Protopapas v. Wall, Templeton & Haldrup

442 S.C. 217

898 S.E.2d 150

Peter D. PROTOPAPAS, as Receiver for Covil Corporation, Respondent,

v.WALL, TEMPLETON & HALDRUP, P.A.; Sentry Casualty Company; United States Fidelity And Guaranty Company; Zurich American Insurance Company, Defendants,of which United States Fidelity and Guaranty Company is the Appellant.

Appellate Case No. 2020-001437

Opinion No. 6037

Court of Appeals of South Carolina.

Heard October 11, 2023

Filed November 22, 2023

Rehearing Denied March 18, 2024

Appeal From Richland County, Jean Hoefer Toal, Acting Circuit Court Judge

Matthew Todd Carroll, of Womble Bond Dickinson (US), LLP, of Columbia, Mary Elizabeth O’Neill, of Womble Bond Dickinson (US), LLP, of Charlotte, NC, Andrew T. Frankel, of New York, NY, and Mary Beth Forshaw, of New York, NY, all for Appellant.

G. Murrell Smith, Jr., Jonathan M. Robinson, and Shanon N. Peake, all of Smith Robinson Holler DuBose Morgan, LLC, of Columbia, for Respondent.

MCDONALD, J.:

This appeal arises from an action brought by the dissolved Covil Corporation’s appointed Receiver, Peter D. Protopapas, against one of Covil’s insurers, United States Fidelity and Guaranty Company (USF&G). USF&G appeals the special circuit court’s order clarifying the status of the Receivership and rejecting USF&G’s argument that South Carolina’s statute of repose available to dissolved corporations bars asbestos personal injury claims against Covil. We affirm the order of the special circuit court.

Facts and Procedural History

Covil sold insulation products for many years, and some of these products contained asbestos. Covil’s operations also included the installation and removal of insulation at industrial facilities throughout South Carolina. Thus, Covil has been named as a defendant in asbestos bodily injury suits since 1976. Plaintiffs in these lawsuits alleged that during specified periods, Covil made, manufactured, sold, distributed, installed, or removed insulation materials containing asbestos.

Covil ceased business operations in 1991, and the South Carolina Secretary of State revoked Covil’s corporate charter in 1993. Throughout the course of Covil’s operations, it had insurance coverage through various insurers, including USF&G, Zurich, Sentry, Hartford, and TIG.

In 1991, the Greenville County master-in-equity appointed a receiver for Covil (the Prior Receiver). By order filed May 12, 1992, the master judicially dissolved Covil and ordered the Prior Receiver to provide known claimants with notice of dissolution pursuant to section 33-14-106 of the South Carolina Code and to publish the notice required by section 33-14-107. The master also ordered the Prior Receiver to gather and dispose of Covil’s assets.

On November 11, 1992, the Prior Receiver filed a petition to terminate his receivership. The petition described the actions taken by the Prior Receiver and included an accounting of the Prior Receiver’s expenditures. This accounting does not reference any expenses paid to publish a notice of dissolution or otherwise paid to a newspaper. In a November 12, 1992 order, the master discharged the Prior Receiver, finding he had "fully complied with the previous Orders of this Court in liquidating the assets of his Defendants, that his accounting is in order and that the relief sought by him should be approved."

In 2018, Covil defaulted in two mesothelioma cases, and in November 2018, the special circuit court appointed Receiver to represent Covil’s interests. The Receiver later filed a motion to clarify the special circuit court’s Appointment Order. The circuit court granted this motion, finding Receiver was vested with all rights of Covil, including the right to access files retained by two law firms Covil’s insurers retained to represent their insured.

On April 24, 2019, the Receiver filed a bad faith action against USF&G, Zurich, and Sentry (Insurers) as well as a legal malpractice action against one of the law firms (Law Firm) that represented Covil. The Receiver alleged Insurers acted as Covil’s alter ego in conducting Covil’s post-dissolution affairs prior to Receiver’s appointment, including making decisions as to the disposition of litigation against Covil and the treatment and characterization of claims against Covil’s insurance policies. The Receiver further asserted Insurers and Law Firm acted in bad faith in choosing not to appear in the two 2018 cases in which Covil was held in default.

