at Charleston. Richard M
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2452 FIRST FINANCIAL INSURANCE COMPANY, Plaintiff - Appellant, v. TONYA BRUMBAUGH, as Personal Representative for the Estate of Wanda Elaine Malmede Holland, Defendant – Appellee, and CHAD WAYNE KESSING, SR.; EDWARD STEVE ENGLISH; GARY DENAUX; GAREY G. GOREY; WHOLESALE TRANSMISSIONS AND AUTO REPAIR; GHA LLC, Defendants. Appeal from the United States District Court for the District of South Carolina, at Charleston. Richard M...
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2452
FIRST FINANCIAL INSURANCE COMPANY,
Plaintiff - Appellant,
v.
TONYA BRUMBAUGH, as Personal Representative for the Estate
of Wanda Elaine Malmede Holland,
Defendant – Appellee,
and
CHAD WAYNE KESSING, SR.; EDWARD STEVE ENGLISH; GARY DENAUX;
GAREY G. GOREY; WHOLESALE TRANSMISSIONS AND AUTO REPAIR; GHA
LLC,
Defendants.
Appeal from the United States District Court for the District of
South Carolina, at Charleston. Richard M. Gergel, District
Judge. (2:11-cv-00554-RMG)
Argued: September 18, 2013 Decided: January 8, 2014
Before SHEDD, DUNCAN, and KEENAN, Circuit Judges.
Vacated and remanded by unpublished opinion. Judge Keenan wrote
the majority opinion, in which Judge Duncan joined. Judge Shedd
wrote a dissenting opinion.
ARGUED: Mark S. Barrow, SWEENY, WINGATE & BARROW, PA, Columbia,
South Carolina, for Appellant. William Mullins McLeod, Jr.,
MCLEOD LAW GROUP, Charleston, South Carolina, for Appellee. ON
BRIEF: William R. Calhoun, Jr., Aaron J. Hayes, SWEENY, WINGATE
& BARROW, PA, Columbia, South Carolina, for Appellant. Julie L.
Moore, MCLEOD LAW GROUP, LLC, Charleston, South Carolina, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
BARBARA MILANO KEENAN, Circuit Judge:
In this appeal, we consider whether the district court
properly applied principles of equitable estoppel under South
Carolina law in requiring that an insurance carrier provide
coverage to a third party not otherwise entitled to coverage
under the terms of the policy at issue. Upon our review, we
conclude that the district court abused its discretion in using
the doctrine of estoppel to create coverage under these
circumstances. We therefore vacate the district court’s
judgment.
I.
Appellant First Financial Insurance Co. (First Financial)
issued a liability insurance policy to Gary Denaux, formerly the
sole proprietor of Wholesale Transmission, an automotive
transmission business located in Moncks Corner, South Carolina.
The policy issued to Denaux (the policy or the Denaux policy)
listed the named insured as “Gary Denaux DBA Wholesale
Transmission.” The term “insured” was defined in the policy to
include the named insured as well as his employees. 1
1
An endorsement to the policy added the owners of the
“garage premises” as additional insureds.
3
In the section of the policy declarations entitled “form of
business,” the policy listed “individual,” rather than
alternative options including “partnership” and “limited
liability company.” Under the policy, First Financial agreed to
“pay all sums an ‘insured’ legally must pay as damages because
of ‘bodily injury’ or ‘property damage’ . . . caused by an
‘accident’ and resulting from ‘garage operations.’”
By its terms, the policy was effective from May 23, 2007
through May 23, 2008. Under the heading “Transfer of Your
Rights and Duties Under this Policy,” the policy provided:
Your rights and duties under this policy may not be
transferred without our written consent except in the
case of death of an individual named insured.
(Emphasis added).
Midway through the term of the policy, Denaux ceased
operating his business. A former coworker, Edward English,
opened a new automotive transmission business in the same
location, also named Wholesale Transmission. English and a
friend, Garey Gorey, operated the new business through a newly
formed limited liability company. Upon receiving a bill
addressed to Denaux at the business’ address, English paid the
last installment of the Denaux policy premium in February 2008.
Denaux did not attempt to cancel the policy or to transfer
his coverage under the policy to English. In April 2008, as the
policy was nearing its termination date, First Financial sent by
4
facsimile a blank insurance application to Lee Ann Wise, the
independent insurance agent who had obtained the policy for
Denaux and who also was acting as English’s agent. Wise thought
that the application was for a renewal of the Denaux policy,
which was to expire on May 23, 2008.
