Portrait Homes v. Pennsylvania National Mutual

       THE STATE OF SOUTH CAROLINA
           In The Court of Appeals

Portrait Homes - South Carolina, LLC and Portrait
Homes - Persimmon Hill, LLC, Plaintiffs,

v.

Pennsylvania National Mutual Casualty Insurance
Company and The Persimmon Hill Homeowners
Association, Inc., Defendants,

AND

The Persimmon Hill Homeowners Association, Inc.,
Third-Party Plaintiff,

v.

Jose Castillo d/b/a JJA Framing and JJA Construction,
Inc. d/b/a JJA Framing, Third-Party Defendants,

of which Pennsylvania National Mutual Casualty
Insurance Company is the Appellant,

and

Portrait Homes - South Carolina, LLC, Portrait Homes -
Persimmon Hill, LLC, and The Persimmon Hill
Homeowners Association, Inc. are the Respondents.

Appellate Case No. 2020-000735



           Appeal From Berkeley County
       Roger M. Young, Sr., Circuit Court Judge


                   Opinion No. 6038
                  Heard May 2, 2023 – Filed December 13, 2023


                                   AFFIRMED


             David L. Brown and John Irvin Malone, Jr., both of
             Greensboro, North Carolina, for Appellant.

             Phillip Ward Segui, Jr., of Segui Law Firm, of Mount
             Pleasant, and John T. Chakeris and Alicia Denise
             Pullano, both of Chakeris Law Firm, of Charleston, all
             for Respondent The Persimmon Hill Homeowners
             Association, Inc.

             Stanley Clarence Rodgers, of Law Office of Stanley C.
             Rodgers, LLC, of Charleston, for Respondents Portrait
             Homes - SC, LLC and Portrait Homes - Persimmon Hill,
             LLC.


KONDUROS, J.: This very complicated case concerns insurance coverage under
commercial general-liability (CGL) insurance policies, including claims of bad
faith, arising out of underlying construction defect lawsuits when Penn National
Mutual Casualty Insurance Company (Penn National) asserts its insured, a
subcontractor, did not notify it of the lawsuits and declined coverage. We affirm.

FACTS/PROCEDURAL HISTORY

Persimmon Hill is made up of 388 townhome units contained in 74 buildings
located in Goose Creek, South Carolina. The Persimmon Hill community is
governed by recorded covenants and restrictions that impose rights and obligations
on the Persimmon Hill Homeowners Association, Inc. (the HOA), including the
duty to repair and maintain the exteriors of the townhomes and common areas.
Portrait Homes 1 was the developer and general contractor of Persimmon Hill. JJA

1
  Portrait Homes is structured as various limited liability companies (LLCs).
Portrait Homes - SC, LLC and Portrait Homes - Persimmon Hill, LLC
(collectively, Portrait Homes) are the two named in this lawsuit. All of the Portrait
Homes entities are subsidiaries of Pasquinelli Construction Company. Pasquinelli
Framing was the primary framer for Persimmon Hill and framed the vast majority
of the units there; it installed wooden framing components, windows and doors,
window and door flashings, and weather barriers in approximately 85% of the
units. Jose Castillo owned and operated JJA Framing. JJA Framing worked as a
subcontractor for several Portrait Homes projects in the Charleston area.

While JJA Framing was working on the Persimmon Hill project, articles of
incorporation for JJA Construction, Inc. were filed with the North Carolina
Secretary of State's Office. According to Castillo, the sole proprietorship known as
JJA Framing and JJA Construction, Inc. were the same business and entity, having
"the same location, same employees, same trucks, same telephone number[,] and
same federal ID number."

Portrait Homes relied exclusively on subcontractors to construct its projects. To
reduce the risk of exposure to lawsuits arising from a subcontractor's defective
work, Portrait Homes (1) required each subcontractor to defend and indemnify
Portrait Homes for claims arising from the subcontractor's work and (2) required
each subcontractor to have Portrait Homes named as an additional insured on their
liability insurance policies.

Portrait Homes accomplished this by entering into two types of contracts with
subcontractors. The first, called a Master Agreement, was a gateway document
that qualified a subcontractor to work for Portrait Homes on any project. The
second, called a Housing and Purchase Order Contract, was specific to a particular
project, such as Persimmon Hill. Both of the contracts had to be in place before a
subcontractor could work on a project. While the form of the contracts was
periodically updated, the substance of the hold harmless and insurance
requirements did not change; the two agreements each required a subcontractor to
defend and indemnify Portrait Homes. Both contracts governed a subcontractor's
work at a particular project, and the hold harmless and insurance obligations in the
two contracts were intended to be complementary. In 2002, Portrait Homes and
JJA Framing signed a Housing and Purchase Order for the Persimmon Hill project
as well as a Master Agreement.

Penn National issued policies to JJA Framing and JJA Construction, Inc. through
the W. Lee Taylor Agency. Two policies, policy period 2003-04 and 2004-05,

Management, LLC and Pasquinelli Homebuilding, LLC are other Pasquinelli
entities not parties to this appeal but appearing on some of the documents in this
case.
provided Jose Castillo d/b/a JJA Framing Company as the named insured and
listed Pasquinelli Construction Company; Pasquinelli Management, LLC; and
Portrait Homes Construction Company as additional insured under endorsement
CG 20 37 entitled Additional Insured - Owners, Lessees or Contractors -
Completed Operations. On March 2, 2005, the named insured for the 2004-05
policy was changed to JJA Construction, Inc. Three policies, 2005-06, 2006-07,
and 2007-08, listed JJA Construction, Inc. as the named insured and contained the
additional insured endorsement 71 11 45 entitled Automatic Additional Insureds -
Owners, Contractors and Subcontractors (Completed Operations).

In 2005, Portrait Homes received a certificate of insurance prepared by the W. Lee
Taylor Agency relating to the 2005-06 Penn National Policy. It listed JJA
Construction, Inc. and Jose Castillo as the insureds and Portrait Homes and
Pasquinelli Management, LLC as additional insureds.

At some point, the Persimmon Hill townhomes began having issues with water
intrusion. The professional engineer hired to investigate the issues believed the
issues began two months after the certificate of occupancy was issued. In October
2012, a homeowner, on behalf of herself and other homeowners, and the HOA
each brought suit against Portrait Homes. Both complaints were later amended to
include Portrait Homes' subcontractors, including Jose Castillo d/b/a JJA Framing
and JJA Construction, Inc. (collectively, JJA). Litigation continued for several
years.