The Receiver subsequently sought an order of contempt to address Insurers’ failures to comply with several special circuit court orders, including an order requiring Insurers to provide Receiver with requested insurance documentation. Following a hearing, the special circuit court issued a January 8, 2020 order describing the troubling issues that have arisen in Covil’s asbestos litigation involving Insurers. This order noted Insurers had been "operating an otherwise defunct Covil for purposes of managing Covil’s asbestos litigation" for over two decades and had failed to cooperate with the Receiver despite several court orders directing them to do so. The special circuit court explained that despite repeated instructions and discovery orders, Insurers failed to provide the Receiver with all relevant insurance policy limits and documentation necessary for the Receiver to participate in mediating Covil’s asbestos litigation. This order further noted the Receiver had gone to great lengths in his effort to piece together the necessary coverage information. Notably, the special circuit court found the Receiver had submitted evidence demonstrating USF&G’s prior claims practice involved the systematic destruction of historical insurance coverage documentation in the hope that policyholders would be unable to produce the policy records necessary to establish coverage. The special circuit court found USF&G spoliated relevant evidence and noted it would "issue an appropriate sanction to deter such conduct in the future and attempt to re-level the now uneven evidentiary playing field."

On December 12, 2019, Sandra Hutto, personal representative of the Estate of Donald L. Hutto, and other family members filed an action against numerous defendants, including Covil and Insurers. Hutto’s complaint included wrongful death and survival claims arising from Donald’s exposure to asbestos-containing materials and raised additional claims related to Insurers’ handling of Covil’s asbestos litigation. These included Hutto’s claims that Insurers acted as Covil’s alter ego and with others to effectuate "their common purpose of exclusive, unilateral control by running Covil’s affairs in all material respects." Hutto claimed Insurers controlled Covil for nearly thirty years and "made Covil’s defense of asbestos litigation nearly, if not completely, impossible." She further asserted Insurers’ conduct made them "fully responsible for all of Covil’s liabilities prior to appointment of the Receiver."

On February 21, 2020, Covil, by and through Receiver, crossclaimed against USF&G and Zurich. Covil claimed USF&G and Zurich were fully responsible for all of Covil’s liabilities prior to Receiver’s appointment because they acted as Covil’s alter ego in managing Covil’s assets and in acting on Covil’s behalf. Covil also brought a crossclaim against these insurers for their bad faith failure to defend Covil in the Hutto litigation. USF&G answered, raising as an affirmative defense the statute of repose available to dissolved corporations through sections 33-14-106 and 33-14-107 of the South Carolina Code. USF&G asserted that if it were found to be Covil’s alter ego, it was entitled to assert all claims and defenses to which Covil would be entitled, including this statute of repose.

On April 10, 2020, the special circuit court granted joint motions to establish the Covil Qualified Settlement Fund (QSF) and to approve settlements between the Receiver and Sentry and two other insurers.¹ Following the approval of the settlement agreements and the establishment of the QSF, all claims against Hartford, Sentry, and TIG were assigned to the QSF.

On July 20, 2020, the Receiver filed an amended complaint in the bad faith and legal malpractice action against Law Firm, USF&G, and Zurich. USF&G timely answered and raised several affirmative defenses. Among these was USF&G’s affirmative defense that all claims against Covil or any entity alleged to be Covil’s alter ego were barred by the statute of repose for claims against dissolved corporations. Zurich raised the same statute of repose defense.²

On July 21, 2020, the Receiver filed a motion to clarify the status of the Receivership. In this motion, the Receiver asked that the special circuit court "clarify the impact, if any, of these affirmative defenses and thus finally adjudicate this issue of South Carolina law."

In its September 25, 2020 order clarifying the status of the receivership, the special circuit court held "nothing from the prior Receivership precludes the current Receivership or personal injury asbestos claimants from filing lawsuits against Covil." The circuit court further found no evidence exists to support a finding that notice of Covil’s dissolution was ever published as was required to trigger the statute of repose. The special circuit court specifically referenced the 1992 master’s orders addressing the Prior Receivership, explaining the November 1992 order stated only that the Prior Receiver complied with previous orders to liquidate Covil’s assets—the 1992 order made no finding as to whether the notice of dissolution was ever published. The circuit court determined that even if the notice of dissolution had been published, claims against Covil were not barred as a matter of law under the post-2004 section 33-14-107(c) because the amended version of the statute applied only to corporate dissolutions subsequent to its 2004 enactment. Yet, the circuit court further noted claims against Covil were not barred under the prior version of the statute...