Mixson, Inc. d/b/a The General Store v. American Loyalty Insurance Company

Court of Appeals of South Carolina, Opinion No. 3450, heard September 4, 2001, decided February 25, 2002, rehearing denied May 15, 2002 (Howard, J., writing for the court; Hearn, C.J., and Cureton, J., concurring). Our text comes from the Caselaw Access Project (case.law), Harvard Law School’s open archive of published U.S. case law. Removed as print artifacts: the archive’s own section separators and its bracketed opinion tag (“[HOWARD, J. — majority]”), and the reporter’s head-matter block — the parallel citation line, the full caption, the opinion number, the court line, the heard/decided/rehearing-denied dates, and the counsel listings. Those counsel listings are summarized here instead: Paul W. Owen, Jr., of Paul W. Owen, Jr., LLC, of Columbia, for the appellant; J.R. Murphy, of Columbia, for the respondents. Scan repairs, complete list — four of them: (1) “concludéd” corrected to “concluded”; (2) the line-break hyphen in “Mix-son’s” rejoined to “Mixson’s”; (3) the leading period the archive prints before each of the three footnotes removed, the footnotes being gathered below under “Footnotes” and numbered here instead; and (4) curly quotation marks and apostrophes rendered as straight marks throughout. Repairs (1), (2) and (3) were checked against the opinion as published on the South Carolina Judicial Branch website, which also confirms the three footnotes and their wording. Quotations the reporter sets off as indented block quotations are rendered here as markdown block quotes; the words are unchanged. The judge’s name line is bolded.

The full opinion

HOWARD, J.

Mixson, Inc. (“Mixson”) filed this suit against American Loyalty Company and Old Dominion Insurance Company (collectively “American”) for breach of a commercial insurance contract, bad faith refusal to pay an insurance claim, and statutory attorneys’ fees. The circuit court granted partial summary judgment to Mixson on its breach of contract claim, but granted summary judgment to American on the remaining claims, concluding there was no evidence of bad faith. Mixson appeals from the partial summary judgment awarded to American. We reverse and remand.

FACTS

Mixson operates convenience stores in South Carolina. On November 11, 1996, one of its stores was burglarized, and $1,940.00 in cash was stolen from a MiniATM Model 9500 Automatic Teller Machine (“the ATM”) located inside the store. Mixson filed a claim, which included the stolen cash, under its policy with American. American paid Mixson’s claim except for the cash, which American denied because the policy did not provide coverage for stolen valuables not located inside a “properly locked safe or vault.” American concluded the ATM was not a safe. Asserting the ATM was a safe, Mixson filed this suit for breach of contract, bad faith refusal to pay an insurance claim, and attorneys’ fees.

Both parties ultimately filed motions for summary judgment, with supporting affidavits and deposition testimony. Mixson asserted the ATM is a locked metal container in which valuables are stored, which fits the common definition of a safe. Mixson supported its assertion with the affidavit of a locksmith. The policy did not contain any definition for the word safe, and Mixson argued the common definition was, therefore, controlling. Mixson also asserted a question of fact was presented as to bad faith and unreasonable conduct by American in the handling and denial of the claim, precluding summary judgment on the bad faith and attorneys’ fee claims. Mixson supported this assertion with the adjuster’s claim file notes and the affidavit of an insurance expert.

Respondents filed portions of its adjusters’ deposition testimony, who testified that the claim was denied because their research revealed no precedent for classifying an ATM as a safe and a breakdown of the “functionality” of an ATM led them to conclude it was in the nature of a cash register. They noted the ATM was directly accessible to customers and its function was to dispense cash. In addition, Respondents presented an affidavit from a supervising technician employed by the manufacturer, noting that the ATM does not have an industry certification for twenty-four hour security, but is certified only to “business hours” security standards.

The circuit court awarded summary judgment to Mixson on the breach of contract claim, concluding the ATM constituted a safe under the common definition of the word and, because the policy contained no further definition of a safe or criteria for differentiating the ATM from a safe, Mixson was entitled to payment of the claim. Although American does not wish to concede that an ATM is a “safe,” that issue is not before us because American did not appeal this ruling. Therefore, it is the law of this case. See ML-Lee Acquisition Fund v. Deloitte & Touche, 327 S.C. 238, 489 S.E.2d 470 (1997).

The trial court then concluded the question of whether the ATM fit within the definition of a safe was a legitimate issue of novel impression which the insurance company was entitled to litigate and, therefore, the Respondents were entitled to summary judgment on the bad faith claim and the claim for attorneys’ fees. Mixson appeals from this ruling.