During the underlying Persimmon Hill litigation, Portrait Homes' insurance carrier,
Admiral Insurance Company, agreed to defend it and retained Hood Law Firm to
lead the defense. In June 2013, Hood Law Firm notified Penn National it believed
JJA Framing's work contributed to the damages alleged in the lawsuits and
demanded a defense and indemnification for Portrait Homes as an additional
insured, referencing the 2005-06 Penn National policy.

On April 24, 2014, the HOA's counsel wrote Penn National transmitting both
amended complaints and advising it if no answer were filed within fifteen days, an
order of default and judgment would be sought against its insured, JJA.

In May 2014, after Hood Law Firm received no response from Penn National, it
sent it another letter, this time referencing the 2004-05 Penn National policy, and
repeated its demand for a defense and indemnification for Portrait Homes as an
additional insured.
On September 30, 2014, Greg Gross responded to Hood Law Firm on behalf of
Penn National and provided Penn National's coverage determination for Portrait
Homes and the rationale for the decision:

              This is a completed operations type claim. As such, the
              sole avenue to additional insured status would be through
              an endorsement providing additional insured status for
              completed operations. The above noted policies do not
              contain such an endorsement. Accordingly, the tendering
              party, Portrait Homes-South Carolina, LLC do[es] not
              qualify as an additional insured for this occurrence.
              Therefore, Penn National Insurance is rejecting the
              aforementioned tender for defense and/or indemnity from
              Portrait Homes-South Carolina, LLC at this time.

Gross's letter was the only written communication Penn National sent in response
to Portrait Homes' tender.

On December 29, 2014, while the underlying litigation was ongoing, Portrait
Homes filed a declaratory judgment action against Penn National, 2 asserting it was
an additional insured under various insurance policies issued to JJA for its work on
Persimmon Hill. Portrait Homes also named the HOA as a defendant. On
February 26, 2015, the HOA answered, alleging it was the assignee of Portrait
Homes' claims for bad faith, and asserted cross-claims against Penn National for
bad faith.

Eventually, the HOA settled its claims in the underlying litigation for a total of
$8,569,790.71 against Portrait Homes and its subcontractors, with the exception of
the claim against JJA. As part of the settlement, Portrait Homes settled the claims
brought against it for $3,850,000. Portrait Homes' insurers, rather than Portrait
Homes itself, paid the settlement. No appearance was made on behalf of JJA, and
an order of default for JJA was filed December 23, 2014. A judgment of
$4,156,976.89 was entered for the HOA against JJA on June 14, 2016.
Subsequently, JJA assigned all of its rights as an insured under Penn National's
policies, including any claims for bad faith, to the HOA based on the HOA's
judgment against JJA.



2
    Many other insurance companies were also named as defendants.
On November 28, 2017, Portrait Homes filed an amended complaint naming Penn
National and the HOA as the defendants.3 It alleged it was an additional insured
under insurance policies Penn National had issued and Penn National had breached
its duty to defend and its duty to indemnify. The HOA filed an answer to the
amended complaint, again asserting cross-claims for bad faith and also seeking a
declaratory judgment that Penn National's policies provided insurance coverage to
JJA, its insured. Penn National filed answers to the amended complaint and to the
HOA's cross-claims.

The trial court held a bench trial to determine if Portrait Homes was an additional
insured under Penn National's insurance policies issued to JJA, whether the
judgment obtained by the HOA against JJA was covered in whole or in part under
Penn National's policies and whether Penn National committed bad faith along
with the determination of damages, if any. Following the trial, the trial court
issued three well-reasoned and lengthy orders that we will attempt to summarize:
one deciding the HOA's claims, one deciding Portrait Homes' claims, and one
deciding Penn National's motion to alter or amend and the HOA's and Portrait
Homes' claims for punitive damages and attorney's fees.

The order as to the HOA's claims "addresse[d] the determination of whether the
judgment the HOA obtained against JJA is covered in whole or in part under Penn
National's policies and whether Penn National acted in bad faith along with the
damages, if any, for these claims."

The trial court found Penn National first became aware of the Persimmon Hill
construction defect litigation by letter from Portrait Homes' counsel dated June 5,
2013, which included the amended complaint in the underlying lawsuit and the
HOA's forensic engineering report. The court provided the letter "put Penn
National on notice of the HOA's claims against its insured JJA and Portrait[
Homes'] demand for additional insured status under the JJA insurance policies."
The court found Penn National assigned the claim to its adjuster, Gross, "an
experienced claims handler in adjusting [CGL] claims." The trial court determined
that at the outset of the claim, Gross and Penn National knew after receiving the
engineering report JJA's liability exposure in the underlying lawsuit was likely in
the millions of dollars. The court determined Penn National also knew the HOA's
pleadings triggered coverage for JJA under the policies. The trial court noted,
"The HOA's complaint alleged, among other things, water intrusion caused damage

3
 It also referenced the HOA as the third-party plaintiff and Castillo and JJA
Construction, Inc. as the third-party defendants.
and deterioration to the townhomes as a result of improper construction to include
the flashing and window installation performed by JJA" and "asserted claims of
negligence, gross negligence, breach of warranties, and unfair trade practices
against Portrait [Homes], JJA and other defendants."

The court noted that "fifteen . . . days after opening this claim, . . . Gross met with
his superiors including his regional claim's office team leader, Gary Gibson, and
Penn National's home office in-house legal counsel, Adam Parsons, to discuss the
handling of this claim." The trial court found Penn National decided it would not
retain counsel on JJA's behalf until JJA specifically requested a defense. The court
determined "Penn National unilaterally imposed [a] requirement" on an insured "to
specifically request a defense prior to Penn National hiring defense counsel,"
which "is separate and distinct from the notice and cooperation conditions found in
the insuring agreement." The court observed "Gross testified that 'when a lawsuit
is filed against a Penn National insured,'" two things must happen—the pleadings
have to trigger coverage and the "'second hurdle [the insured must] jump through'"
is "'to request a defense from Penn National.'" The court stated "Gross testified
that this second hurdle was not a term or condition contained in any of the insuring
agreements that he had ever seen at Penn National, and that he told management he
did not believe imposing this requirement of specifically having to request a
defense was proper." The court recognized Gross provided none of the four other
insurance companies at which he had previously worked adjusting claims had this
requirement.