On May 2, 2008, Wise sent a completed application for a
policy in English’s name to an underwriter for First Financial.
Her facsimile transmission included a cover sheet, which stated:
Gary Denaux is no longer the owner of this company. I
made the changes on the app[lication]. I am not sure
if you will need to re-quote it w[ith] the new owner
[and] drivers. Please call me if you have any
questions.
On June 6, 2008, First Financial issued a new policy to “Steve
Edward English DBA Wholesale Transmission” (the English policy),
retroactively effective as of May 23, 2008, the same day that
the Denaux policy expired.
Eleven days before the expiration of the Denaux policy, but
before the English policy went into effect, one of English’s
employees, Chad Kessing, was involved in a vehicle collision
that resulted in the death of Wanda Holland (the accident).
Tonya Brumbaugh, the personal representative of Holland’s
estate, filed a wrongful death action in a South Carolina state
court against Kessing, Wholesale Transmission, Denaux, English’s
limited liability company, and English. First Financial later
brought the present action in federal district court against
5
Kessing, English, Denaux, Gorey, Wholesale Transmission,
English’s limited liability company, and Brumbaugh, seeking a
declaration that the Denaux policy did not provide coverage in
the underlying liability lawsuit.
The district court entered default judgment against all of
the defendants except Brumbaugh. 2 The defaulting defendants
therefore admitted the following:
Mr. Denaux, the named insured under First Financial’s
policy, cannot be liable—directly or vicariously—for
the injuries to or death of Ms. Holland. He had sold
the business and left it entirely approximately four
months before Kessing’s accident.
Kessing was not an insured under Denaux’s policy at
the time of the accident. He did not fit into the
policy’s “Who is an Insured” provision because he was
not an employee of Denaux when the accident occurred;
he was employed by Steve English in a different
business than that owned by Gary Denaux. Mr. Denaux
had no “power or right to control and direct” Mr.
Kessing at the time of the accident.
Mr. Denaux could not, and did not, transfer his rights
and duties under the policy to Steve English; [Garey]
Gorey; GHA, LLC; or Wholesale Transmission and Auto
Repair. Denaux did not seek, and did not obtain,
First Financial’s written consent to transfer any
rights under [the policy] to any other party.
See DIRECTV, Inc. v. Rawlins, 523 F.3d 318, 322 n.2 (4th Cir.
2008) (citing Ryan v. Homecomings Fin. Network,
253 F.3d 778,
780 (4th Cir. 2001)) (explaining that, when a defendant
defaults, he admits the plaintiff’s factual allegations as
2
Brumbaugh also defaulted but successfully moved to set
aside default.
6
true). The district court thereafter entered a default judgment
order holding that the Denaux policy did not provide coverage
for any of the defaulted defendants.
After entering the default judgment order, and after
considering the cross-motions for summary judgment filed by
First Financial and Brumbaugh, the district court held as a
matter of law that the Denaux policy did not provide coverage
for the accident, because First Financial had not consented in
writing to the transfer of Denaux’s rights under the policy to
English and his employees. Following this determination, the
district court held a bench trial to resolve the court’s
additional question whether First Financial “should be equitably
estopped from denying coverage, notwithstanding the fact that
coverage does not technically exist under the terms of the
Policy.”
At the conclusion of the bench trial, the district court
reiterated that the Denaux policy did not cover the accident,
but nevertheless held that First Financial was equitably
estopped from denying coverage because, by its conduct, First
Financial had reasonably induced English to believe that
Denaux’s rights under the policy had been transferred. First
Financial timely appealed from the district court’s judgment
imposing equitable estoppel in this case.
7
II.
We review the district court’s decision to apply equitable
estoppel for abuse of discretion. Am. Bankers Ins. Grp. v.
Long, 453 F.3d 623, 629 (4th Cir. 2006). Under the facts of
this case, we note at the outset that English never was a named
insured under the Denaux policy, and was not otherwise a party
to an insurance contract with First Financial at any time before
the accident. 3 See Auto-Owners Ins. Co. v. Rhodes, No. 27316,
2013 S.C. LEXIS 248, at *21-22 (S.C. Sept. 25, 2013) (citations
omitted) (citing cases for the proposition that, when an
insurance policy is issued for a sole proprietorship, the policy
is considered to be issued to the proprietor personally).
