395 F.

3d 485

Jimmy MYRICK, Plaintiff-Appellee,

v.
PRIME INSURANCE SYNDICATE, INCORPORATED,
Defendant-Appellant.
No. 00-1726.

United States Court of Appeals, Fourth Circuit.

Argued: February 28, 2001.
Decided: January 26, 2005.

ARGUED: Thornwell Forrest Sowell, III, Sowell, Gray, Stepp & Laffitte,
L.L.C., Columbia, South Carolina, for Appellant. John Frank Hardaway,
Columbia, South Carolina, for Appellee. ON BRIEF: Allen Jackson
Barnes, Sowell, Gray, Stepp & Laffitte, L.L.C., Columbia, South Carolina;
Scott Seelhoff, Howell, Gibson and Hughes, Beaufort, South Carolina, for
Appellant. Robert A. Muckenfuss, McNair Law Firm, P.A., Columbia,
South Carolina, for Appellee.
Before WIDENER, NIEMEYER, and LUTTIG, Circuit Judges.
Affirmed in part, reversed in part, and remanded with instructions by
published opinion. Judge WIDENER wrote the opinion, in which Judge
LUTTIG concurred. Judge NIEMEYER wrote a dissenting opinion.
WIDENER, Circuit Judge:

Prime Insurance Company (Prime) appeals the district court's refusal to grant
its motion for judgment as a matter of law, renewed motion for judgment as a
matter of law, and relief under Rules 59 and 60 of the Federal Rules of Civil
Procedure following a jury verdict in Jimmy Myrick's (Myrick) favor for
breach of contract and a bad faith cause of action under South Carolina law. It
also appeals jury consideration of the district court's grant of sanctions,
attorney's fees, and prejudgment interest. For the reasons that follow, we affirm
in part and reverse in part the decisions of the district court and remand the case
for proceedings not inconsistent with this opinion. Because we decide on the
merits all necessary points raised, we do not address Rules 59 and 60.

I.
2

In May 1998, Jimmy Myrick and Donald Brandt planned to start a logging
business with each other. Entry into the logging business requires three pieces
of equipment: a fellerbuncher, a skidder, and a loader.1 Brandt already owned a
skidder (Model Franklin 170) and a fellerbuncher (Model 311C Hydro-Ax).
Myrick bought a loader (Hood Model 2400) in June 1998 in anticipation of this
venture.

Greg Matthews (Matthews), a local insurance agent for American Interstate

Insurance Company (American Interstate), helped set up general liability and
workers' compensation insurance for the new business, but American Interstate
did not write the required kind of property and casualty insurance; Matthews
therefore contacted Johnson Insurance Associates (Johnson Insurance) to place
this coverage. Johnson Insurance, in turn, contacted MGA Insurance Company,
which issued the insurance effective June 28, 1998. Soon after, Myrick and
Brandt decided to abandon the venture, and they canceled this insurance
without penalty. The three pieces of equipment insured were the Franklin
skidder, the Hood loader, and the Hydro-Ax fellerbuncher.

Myrick subsequently, later in the summer of 1998, decided to enter business on

his own, and he called his new business Palmetto Timber Products. Because he
already owned a loader, he only needed to acquire a fellerbuncher and a skidder
for his business. Myrick bought a used Model Barko 775 fellerbuncher on July
30, 1998 for $42,000 and spent $8000-$9000 to repair the engine to place it in
service. He also acquired a Model Timberjack 450A skidder in August 1998.
Myrick hired Caroline Harper Rivers as Palmetto's secretary. He then called
Matthews to arrange insurance on his three pieces of equipment.

Matthews again indicated he could not write the insurance; he would have to
refer the insurance request to Johnson Insurance. Myrick told Matthews the
three pieces of equipment to insure and that his secretary, Mrs. Rivers, would
give him the required serial numbers. Matthews stated that he would provide
the pertinent information to Johnson Insurance, including the serial numbers for
the three pieces of equipment. Conflicting stories emerged at trial regarding
which serial numbers were relayed to Matthews. Mrs. Rivers testified that she
telephoned Matthews the following serial numbers:
17109 Barko 775 (fellerbuncher)
355147 Timberjack 450A (skidder)

243399 Hood 2400 (loader)

6

Matthews testified that Mrs. Rivers may have telephoned only the addition of a
new skidder, and also that he was uncertain whether it was Myrick who called
him, or Myrick's secretary, Mrs. Rivers.

A fax dated June 25, 1998 from Myrick to Matthews was produced at trial. The
document originally was sent by Myrick to Matthews regarding insurance for
equipment of the abandoned joint venture. Handwritten notations by Matthews
replace the skidder from the Franklin 170 Model to the Timberjack 450A
model. No notations regarding the loader and fellerbuncher were made. On
September 2, 1998, Matthews relayed Myrick's request for insurance and
forwarded the fax with his notations to Johnson Insurance.