The trial court found "Penn National's adjusting of the HOA's claims against JJA
included attempting to send correspondence to JJA on three occasions and hiring
an independent claims adjuster to cold call JJA to inquire whether JJA wanted
Penn National to provide a defense." The court also found "Penn National's first
effort to contact JJA was after its adjuster could not locate JJA's contact
information in an internet search." The court noted e-mail and phone contact
information for JJA were available in Penn National's system but it made no
meaningful effort to locate this information. The court observed "Penn National's
first correspondence was the first of three Reservation of Rights ('ROR') letters to
JJA dated September 21, 2013, sent by certified mail to" an address in Ladson,
South Carolina. The court noted that on that same day, "Penn National's adjuster
made a claim's log entry: 'Effective 07/29/2009 the insured address is changed to"
an address in Huntersville, North Carolina. The court also noted that "[t]he first
sentence of the ROR states, 'Penn National Insurance acknowledges receipt of the
above referenced claim.'" The court recognized "[t]he ROR further maintained that
'construction defects appear to be resultant in water intrusion and deterioration as a
result' and '[i]t appears from the contracts/purchase orders in the file that
construction commenced in 2002.'" The court stated "Penn National noted the date
of loss as December 5, 2003." The court determined, "The ROR was 'cut and
paste' correspondence that also misapplied policy language for the Duty in the
Event of an Occurrence Section that had been amended by an Extended Coverage
Endorsement." The court also noted the ROR "state[d] it was 'not a denial of
coverage, but rather to inform JJA of potential coverage issues.'" The court
provided the ROR also stated, "'Any actions taken by Penn National in the
investigation of this matter, or in negotiating for a compromise settlement, or in
making any settlement, or in defending this claim, or in any way acting or failing
to act, shall not constitute an admission of liability or an admission of coverage.'"

The trial court found that on the morning of Saturday, May 10, 2014, "Gayle
McLeod[4] made a cold call on JJA by showing up unannounced and walking into
the open garage of . . . Castillo's home in Huntersville, North Carolina, and
knocking on his backdoor." The court noted McLeod testified she spoke with
Castillo in his garage for ten minutes. The court stated "Castillo had not physically
mailed the complaint to Penn National although Penn National knew the details of
the claim." The court found "McLeod asked if JJA wanted Penn National to
defend JJA in the underlying case but did not disclose any other relevant
information" that Penn National already knew about the claim. 5

The trial court noted all of JJA and Penn National's policies contained a Common
Policy Conditions form. The form included a provision describing how any
changes could be made to a policy:

             B. Changes

             This policy contains all the agreements between you and
             us concerning the insurance afforded. The first Named
             Insured shown in the Declarations is authorized to make

4
  McLeod was an independent adjuster (IA) Gross hired initially to determine if
JJA had been served. Later, she was instructed to (1) "[m]ake a cold call to the
insured to inquire about suit representation," (2) inquire if the insured wanted Penn
National to handle the suit on the insured's behalf, and (3) "[o]btain contact
information on Jose Castillo."
5
  McLeod testified she asked Castillo if he wanted Penn National to defend him for
these suits and he said no. She also testified that when she asked Castillo for
contact information, he shook his head no.
             changes in the terms of this policy with our consent.
             This policy's terms can be amended or waived only by
             endorsement issued by us and made a part of this policy.

The trial court found, "It is not disputed that coverage under the JJA policies was
triggered by the HOA's complaint." The court recognized that the policies stated
"Penn National 'will have the right and duty to defend the insured against suit.'"
The court noted Penn National afforded no coverage, including a defense, to JJA
because "JJA did not specifically ask Penn National to defend JJA in the litigation
and . . . Penn National claimed JJA did[ no]t comply with the Duties in the Event
of Occurrence, Claim or Suit section of the policy." The court also noted Penn
National and JJA's insurance policies did not require JJA to request Penn National
to defend it. The court found "imposing this additional 'hurdle' to coverage . . .
[wa]s improper and not required to trigger a duty to defend under the JJA policies
under South Carolina law . . . applicable to this case."

The trial court recognized that "[s]ubstantial prejudice can occur when an [o]rder
of [d]efault or [d]efault [j]udg[]ment is entered against the insured and the insurer
has no notice of the lawsuit." However, the trial court reasoned "[i]t would be
inequitable to permit an insurer to avoid coverage for an innocent third party just
because the insured did[ not] notify the insurer of the lawsuit." The court
explained the purpose of providing notice is to allow the insurer to investigate and
defend the lawsuit. Further, the court found "Penn National had notice of the claim
against JJA even before JJA was served with the complaint." The court
determined JJA's failure to comply with the notice provisions of the insuring
agreements did not substantially prejudice Penn National because it was not
prevented from investigating the HOA's claim against JJA. The court found Penn
National never attempted to investigate the claim even though it had the
opportunity to do so.

The trial court examined another lawsuit, Lammey v. Carolina Builders &
Reconstruction, LLC, 6 which involved construction defects with a single-family
home, in which Penn National provided JJA a defense. The trial court observed
that in that case, "Penn National was put on notice by the [p]laintiff's counsel that
JJA had been sued and served via publication[] and Penn National hired counsel to
defend JJA." The trial court noted no evidence was presented in that case "that JJA
specifically contacted Penn National to request a defense or contacted Penn

6
 Lammey v. Carolina Builders & Reconstruction, LLC, 2010-CP-10-00607
(Charleston Cnty., S.C., Ct. Com. Pl. Sept. 28, 2011).
National otherwise" but Penn National still "hired JJA a lawyer to provide JJA a
defense."7 The trial court also noted an answer was filed on JJA's behalf in the
Lammey litigation around two years before Penn National was put on notice of the
Persimmon Hill claim. The trial court reasoned the allegations against JJA in
Lammey were similar to those in this case, except that Lammey involved a single-
family residence instead of 388 townhomes. 8

7
  Answer of Defendants JJA Construction, Inc. & Jose A. Castillo to Plaintiffs'
Amended Complaint, Lammey v. Carolina Builders & Reconstruction, LLC, 2010-
CP-10-00607 (Charleston Cnty., S.C., Ct. Com. Pl. Feb. 18, 2011).
8
  Additional cases exist involving Penn National and JJA. One of those cases is a
federal district court case in which the district court initially granted summary
judgment due to JJA's failure to notify Penn National of the lawsuit, thereby
prejudicing it. Commons of Grand Oaks Homeowners Ass'n v. Pa. Nat'l Mut. Cas.
Ins. Co., No. 2:16-1668-BHH, 

, at *1 (D.S.C. Nov. 22, 2019).
However, following reconsideration, the district court vacated its grant of summary
judgment. Id. at *6. In the initial order granting summary judgment, the district
court found JJA's failure to communicate directly with Penn National had affected
Penn National's rights under the insurance contract because that failure effectively
denied Penn National the chance to investigate the claim with JJA's cooperation,
hire counsel for JJA and experts, assert defenses, settle before entry of default or
default judgment, and oppose a request for entry of default and a default judgment
of $5,673,886. Id. at *5.