DISCUSSION

I. Summary Judgment

Summary judgment is appropriate when it is clear there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c), SCRCP. In determining whether any issue of fact exists to preclude summary judgment, the evidence and all inferences which can be reasonably drawn therefrom must be viewed in the light most favorable to the nonmoving party. Strother v. Lexington County Recreation Comm’n, 332 S.C. 54, 61, 504 S.E.2d 117, 121 (1998).

A. Bad Faith Refusal to Pay

Mixson argues the trial court erred in granting summary judgment to Respondents on the claim for bad faith refusal to pay and its alternative claim for attorneys’ fees pursuant to South Carolina Code Annotated section 38-59-40 (Supp.2001), contending more than one inference can be drawn from the evidence. We agree.

Bad faith refusal to pay … benefits under a contract of insurance includes: (1) the existence of a mutually binding contract of insurance between the plaintiff and defendant; (2) refusal by the insurer to pay benefits due under the contract; (3) resulting from the insurer’s bad faith or unreasonable action in breach of an implied covenant of good faith and fair dealing arising on the contract; (4) causing damage to the insured.

Howard v. State Farm Mut. Auto. Ins. Co., 316 S.C. 445, 451, 450 S.E.2d 582, 586 (1994). In the present case, the only element in dispute is whether Respondents acted unreasonably or in bad faith.

Generally, if there is a reasonable ground for contesting a claim, there is no bad faith in the denial of it. See Cock-N-Bull Steak House, Inc. v. Generali Ins. Co., 321 S.C. 1, 7, 466 S.E.2d 727, 730 (1996); Crossley v. State Farm Mut. Auto. Ins. Co., 307 S.C. 354, 359-60, 415 S.E.2d 393, 396-97 (1992). In this regard, our supreme court has ruled that an insurance company should be able to litigate novel issues without fear of being accused of acting in bad faith. See Nelson v. United Fire Ins. Co., 275 S.C. 92, 267 S.E.2d 604 (1980); Myers v. Gov’t Employees Ins. Co., 279 S.C. 70, 302 S.E.2d 331 (1983); see also Smothers v. U.S. Fid. & Guar. Co., 322 S.C. 207, 470 S.E.2d 858 (Ct.App.1996). American argues this is such a case because there is no clear-cut precedent establishing that the ATM is a safe. American contends the trial court was correct in ruling that the issue is a novel one, rendering the denial of the claim reasonable as a matter of law.

We disagree with this conclusion under the posture of this case. The trial court ruled that the ATM undisputedly fits within the common definition of a safe. There being no additional criteria superimposed upon this common definition by the policy terms, he ruled no factual issue was presented and Mixson was entitled to summary judgment on his breach of contract cause of action. These rulings by the trial court are not appealed, and they are the law of this case. See ML-Lee Acquisition Fund, 327 S.C. at 238, 489 S.E.2d at 470. Under these circumstances, we conclude a factual issue is presented as to whether or not American acted reasonably in denying the claim.

Once the trial judge concluded the ATM fit within the common definition of a safe, the legal precedent he relied upon to arrive at his ultimate conclusion that it was covered under the terms of the policy is well established in this State and is far from novel.

It is a well settled rule that the terms of an insurance policy must be construed most liberally in favor of the insured and where the words of a policy are ambiguous, or where they are capable of two reasonable interpretations, that construction will be adopted which is most favorable to the insured. However, in cases where there is no ambiguity, contracts of insurance, like other contracts, must be construed according to the terms which the parties have used, to be taken and understood in their plain, ordinary and popular sense. If the intention of the parties is clear, the Courts have no authority to change the contract in any particular. The Court has no power to interpolate into the agreement between the insurer and the insured a condition or stipulation not contemplated either by the law or by the contract between the parties.

Rhame v. National Grange Mut. Ins. Co., 238 S.C. 539, 544, 121 S.E.2d 94, 96 (1961) (citations omitted).

