In May 2015, Raymond Wacha and Alphonso Dudley were involved in an automobile accident. At the time, Wacha, an employee of Founders National Golf, LLC, was driving a truck owned by that entity and insured by a commercial policy issued by Selective Insurance Company of America, with limits of $1,000,000. Almost a year following the accident, Dudley filed suit against Wacha. Wacha failed to respond and the circuit court entered a default judgment against Wacha for damages, including punitive damages.^[1] Interestingly, the court awarded actual damages in the amount of $169,967.52 and punitive damages in the amount of $830.032.48; the amounts equaling the policy limits.

On the date judgment was entered, Dudley’s counsel sent a letter to Selective, via email and U.S. mail, by which it provided a copy of the default judgment, along with a request that Selective immediately pay the judgment. Selective promptly hired counsel to represent Wacha who filed motions to reconsider and to vacate the order granting default judgment. At the hearing on these motions, the circuit court modified the order granting default judgment, vacating the punitive damages, but affirming the award of actual damages. Shortly thereafter, Selective filed a declaratory judgment action seeking a ruling of the court that its liability for the default judgment was limited to the statutory minimum limits of $25,000 rather than the default judgment. Selective Insurance Company of America v. Raymond Wacha and Alphonso Dudley, 2019 WL 2358949 (June 4, 2019). The matter came before the court on Selective’s unopposed motion for summary judgment, pursuant to which the court engaged in an examination of South Carolina law as it relates to insurance policies and the rights and obligations of parties thereto.

It is axiomatic that South Carolina law requires an insurance policy to be construed according to contract law. South Carolina has long held that courts must enforce insurance policies, not write them, and in so doing must give policy language its plain, ordinary and popular meaning. In the context of a declaratory judgment action, an insurer’s obligations to defend and indemnify an insured is determined by the allegations of the complaint. Generally, if an insured fails to immediately provide copies of any suit or other demand, thereby failing to comply with the notice provisions of the policy, an insurer is relieved of its duties under the policy. See Founders Ins. Co. V. Richard Ruth’s Bar & Grill LLC.^[2] If, however, an insurer has actual notice of an action against it’s insured, the failure of the insured to provide copies thereof may not relieve the insurer of its duties if the insured cooperates and does not otherwise prejudice the insurer.

Against the backdrop of these general holdings, and in furtherance of South Carolina’s efforts to protect innocent third parties, when the rights of such third parties are at issue, an insured’s failure to meet the notice provisions of a policy will not bar recovery, unless the insurer establishes such failure has resulted in substantial prejudice to its rights. This ‘substantial prejudice’ requirement extends to both mandatory and voluntary insurance coverage.

Here, Selective sought the court’s determination that its liability in the underlying action was limited to $25,000 – the statutory minimum limit- based upon Wacha’s failure to comply with the notice provisions of the policy and his failure to cooperate with Selective. In support of its position, Selective presented uncontroverted evidence that it had no actual notice of the filing and service of the action against Wacha, despite numerous communications with counsel and staff who represented Dudley. In fact, Selective had no notice of the actual suit until it received a copy of the default judgment and a demand for payment. Recognizing that our courts have historically held that a default judgment against an insured establishes prejudice to an insurer, the Wacha court emphasized the uncontested evidence that established Selective was deprived of the opportunity to investigate, defend or even mediate this claim and the substantial prejudice resulting therefrom. Consequently, the court granted Selective’s summary judgment, and found it was responsible for payment only in the amount of the statutory limits.