Under South Carolina law, the doctrine of equitable
estoppel applies when the party to be estopped (1) engages in
“conduct which amounts to a false representation, or conduct
which is calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) [has] the intention that
such conduct shall be acted upon by the other party; and (3)
3
We observe that Brumbaugh was the only party who attempted
to establish coverage through equitable estoppel, given the
default of all her co-defendants. Because we hold that
equitable estoppel cannot be employed to create coverage under
the Denaux policy for the accident, we do not consider the
effect of English’s default on Brumbaugh’s ability to assert
equitable estoppel derivatively through English.
8
[has] actual or constructive knowledge of the real facts.”
Strickland v. Strickland, 650 S.E.2d 465, 470 (S.C. 2007).
Estoppel can be established through a party’s silence when that
party owes the other a duty to speak but “refrains from doing so
and thereby leads the other to believe in the existence of an
erroneous state of facts.” S. Dev. Land & Golf Co. v. S.C. Pub.
Serv. Auth.,
426 S.E.2d 748, 751 (S.C. 1993) (citation omitted).
The party asserting estoppel must demonstrate “(1) lack of
knowledge, and the means of knowledge, of the truth as to the
facts in question; (2) reliance upon the conduct of the party
estopped; and (3) a prejudicial change of position in reliance
on the conduct of the party being estopped.”
Strickland, 650
S.E.2d at 470.
Although estoppel is a flexible doctrine that requires
consideration of the relative equities between the parties, see
Pitts v. N.Y. Life Ins. Co., 148 S.E.2d 369, 371-72 (S.C. 1966),
the doctrine’s reach is not unlimited. In Pitts, the Supreme
Court of South Carolina discussed the general principle of
insurance law that conditions or restrictions on coverage may
not be extended by waiver or estoppel.
Id. at 371 (citations
omitted). According to this principle, estoppel “cannot be used
to extend the coverage of an insurance policy or create a
primary liability, but may only affect the rights reserved
therein.”
Id.
9
The South Carolina court held that this general principle
is not binding when circumstances warrant application of the
doctrine.
Pitts, 148 S.E.2d at 371. Addressing such a
circumstance, the court carved out a narrow exception in which,
after the insured’s coverage has terminated, the insurer retains
premium payments made by the insured over a period of time. In
Pitts’ case such payments extended for a period of 16 years.
Id. at 370-71.
Holding that the insurance carrier was estopped from
denying coverage, the court in Pitts explained that
[w]here the insurer over a long period of time after
the date prescribed by it for the termination of a
particular coverage has continued to demand, accept
and retain the premium fixed by it for that coverage,
it may be reasonably inferred that the insured, who in
the normal course of things relies upon the insurer’s
billing, has been misled by such conduct to believe
that the insurer has continued to accept the coverage.
Id. at 372.
The court in Jost v. Equitable Life Assurance Society of
the United States, 248 S.E.2d 778 (S.C. 1978), similarly
concluded that, because the insurer knew that coverage had
expired but nevertheless collected premium payments from the
insured, the carrier’s actions could only indicate that the
carrier either intended to provide additional coverage, intended
to provide the insured with nothing, despite the payments, or
had collected the payments by mistake, which explanation the
10
carrier had not asserted. Id. at 779. Therefore, relying on
Pitts, the court in Jost held that the insurer was estopped from
denying
coverage. 248 S.E.2d at 780.
In the present case, Brumbaugh asserts that English and his
employees are entitled to the benefits of coverage under the
Denaux policy, even though English was not a named insured under
the policy. Relying on Pitts and Jost, she contends that First
Financial misled English into believing that the Denaux policy
provided him with coverage, by failing to return the premium on
Denaux’s policy after learning that Denaux had ceased operating
his business. In our view, Brumbaugh’s requested result would
impermissibly “create a primary liability” by estoppel, because
the special circumstances warranting application of the doctrine
in Pitts and Jost are absent here.
In both those cases, the doctrine of equitable estoppel was
applied because the insurance carrier had misled its named
insured, with whom the carrier had an existing contractual
relationship, to think that coverage continued to exist. Here,
in contrast, English was not a named insured under the Denaux
policy, and First Financial had no duty to inform English or his
agent, Wise, that English lacked coverage under the existing
11
Denaux policy. 4 Further, at the time of the accident, the Denaux
policy was still in effect for Denaux and his covered former
employees, and English had not yet obtained his own policy. 5 For
these reasons, we conclude that Brumbaugh’s reliance on Pitts
and Jost is misplaced. She cannot escape the general principle
of insurance law, as applied by the South Carolina courts, which
ordinarily does not allow use of the doctrine of estoppel to
create insurance coverage when an insurer has not misled its
insured to think that the risk in question was covered. See
4
Under South Carolina law, “as a general rule, an insurance
agent has no duty to advise an insured at the point of
application, absent an express or implied undertaking to do so.”