Woodrow Wilson Power, Jr. (Power), a producer 2 for Johnson Insurance, filled
out an application for coverage from Prime on a scheduled,3 inland marine4
insurance policy with the information he received from Matthews. The
application for insurance scheduled the following items:
355147 Timberjack 450A (skidder)
311C2377 Hydro-Ax 311C (fellerbuncher)
243399 Hood 2400 (loader)

This application listed Brandt's Hydro-Ax fellerbuncher the one Brandt

owned for purposes of the abandoned joint venture. Myrick did not own this
fellerbuncher. He never saw the completed application. Neither party disputes
that the effective date of the policy of insurance was September 2, 1998 for the
listed equipment.

10

On September 16, 1998, Myrick's Barko 775 fellerbuncher was destroyed by

fire prior to his receipt of any verification information regarding the insurance.
Myrick called Matthews that day to tell him of the loss.

11

On September 17, 1998, Prime learned of the loss, and Myrick received a letter
from Johnson Insurance requesting premium payments and attaching
certificates of insurance. Conflicting stories emerged regarding which
certificates of insurance were included. Myrick stated that certificates were
included only for the loader and the skidder. Mrs. Waller, of Johnson Insurance,

stated that her file indicated that three certificates had been sent out on
September 11, 1998 including one for a Hydro-Ax fellerbuncher.
12

On September 18, 1998, Power called Prime and indicated in a voice mail to
Rick Lindsey, Prime's President, that the destroyed fellerbuncher was not the
scheduled fellerbuncher.5 Prime then sent Mitchell Bazen (Bazen), an
independent adjuster, to investigate the claim. Bazen concluded that the
fellerbuncher destroyed by the fire was not scheduled in the policy.

13

On September 21, 1998, Myrick paid his premium. On September 28, 1998,
Lewis Hansen (Hansen), claims manager for Prime, wrote to Myrick denying
coverage for the Barko 775 fellerbuncher. Hansen stated that an insurance
contract existed between the parties,6 but that the insurance policy listed a 1985
Hydro-Ax 311C fellerbuncher instead of a 1989 Barko 775 fellerbuncher.

14

On October 6, 1998, Myrick received an insurance certificate for a Hydro-Ax

fellerbuncher, with Brandt, a loss payee. Myrick subsequently scheduled a 1989
Hydro-Ax 511B fellerbuncher effective on October 29, 1998, and the premium
increased.7

15

After the denial of the claim, Myrick complained to the South Carolina
Department of Insurance about Prime's failure to investigate the claim,
explaining that he had no interest in the fellerbuncher listed in the policy. South
Carolina forwarded the letter to Prime, and Prime responded to the letter. South
Carolina subsequently wrote to Myrick indicating that it was taking no further
action.

16

On December 11, 1998, Myrick filed a two-count complaint in South Carolina

state court alleging breach of contract and bad faith. Prime removed8 the action
to the district court, answered the complaint, and filed a counterclaim for a
declaratory judgment regarding its non-liability under the policy because the
destroyed fellerbuncher was not scheduled on the policy.

17

During discovery, Prime did not produce its complete underwriting and claims
file to Myrick. The request for the file was the subject of a Motion to Compel
filed by Myrick on April 5, 1999. Prime produced a part of the files, but during
a subsequent deposition, Myrick discovered that a tape recording, and
electronic information had not been produced. The tape had not yet been
transcribed, and thus was not part of the file initially. Additionally, the other
information was housed on the hard-drive of a computer, and Prime stated that
it inadvertently forgot to print the information out. Before trial, and upon a

motion for sanctions, the district court imposed sanctions and allowed Myrick
to question Prime's witnesses before the jury regarding the failure to disclose
the documents immediately.
18

On July 19, Prime moved for summary judgment because Myrick's Barko 775
fellerbuncher was not scheduled under the policy. Prime's motion was denied,
and the matter was tried on February 10 and 11, 2000. At the close of the
plaintiff's case, Prime moved for judgment as a matter of law. The court denied
the motion. The jury returned a verdict in favor of the plaintiff for breach of
contract and awarded $50,000 in damages. It also found in favor of the plaintiff
on the cause of action for bad faith and awarded $250,000 in punitive damages.

19

The district court entered judgment on the jury's verdict, and Prime moved for a
new trial or judgment as a matter of law on February 18, 2000. On April 5,
2000, the district court denied the motion. The district court granted Myrick's
unopposed motion for prejudgment interest and attorney's fees. The district
court calculated interest on the $50,000 judgment from September 16, 1998 to
February 14, 2000 at an interest rate of 8.75% per year, a total of $6,114.90.
The attorney's fees and costs added an additional $21,487.16 to the verdicts.