An insurer is not insulated from liability for bad faith merely because there is no clear precedent resolving a coverage issue raised under the particular facts of the case. In Tadlock Painting Co. v. Maryland Casualty Co., 322 S.C. 498, 473 S.E.2d 52 (1996), our supreme court underscored its holding from previous cases that the covenant of good faith and fair dealing extends not just to the payment of a legitimate claim, but also to the manner in which it is processed. The court recognized that “the benefits due an insured are not limited solely by those expressly set out in the contract.” Id. at 503, 473 S.E.2d at 55. Our supreme court has consistently made this point. See Howard, 316 S.C. at 451, 450 S.E.2d at 586 (holding jury could have found the insurer was unreasonable in failing to pay claims it received after the original injury, viewing the evidence and its inferences in light most favorable to insured, notwithstanding insurer relied upon lack of definitive prior case law and its own attorney’s advice to deny a claim for medical expenses); Varnadore v. Nationwide Mut. Ins., 289 S.C. 155, 345 S.E.2d 711 (1986) (finding insurer not entitled to directed verdict on claim of bad faith refusal to pay when it claimed its own investigation provided reasonable basis to deny claim).

In light of the trial court’s unappealed rulings, and viewing the evidence in a light most favorable to Mixson, we conclude a factual issue is presented as to whether American’s refusal to pay the claim was unreasonable.

B. Statutory Attorneys’ Fees

Mixson next argues the trial court erred in granting summary judgment on the issue of statutory attorneys’ fees because the facts warranted further development to determine whether American acted in bad faith or without reasonable cause in denying Mixson’s claim. For the reasons articulated in connection with Part A of this opinion, we agree.

An insurer is liable to the policy holder for all reasonable attorneys’ fees for the prosecution of the case against the insurer if the trial judge finds the refusal to pay the policyholder’s claim was without reasonable cause or in bad faith. S.C.Code Ann. § 38-59-40 (Supp.2001). As stated above, the circuit court improperly concluded there was no evidence to support a conclusion that Respondents’ refusal to pay Mixson’s claim was unreasonable or in bad faith. Therefore, we reverse this issue and remand it for further proceedings.

II. Discovery

Mixson next argues the trial court erred in granting summary judgment on the same day that it granted Mixson’s motion to compel production of documents, without affording time for the production and review of the requested documents.

The record does not reveal that Mixson objected to the court’s consideration of the motion for summary judgment or that the court denied a motion for continuance pending further discovery. Therefore, this issue is not preserved for our review. See Degenhart v. Knights of Columbus, 309 S.C. 114, 420 S.E.2d 495 (1992) (stating whether court erred in granting summary judgment while appellants had motion to compel outstanding was not preserved when appellants failed to move for a continuance and did not request motion for summary judgment be held in abeyance until after ruling on discovery motion); Pryor v. Northwest Apartments, Ltd., 321 S.C. 524, 469 S.E.2d 630 (Ct.App.1996) (holding whether judge erred in granting summary judgment because discovery requests were outstanding was not preserved when appellant did not ask for a continuance to complete discovery).

CONCLUSION

Based on the foregoing reasons, the decision of the trial court is

REVERSED AND REMANDED.

HEARN, C.J., and CURETON, J., concur.

Footnotes

1. Old Dominion was added as a party because American merged with Greentree Financial Holdings, whose claims are handled by Old Dominion.

2. The commercial insurance policy contained the following coverage:

A. COVERAGE — We will pay for loss of …

1. Section 1. — Inside The Premises … b. Safe Burglary (1) Covered Property: “Money” and “securities” in a safe or vault within the “premises” or “banking premises”.

3. This court renders no opinion as to whether the ATM is or is not a safe, either under a commonly accepted definition of the word, or under the wording of the policy in question.

What it decided

A convenience store was burglarized in November 1996. Someone took $1,940.00 in cash out of an ATM standing inside the store. The policy covered money in a “properly locked safe or vault,” and it never defined “safe.” The carrier paid everything else and refused the cash, reasoning that an ATM is closer to a cash register: customers can walk right up to it, and its whole job is to hand out money.

The circuit court held that the ATM did fit the ordinary meaning of “safe” and gave Mixson judgment on the contract. Then it took the rest of the case away from Mixson, on the theory that whether an ATM is a safe was “a legitimate issue of novel impression which the insurance company was entitled to litigate.” The Court of Appeals reversed that second half and sent it back.

The reasoning has two moving parts.

First, novelty is not a shield by itself. The court kept the general rules intact — “if there is a reasonable ground for contesting a claim, there is no bad faith in the denial of it,” and an insurer “should be able to litigate novel issues without fear of being accused of acting in bad faith.” Then it drew the line: “An insurer is not insulated from liability for bad faith merely because there is no clear precedent resolving a coverage issue raised under the particular facts of the case.” A gap in the case reports is not the same thing as a gap in the law. Here the trial court had reached its answer using Rhame v. National Grange, a 1961 supreme court decision on how to read an undefined policy word — precedent the appellate court called “well established in this State and … far from novel.”