Houck v. State Farm Fire & Cas. Ins. Co., 620 S.E.2d 326, 329
(S.C. 2005). A duty can be created by implication if the
insurer received compensation beyond the payment of the premium,
the insured clearly requested the advice of the insurer, or
“there is a course of dealing over an extended period of time
which would put an objectively reasonable insurance agent on
notice that his advice is being sought and relied on.”
Id.
(citation omitted). None of these exceptions to the general
rule apply here.
5
In concluding that First Financial had misled English into
believing that he was covered under the Denaux policy, the
district court relied partially on the fact that First Financial
failed to cancel the policy after receiving notice on May 2,
2008 that Denaux had ceased operating Wholesale Transmission.
Under the terms of the policy, however, First Financial
could unilaterally cancel the policy only under limited
circumstances. Aside from cancellation for non-payment of
premiums, a circumstance not applicable in this case, First
Financial could cancel the policy only after providing Denaux
with 30 days’ notice. Accordingly, had First Financial sought
to cancel the policy after receiving Wise’s facsimile on May 2,
2008, the required 30-day notice period would have eclipsed both
the date of the accident and the date on which the policy would
have expired by its own terms.
12
Pitts, 148 S.E.2d at 371; Standard Fire Ins. Co. v. Great Am.
Ins. Co.,
392 S.E.2d 460, 462 (S.C. 1990).
We also observe that imposition of primary liability
coverage in the present case would not promote the equitable
considerations underlying the doctrine of estoppel. Such
imposition would require that an insurance carrier, here, First
Financial, provide coverage for a party and associated risks
that: (1) were not contemplated when the carrier originally
entered into the insurance contract with its insured; and (2)
for which no premium was paid.
Moreover, Brumbaugh cannot prove a required element of
equitable estoppel, namely, that English did not know or have
the opportunity to know the truth about the transferability of
rights under the Denaux policy. Although English and Wise may
have had an honest misunderstanding about the state of English’s
coverage, the face of the policy makes plain that Denaux’s
rights could not be transferred absent written consent from
First Financial.
Wise, as the insurance agent of both Denaux and English,
had access to the Denaux policy and, therefore, had the ability
to correct her mistaken assumption that the policy automatically
covered English’s new business. Nevertheless, she did not seek
clarification or a response from First Financial on the
facsimile cover page, nor did she indicate to First Financial
13
that she thought that the rights under the Denaux policy had
been transferred to English. English therefore cannot show the
“lack of knowledge, and the means of knowledge, of the truth as
to the facts in question” necessary to apply equitable estoppel.
Strickland, 650 S.E.2d at 470; see also S. Dev. Land & Golf
Co.,
426 S.E.2d at 751 (“One with knowledge of the truth or the means
by which with reasonable diligence he could acquire knowledge
cannot claim to have been [misled].”). 6
III.
In sum, we hold that the district court abused its
discretion in holding that First Financial was equitably
estopped from denying coverage for the accident. Accordingly,
we vacate the district court’s judgment and remand for further
proceedings consistent with this opinion.
VACATED AND REMANDED
6
Because we conclude that Brumbaugh’s assertion of
equitable estoppel fails as an improper imposition of coverage,
and because Wise and English had the means to discover the
transferability requirements of the Denaux policy, we do not
address whether the other elements of equitable estoppel are
satisfied.
14
SHEDD, Circuit Judge, dissenting:
I believe the majority has made several critical mistakes
in its analysis. It has required the accident victim to prove an
additional element not mandated by the law of equitable
estoppel, and it has failed to focus on the crucial information
known only by the insurance company, which is the basis for this
estoppel. This knowledge is not, as the majority believes, the
transfer provision written into the insurance contract, but
instead the fact that the company did not intend to waive that
provision. The result of this flawed analysis means that the
insurance company will succeed in avoiding even potential
liability for the fatal accident caused by its insured, 1 and
which victim the insurance company tried to silence in court.
Under the circumstances, I respectfully dissent.
First Financial Insurance Co. (“First Financial”), issued
an insurance policy to Gary Denaux, doing business as Wholesale
Transmission (“WT”), covering the period of May 23, 2007, to May
23, 2008. WT is an auto-repair shop started by Gary Denaux,
which Edward English later joined as a partner. The two ran the
company together from late 2006 to late 2007. Around the end of
2007 or beginning of 2008, Denaux left the business. WT was then
1
As pointed out by the court below, despite equitable
estoppel, First Financial can still assert it has no financial
responsibility for the accident. See J.A. 313.