20

Prime subsequently moved the district court for an order, pursuant to Rules 59
and 60 to alter or amend the court's April 5 order. A hearing was held on May
16, 2000, and the court denied Rule 59 and 60 motions. The court then entered
a second amended judgment on May 16, 2000, which reaffirmed the jury
verdict for actual and punitive damages, prejudgment interest and attorneys'
fees. Prime timely appealed from this order.

II.
21

We exercise jurisdiction pursuant to 28 U.S.C. 1291. We review a district

court's denial of a motion for judgment as a matter of law and renewed motion
for judgment as a matter of law de novo. See Bank of Montreal v. Signet Bank,
193 F.3d 818, 826 (4th Cir.1999). If a reasonable jury could reach only one
conclusion based on the evidence or if the verdict in favor of the non-moving
party would necessarily be based upon speculation and conjecture, judgment as
a matter of law must be entered. See Crinkley v. Holiday Inns, Inc., 844 F.2d
156, 160 (4th Cir.1988). If the evidence as a whole is susceptible of more than
one reasonable inference, a jury issue is created and a motion for judgment as a
matter of law should be denied. See Hofherr v. Dart Indus. Inc., 853 F.2d 259,
261-62 (4th Cir.1988). In making this determination, we review the evidence in
the light most favorable to the nonmoving party. See Hofherr, 853 F.2d at 26162.

A. Breach of Contract
22

We first address whether the district court erred in denying Prime's motion for
judgment as a matter of law and renewed motion for judgment as a matter of
law on Myrick's breach of contract claim. The only instructions given to the
jury with respect to the breach of contract count and as to the agency relation of
the various people connected with this claim were in the special verdict form
and instructions appearing below, to which objection was not and is not made:

23

1. As to the claim for breach of contract, we, the jury, unanimously find:

24

_____ for the defendant

25

_____ for the plaintiff 9

26

And as to the breach of contract claim and agency, the court instructed the jury:

27

I will now instruct you on the rules of law that apply in this case. Plaintiff has
two claims or causes of action. The first claim is for breach of contract. In order
for the plaintiff to recover under a breach of contract theory the plaintiff must
establish three essential elements by the greater weight or preponderance of the
evidence.

28

One, that the parties entered into a binding insurance contract under which the
defendant in return for the plaintiff's timely payment of insurance premiums
agreed to provide insurance for the plaintiff. Two, that the defendant breached
or unjustifiably failed to perform under the insurance contract. And three, that
the plaintiff suffered damage as a direct and proximate result of the breach.

29

An insurance broker is primarily the agent of the person first employing him,
and where the broker is employed to procure insurance, he is the agent of the
insured. However, whether the broker represents the insured or the insurer
depends upon the facts of each case.

30

The fact that a broker may receive a commission from the insurer for placing
insurance does not change his character as agent of the insured when he is
employed by the insured. Moreover, a broker acting solely on behalf of the
insured has no authority to bind the insurer. An insurance agent who is an agent
of the insured can be converted into an agent of the insurer where there is
evidence which creates an inference that the broker was acting at the instance

or request of the insurer.

31

A party asserting agency as a basis of liability must prove the existence of the
agency by the greater weight of the evidence, and the agency must be clearly
established by the facts. The test to determine agency is whether the purported
principal has the right to control the conduct of his alleged agent.

32

Agency may not be established solely by declarations and conduct of the

alleged agent, but such declarations and conduct are evidence which you may
consider in connection with other evidence that may establish the alleged
agency. Agency may be proved by circumstantial evidence showing a course of
dealing between the parties.

33

The authorized acts of an agent are by their nature the acts of the principal. By
operation of law an agent's exercise of authority is regarded as the execution of
the principal's continuing will. An agent conducting business with the authority
of the principal binds the principal to the same extent as if the principal
personally made the transaction. The principal would be directly liable to the
third party on the transaction. In other words, the law considers that what a
person does through his agent he has done himself.

34

A principal may be liable to third persons for fraud, deceit, concealment,

misrepresentation, negligence and other malfeasance and omissions of duty of
the agent acting within the scope of the agency although the principal did not
authorize, participate in or know of such misconduct.

35

The relationship of agency need not depend upon express appointment by the
alleged principal and acceptance by the purported agent. Agency may be
implied from the words and conduct of the parties and the circumstances of the
particular case.

36

The facts of this case establish that Myrick sought insurance for a fellerbuncher
and that Prime intended to insure a fellerbuncher owned by Myrick. The facts
further show that, during the relevant time period, Myrick only had an interest
in one fellerbuncher namely, a Barko 775 Model. In its answer and at trial,
Prime admitted that a policy for insurance existed between Prime and Myrick.
There was also no dispute that this policy of insurance covered a loader, a
skidder, and a fellerbuncher for Myrick's company. It was also undisputed that
the fellerbuncher named in the policy was Brandt's Hydro-Ax Model and not
the Barko 775 Model that Myrick owned. Because Prime conceded that a
policy for insurance existed between the parties, this case hinged on whether

the erroneous description10 of the fellerbuncher was material to the risk

involved in this scheduled policy.11
37

Under South Carolina law, an erroneous description of property in an

application for property insurance may avoid coverage when the erroneous
description is material to the risk. See Hinson v. Catawba Ins. Co., 224 S.C.
227, 78 S.E.2d 235, 236 (1953) (holding that premium rate one-third less than
what would have been charged if address had been correct was material to risk
and barred formation of a contract because the minds of the parties did not
meet). The question of materiality is for the jury to decide unless the record
conclusively establishes that the misdescription materially affected the risk
assumed by the insurer. See Lanham v. Blue Cross & Blue Shield, Inc., 338 S.C.
343, 526 S.E.2d 253, 255-56 (2000).

