UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1241
THE CINCINNATI INSURANCE COMPANY,
Plaintiff - Appellant,
versus
URGENT CARE PHARMACY INCORPORATED; W. RAY
BURNS; R. KEN MASON, JR.; G. DAVID SCYSTER, as
Administrator of the Estate of Mary Virginia
Scyster and Individually Estate of Mary
Virginia Scyster; VIRGINIA RAUCH; VIVIAN
CONRAD; DONALD M. BOLES; ANNIE MCGILL; DANIEL
W. BOWMAN; JAMES HICKMAN; SHIRLEY KUS; DEBORAH
J. HENSLEY; ROBERT CONRAD, individually and as
Administrator for the Estate of Vivian Conrad,
Defendants - Appellees.
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SOUTH CAROLINA STATE BOARD OF PHARMACY,
Movant.
Appeal from the United States District Court for the District of
South Carolina, at Spartanburg. Henry M. Herlong, Jr., District
Judge. (7:04-cv-01057-HMH)
Argued: January 30, 2007 Decided: May 7, 2007
Before WILKINSON, GREGORY, and DUNCAN, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion.
ARGUED: Mark S. Barrow, SWEENY, WINGATE & BARROW, P.A., Columbia,
South Carolina, for Appellant. James B. Maxwell, MAXWELL, FREEMAN
& BOWMAN, P.A., Durham, North Carolina; William Marvin Grant, Jr.,
GRANT & LEATHERWOOD, P.A., Greenville, South Carolina, for
Appellees. ON BRIEF: Martin S. Driggers, Jr., SWEENY, WINGATE &
BARROW, P.A., Columbia, South Carolina, for Appellant. Joe McLeod,
THE MCLEOD LAW FIRM, Fayetteville, North Carolina, for Appellee
Virginia Rauch; H. Forest Horne, Jr., MICHAELS, JONES, MARTIN,
PARRIS & TESSNER, Raleigh, North Carolina, for Appellee Robert
Conrad.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
The Cincinnati Insurance Company (“Cincinnati”) appeals the
district court’s grant of summary judgment to Urgent Care Pharmacy
and other appellees (collectively “Appellees”) on the issues of (1)
whether Urgent Care’s business liability policy included
professional liability coverage in a “missing endorsement” or
otherwise; (2) whether this coverage was unlimited; and (3) whether
an exclusion in the policy precludes coverage in this case. The
district court granted summary judgment in Appellees’ favor on all
issues, finding that the professional liability coverage was
included in a “missing endorsement,” was without liability limits,
and that no exclusion applied to preclude coverage. For the
reasons that follow, we reverse, holding that summary judgment was
inappropriate because there is a genuine issue of material fact as
to whether professional liability coverage was included in a
“missing endorsement” or elsewhere in the policy. Therefore, we
remand for further proceedings consistent with this opinion.
I.
As is required upon review of a grant of summary judgment, we
view all disputed facts in the light most favorable to Cincinnati
and draw all reasonable inferences in its favor. See Tinsley v.
First Union Nat’l Bank, 155 F.3d 435, 438 (4th Cir. 1998).
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A. The Drug
In 2002, Urgent Care Pharmacy, Inc. (“Urgent Care”) was a
compounding pharmacy in Spartanburg, South Carolina. A compounding
pharmacy has the capability to produce drugs from raw ingredients.
Urgent Care compounded a variety of different drugs for sale to
hospitals, physicians, and individuals with a prescription. One of
the drugs compounded by Urgent Care was methylprednisolone acetate
(the “Drug”), also known by the trade name Depo-Medrol. The Drug
is an injectable steroid used by anesthesiologists to treat severe
back and joint pain. When the Drug’s commercial manufacturers
decided to stop producing it, compounding pharmacies like Urgent
Care stepped forward to fill requests from physicians and hospitals
for the Drug.
In mid-2002, Urgent Care received requests for the Drug from
several anesthesiologists and medical facilities in North and South
Carolina, including the Johnston Pain Clinic and the pain clinic at
Moore Regional Medical Center. Some of the Drug compounded at
Urgent Care and sold to these two clinics was contaminated by a
fungus. The contaminated samples were administered to several
patients at these clinics, who subsequently contracted meningitis
from the fungus. The affected patients and decedents are, along
with Urgent Care, Appellees in this case. After the contamination
was discovered, the South Carolina Board of Pharmacy investigated
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Urgent Care, issuing a cease-and-desist order on September 27,
2002, which resulted in Urgent Care’s closure.
B. The Policy
Urgent Care purchased a Businessowner’s Policy (“Policy”) from
Cincinnati for the policy period of November 21, 1999 to November
21, 2002. Urgent Care paid a yearly premium of $713 for the
Policy. The Policy provides two categories of coverage: business
liability and property liability. Urgent Care also opted for
“professional liability” coverage by checking a box on the Policy’s
declarations page indicating “Professional Liability - Per Attached
Form.” J.A. 31. What “Attached Form” means is a point the parties
dispute. Cincinnati argues that the “Attached Form” is the
substantive portion of the Policy, which is found in the record.
