Gordon Rees Scully Mansukhani Charleston partners Hal Frampton and Peter Siachos recently obtained summary judgment for a national insurance carrier in a coverage dispute in the United States District Court for the District of South Carolina. The plaintiff, a prominent local firm, made a claim under its errors and omissions policy when it was sued for alleged malpractice related to a real estate closing. The carrier denied coverage because the law firm was aware of its error before the policy renewed but failed to disclose the error to the carrier.
The policy at issue contained language extending coverage for “wrongful acts” that took place before the inception date of the policy only if the insured “ha[d] no knowledge of the wrongful act prior to the inception date” of the policy. Unlike many insurance policies, the language in the policy at issue focused on the insured’s knowledge of the error, which could be established objectively, rather than on the insured’s subjective belief that the error would likely lead to a claim, which often requires more factual development.
This kind of language was completely untested in South Carolina, and the insured’s counsel argued that a number of states have refused to enforce similar language, finding that the plain language of the policy creates an intentional “gap in coverage.”
The Gordon & Rees team successfully argued that the policy at issue did not create a gap in coverage and that South Carolina would not recognize any such doctrine in any event. Thus, the Court granted the carrier’s pre-discovery motion for summary judgment in full, ruling that the policy was unambiguous and that the insured’s knowledge of its error before the inception of the policy precluded coverage as a matter of law. The Court reinforced the rule that South Carolina courts enforce insurance contracts according to their terms and explicitly declined to adopt the “gap in coverage” analysis applicable in many states.