38

Prime argues that any misdescription in a scheduled policy bars coverage. We

disagree. Although we recognize that the policy stated, "This policy covers the
property described in the Commercial Inland Marine Schedule," Prime has not
offered South Carolina authority holding that any erroneous description in a
scheduled policy bars coverage. We decline to hold that the South Carolina
courts would so hold.

39

Because South Carolina has not held that any erroneous description bars
coverage under a scheduled policy, we examine the evidence to determine
whether the jury could have concluded that the erroneous description was not
material. The jury heard evidence from Roger Day (Day), the Vice President of
Prime. In response to a hypothetical question regarding whether an erroneously
described fellerbuncher under a policy could still be covered, Day testified,
"Coverage could exist where an error has been made that was not material to
the risk and the bargain as a hypothetical matter." Power testified that the
premium amounts in the policy were based on the value of the equipment.
Specifically, he stated that the insurance value is "a rough indication of what
the actual cash value on the property is." Myrick testified that he paid $42,000
for the used fellerbuncher and put into it approximately $8,000 or $9,000 in
initial repairs to ready the machine for service. The policy provided coverage
for up to $50,000 the total price Myrick paid for the Barko 775
fellerbuncher. The jury could have reasonably concluded that Prime did not
have an increased risk because the insured amount was the actual cash value of
the Barko 775 fellerbuncher. Based on this information, it was not unreasonable
for the jury to conclude that a misdescription of the fellerbuncher in the policy
did not make a material change in the policy. Indeed, in denying the defendant's
motion because materiality had not been conclusively established, the district
court correctly observed based on the evidence presented at trial, that "the two

[fellerbunchers] were comparable [and] ... there was no increase in risk by the
addition or the substitution... of the second fellerbuncher, and therefore there
does not appear to be a material change in the policy."
40

Because a jury looking at the evidence presented to it could conclude that the
erroneous description of the fellerbuncher was not material to the risk of the
insured in the policy, we affirm the district court's denial of Prime's motion for
judgment as a matter of law as well as its renewed motion for judgment as a
matter of law. The judgment of the district court on the verdict of the jury
awarding $50,000 to Myrick for Prime's breach of contract is accordingly
affirmed.

41

In this connection, we should say that it is perfectly apparent from the

statement of facts in Part I of this opinion that somewhere along the line the
Hydro-Ax fellerbuncher owned by Brandt and previously insured by Myrick
and Brandt through Matthews and Johnson Insurance got placed in the schedule
of the insurance policy involved in this case due to some mixup, the exact
nature of which is not disclosed in this record. The jury had to believe that three
pieces of equipment were included, as shown by the testimony of Myrick and
Myrick's secretary, otherwise there could have been no policy which admittedly
existed. But whether the correct information was given by Mathews to Power,
of Johnson Insurance, who filled out an application and gave it to Prime
Insurance, the record does not disclose. A mistake was made somewhere, but
where the record does not show. And no instructions on the law, other than
those we have set forth above, were given to the jury or requested. Thus, the
matter was left entirely in the hands of the jury, so the only real and
fundamental question is whether or not the evidence supports the verdict. We
hold that it does.

B. Bad Faith
42

We next address whether the district court erred in denying Prime's motion for
a judgment as a matter of law and renewed judgment as a matter of law on
Myrick's bad faith cause of action. We conclude that it did.

43

Under South Carolina law, an insured may assert against his insurance
company a cause of action for the breach of implied covenants of good faith
and fair dealing. See Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336,
306 S.E.2d 616, 619 (1983). This obligation includes a good faith duty to
investigate the claim. See Flynn v. Nationwide Mutual Ins. Co., 281 S.C. 391,
315 S.E.2d 817, 820 (1984). The elements of an action for breach of the
covenants of good faith and fair dealing in an insurance contract under South

Carolina law are: 1) the existence of a mutually binding contract of insurance

between plaintiff and defendant; 2) a refusal by an 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 in the
contract; 4) that causes damage to the insured. See Cock-N-Bull Steak House,
Inc. v. Generali Ins. Co., 321 S.C. 1, 466 S.E.2d 727, 730 (1996) (enumerating
the elements of a claim for bad faith refusal to pay benefits under an insurance
contract). If the insured proves the insurer's conduct was willful or in reckless
disregard of his rights under the contract, the insured also may recover punitive
damages, but if there is a reasonable ground for contesting a claim, there is no
bad faith. See Crossley v. State Farm Automobile Ins. Co., 307 S.C. 354, 415
S.E.2d 393, 397 (1992).
44