However, in the reconsideration order, the court stated at least four lawsuits that
arose out of similar construction defect claims named JJA as a defendant, which
Penn National knew as JJA's insurer. Id. The court provided in its case,
"Plaintiff's counsel first contacted [Penn National] in January 2011, and contacted
[Penn National] several more times after JJA was served on April 2, 2011. Default
was entered as to JJA in the underlying lawsuit in January and February 2013." Id.
(citation omitted). The court noted that "[d]uring this time, Penn National
defended JJA in a similar construction defect case in Charleston County, in which
JJA filed an answer in February 2011." Id. Accordingly, the court found Penn
National "possessed more than mere knowledge of the underlying lawsuit[] and
rather was in command of the facts pertaining to the claims and parties involved in
the lawsuit." Id. The court noted Penn National "filed an answer on JJA's behalf
in one of the several lawsuits concerning alleged construction defects in which JJA
was a named defendant." Id. The court determined although "Castillo's failure to
timely tender the summons and complaint to [Penn National] constitutes a breach
of the policies," that failure "had little bearing on [Penn National's] ability to
The court further found Penn National's contention it "could not provide a defense
without the insured specifically requesting one to be without merit and contrary to
[its] prior actions including specifically with regard to JJA." The trial court found
unpersuasive Penn National's contention "it was not required to provide JJA with a
defense or indemnity because it was honoring JJA's wishes of not wanting a
defense." The court noted that after Penn National knew JJA had been served, it
hired an IA to cold-call JJA to see if JJA wanted Penn National to provide a
defense in the litigation. The court found the IA, McLeod, arrived at Castillo's
home unannounced on a Saturday morning. The trial court found Penn National
directed McLeod to ask "Castillo an extremely important question for which his
answer, unknowingly to him at the time, would result in a judgment of
$4,156,976.89 against JJA." The court stated, "When asked if JJA wanted a
defense in the pending Persimmon Hill litigation, the trial testimony was that
Castillo responded that he did not."

The trial court found, "Important information known only to Penn National and not
JJA was not disclosed to . . . Castillo when asking him to surrender an important
and valuable policy benefit that had already been paid for with each of the eight
years of policies"; "Penn National knew that the liability exposure to JJA was in
the multi-millions of dollars, the severity of the defects and damages identified in

inform itself as to whether it should defend JJA in the underlying lawsuit because"
it already knew many of the relevant facts. Id.

The district court stated the new evidence of Penn National's behavior, particularly
that shown in testimony from the present case on appeal here, "pose[d] a pivotal
question":

             Did [Penn National] embrace a corporate policy by
             which it provided a defense to JJA in the rash of
             construction defect lawsuits in which JJA was a named
             defendant only upon JJA's express request,
             notwithstanding the policy language, [Penn National's]
             duty to defend, or [Penn National's] overall knowledge of
             the nature of the litigation then-pending against JJA.

Id. Therefore, the district court determined "whether JJA's failure to act, in breach
of the policies, caused [Penn National] substantial prejudice" presented "a question
of material fact." Id.
the engineer's report and that the lawyer that would be providing the JJA defense
was already a paid for policy benefit." The court observed "Castillo testified [if]
he [had] been told a lawyer would have been provided to JJA at no cost[,] th[en] he
would have told the independent adjuster that JJA wanted a lawyer." The court
determined "Penn National's disclosure of only a small portion of information such
as this would have changed . . . Castillo's answer to JJA wanting a defense as he
had testified."

The trial court further found the record contains no evidence "Penn National
provided any consideration to JJA in exchange for JJA allegedly agreeing to waive
the valuable legal right of a defense which JJA had already paid and for which
Penn National was obligated to undertake." The court noted "the insuring
agreement specifically provides that policy's terms which include Penn National
having 'the right and duty to defend the insured against suit . . . ' can be amended or
waived only by endorsement issued by Penn National and made a part of this
policy." The court accordingly determined "the duties and obligations of the
parties to the insuring agreement can[no]t be altered orally." Additionally, the trial
court found that Penn National "breached the insuring agreement and the implied
covenant of good faith and fair dealing" "by asking JJA to surrender the right to a
defense while failing to disclose important and relevant information about the
claim to its insured." Accordingly, the trial court found "Penn National had a duty
to defend JJA under each of the eight policies of insurance and that Penn National
breached its duty to provide a defense."

The trial court also addressed Penn National's contention "it could not hire counsel
for JJA without a specific request from JJA for a defense in part because a lawyer
is ethically prohibited from filing an [a]nswer and defending an insured without
speaking with the insured and obtaining authorization to do so." The trial court
first noted that "this argument do[es no]t take into account that JJA and Penn
National have already agreed that Penn National has the right and obligation to
defend JJA pursuant to the terms of the insuring agreement," and found "this
defense is not contained anywhere within the ROR letters, Claims Log Entries, or
ever been communicated to JJA prior to the judgment being obtained." The court
determined "this new argument was not part of any consideration for Penn
National in not providing JJA defense and indemnity in the underlying case, and
therefore, need not be considered."

The trial court determined Penn National's breach of all of the insurance
agreements proximately caused an order of default to be entered against JJA and a
damages award entered. The trial court found Penn National owed indemnity for
the prior judgment in the amount of $4,156,976.89. The court further determined
Penn National was responsible for the interest that accrued after the entry of the
judgment and the payment of the accrued interest on the judgment would not
reduce the policy limits. Accordingly, the court concluded the damages for the
breach of the duty to defend and duty to indemnify were $4,156,976.899 plus
postjudgment interest of $1,213,170.40 for a total of $5,370,147.29 for that cause
of action.

The trial court found many of Penn National's actions were in bad faith and
breached the duty of good faith and fair dealing to its insured. The court found
"Penn National's conduct, in addition to being in conflict with the insuring
agreements of the policies, is the exact type of conduct that South Carolina bad
faith law seeks to deter." For the bad faith and breach of duty of good faith and
fair dealing, the trial court awarded damages of $4,156,976.89, plus postjudgment
interest of $1,213,170.40 for a total of $5,370,147.29.

The trial court also addressed Penn National's contention that the judgment should
be subject to a time-on-risk analysis irrespective of Penn National refusing to
defend and indemnify its insured. The court reasoned that when the supreme court
adopted the time-on-risk framework in Crossmann II,10 it did not have to consider
the insurer refusing to defend or indemnify because the insurer provided a defense
in that case; instead, the question concerned only the amount of the indemnity
obligation. The court also noted the policies here contained different language
than the policies in Crossmann II. Accordingly, the trial court found the time-on-
risk analysis "must be altered so that it is true to the language used in the insurance
contracts at issue in the present case." Accordingly, the trial court ruled that "the
progressive property damage caused by continuous or repeated exposure to water
intrusion occurring after the end of a policy period is deemed to be included in
what is covered by the policy."