15
run by English and Gary Gorey, after Gorey bought out Denaux’s
interest. WT operated in the same location, and the First
Financial policy remained in place. In February of 2008, English
paid the final insurance premium for the 2007–2008 policy with a
check signed in his name.
In April of 2008, Lee Ann Wise, an insurance agent for WT
and English, received a blank application from First Financial
for insurance for WT, which she understood to be an application
for the renewal of the then-existing policy. On the application,
Wise asked for the renewal to be effective on May 23, 2008, the
date the original coverage period was to terminate, which would
ensure no lapse of coverage. As with the original application,
the renewal application listed the name of the business as
Wholesale Transmission, the same address for WT, the applicant’s
business as a “transmission repair shop,” and the same amount of
coverage. On May 2, 2008, Wise faxed the completed application
to First Financial, with a cover letter that stated,
Pat- 2
Gary Denaux is no longer the owner of this company. I
made the changes on the app, I am not sure if you will
need to re-quote it w/ the new owner & drivers. Please
call me if you have any questions. Thank you, Lee Ann.
2
Pat Dandridge was an employee of Johnson & Johnson, which
is an agent of First Financial. J.A. 320.
16
J.A. 114 (emphasis added). First Financial never contacted Wise
regarding the information in her cover letter or in the
application, nor did it inform her the current policy would not
cover WT if Denaux was no longer the owner. Further, First
Financial did not refund any of the premium to WT after
discovering Denaux was no longer involved with WT. On May 12,
2008, Ms. Wanda Holland was killed in a car accident with one of
WT’s employees. Ms. Holland, through her daughter, Tonya
Brumbaugh, sued WT (and others) in state court because of the
accident.
The case before us represents First Financial’s attempts to
avoid liability coverage for the auto accident. First Financial
brought a declaratory judgment action in district court against
Brumbaugh (and others) seeking a determination that it was not
required to provide coverage for the accident that caused Ms.
Holland’s death. After suing Brumbaugh in the declaratory
judgment action, First Financial then claimed she had no
standing to even assert First Financial’s coverage.
The district court first denied First Financial’s attack on
Brumbaugh’s standing. Then, after a bench trial, the district
court estopped First Financial from denying coverage based on
First Financial’s position that it had not given written consent
under the policy for coverage to be transferred to WT operating
without Denaux.
17
In arguing that we should not even hear from Brumbaugh,
First Financial incorrectly relies on South Carolina case law
that explains when a party may bring a direct cause of action
against an insurer. Brief of Appellant at 11–12. Here, Brumbaugh
did not bring a direct action against First Financial, but
rather, was brought into court by First Financial. Brumbaugh
clearly has standing to defend herself in this action under
South Carolina law. Cases limiting direct actions are
inapplicable. See, e.g., Major v. Nat'l Indem. Co., 229 S.E.2d
849 (S.C. 1976) (distinguishing between case law allowing
joinder of insurance companies by third parties versus a direct
suit solely against an insurance company by a third party).
South Carolina courts allow third parties to seek contract
reformation of insurance contracts to which they are not a
party. George v. Empire Fire & Marine Ins. Co.,
519 S.E.2d 107,
110 (S.C. Ct. App. 1999) rev'd on other grounds,
545 S.E.2d 500
(S.C. 2001), (“Ordinarily, a party requesting reformation must
have been a party to the written document or in privity with a
party. However, a third-party beneficiary to an insurance
contract may bring such an action.” (citations omitted)).
Accordingly, Brumbaugh has standing to defend herself in this
18
declaratory action, regardless of whether she has a direct cause
of action against the insurer under South Carolina law. 3
Next, First Financial argues that insurance coverage may
not be extended by equitable estoppel. See Brief of Appellant at
22. First Financial is incorrect; South Carolina does allow
insurance coverage to be extended by estoppel. See Standard Fire
Co. v. Marine Contracting & Towing Co., 392 S.E.2d 460, 462
(S.C. 1990); Pitts v. New York Life Ins. Co.,
148 S.E.2d 369,
3
First Financial’s argument on standing not only
contravenes South Carolina law but is contrary to the insurance
principles recognized both in this Circuit and others. For
example, as we previously stated in Penn Am. Ins. Co. v. Valade,
28 F. App’x 253 (4th Cir. 2002),
[T]he third party’s interest in defining the scope of
insurance coverage is independent of the interest of
the insured. When an insurer initiates a declaratory
judgment action against both an injured third party
and its insured, the injured third party acquires
standing, independent of that of the insured, to
defend itself in the declaratory judgment proceeding.