Prime has admitted that there was an insurance contract in effect in this case,12
and Prime did refuse to pay under it. The question we address here is whether
under South Carolina law, there was cause to send the issue of Prime's bad faith
to the jury. The Supreme Court of South Carolina has held that "[i]f there is a
reasonable ground for contesting a claim, there is no bad faith." Crossley, 415
S.E.2d at 397. We are of opinion and hold that existence of the scheduled
policy in which the destroyed fellerbuncher was not listed provided a
reasonable ground to Prime to deny the claim. Therefore, we should reverse the
district court's refusal to grant judgment as a matter of law on this claim unless
Prime violated a duty to investigate this claim. See Flynn, 315 S.E.2d at 820.

45

Evidence produced at trial established that the fellerbuncher listed in the policy
was not the fellerbuncher that burned. On September 18, 1998, Power left a
phone message to Prime indicating that the fellerbuncher that burned was not
the item listed in the policy. Bonnie Clark, the Claims Coordinator for Prime,
then sent a letter to Bazen, an independent adjuster, requesting him to
investigate and to verify the year, model, make, and serial number of the
destroyed equipment. At trial, Power testified that the report of Bazen
concluded that the Hydro-Ax fellerbuncher named in the policy was not, in
fact, the Barko 775 model fellerbuncher that was destroyed by fire. A letter
introduced at trial that was sent by Hansen, Prime's Claims Manager, to Myrick
denied coverage on this ground. Specifically, the letter stated:

46

The schedule of the insurance policy listed a 1985 Hydro Ax 311C

Fellersbuncher [sic] with a serial number of 243399. The damaged machine that
you have reported was a 1989 Fellersbuncher [sic] which is a different machine
entirely than the one that you have insured because it was a different year
model (1989) (Barko 775))[sic] and had a different serial number of 17109....
[This] lead [s] us to the logical conclusion that Prime Insurance Syndicate Inc.

[should] deny coverage to this case based upon the facts we are aware of at the
present time.
47

Prime adequately investigated the claim and closed its investigation upon
receipt of Bazen's report. This was an adequate investigation under the
circumstances. Although a jury ultimately found Prime liable on the policy
because of the erroneous description, we cannot hold that its actions in
investigating the claim were done in bad faith. The same remarks we made
above with respect to who caused the mistaken description in the policy and
why it was caused apply here. Even after a two-day trial when all of the people
involved testified, the record is uncertain as to exactly what happened. The
district court made no finding to that effect, and neither do we. On this record
the insurance company should not be held to have more or different
information than that disclosed at trial, which does not support a finding of bad
faith. Accordingly, the judgment of the district court entering judgment for the
plaintiff on the special verdict claim for bad faith is reversed.

48

For the same reasons, we also conclude that Prime's conduct was not willful or
in reckless disregard of Myrick's rights under the contract. Accordingly, we
remand the case to the district court with instructions to vacate the jury's award
of $250,000 in punitive damages.

III.
49

We discuss briefly the other points raised in this appeal.

50

The district court awarded $6,114.90 in pre-judgment interest. In South

Carolina such an award of pre-judgment interest is a proper element of damage
in the discretion of the trial court. Jacobs v. American Mut. Fire Ins. Co., 340
S.E.2d 142, 143 (S.C.1986). We are of opinion and hold that the district court
did not abuse its discretion in this award.

51

The district court awarded attorney's fees and costs in the amount of $21,487.16
to the plaintiff. Such an award is by virtue of S.C.Code Ann. 38-59-40(1)
(1989 & 2000 supp.). This Code section provides that such an award of
attorney's fees be made upon a refusal by an insurance company to pay within
90 days "without reasonable cause or in bad faith." Because we have vacated
the judgment for bad faith, and are of opinion that the fact that the
fellerbuncher burned was not the same fellerbuncher appearing in the policy
was a reasonable cause to deny payment, the award of attorney's fees is
vacated.

52

The only objection to the introduction of evidence preserved on appeal was that
the district court permitted the jury to consider its decision holding Prime guilty
of failing to comply with discovery rules. While this is a question of relevance,
Prime takes exception because it claims that such was "not relevant to Prime's
decision to deny coverage," and complains of permitted argument that such was
"evidence of bad faith." Br. p.4. While such evidentiary rulings as to relevance
are within the discretion of the district court, and this was discretion on top of
discretion in awarding sanctions, we express no opinion on the question raised
here because, even if erroneous, any error was harmless because we have
decided Prime's decision to deny coverage was not made in bad faith and was
reasonable. So the objection is dismissed as moot.