Additionally, the trial court found each of the eight Penn National policies
provided coverage in the amount of $500,000 per occurrence. The court therefore
found $4 million of the HOA's judgment was covered under the Penn National
policies as well as $1,213,170.40 in interest. Accordingly, the trial court
determined the HOA, as a judgment creditor, was entitled to damages of $4
million, plus postjudgment interest of $1,213,170.40, amounting to $5,213,170.40.

9
 This is the amount of damages entered in the default judgment action against JJA.
10
  Crossmann Cmtys. of N.C., Inc. v. Harleysville Mut. Ins. Co. (Crossmann II),

, 

 (2011).
The trial court ordered the HOA to submit an election of remedies within ten days
of the entry of the order choosing between (1) the breach of the duty to defend and
duty to indemnify and (2) bad faith and the breach of the duty of good faith and
fair dealing. The trial court found the HOA as assignee of JJA's claims entitled to
attorney's fees and costs pursuant to section 38-59-40 of the South Carolina Code
(2015) and Hegler v. Gulf Insurance Co.11 The trial court found both Portrait
Homes and the HOA as assignee of JJA's policy rights were entitled to recover
punitive damages against Penn National and a hearing would be conducted at a
later time to determine the amount of the punitive damages.

In the trial court's order pertaining to Portrait Homes' causes of action, the trial
court concluded Penn National breached its duty to defend, breached its duty to
indemnify, and acted in bad faith by denying Portrait Homes' claim to be an
additional insured under five Penn National policies. The trial court determined
Portrait Homes was entitled to recover the attorney's fees and costs it had spent
defending the underlying lawsuits and the amount paid to settle the claims up to
the policy limits on the Penn National policies. The trial court also found Portrait
Homes was entitled to prejudgment interest on both awards, attorney's fees and
costs, and punitive damages.

First, the trial court determined Portrait Homes was entitled to additional insured
coverage under two endorsement types: (1) 71 11 45 entitled Automatic Additional
Insureds - Owners, Contractors and Subcontractors (Completed Operations) and
(2) CG 20 37 entitled Additional Insured - Owners, Lessees or Contractors -
Completed Operations. Endorsement 71 11 45 provided additional insured
coverage in material part as follows:

               Any person(s) or organizations(s) (referred to below as
               additional insured) with whom you are required in a
               written contract or agreement to name as an additional
               insured for the "products-completed operations hazard[,"]
               but only with respect to liability for "bodily injury" or
               "property damage" caused, in whole or in part, by
               "your work[,"] at the location or project designated and
               described in the contract or agreement, performed for that
               additional insured and included in the "products-
               completed operations hazard[."]

11
     

, 

 (1978).
             A person's or organization's status as an additional
             insured under this endorsement ends when the obligation
             to provide additional insured status for the "products-
             completed operations hazard" in the written contract or
             agreement ends.

The court recognized Portrait Homes asserted it had sufficient written contracts to
qualify as an additional insured under this endorsement based on the Master
Agreement and the Housing Purchase Order Contract. However, the court noted
Penn National's home office counsel, Adam Parsons, disagreed. The court
observed that prior to Gross sending the denial letter to Portrait Homes, Parsons
sent Gross an email reasoning that because JJA Construction, Inc. was the named
insured on the three policies containing Endorsement 71 11 45, and because the
written contract for the Persimmon Hill project was between Portrait Homes and
JJA Framing or Jose Castillo d/b/a as JJA Framing, the written contract did not
qualify Portrait Homes as an additional insured. The court determined that at trial,
Penn National relied on this argument as the primary basis for denying Portrait
Homes' tender with respect to Endorsement 71 11 45.

The trial court found discrepancies in the documents in Penn National's
underwriting file 12 revealed Jose Castillo d/b/a JJA Framing—the named insured
under the first three Penn National policies—was intended to continue to be
insured under the policies issued to JJA Construction, Inc. The trial court noted
that on the declarations page of each JJA Construction, Inc. policy, Penn National
chose to describe the form of business for the named insured as "INDIVIDUAL."
The trial court observed that the document submitted to change the named insured
on the 04-05 policy to JJA Construction, Inc. had information filled in for the
"name change only" portion but none for the "formation of a new entity" portion.
The trial court noted the exact same information in the three prior policies
remained for all of the subsequent policies Penn National issued to JJA
Construction, Inc. Thus, the trial court stated that "while Parsons was technically
correct that Portrait Homes did not have a written contract with the named insured
listed on the 2005-07, 2006-07, and 2007-08 policies, Parsons was substantively
incorrect because the party with whom Portrait Homes did have a contract—Jose
Castillo d/b/a JJA Framing—was intended to be insured under those policies." The

12
  The trial court noted Parsons admitted at trial he did not review the documents in
the underwriting file as a part of his analysis of Portrait Homes' additional insured
tender.
trial court determined "[t]he evidence convincingly supports the conclusion Jose
Castillo d/b/a JJA Framing was intended to be insured under the policies issued to
JJA Construction[,] Inc."

Additionally, the trial court observed that the underlying lawsuits alleged both Jose
Castillo and JJA Construction, Inc. were doing business as JJA Framing. The trial
court noted that "[f]or purposes of determining whether a duty to defend was owed
to Portrait Homes, Penn National was required to take those allegations as true."
The trial court cited several exhibits that showed (1) Gross recognized the
underlying lawsuits alleged both Jose Castillo and JJA Construction, Inc. were
doing business as JJA Framing and (2) Gross provided that information to Parsons.
The trial court concluded that "[b]ecause the contracts between Portrait Homes and
JJA Framing bound both Jose Castillo and JJA Construction[,] Inc., the
requirement under endorsement 71 11 45 that there be a written contract with the
named insured was satisfied."

The trial court also found the Master Agreement and the Housing and Purchase
Order Contract both applied to the Persimmon Hill project. The trial court ruled
the certificate of insurance prepared by the Taylor Agency relating to the 05-06
policy was "relevant because it show[ed] the parties believed the referenced policy
(2005-06) provided additional insured coverage to Portrait Homes, and that belief
could only be true if the parties believed the contracts between JJA Framing and
Portrait Homes also bound JJA Construction[,] Inc.—the named insured under the
2005-06 policy." The trial court concluded the Taylor Agency was acting for both
JJA Framing and Penn National and the information contained on the certificate
was relevant and could be viewed as a piece of evidence.