Fed. Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 353
(3d Cir. 1986) (stating that injured third party
“ha[s] standing to defend the declaratory judgment
action despite the absence of . . . the actual
insured”); Hawkeye-Sec. Ins. Co. v. Schulte, 302 F.2d
174, 177 (7th Cir. 1962) (“It would be anomalous to
hold here that an actual controversy exists between
[an injured third party] and [an insurer] and yet deny
[the injured third party] the right to participate in
the controversy.”). In this regard, it would be
anomalous not to permit the injured third party an
opportunity to present its case against the insurer,
which initially brought the declaratory judgment
action, after the insured defaulted.
Id. at 256–57 (emphasis added).
19
372 (S.C. 1966) (“[E]stoppel is an equitable doctrine,
essentially flexible, and therefore to be applied or denied as
the equities between the parties may preponderate.”).
The question here is whether the district court erred in
finding that the circumstances present in this case met South
Carolina’s estoppel requirements. We review the district court
decision under the abuse of discretion standard. The district
court abused its discretion only if it made an error of law or
clearly erred in its factual findings. Am. Bankers Ins. Grp.,
Inc. v. Long, 453 F.3d 623, 629 (4th Cir. 2006).
We review factual findings by the district court under
the clearly erroneous standard set forth in Federal
Rule of Civil Procedure 52(a). Monroe v. Angelone, 323
F.3d 286, 299 (4th Cir. 2003); Fields v. Attorney Gen.
of Md., 956 F.2d 1290, 1297 n.18 (4th Cir. 1992). Our
scope of review is narrow; we do not exercise de novo
review of factual findings or substitute our version
of the facts for that found by the district court.
Jiminez v. Mary Washington College, 57 F.3d 369, 378
(4th Cir. 1995). Instead, “[i]f the district court's
account of the evidence is plausible in light of the
record viewed in its entirety, the court of appeals
may not reverse it even though convinced that had it
been sitting as the trier of fact, it would have
weighed the evidence differently.” Anderson v. City of
Bessemer City, 470 U.S. 564, 573-74,
105 S. Ct. 1504,
84 L. Ed. 2d 518 (1985). Thus, facts found by the
district court are conclusive on appeal “unless they
are plainly wrong.” Jiminez, 57 F.3d at 378-79.
Walton v. Johnson,
440 F.3d 160, 173 (4th Cir. 2006). For the
reasons discussed below, the district court made no error of
law; and as the factfinder, that court clearly could find the
20
elements of equitable estoppel had been met based on the
circumstances in this case.
Although the majority correctly rejects First Financial’s
erroneous view that South Carolina does not allow the extension
of insurance coverage under equitable estoppel, it otherwise
misreads South Carolina law. The majority conflates
circumstances which allow for the application of equitable
estoppel in specific cases with the requirements of the general
rule. Stated another way, the cases the majority relies on do
not add an additional requirement to equitable estoppel in South
Carolina. Properly applying the law of equitable estoppel, we
must affirm the district court.
As relevant here, the elements for equitable estoppel in
South Carolina are:
As to the estopped party, . . . (1) . . . conduct
calculated to convey the impression that the facts are
otherwise than, and inconsistent with, the party's
subsequent assertions; (2) intention or expectation
that such conduct be acted upon by the other party;
and (3) actual or constructive knowledge of the real
facts. As to the party claiming estoppel, the
essential elements are: (1) lack of knowledge or the
means of acquiring, with reasonable diligence,
knowledge of the true facts; (2) reasonable reliance
on the other party's conduct; and (3) a prejudicial
change in position. . . . Estoppel by silence arises
when the estopped party owes a duty to speak to the
other party but refrains from doing so, thereby
leading the other party to believe in an erroneous
state of facts.
21
Provident Life & Acc. Ins. Co. v. Driver, 451 S.E.2d 924, 928
(S.C. Ct. App. 1994) (citation omitted). Further, a duty to
speak may arise
where one party expressly reposes a trust and
confidence in the other with reference to the
particular transaction in question, or else from the
circumstances of the case, the nature of their
dealings, or their position towards each other, such a
trust and confidence in the particular case is
necessarily implied[.]