See J.A. 33-87. The district court agreed with Appellees that
“Attached Form” refers to a separate, “missing endorsement” setting
out the parameters of the professional liability coverage. The
Policy also provides a coverage limit of one million dollars per
occurrence for business liability. It is disputed whether the
coverage limits in the Policy apply to the professional liability
coverage as well as other business liability. The Policy also
contains an exclusion, “Exclusion j,” that denies coverage if the
injury is caused by “products manufactured or compounded in bulk
for sale by the insured to others.” J.A. 60.
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While several lawsuits have emerged from the sale of the
contaminated samples, the litigation underlying this particular
appeal arose when Cincinnati filed a declaratory judgment action in
April 5, 2004 seeking an order that it has no duty to defend Urgent
Care or to provide it coverage in connection with the patients’
claims against Urgent Care. Appellees filed cross-motions for
summary judgment on three separate issues in August and September
2005. The parties sought judgment as to (1) whether the Policy
provided coverage for liability arising from the sale of the Drug;
(2) whether the coverage was unlimited; and (3) whether “Exclusion
j” of the Policy excludes coverage because Urgent Care illegally
“manufactured” the Drug.
On the issue of whether the Policy covered Urgent Care’s sale
of the drug, the district court found that there was a “missing
endorsement” to the Policy in which professional liability coverage
was outlined. The court based its subsequent conclusions on this
finding. With respect to the second issue, the court held that
under South Carolina law, it was proper to infer unlimited coverage
because the professional liability endorsement was missing and
“nowhere in the Policy are professional liability limits
contemplated.” Cincinnati Ins. Co. v. Urgent Care Pharm., Inc., 413
F. Supp. 2d 644, 651 (D.S.C. 2006). With respect to the third
issue, it found that “Exclusion j,” which excludes the pharmacy
from coverage if it was illegally manufacturing a drug or
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compounding it in bulk, did not apply to preclude coverage here.
Reasoning that because professional liability was outlined in a
missing endorsement, the district court found that the Policy was
at least ambiguous as to the applicability of “Exclusion j,” the
district court theorized “two reasonable interpretations:” (1) that
the exclusion applied only to business liability coverage and (2)
that the exclusion covers professional liability coverage. Id. at
649. It chose the first interpretation because under South
Carolina law, the court is required to adopt the policy
construction most favorable to the insured. Id. (citing Poston v.
Nat’l Fid. Life Ins. Co., 399 S.E.2d 770, 772 (S.C. 1990). Given
its interpretation, the district court did not assess whether
Urgent Care’s activities constituted “manufacturing” or
“compounding in bulk” under the exclusion. The district court
awarded summary judgment to Appellees on all three issues on
February 7, 2006, and it is Cincinnati’s appeal from this order
that is now before us.
II.
Cincinnati argues that summary judgment was improper on all
issues. Cincinnati does not dispute the existence of professional
liability coverage: rather, it argues that the district court erred
in finding that the professional liability coverage was outlined in
a “missing endorsement” to the Policy. Because we find there to be
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a genuine issue of material fact as to whether professional
liability coverage was delineated in a “missing endorsement” or in
the Policy itself, we hold that summary judgment on this issue was
improper. Because the district court’s finding on the other issues
was based in part on its reliance on the existence of a missing
endorsement, we need not reach the merits of the remaining issues
in order to reverse.
Summary judgment is appropriate only if “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). The
evidence of the non-moving party must be accepted as true and all
justifiable inferences must be drawn in the non-movant’s favor.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). This
court reviews a grant of summary judgment de novo. Med. Waste
Assocs. v. Mayor of Baltimore, 966 F.2d 148, 150 (4th Cir. 1992).
A.
We turn first to whether summary judgment was appropriate on
the issue of professional liability coverage in the Policy.
Importantly, Cincinnati does not contest that some professional
liability coverage was provided to Urgent Care under the Policy.
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It is the location of this coverage, and the provisions that are
applicable to it, that is at the heart of this case.
A typical insurance contract for a business is divided into
two broad categories: property and business liabilities. See 1
Barry R. Ostrager & Thomas R. Newman, Handbook on Ins. Coverage
Disputes, § 10.06(a), at 778 (13th ed. 2006)*. A property
liability policy covers losses incurred by the insured as a result
of damage to the policy owner or damage to property the insured
owns or leases. Id. A business liability policy covers injury to
a third party. Id. Professional liability coverage is typically
excluded from business liability coverage unless the policy holder
elects this coverage. See id. at § 7.02 (b)(6) (“[M]any . . .
policies contain a ‘professional services exclusion, which
generally excludes coverage for ‘property damage or personal injury
arising out of the rendering of or the failure to render any
professional services.”) (internal quotations omitted). If
professional liability coverage is elected, insurance contracts
vary as to how this coverage is outlined. The professional
liability coverage can be offered in a separate policy, in an
endorsement to an existing business liability policy, or within the
business liability policy itself. See, e.g. Stoudt v. Harleysville
Ins. Co., 17 Pa. D. & C. 4th 257 (C.P. Mercer County 1992) (within
*
This explanation occurs within the context of a discussion of
environmental liability but provides a helpful discussion of the
basic organization of insurance coverage for businesses.