Regarding Endorsement CG 20 37, which was attached to the 2003-04 and 2004-
05 policies, the trial court noted it did not require a written contract or agreement;
instead, it contained a schedule for a name and location. The court recognized that
in the endorsements attached to the 2003-04 and 2004-05 policies, the named
insureds were Pasquinelli Construction, Co.; Pasquinelli Management, LLC; and
Portrait Homes Construction Company. The court also observed that the location
of completed operations was listed as 3000 Colvard Parkway, Charlotte
Mecklenburg, North Carolina 28269. The court noted that in an email to Gross,
Parsons reasoned Portrait Homes did not qualify as an additional insured under this
endorsement because it only applied to Castillo's work at 3000 Colvard Parkway.

The trial court found the address listed was an obvious scrivener's error for two
reasons: (1) it was Jose Castillo d/b/a JJA Framing's own address and (2) it was
listed as the same address in another policy issued to JJA Framing for a different
project. The court also noted the certificate of insurance issued by the Taylor
Agency relating to Endorsement CG 20 37 in the 2004-05 policy had "Work done
for the above referenced organization" as the location and description of completed
operations. Therefore, the trial court determined the parties intended the additional
coverage to apply to all projects where JJA Framing performed work on Portrait
Homes' behalf and implied that term into Endorsement CG 20 37 to fill in the
blank left after striking the obvious mistaken location.

Penn National also argued Portrait Homes did not qualify as an additional insured
under Endorsement CG 20 37 because the names of the tendering parties did not
match the names listed on the endorsement. The names of the tendering parties
were "Portrait Homes - South Carolina, LLC, Portrait Home - Persimmon Hill,
LLC, Pasquinelli Homebuilding, LLC." The trial court noted the structure of the
Pasquinelli/Portrait Homes organization, which consisted of a Pasquinelli entity at
the top, then Portrait Homes Construction Company. Below that, a limited liability
company was formed for each state, followed by a limited liability company for
each specific project. The trial court concluded the list of names in the
endorsement was intended to encompass the state-specific and project-specific
entities.

Regarding Portrait Homes' status as an additional insured under the Penn National
Policies, the trial court also analyzed Gross's denial letter. In the letter, Gross
stated Penn National was denying coverage because the policies did not contain an
endorsement providing additional insured status for completed operations. The
court noted several witnesses testified that reason was inaccurate. The trial court
also noted the letter was the only communication Penn National ever sent to
Portrait Homes.

The trial court discussed our supreme court's decision in Harleysville Group
Insurance v. Heritage Communities, Inc., which noted: "A reservation of rights
letter must give fair notice to the insured that the insurer intends to assert defenses
to coverage or to pursue a declaratory relief action at a later date." 

, 

 (2017) (quoting United Nat'l Ins. Co. v. Waterfront N.Y.
Realty Corp., 

 (S.D.N.Y. 1996)). Accordingly, the trial court
determined here, "Whatever can be waived by a deficient denial letter has been
waived by Penn National's denial letter. Penn National has waived the ability to
assert any exclusions or limitations on coverage."
Regarding the claim for breach of the duty to indemnify, Penn National contended
it failed as a matter of law because Portrait Homes' insurers, rather than Portrait
Homes personally, paid the $3,850,000 settlement with the plaintiffs in the
underlying construction defect. The trial court determined "South Carolina law
does not support Penn National's argument."

Next, the trial court found it needed to modify the time-on-risk analysis from
Crossmann II because the Penn National policies contained different language than
the policies in that case. The trial court noted the supreme court had adopted the
time-on-risk doctrine in Crossmann II to approximate "the damage that occurred
during a particular policy period." The trial court also found the "basis for the
doctrine rest[ed] in the language of the liability policies at issue in Crossmann II,
which required coverage only for property damage that occurred during the policy
period." However, the Penn National policies contained a new provision that the
policies in Crossmann II did not have. The new provision stated, "'[P]roperty
damage' which occurs during the policy period . . . includes any continuation,
change or resumption of that . . . 'property damage' after the end of the policy
period."

As a result, the trial court explained "the progressive property damage caused by
continuous or repeated exposure to water intrusion occurring after the end of a
policy period is deemed to be included in what is covered by the policy." The trial
court determined the portion of the overall damages13 recoverable in each of the
five policy years exceeded the limit of each policy, which was $500,000. The trial
court concluded the total amount covered by the Penn National policies was $2.5
million. 14

Next, the trial court considered whether Penn National's conduct amounted to bad
faith. The trial court noted "Penn National had a good faith duty to perform a
reasonable investigation into Portrait[ Homes'] claim for coverage as an additional
insured." The trial court reiterated that Penn National's "underwriting file
contained a significant amount of information . . . that was important in" analyzing
whether the policies covered Portrait Homes and that information "conclusively
showed . . . Portrait [Homes] should have been treated as an additional insured
under the JJA policies." The trial court recognized the information also conflicted
with Penn National's rationale for denying Portrait Homes' claim and Penn

13
  The overall damages were $3.85 million as provided by the settlement amount.
14
  The trial court's posttrial order included an exhibit detailing the allocation of
damages per unit by year.
National did not meaningfully attempt to review or consider the contents of the
underwriting file even though it was always available. The trial court also noted
McLeod failed to ask Castillo any questions about Portrait Homes' claim during
her brief interaction with Castillo at his home. The trial court also observed Penn
National took seventeen months to respond to Portrait Homes and in the response
provided only a false reason for denying coverage.

The trial court found "Penn National knowingly misrepresented the coverages
under the policies to Portrait" Homes and unreasonably denied Portrait Homes'
claim in bad faith. Further, the trial court found Penn National's actions were
willful and in reckless disregard of Portrait Homes' rights. The court also found by
clear and convincing evidence punitive damages were appropriate.

On October 31, 2019, Penn National filed a motion to alter or amend pursuant to
Rule 59(e), SCRCP. As to Portrait Homes, Penn National asserted the trial court
"improperly look[ed] beyond the plain terms of the policies and Castillo's contract
with entities in the Portrait Homes corporate structure to ascertain the parties'
'intentions' when the contractual terms are unambiguous," "[t]hus, the court's
finding that Portrait Homes is an additional insured under either of the additional
insured endorsements (CG 20 37 or 71 1145) attached to the various policies is
improperly premised on evidence beyond the contracts." Additionally, Penn
National argued the trial court improperly found (1) "Penn National waived its
right to contest coverage and that such waiver operated to extend coverage to
uncovered risks, at odds with South Carolina law"; (2) "Penn National engaged in
insurance bad faith based upon the behaviors it identified in its order"; and (3)
"Portrait Homes sustained damages in the amount of its underlying settlement as a
result of the conduct it found supported its claim against Penn National for
insurance bad faith." Further, Penn National contended "the entry of damages on
Portrait Homes' breach of contract claim is at odds with published South Carolina
case law finding that a party completely indemnified for his loss sustains no
damage for breach of an insurance contract." Finally, Penn National maintained
"[t]he court failed to find by clear and convincing evidence that Penn National
engaged in willful, reckless, or wanton conduct or that Penn National acted in
willful and reckless disregard of Portrait Homes' policy rights and, as such, its
award of punitive damages was improper."

