Insurer Misplaces DJ Complaint: Supreme Court Upholds Default Judgment (National Case of First Impression)

Insurer Misplaces DJ Complaint: Supreme Court Upholds Default Judgment (National Case of First Impression)

Some coverage cases involve really unique issues. The South Carolina Supreme Court’s opinion in White Oak Manor, Inc. v. Lexington Ins. Co., No. 27351 (S.C. Jan. 15, 2014) [enhanced version available to subscribers], is one of them. I believe that it is the first case nationally to ever address a certain issue. [I did not research this to the ends of the earth but I’m fairly sure that it is.]

So, on one hand, White Oak Manor’s uniqueness makes it worthy of note. On the other hand, if the issue is so unique, then a reasonable alternative response to the decision may be that it’s really not very important. My take when confronted with these competing schools of thought is that the former prevails. If nothing else, if you find yourself on the elevator, with a colleague that you have nothing to say to, you can now pipe up with – Hey, did you see that really unique decision from the South Carolina Supreme Court?

White Oak Manor arose like this. White Oak Manor, Inc. owned and operated a nursing home. A resident filed a lawsuit against the nursing home after sustaining injuries from the improper replacement of a feeding tube. White Oak ultimately settled the lawsuit, without the involvement of its insurer, Lexington, and then filed a declaratory judgment action against Lexington to determine coverage for the malpractice claim.

The Lexington policy contained a service-of-suit clause which provided: “It is further agreed that service of process in such suit may be made upon Counsel, Legal Department, Lexington Insurance Company, 200 State Street, Boston, Massachusetts 02109 or his or her representative, and that in any suit instituted against us upon this Policy, we will abide by the final decision of such court or of any appellate court in the event of any appeal.”

Following this policy provision, White Oak served Lexington by mailing the summons and complaint by certified mail, return receipt requested, to the address specified. According to the return receipt, service was accepted on May 20, 2005 and signed for by a Thomas W. Dinam. Lexington failed to respond within thirty days and a default judgment was entered. White Oak then amended its complaint, alleging that Lexington was in default and moved for damages. It again served the amended summons and complaint on Lexington by mail.

Lexington filed an answer and a motion to set aside the default judgment. Among other reasons for setting aside the default, Lexington argued that service on an insurance company could only be effectuated pursuant to a South Carolina statute, which requires that service of process be through the Director of the Department of Insurance and any contrary contractual provisions were invalid.

Lexington also argued that, “even if White Oak legally served it pursuant to the contract, service was nevertheless ineffective because White Oak did not substantially comply with the contractual provisions. In particular, Lexington noted that although it had documentation that it received the summons and complaint, it had no record of an employee named Thomas W. Dinam, and he was neither counsel nor counsel's ‘representative.’ Furthermore, Lexington argued good cause existed to set aside the default.”

The trial court held that Lexington and White Oak contractually agreed to another means of service and, therefore, service through the Director was not required. The court of appeals reversed, holding the service of suit clause did not absolve White Oak of the responsibility to comply with the statutory requirement that it deliver two copies of its summons and complaint to the Director of the Department of Insurance in order to serve process on Lexington.

The issue went to the South Carolina Supreme Court, which held: “We therefore cannot agree it was the intent of the legislature to circumvent the long-standing rule that service can be consented to by the parties or waived entirely. Service of process is intended to provide notice and obtain personal jurisdiction, and Lexington designated in its policy a method for an insured to accomplish both those goals. We hold Lexington is bound by its own policy’s terms. We reject the notion that the statute is intended to allow an insurance company to prescribe a method of service in its policy and then declare its own provision invalid under [the statute]. We have previously interpreted insurance service statutes as ‘designed by the legislature to provide a simple and easy method of obtaining jurisdiction over a foreign insurance company.’ Thus, their purpose is to provide an insured with a method to obtain service of process on insurance companies; it is not to serve as a shield for insurance companies, protecting them from their own policy terms.” (emphasis in original).

The Supreme Court also rejected the argument that service was ineffective because the word “counsel” was not used in the address, as specified in the policy’s service of suit provision: “We find the circuit court did not abuse its discretion in holding White Oak substantially complied with the service-of-suit clause. The communication was directed to the legal department, and the mere omission of the word ‘Counsel’ in the address did not render service ineffective.”

Lastly, Lexington argued that “it replied promptly after discovering the default, it presented evidence of a meritorious defense, and White Oak would suffer no prejudice if the relief was granted.” However, the Supreme Court refused to set aside the default judgment for good cause: “The circuit court acted within its discretion in concluding that losing a complaint was not a satisfactory explanation for failing to timely respond.”

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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