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separate policy); Houg v. State Farm Fire & Casualty Co., 481
N.W.2d 393, 396 (Minn. Ct. App. 1992) (within business liability
policy). No matter the structure, in South Carolina, contracts of
insurance are subject to the general rules of contract
construction. Stewart v. State Farm Mut. Auto. Ins. Co., 533
S.E.2d 597, 601 (S.C. Ct. App. 2000).
Here, all parties agree that Urgent Care elected professional
liability coverage and that the Policy offers such coverage.
Cincinnati admits that professional liability was covered under the
Policy: its reply below states that “[t]he allegation . . . is
admitted to the extent that [it] alleges that the Businessowners’
policy issued to Urgent Care Pharmacy included, as an integral part
of the policy, professional liability coverage.” J.A. 111. Urgent
Care elected coverage on the declarations page of the policy by
checking a box indicating that it desired additional coverage for
professional liability. The box that Urgent Care checked,
indicating professional liability coverage, stated “Professional
Liability--Per Attached Form.” J.A. 31.
What Cincinnati disputes is the district court’s conclusion
that the optional professional liability coverage--the “Attached
Form”--was found in a separate endorsement that is apparently
missing from the record. The district court based this conclusion
on the fact that the language of the Policy referred generally to
business liability and not professional liability. See Cincinnati,
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413 F. Supp. 2d at 649. Cincinnati argues that form IB 101 03 99,
J.A. 33-87, is the “Attached Form” listed in the declarations.
Indeed, there is a provision that specifically references
professional liability in the Policy. J.A. 60. It sets out what
will not be covered “unless professional liability coverage has
been endorsed hereon.” Id. Although the industry standard is that
professional liability coverage must be specially elected, see
Ostrager & Newman, supra, § 7.02(b)(6), whether that coverage is
included under the terms of the business liability policy or as a
separate endorsement can vary with the contract. Here, we find not
only an issue of contractual interpretation but issues of material
fact as to whether professional liability was outlined in a missing
endorsement or included within form IB 101 03 99. The law is clear
that summary judgment is wholly inappropriate where such a dispute
of fact as we see here exists. See Fed. R. Civ. P. 56(c). There is
at least a genuine issue of material fact as to whether the missing
endorsement even existed, and we find that this is sufficient to
preclude judgment as a matter of law in this case.
B.
We now turn briefly to the remaining issues: the scope of
professional liability under the Policy and whether “Exclusion j”
applies to preclude coverage here. As the district court’s finding
that professional liability was covered in a “missing endorsement”
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was an integral part of its analysis of these issues, we need not
reach their merits in order to reverse. We are, however,
sufficiently troubled by the district court’s analysis of the
coverage limits that a note of caution is warranted.
We view the district court’s finding of unlimited liability as
questionable, independent of its reliance on a presumption of a
separate, missing endorsement. Even if the court were to find that
the professional liability policy was contained in a missing
endorsement, we do not believe that an inference of unlimited
liability can be drawn from these facts. As a practical matter, we
find it extremely unlikely that Cincinnati would provide unlimited
coverage for a premium of only $713 per year.
The district court cites Williamson v. South Carolina Ins.
Reserve Fund, 586 S.E.2d 115 (S.C. 2003), as primary authority for
its conclusion that the court may infer unlimited liability in the
absence of a liability limit. See Cincinnati, 413 F. Supp. 2d at
649 (citing Williamson, 586 S.E.2d at 119). That case is, however,
clearly distinguishable from the one now before us. In Williamson,
the Supreme Court of South Carolina found unlimited liability
because the liability limits in a statute had been repealed. 586
S.E.2d at 119. There is no statute involved here. This is simply
a case of contractual interpretation, and South Carolina interprets
insurance contracts pursuant to the general rules of contract
construction. State Farm Mut. Auto. Ins. Co. v. Calcutt, 530
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S.E.2d 896, 897 (S.C. Ct. App. 2000). Further, South Carolina law
holds that an endorsement to an insurance policy must be read
together with the policy. Long v. Adams, 312 S.E.2d 262, 265 (S.C.
Ct. App. 1984). Consequently, the Policy here cannot be ignored
entirely in favor of unknown terms of the purportedly missing
endorsement.
III.
For the foregoing reasons, we conclude that the district
court’s grant of summary judgment to Appellees should be reversed
and remanded for further consideration in light of this opinion.
REVERSED AND REMANDED
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