As to the HOA, Penn National argued the trial court erred by failing to (1)
"account for the legal ramifications of Castillo's declining a defense from Penn
National, which relieved it of its duty to defend him"; (2) "find that Castillo's
behavior amounted to a breach of the policy requirement of notice"; (3) "find that
Castillo's behavior amounted to a breach of the policy requirement of cooperation
with Penn National's investigation"; (4) "find that Castillo's violation of his duties
to notify . . . and to cooperate . . . substantially prejudiced Penn National" and
accordingly "[d]efault judgment was entered against Castillo because of his
violations of these duties, which [wa]s prejudicial as a matter of law"; and (5) "find
by clear and convincing evidence that Penn National engaged in willful, reckless,
or wanton conduct or that Penn National acted in willful and reckless disregard of
Castillo's or JJA['s] . . . policy rights and" as a result improperly awarded punitive
damages. Additionally, Penn National asserted the trial court improperly (1)
"found that Penn National engaged in insurance bad faith based upon the behaviors
it identified in its order," (2) "found that Castillo sustained damages as a
consequence of the bad faith behaviors," and (3) "fail[ed] to show how Penn
National's behavior caused $5,370,147.29 in damages to Castillo and JJA."

As to both Portrait Homes and the HOA, Penn National contended the trial court
improperly awarded damages under the time-on-risk doctrine. Penn National
asserted the court's orders implied the Crossmann II analysis no longer applies but
did "not specify how it should change or provide the methodology for how it was
applied in this case." Further, Penn National argued "the proper date upon which
damage is deemed 'complete' is the date that the responsible party compensates the
injured plaintiff for the damage (or the date upon which damage is repaired, if
repairs occur first)."

A hearing was held on January 15, 2020, to determine the amount of punitive
damages pursuant to section 15-32-520 of the South Carolina Code (Supp. 2022).

On March 23, 2020, the trial court issued an order deciding (1) Penn National's
59(e) motion to alter or amend; (2) Portrait Homes' request for attorney's fees and
costs; (3) the HOA's request for attorney's fees and costs; and (4) the punitive
damages. The trial court denied Penn National's 59(e) motion, "[w]ith the
exception of an issue relating to the interplay between the award to Portrait Homes
for breach of contract relating to the duty to indemnify and the award to [the] HOA
as a judgment creditor." The trial court awarded attorney's fees and costs as well
as punitive damages to both Portrait Homes and the HOA.

In regards to Penn National's contention the court improperly found it had "waived
its right to contest coverage and that such waiver operated to extend coverage to
uncovered risks, in reliance on Harleysville Group Ins[urance]," the trial "[c]ourt
conclude[d] the requirements discussed in Harleysville applied to coverage
communications in general from an insurer to an insured, not just to a [ROR]
letter." However, the trial court also ruled that if the requirements in Harleysville
do not apply to denial letters in general, they still applied "to Penn National in this
case because [it] agreed [to] the obligations to thoroughly and accurately explain
the grounds for its decision applied to [Gross's] denial letter to Portrait Homes."
Finally, the court clarified it "did not rule Portrait Homes was entitled to coverage
under the Penn National policies based on . . . waiver." The court reiterated
Portrait Homes was obligated "to prove it met the requirements to trigger coverage
under the additional insured endorsements and the insuring agreements" and it
found Portrait Homes met its burden of proof.

As to Penn National's reiteration of its argument "Portrait Homes' claim for breach
of the duty to indemnify fails as a matter of law because the settlement on behalf of
Portrait Homes was paid by insurers . . . who issued policies directly to Portrait
Homes, rather than having been paid by Portrait Homes personally," the trial
"[c]ourt adhere[d] to its original ruling." The trial court considered a similar
federal case15 in which the district court granted Penn National summary judgment,
but it declined to follow the district court's reasoning, noting the federal case had
actually begun two years after the current case. Additionally, the trial court
distinguished two cases Penn National cited 16 because they involved parties
seeking to recover for defense costs rather than indemnity. The trial court found
another case, Otis Elevator, Inc., more instructive. See Otis Elevator, Inc. v.
Hardin Constr. Co. Grp., 

, 

 (1994). In that case, our
supreme court determined the trial court had erred by reducing the jury's verdict to
offset the amount that an insurer had paid in settlement. 

, 

. Here, the trial court noted the supreme court's statement from Otis Elevator,
Inc. that "if one party is entitled to indemnity from another, the right to indemnity
is not defeated by the fact that the loss to be indemnified for was actually paid by
an insurance company." 

, 

-46 (quoting Tillman v.
Wheaton-Haven Recreation Ass'n, 

, 1230 (4th Cir. 1978)). The trial
court observed that here, Penn National was arguing the opposite: that Portrait
Homes' right to indemnity from Penn National was defeated by the fact that the
loss being indemnified for was paid by an insurance company.



15
   Summer Wood Prop. Owners Ass'n v. Pa. Nat'l Mut. Cas. Ins. Co., No. 2:17-cv-
3504-BHH, 

 (D.S.C. Sept. 16, 2019).
16
   Sloan Constr. Co. v. Cent. Nat'l Ins. Co. of Omaha, 

, 

 (1977); Harford Accident & Indem. Co. v. S.C. Ins. Co., 

, 

 (1969).
As to Penn National's contention in its 59(e) motion that the trial court erred in
failing to find it was relieved of its duty to defend, the trial court found very few
similarities between the cases on which Penn National relied 17 and the facts of this
case. The court explained the common thread in those cases was that each of the
insurers had hired counsel to provide a defense for their insureds, whereas Penn
National chose not to do that in this case.

The trial court also found Penn National relied on McLeod to establish it
"conveyed full and complete information to JJA regarding pertinent facts of the
claim, policy provisions[,] and information regarding coverages." However, the
trial court noted McLeod's testimony demonstrates it reasonably found Penn
National misled Castillo by not providing him with all the information as to
coverages available to him for which he had already paid premiums as well as not
disclosing that he faced a multi-million-dollar exposure for this claim.