Hedgepath v. Am. Tel. & Tel. Co., 559 S.E.2d 327, 339 (S.C. Ct.
App. 2001). In the insurance context specifically,
[a] duty may be imposed . . . if the agent . . .
undertakes to advise the insured. . . . [A] duty can
be impliedly created. In determining whether an
implied duty has been created, courts consider several
factors, including whether: (1) the agent received
consideration beyond a mere payment of the premium,
(2) the insured made a clear request for advice, or
(3) there is a course of dealing over an extended
period of time which would put an objectively
reasonable insurance agent on notice that his advice
is being sought and relied on.
Houck v. State Farm Fire & Cas. Ins. Co., 620 S.E.2d 326, 329
(S.C. 2005) (citations and internal quotation marks omitted).
At trial, the evidence necessary to establish each element
of equitable estoppel was presented to the district court as the
factfinder.
First, there was “conduct calculated to convey the
impression that the facts are otherwise than, and inconsistent
with, the party's subsequent assertions.” Provident Life & Acc.
Ins. Co., 451 S.E.2d at 928. First Financial’s conduct conveyed
22
the impression that English was covered because by not saying
anything to Wise or English, First Financial signified it was
waiving the no transfer provision in the original policy.
Second, there was an “intention or expectation that such
conduct be acted upon by the other party.” Id. First Financial
should have expected that by not saying anything at all in
response to Wise’s fax, English would believe he had continuing
coverage. Further, the existence of continuing coverage could be
gleaned from the fact that the new policy was to begin the exact
minute the old coverage period expired. The factfinder could
certainly find that English would thereby understand that he was
continually covered and would decide to forego obtaining other
insurance. See Moore v. Palmetto State Life Ins. Co.,
73 S.E.2d
688, 693 (S.C. 1952).
Third, First Financial had “actual or constructive
knowledge of the real facts.” Provident Life & Acc. Ins. Co.,
451 S.E.2d at 928. First Financial knew or should have known
that English was seeking continuing coverage and that it did not
intend to waive the no transfer provision in the contract to
allow for that coverage. On this point, the majority mistakenly
believes the critical fact is the no transfer provision of the
insurance contract, but it is not. The “real” fact is that First
Financial did not waive that provision.
23
Fourth, the party asserting estoppel must show a “lack of
knowledge or the means of acquiring, with reasonable diligence,
knowledge of the true facts.” Id. Here, the majority focuses on
the wrong “facts.” The majority asserts that Brumbaugh cannot
establish this element because “the face of the policy makes
plain that Denaux’s rights could not be transferred absent
written consent from First Financial.” But again, the majority
fails to realize that the critical issue is not whether English
could have found the no transfer provision in reading the
contract, but rather, that First Financial had no intention of
waiving it.
Without question, First Financial had the authority to
waive the provision requiring its written consent for a
transfer. Insurance companies can waive any provision meant to
protect them and can even waive provisions that define how a
proper waiver is to occur. Gandy v. Orient Ins. Co., 29 S.E.
655, 656 (S.C. 1898) (“An insurance contract, like any other
contract, may be altered by the contracting parties, and the
insurer may, of course, waive any provision for forfeiture
therein. It may also waive the provision relating to the manner
or form of waiver by its agents, since this clause has no
greater sanctity than any other part of the instrument.”). Thus,
First Financial clearly could waive the requirement that its
consent to transfer had to be in writing. Accepting, as the
24
majority does, that Wise knew of the transfer provision, she is
also charged with having knowledge of the law on waiver, and
based on her course of dealing with First Financial, she thought
First Financial was waiving the provision. Neither Wise nor
English had any way to discover that First Financial did not
intend to waive that provision because First Financial did not
respond in a manner to put English on notice that there was a
problem or issue pursuant to Wise’s fax.
Fifth, there was “reasonable reliance on the other party's
conduct.” Provident Life & Acc. Ins. Co., 451 S.E.2d at 928.
English, through his agent, Wise, believed that by its silence,
First Financial was consenting to a transfer of the policy.
Thus, Wise thought First Financial’s silence meant First
Financial was providing English with continuing coverage. There
is no doubt this reliance was clearly reasonable; First
Financial’s representative admitted as much at trial. J.A. 180.
Sixth, there was “a prejudicial change in position.”
Provident Life & Acc. Ins. Co., 451 S.E.2d at 928. Wise
testified that if First Financial had notified her that there
was any problem whatsoever with continuing coverage for English,
she would have immediately obtained other insurance for English
to prevent any lapse in coverage. Thus, English had a
prejudicial change in position when he did not get other
insurance for that time period.