IV.
53

The dissent is based largely, even if not wholly, on its definitely implied,
although not openly advocated, disagreement with the jury verdict.
For example, the dissent states on p.2:

54

Moreover, neither Matthews nor Myrick's office added to the list the recently
purchased 1989 Barko 775 fellerbuncher.
And on p.2:

55

There is no evidence that Myrick made any request or provided any

information to Johnson Insurance Associates or to Prime Insurance to insure the
1989 Barko 775 fellerbuncher.
And on p.4:

56

There is not one scintilla of evidence to support the notion that a misdescription
was involved. (Italics in original.)

57

Those statements of fact just above quoted are a key to the dissent and are
belied by the record and especially by the testimony of Mrs. Rivers, Myrick's
secretary, which was admitted without objection:

58

I, Caroline Harper [now Rivers] called Greg Matthews at American Interstate

Insurance on August twenty-eight, nineteen ninety-eight to inform him of three
pieces of equipment that needed to be insured for Palmetto Logging. The

equipment included a Barko 775 with the serial number 17109; a Timberjack
450A with the serial number 355147; and a Hood 2400 with the serial number
243399. I spoke personally to Greg Matthews and he has acknowledged the
phone conversation to Jimmy [Myrick].
59

J.A. 186-87.

60

Along the same line are the statements of the dissent with respect to materiality
of the risk to the insurance company. On p.5 is the statement:

61

The majority also assumes that the "misdescription" was not material to Prime
Insurance's underwriting risks. Yet, the only evidence on materiality is to the
contrary.

62

Even if a part of Day's testimony could be construed as does the dissent, it is

doubtful at best. The dissent omits quoting or consideration of those parts of
Day's testimony in which he accepts that Prime Insurance should pay the claim
if a mistake in the description of the fellerbuncher had been made, for example.

63

Q: So the premium in this case was based on the fellerbuncher being valued at
fifty-thousand dollars?

64

A: I believe so. J.A. 136.

****
65
66

Q. If a mistake was made in describing the fellerbuncher, would you expect

Prime Insurance Company or do you believe Prime Insurance Company should
provide coverage if such a mistake was made?

67

A. Yes. J.A. 142.

68

Power, the insurance broker who obtained the insurance policy from Prime
Insurance, also testified that the premium was based on "what you expect to
get" if the insured property were destroyed.

69

Q. And that's what the premium is based on, is that correct?

A. That's correct. J.A. 302

70

The district court, as noted, accepted the plaintiff's understanding of the

testimony and held that there was no increase in risk by the substitution of the
second fellerbuncher:

71

In fact at this point the evidence is that the two items were comparable, that
there was no increase in risk by the addition or the substitution, I would say, of
the second fellerbuncher, and therefore there does not appear to be a material
change in the policy. J.A. 256-57.

72

Although the question of materiality is a question of fact, see Lanham v. Blue

Cross & Blue Shield, Inc., 338 S.C. 343, 526 S.E.2d 253, 255-56 (2000), Prime
Insurance did not even ask that the question of materiality be submitted to the
jury, as it could have done. Neither has it raised the question on appeal, relying,
instead, on the proposition "As a matter of law, the scheduling of items on an
Inland Marine policy is material to the risk, and other items may not be
substituted, even where there is a mistake." Br. p.26. This is obviously the
course the dissent would like to take, but it is not in accord with South Carolina
law. (italics added)

V.
73

Accordingly, the judgment of the district court on contract damages is affirmed;

the judgment of the district court with respect to punitive damages is reversed;
the judgment of the district court with respect to attorney's fees is reversed; the
judgment of the district court with respect to pre-judgment interest is affirmed;
and the case is remanded to the district court for entry of a final order not
inconsistent with this opinion.

74

The present award of costs in the district court apparently including attorney's
fees, upon remand, the district court should reconsider the taxable costs in that
court. Upon this appeal, we decide that each side will bear its own costs.

75

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH

INSTRUCTIONS

Notes:
1

A fellerbuncher saws or "fells" trees and gathers the logs into bunches. A
skidder hauls trees out of the woods. A loader loads them onto a truck

A producer is the person who processes insurance applications

A scheduled policy only insures items specifically described and for the listed
values

"Inland marine" is a broad category of insurance that encompasses a range of

specific risks. One treatise states:
It is generally acknowledged to have originated in inland shipping, covering the
risks of navigation on lakes, rivers, and canals. In the early part of the twentieth
century, the term was expanded to include risks of transportation on land
(including such transportation-related structures as bridges), and now
encompasses "transportation" in the form of electronic or similar
communication. The addition of special policies adapted to a wide variety of
particular risks, many of which are in the form of floaters, renders this
classification so broad that it is impossible to define the term with exactness.
Couch on Insurance, 130 (3d ed.1997).

