Insurance – Duty to Defend – Civil Practice – Declaratory Judgment – First Impression – Contribution

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Auto-Owners Insurance Co. v. Travelers Casualty & Surety Co. of America (Lawyers Weekly No. 002-144-14, 15 pp.) (R. Bryan Harwell, J.) 4:12-cv-03423; D.S.C.

Holding: Although plaintiff seeks a declaratory judgment and the parties insured different risks, the court finds that the South Carolina Supreme Court would follow Sloan Constr. Co. v. Cent. Nat’l Life Ins. Co. of Omaha, 236 S.E.2d 818 (S.C. 1977), and rule that the plaintiff-insurer is not entitled to a declaration that the defendant-insurer is required to defend the parties’ insured in underlying litigation.

The court grants summary judgment for defendant.

The parties issued different types of policies covering different time periods to the same homeowners’ association (HOA). In underlying litigation, the HOA is being sued, and plaintiff is providing a defense. Plaintiff seeks a declaratory judgment that defendant also has a duty to defend the HOA.

This is the type of case amenable to a declaratory judgment action: Plaintiff avers that it has spent several hundred thousand dollars in defending the underlying suit. If the court were to find defendant also has a duty to defend the underlying suit, it would result in considerable financial ramifications to both parties. The parties have adverse legal interests. Finally, the underlying suit is ongoing, meaning plaintiff would prefer a resolution as soon as possible.

However, plaintiff is not entitled to the declaration that it seeks.

This case differs from Sloan in that the insurers in Sloan insured an identical risk and one sought contribution from another for defense costs. The South Carolina Supreme Court has not addressed whether an insurance company may seek to require another insurer to defend its insured up front via a declaratory judgment (rather than seeking contribution), nor has it addressed whether the same principles apply when different risks are insured. Nevertheless, the parties have not asked this court to certify the question to the South Carolina Supreme Court, so this court is required to forecast the rule the South Carolina Supreme Court is likely to adopt in the future.

The court finds that, based on Sloan, the Supreme Court of South Carolina would likely find that, under the facts of this case, plaintiff may not require defendant to defend their shared insured. Sloan held that the duty to defend “is several and the insurer is not entitled to divide the duty nor require contribution from another absent a specific contractual right.” Particularly relevant is Sloan‘s explanation that the insurer seeking to compel the other insurer to defend was not damaged “since it was a stranger to the contract” between the other company and its insured. This language is equally applicable to a situation where the insurers insure different risks, and where a declaratory judgment is sought rather than contribution.

Since plaintiff is not a party to the HOA’s insurance contract with defendant, defendant is entitled to summary judgment with regard to plaintiff’s declaratory judgment claim.

The court reaches the same conclusion with respect to plaintiff’s contribution claim. Sloan explicitly held that one insurer is not entitled to require contribution from another absent a specific contractual right. Although the policies in Sloan insured an “identical risk,” the court gave no indication that this principle would be any less valid in other contexts.

Plaintiff’s claims for equitable subrogation and unjust enrichment are just attempts at pleading around the Sloan rule. Even if they were not, these claims would fail.

Plaintiff has not conferred any benefit on defendant as it is simply complying with South Carolina law and the terms of its contract with the HOA. Therefore, it cannot make out a claim for unjust enrichment.

Plaintiff’s equitable subrogation claim fails because plaintiff has not shown that it has paid a debt owed by defendant or that plaintiff was secondarily liable for a debt owed by defendant.

Motion granted.