NATIONWIDE MUTUAL FIRE INSURANCE COMPANY v. CATO DEVELOPMENT, INC. No. CV 110-118.
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff, v. CATO DEVELOPMENT, INC. and LUCILLE BURTON, Defendants.
United States District Court, S.D. Georgia, Augusta Division.
September 8, 2011.
RANDAL HALL, District Judge.
Nationwide Mutual Insurance Company ("Nationwide") filed a complaint in this Court on September 8, 2010, within which it seeks rescission of an insurance policy issued to Defendant Cato Development, Inc. ("Cato Development") Defendants Cato Development and Lucille Burton ("Burton") have both failed to file an answer,
A. Nationwide's Complaint
Nationwide contends Cato Development applied for a commercial general liability insurance policy on March 20, 2008. In its application, Cato Development stated its business was strictly limited to flooring installation in South Carolina and Georgia. Cato Development further represented that it had not done any roofing work in the preceding three years and no claims or lawsuits had been filed against it in connection with its contracting work. After reviewing its application, Nationwide issued Cato Development an insurance policy for coverage between March 3, 2008, and March 3, 2009.
On April 6, 2009, Burton filed suit against Cato Development in the Court of Common Pleas of Edgefield County, South Carolina. Burton alleges Cato Development failed to repair her home in a workmanlike manner.
Nationwide is defending Cato Development in the South Carolina litigation pursuant to a Reservation of Rights, but has brought suit in this Court seeking to rescind its insurance contract with Cato Development. Nationwide contends Cato Development made several misrepresentations in its application for insurance and, but for those misrepresentations, Nationwide would not have issued the insurance policy. More specifically, Nationwide alleges Cato Development represented that its business operations involved flooring installation, it had performed no roofing work in the preceding three years, and no claims or lawsuits had been filed against it as a result of its contracting work. Nationwide requests full rescission of the insurance contract and a declaration that Nationwide has no duty to defend or indemnify Cato Development in the lawsuit brought by Burton. In the alternative, Nationwide seeks a declaratory judgment providing that Burton's claims are capped at $5,000.00 under relevant policy provisions.
B. Entry of Default
Nationwide served Burton personally with a copy of the summons and Complaint on September 20, 2010, and served Cato Development on October 5, 2010, through Kristina Cato, who is identified in the affidavit of service as the wife of Cato Development's registered agent, Kevin Cato. (
Nationwide's legal counsel has certified that it mailed the motion for default and motion for default judgment to both Defendants at the time of filing. All mail was sent to Cato Development at 221 Edisto Street, Johnston, South Carolina, and to Lucille Burton at 1187 Calhoun Street, Johnston, South Carolina. Moreover, the Court has mailed all orders, including the entry of default and a show cause order, to Defendants' addresses, as they are listed in the Complaint; orders were mailed to Kevin Cato, Cato Development's registered agent, at 608 Woodyard Road, Trenton, South Carolina, and to Lucille Burton at 1187 Calhoun Street, Johnston, South Carolina.
C. Sufficiency of Service
Out of an abundance of caution, the Court waited until May of 2011 to take up Nationwide's motion for default judgment. When the Court finally took the motion under consideration, questions arose regarding the sufficiency of service as to Cato Development. Consequently, the Court issued a show cause order on May 24, 2011, directing Nationwide to show cause why their motion against Cato Development should not be denied due to insufficient service of process. (Doc. no. 10.) Nationwide timely responded (doc. no. 11) and later supplemented their response with evidence obtained from the South Carolina Secretary of State (doc. no. 14).
According to the evidence presented, Cato Development was dissolved on August 17, 2009. (Doc. no. 11, Ex. 1.) Nevertheless, Nationwide first attempted to serve Kevin Cato, Cato Development's registered agent and president, at the address an file with the South Carolina Secretary of State-608 Woodyard Road, Trenton, South Carolina. On or around this time, Nationwide was informed that Mr. Cato would be out-of-state for an extended period of time. (Doc. no. 11, Ex. 2 at 2.) Upon review of the documents submitted by Cato Development during the application process, Nationwide discovered that Kristina Cato, Kevin Cato's wife, was listed on the insurance application as Cato Development's vice-President.
Federal Rule of Civil Procedure 4(h) provides that a domestic corporation can be served "by delivering a copy of the summons and of the complaint to an officer" of the corporation. Based upon the evidence before the Court, Kristina Cato served as vice-president of Cato Development and was one of its two original incorporators. In addition, Kristina Cato is the wife of Kevin Cato—Cato Development's registered agent and former President—and resides together with Kevin Cato at the address where she was served. Moreover, notably, this address was also listed as the primary, mailing and billing address for Cato Development in the insurance application.
In light of the information available, Nationwide had little choice but to serve Kristina Cato.
D. Default Judgment
"Defendant's default does not in itself warrant the court in entering a default judgment. There must be a sufficient basis in the pleadings for a judgment entered. . . . The defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law."
The parties in this case are diverse and the amount in controversy exceeds $75,000, thus the Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Moreover, this Court has jurisdiction over Cato Development because the events and/or omissions that form the basis of the rescission action arose from a business transaction that took place in Columbia County, Georgia, in connection with an application for commercial insurance coverage in Georgia and South Carolina.
With regard to Defendant Burton, however, Nationwide provides no legitimate basis for personal jurisdiction, either in its complaint or its motion for default judgment. Instead, Nationwide provides conclusory assertions as grounds for the Court's jurisdiction over Burton—a South Carolina resident who brought suit against Cato Development in South Carolina as a result of repairs performed in South Carolina. (
In this diversity action, the Court must apply the choice-of-law rules of the forum state of Georgia.
In support of the application of Georgia law, Nationwide contends, "[b]ecause the policy was delivered in Georgia (Complaint, ¶ 7), Georgia law controls the contractual obligations of the parties." (Doc. no. 7 at 7.) Paragraph seven of Plaintiff's Complaint reads as follows: "[T]he insurance policy at issue was delivered to Cato by Nationwide's agent located in Columbia County, Georgia, to cover contracting services in Georgia and South Carolina." Contrary to Plaintiff's characterization, this statement, even if accepted as true, does not conclusively establish that the policy was delivered in Georgia, as opposed to South Carolina; it merely provides that the agent who delivered the policy was located in Georgia.
With that said, however, Georgia "limit[s] the application of non-forum substantive law to statutes and caselaw interpreting those statutes," and the Eleventh Circuit has repeatedly approved of this rule.
Under Georgia law, "when an applicant for insurance makes material misrepresentations on his or her application for insurance, the insurer is entitled, as a matter of law, to rescind the policy."
O.C.G.A. § 33-24-7(b);
Plaintiff states in its Complaint that "Cato's application [for insurance] falsely stated that its business operation was limited to flooring installations and that no claims or lawsuits were filed for contracting operations." (Compl. ¶ 24.) Moreover, Plaintiff adds, "[i]f Cato's application had provided truthful information Nationwide in good faith would not have issued the Policy or would have not issued the Policy in as large an amount or at the premium rate applied." (
With the allegations in the Complaint deemed admitted, rescission is appropriate under Georgia law. Accordingly, Plaintiff has no duty to defend or indemnify Cato Development for the claims asserted in the Burton lawsuit based upon the insurance policy addressed herein.
Upon the foregoing, Plaintiff Nationwide Mutual Fire Insurance Company's motion for default judgment (doc. no. 7) is
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