In the message, Power stated, "On that claim we sent yesterday I think we may
be out of that thing because when he called me with details of that piece of
equipment, we don't insure nor have we ever insured...."

At trial, Prime also conceded that an insurance contract did exist, but that the
destroyed fellerbuncher was not a scheduled item

This Hydro-Ax model was not the piece of equipment that Brandt owned

Prime removed pursuant to 28 U.S.C. 1441 as is permissible because federal

jurisdiction was established by the parties' diversity of citizenship

The completed special verdict form follows:

As to the claim for breach of contract, we, the jury, unanimously find:
_____ for the defendant
X for the plaintiff
If you found for the defendant, sign and date the verdict form now. If you
found for the plaintiff, go to question 2.

As to the claim for breach of contract, we, the jury, award actual damages in
the amount of Fifty Thousand and No/100 _______ (50,000.00)
If you awarded actual damages to the plaintiff, go to question 3.

As to the claim for bad faith, we, the jury, unanimously find:
____ for the defendant
X for the plaintiff
If you found for the defendant, sign and date the verdict form now. If you
found for the plaintiff, go to question 4.

As to claim for bad faith, we, the jury, unanimously find, by clear and
convincing evidence, that the plaintiff is entitled to punitive damages
____ No
X Yes
If you answered "No" sign and date the verdict form now. If you answered
"Yes" go to question 5.

As to the claim for bad faith, we, the jury, unanimously award punitive
damages in the amount of two hundred fifty thousand and no/100($250,000.00)
Charles S. Smith
Foreperson

Aiken, South Carolina

February 11, 2000

10

We characterize what occurred in this case as a misdescription because the

record reveals that Myrick owned onlyone fellerbuncher. This fact makes the
schedule description in this case no different than a situation in which the
wrong model year was listed because there can be no confusion as to which
piece of equipment is referred to in the schedule i.e., Myrick's only piece of

equipment. That we happen to know that the listed equipment actually refers to
another identifiable piece of equipment does not alter this characterization.
11

12

Because we address the motion for judgment as a matter of law based on the
existence of the written policy, we need not address the agency questions bound
up in the issue of whether an oral contract existed between the parties. We also
note that the jury was not charged on materiality, and neither party requested
the court to instruct on it. In a discussion regarding the subject, the court stated
that the case was "just going to have to come down to whether the jury believes
that there was a significant enough variance to warrant the decision to deny
coverage." The jury returned a special verdict form that stated there was a
contract that was breached
In Prime's opening statement, counsel stated, "we don't contradict that there was
an insurance contract in this case. As a matter of fact, we admit that there's an
insurance contract, and we agree that it ought to come into evidence."
NIEMEYER, Circuit Judge, dissenting:

76

The facts presented to the jury in this case do not permit a jury reasonably to
conclude that Prime Insurance Syndicate, Inc. breached its contract of insurance
with Jimmy Myrick when it denied coverage for the loss by fire of Myrick's
1989 Barko 775 fellerbuncher (Serial No. 17109). The policy of insurance, that
issued to "Jimmy Myrick dba Palmetto Logging" on September 2, 1998,
insured a 1985 Hydro Ax 311C fellerbuncher (Serial No. 311C2377), not the
1989 Barko 775 that was destroyed on September 17, 1998. As the record
demonstrates, the 1985 Hydro Ax fellerbuncher insured by Prime Insurance
was in fact the fellerbuncher that had been purchased by Donald Brandt for use
in an earlier joint venture between Brandt and Myrick, and indeed Brandt was
named as a loss payee in Prime Insurance's policy. When the joint venture of
Myrick and Brandt failed to get off the ground, Myrick decided in July 1998 to
enter the logging business by himself, purchasing the 1989 Barko 775
fellerbuncher.

77

The record shows that when Brandt and Myrick planned to pursue the logging
business together, they intended to use the 1985 Hydro Ax fellerbuncher that
had belonged to Brandt. Accordingly, on behalf of the joint venture, Myrick
obtained insurance to protect the business for loss of that fellerbuncher. Indeed,
a fax dated June 25, 1998, from Myrick to Gregg Matthews, Myrick's insurance
agent, describes the three pieces of equipment that the joint venture of Brandt
and Myrick was insuring, including the 1985 Hydro Ax fellerbuncher.

78

When Myrick and Brandt decided not to pursue business together, Myrick
purchased another fellerbuncher a used 1989 Barko 775 which he
reconditioned. When Myrick sought insurance from Matthews for his new
business, either Matthews or Myrick's office modified the June 25 fax, by
deleting a Franklin 170 skidder and substituting for it a 1986 Timberjack
skidder and by adding at the top of the fax, "Jimmy Myrick, dba/Palmetto
Logging," to indicate who was to be the named insured. But the fax as modified
left on the list the 1985 Hydro Ax 311C fellerbuncher that had been insured
earlier for the business with Brandt. Moreover, neither Matthews nor Myrick's
office added to the list the recently purchased 1989 Barko 775 fellerbuncher.
Thus, when the marked-up June 25 fax was used by Matthews to obtain
insurance for Myrick, it did not include a request for insurance on the 1989
Barko 775.