25
The two additional elements for estoppel by silence are (1)
the duty to speak and (2) a failure to speak that misleads the
injured party. Id. They are both present here. The majority
believes that “First Financial had no duty to inform English or
his agent, Wise, that English lacked coverage” because English
did not have an “existing contractual relationship” with First
Financial. The majority apparently finds that requirement in
Jost v. Equitable Life Assurance Soc’y of the U.S.,
248 S.E.2d
778 (S.C. 1978) and Pitts,
148 S.E.2d 369. There, the South
Carolina Supreme Court estopped insurance companies from denying
coverage because they continued to accept premiums from
individuals after their insurance policies had terminated. In
these cases, the court applied estoppel in a factual situation
where there was an existing contractual relationship, but the
court did not make such an existing relationship a requirement
for equitable estoppel. See S. Dev. Land & Golf Co., Ltd. v.
S.C. Pub. Serv. Auth.,
426 S.E.2d 748, 750 (S.C. 1993) (listing
the elements of equitable estoppel, but not including an
existing relationship as a requirement); Provident Life & Acc.
Ins.
Co., 451 S.E.2d at 928 (same).
There is no requirement for an existing contractual
relationship, or any type of prior relationship, for there to be
a duty to speak in South Carolina. See, e.g., Moore, 73 S.E.2d
at 693 (estopping an insurance company from denying coverage of
26
an individual who had not yet formed a contract with the
company, and treating the company’s failure to speak as an
implied acceptance). In fact, in South Carolina, as little as a
first-time phone conversation between the parties can be
sufficient to create a duty to speak. See S. Dev. Land & Golf
Co., Ltd., 426 S.E.2d at 750–51. For example, in Southern
Development Land and Golf Co., an individual interested in
purchasing property for development called the power company to
inquire about exposed power lines located on the property and
advised the company of his need to avoid any exposed power
lines.
Id. The power company told the caller the current lines
could be buried, but failed to tell him of its finalized plans
to replace those current lines with exposed high voltage lines.
Id. Because the power company knew the man needed to avoid all
such exposed lines and also knew it had plans to build new
exposed lines on the property, this superior knowledge was
enough to create a duty to speak, even though there was no prior
relationship between the parties before this phone call.
Id.
The court found a duty to speak under the circumstances of
this case. 4 That finding is justified in several ways. First,
there was an implied trust and confidence based on both the
4
“Plaintiff could have informed [English] that it did not
consent to a transfer of rights under the Policy and that
additional coverage must be purchased for the period up until
May 23, 2008.” J.A. 326, n.9.
27
circumstances of the case and the nature of the course of
dealings between Wise, as English’s agent, and First Financial.
See Hedgepath, 559 S.E.2d at 339.
Second, under South Carolina law, there may be a duty to
speak in the insurance context if there is an implied
undertaking to advise an applicant. Here, Wise’s fax could
certainly be construed as a request for advice. Further, the
testimony indicated “there [was] a course of dealing [between
Wise and First Financial] over an extended period of time which
would put an objectively reasonable insurance agent on notice
that his advice [was] being sought and relied on.” Houck, 620
S.E.2d at 329. The course of dealing between First Financial and
Wise was such that whenever there was any problem with an
individual’s coverage or application, First Financial would
advise her of it. Here, based on their prior course of dealing,
Wise was asking whether anything further needed to be done to
ensure that English had continuing coverage. Under these facts,
a duty to speak would arise under South Carolina law.
As for the second additional element of estoppel by
silence, First Financial’s failure to speak did have the effect
of misleading English. First Financial’s failure to speak had
the effect of causing both Wise and English to believe English
had continuing coverage. Wise testified that based on her course
of dealing with First Financial, the fact First Financial did
28
not contact her after she sent the fax signified there was no
problem with English’s continuing coverage. Therefore, this
element of estoppel by silence is met.
In conclusion, I do not believe the majority has correctly
applied the law of equitable estoppel to the circumstances of
this case. It has added a requirement that the parties have a
pre-existing relationship and it has focused on the contract
language rather than the insurance company’s failure to disclose
it was not waiving that contract provision. The district court
correctly followed South Carolina law, and the majority has not
made any real argument that the district court factfinding was
clearly erroneous. I believe reversing the district court is an
error and such a reversal certainly creates a harsh result for
the innocent victim. For these reasons, I respectfully dissent.
29