Second, the duty of good faith covers how a claim is handled, not only whether it is paid. Quoting Tadlock Painting, the court said the covenant “extends not just to the payment of a legitimate claim, but also to the manner in which it is processed,” and that “the benefits due an insured are not limited solely by those expressly set out in the contract.”

Applying both, the court held a factual issue was presented on whether American acted unreasonably, so summary judgment was wrong. The same reasoning revived the claim for attorney’s fees under S.C. Code § 38-59-40, which makes an insurer liable for reasonable fees when a trial judge finds the refusal to pay was “without reasonable cause or in bad faith.”

Mixson lost one point. Its complaint that the court ruled on summary judgment the same day it granted a motion to compel documents was not preserved, because Mixson never asked for a continuance or asked the court to hold the motion in abeyance.

What it did NOT decide

• It did not decide whether an ATM is a safe. Footnote 3 says so in the court’s own words: “This court renders no opinion as to whether the ATM is or is not a safe, either under a commonly accepted definition of the word, or under the wording of the policy in question.” The trial court’s coverage ruling stood only because the carrier never appealed it, which made it the law of that case.
• It did not find that American acted in bad faith. The holding is that a factual issue exists and a jury should hear it. The case went back for further proceedings. Nobody won anything on remand in this opinion.
• It did not award attorney’s fees. Section 38-59-40 requires the trial judge to make the finding. The Court of Appeals only put the question back on the table.
• It did not discuss the statute’s demand requirement. Section 38-59-40 has a written-demand prerequisite and a cap tied to the judgment; the opinion quotes only the standard for liability. Read the statute itself before relying on the remedy — our full text is here.
• It did not abolish the novel-issue defense. The court cited Nelson and Myers approvingly and left them standing. The narrowing is precise and posture-driven: once the trial judge held the word carried its ordinary meaning under settled rules of construction, the carrier could no longer call the question novel as a matter of law.
• It is not a storm case, or a homeowners case. This is a commercial policy and a burglary loss. What travels to a property claim is the reasoning about undefined policy words and claim handling, not the facts.
• It is a Court of Appeals decision from 2002. The supreme court authority it applies — Tadlock, Howard, Varnadore, Rhame — is what gives it force. Check the current status of any of these before citing them in a filing.

Why it matters to policyholders

Start with the word the denial turns on, and check whether the policy defines it. American’s entire position rested on “safe,” a word its own policy never defined. Rhame is the rule that answers that situation in South Carolina: undefined terms are read in their “plain, ordinary and popular sense,” and where words are ambiguous or “capable of two reasonable interpretations, that construction will be adopted which is most favorable to the insured.” Pull your policy’s definitions page. If the word is not there, the carrier does not get to supply a definition that only it likes.

“No case says so” is an argument, not an answer. Carriers write denials that lean on the absence of authority, or on an internal interpretation nobody outside the company has ever seen. Mixson is the South Carolina decision holding that the absence of a case on point does not, by itself, make a refusal reasonable. When the underlying legal rule is old and settled, the novelty claim gets weaker.

How the claim was handled is evidence. Mixson beat summary judgment with the adjuster’s own claim file notes and an insurance expert’s affidavit. Ask for your claim file. Keep every letter, every voicemail, every date. A file that shows an insurer deciding first and researching afterward looks different from one that shows an honest investigation, and under Tadlock that difference is part of the legal question.

Two other South Carolina levers sit next to this one. Section 38-59-20 lists the improper claim practices the Department of Insurance polices, including a failure to attempt in good faith to settle claims where liability has become reasonably clear. And the doctrine that made bad faith possible in this state at all traces to Tyger River Pine Co. v. Maryland Casualty.

Do not let a preservation mistake cost you a good issue. Mixson had a real complaint about being cut off before it received documents, and lost it because no one asked for a continuance on the record. Deadlines and record-making decide more claims than doctrine does. If a carrier demands an appraisal, that has its own timing trap in South Carolina — see Harwell v. Home Mutual.

Where a public adjuster fits. We build the record this kind of case runs on: the damage documentation, the estimate the carrier has to answer, the written correspondence trail, and the requests that force a denial to name its provision. We negotiate and we handle appraisal. A bad-faith lawsuit and a fee claim under § 38-59-40 are lawyer work; when a claim needs that, we refer it out. More South Carolina law, in full text, is on the South Carolina claim-law page.

Now you know the rule. Enforcing it against a carrier is a different job — and it's ours. A free, confidential case review by a licensed public adjuster takes three taps.

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