79

Matthews in fact obtained insurance for Myrick's new business in the form
stated in the marked-up June 25 fax. Because Matthews did not underwrite the
type of insurance that Myrick needed, he contacted Johnson Insurance
Associates, Inc., the agency for Prime Insurance, to obtain a binder, effective
September 2, 1998. On the same day that Johnson Insurance received the
information from Matthews, Johnson Insurance contacted Prime Insurance to
have it issue the binder that day. Prime Insurance indeed did so and issued an
insurance policy to "Jimmy Myrick dba Palmetto Logging," effective
September 2, 1998, insuring Myrick's business and equipment, including the
1985 Hydro Ax 311C fellerbuncher. It also named Donald Brandt as a loss
payee, indicating that he had an interest in the equipment as mortgagee.
Accordingly, the policy issued by Prime Insurance covered precisely the
equipment that was sought to be covered by the modified June 25 fax,
including the 1985 Hydro Ax fellerbuncher, but not the 1989 Barko 775. The
description of the equipment covered by Prime Insurance was in no way a
"misdescription," but rather an accurate description of the fellerbuncher that
had been involved in the business between Brandt and Myrick. There is no
evidence that Myrick made any request or provided any information to Johnson
Insurance Associates or to Prime Insurance to insure the 1989 Barko 775
fellerbuncher.

80

The evidence shows that, by whatever mistake that Myrick or Matthews made,
they insured the 1985 Hydro Ax fellerbuncher previously insured by Myrick
for his joint venture, and not Myrick's 1989 Barko 775 fellerbuncher. While the
facts might show that Myrick insured the wrong fellerbuncher from his point of
view, the fellerbuncher insured was not "misdescribed." Obviously, when
Myrick later sought payment from Prime Insurance for loss of the 1989 Barko
775 fellerbuncher, Prime Insurance denied coverage, and properly so.

81

The district court let the jury in this case rewrite the insurance policy, denying
Prime Insurance's motion for summary judgment, its motion for judgment
during trial, and its motion for judgment as a matter of law following trial. And
the majority now affirms this rewriting of the policy, despite the fact that there
is not one scintilla of evidence to support the notion that a misdescription was
involved. The 1985 Hydro Ax, including its serial number, was correctly
described; it was simply not the fellerbuncher that Myrick purchased in July
1998 and that fire destroyed in September 1998.

82

The majority assumes that there was only one fellerbuncher in question and that
therefore the description of a fellerbuncher in the policy had to be a
"misdescription":

83

We characterize what occurred in this case as a misdescription because the

record reveals that Myrick owned only one fellerbuncher. This fact makes the
schedule description in this case no different than a situation in which the
wrong model year was listed because there can be no confusion as to which
piece of equipment is referred to in the schedule i.e., Myrick's only piece of
equipment.

84

Ante at 491 n. 10. This, of course, overlooks the fact that there were two
different fellerbunchers and that the fellerbuncher that Myrick actually insured,
albeit by mistake, was the fellerbuncher that he had previously insured as part
of his business with Brandt. His mistake is further confirmed by the fact that
Myrick had Prime Insurance list Brandt as an additional loss payee.

85

Thus, at bottom, Myrick insured the wrong property through a mistake that
occurred somewhere between Myrick's office and Gregg Matthews' office. But
the mistake of insuring the wrong fellerbuncher is not the same as a
"misdescription" of a single fellerbuncher.

86

The majority also assumes that the "misdescription" was not material to Prime
Insurance's underwriting risks. Yet, the only evidence on materiality is to the
contrary. First, not only were the two fellerbunchers different models and
different brands, but they were also of different ages. In addition, the 1989
Barko 775 fellerbuncher that Myrick purchased in July 1998 was not working
and had to be reconditioned at a cost of $8000 9000. The only witness to
testify directly about the relative risks, Roger Day, an officer of Prime
Insurance, stated that the underwriting risks for the two machines were
different. When questioned by Myrick's counsel to suggest that both
fellerbunchers had a similar value and therefore would have been insured for

the same premium, Day rejected the suggestion, stating that one could not draw
such a conclusion. Obviously different machines of different ages and
conditions pose different risks. Because this was the only evidence with respect
to materiality, Myrick failed to carry his burden of proving that there was no
material difference in underwriting risk for insuring the two fellerbunchers.
87

I believe it is fundamentally unjust to allow a judgment to be entered against

Prime Insurance for loss of the 1989 Barko 775 when it issued a policy in
the form exactly as requested insuring only the 1985 Hydro Ax
fellerbuncher that had been part of the business between Myrick and Brandt and
which was correctly described. Accordingly, I respectfully dissent.