In its award of attorney's fees to Portrait Homes, the trial court evaluated the
factors 18 the trial court must consider in awarding attorney's fees. The trial court
found (1) presentation of the issues was not a simple task; (2) the amount of time
and labor devoted to the case was reasonable; (3) Portrait Homes' attorney tried the
case in a competent, well-prepared manner; (4) the contingency of compensation
did not apply because the fee agreement was a billable hour arrangement; (5) the
hourly rate of $250, as well as a rate of $125 for travel, was within the range of
customarily charged in the area; and (6) the results were very beneficial. The trial
court awarded attorney's fees of $237,462.50 and costs of $12,540.76 for a total of
$250,003.26 to Portrait Homes.

As to the HOA's request for attorney's fees and costs, the trial court made findings
pursuant to Baron Data Systems, Inc. For the HOA's assigned breach of duty to
defend and duty to indemnify, the trial court found costs of $51,332.03 and

17
   Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 

 (4th Cir. 2005); State Nat'l Ins. Co. v. Eastwood Constr. LLC, No. 6:16-cv-
02607-AMQ, 

 (D.S.C. Sept. 5, 2018); Tucker v. State Farm
Mut. Auto. Ins. Co., 

, 

 (1958).
18
   Those factors are (1) the nature, extent, and difficulty of the legal services
rendered, (2) the time and labor necessarily devoted to the case, (3) the
professional standing of counsel, (4) the contingency of the compensation, (5) the
fee customarily charged in the locality for similar legal services, and (6) the
beneficial result obtained. Baron Data Sys., Inc. v. Loter, 

,

 (1989).
attorney's fees $1,790,049.10 was reasonable and would be awarded if the HOA
had elected the remedy for the breach of the duties to defend and indemnify.
However, the trial court noted the HOA filed an election of remedies on November
1, 2019, in which it elected bad faith and the breach of duty of good faith and fair
dealing rather than the breach of duty to defend and duty to indemnify. The court
recognized the supreme court has held attorney's fees pursuant to section 38-59-40
of the South Carolina Code only apply to breach of contract actions, citing Nichols
v. State Farm Mutual Auto. Insurance Co., 

, 

 (1983).

The trial court awarded punitive damages of $3,892,791.24 to Portrait Homes. The
court found "Penn National failed to perform a reasonable investigation of th[e]
claim and knowingly misrepresented coverages under the policies to Portrait
[Homes] in the claim denial." The court further found "Penn National's claim
denial was unreasonable and untimely in taking seventeen months . . . following
Portrait[ Homes'] initial tender to process the doomed claim. The evidence is clear
and convincing that this conduct of Penn National was willful, wanton, or in
reckless disregard of Portrait[ Homes'] rights causing harm."

The trial court awarded the HOA, as assignee of JJA's claim, $5,370,147.29 in
punitive damages. The trial court found "Penn National had the opportunity to
investigate the claim and provide a defense to JJA but chose not to." The court
found that because of Penn National's failure to provide a defense, an order of
default was entered against JJA—nearly nineteen months after Penn National was
notified of the lawsuit. The court noted that Penn National's insurance expert,
Bernd Heinze, testified Penn National acted in bad faith in a different matter in
2007. The court found Heinze provided that in that case, $6 million "in punitive
damages were awarded against Penn National . . . for purposes of punishing and
deterring [it] and other insurers in the same position from acting in a similar
fashion in the future." The court stated "Heinze sought to differentiate what
appears to be similar conduct by Penn National in the instant case by relying on the
insured tendering to Penn National in the 2007" case.

The trial court found punitive damages awards equal to the actual damages
awarded for bad faith to Portrait Homes and the HOA, as the assignee of JJA's
claims, were appropriate and not violative of due process.

The trial court entered a judgment for Portrait Homes in the following amounts:

      Breach of Contract-Duty to Defend            $42,791.24
      Breach of Contract-Duty to Indemnify         $2,500,000.00
      Prejudgment Interest                           $807,693.50
      Attorney Fees/Costs                            $250,003.26
      Bad Faith Refusal to Pay                       $3,892,791.24
      Punitive Damages                               $3,892,791.24
      Total:                                         $11,386,070.48

The trial court entered a judgment for the HOA in the following amounts:

      Bad Faith Refusal to Pay                       $5,370,147.29
      HOA's Judgment Creditor Claim                  $5,213,170.40
      Punitive Damages                               $5,370,147.29
      Total:                                         $15,953,464.98

This appeal followed.

STANDARD OF REVIEW

"Declaratory judgment actions are neither legal nor equitable, and therefore, the
standard of review depends on the nature of the underlying issues." Auto-Owners
Ins. Co. v. Hamin, 

, 

 (Ct. App. 2006).
"When the purpose of the underlying dispute is to determine whether coverage
exists under an insurance policy, the action is one at law." 

 Our supreme court
has applied a legal standard of review to the determination of coverage under a
CGL policy. L-J, Inc. v. Bituminous Fire & Marine Ins. Co., 

,

 (2005).

"[A]n insurance policy is a contract between the insured and the insurance
company[,] and the terms of the policy are to be construed according to contract
law." Auto Owners Ins. Co. v. Langford, 

, 

(Ct. App. 1998). "An action to construe a contract is an action at law . . . ." Pruitt
v. S.C. Med. Malpractice Liab. Joint Underwriting Ass'n, 

, 

 (2001). Additionally, "[a]n action for breach of contract is an
action at law." Electro-Lab of Aiken, Inc. v. Sharp Constr. Co. of Sumter, 

, 

 (Ct. App. 2004). Further, "a separate tort action
[exists] for an insurer's bad-faith refusal to pay benefits under an insurance policy."
In re Mt. Hawley Ins. Co., 

, 

 (2019). "An
action in tort for damages is an action at law." Longshore v. Saber Sec. Servs.,
Inc., 

, 

 (Ct. App. 2005).
"In an action at law tried without a jury, an appellate court's scope of review
extends merely to the correction of errors of law." Temple v. Tec-Fab, Inc., 

, 

 (2009). "The [c]ourt will not disturb the
trial court's findings unless they are found to be without evidence that reasonably
supports those findings." 

, 

. "[T]he trial court's
findings are equivalent to a jury's findings in a law action. Further, questions
concerning credibility and the weight to be accorded evidence are exclusively for
the trial court." McCall v. IKON, 

, 

 (Ct.
App. 2008) (citation omitted). "We may not consider the case based on our view
of the preponderance of the evidence, but must construe the evidence presented to
the [trial court] so as to support [its] decision wherever reasonably possible."
Jordan v. Judy, 

, 

 (Ct. App. 2015) (alterations
by court) (quoting Sheek v. Crimestoppers Alarm Sys., 

, 

 (Ct. App. 1989)). "We must look at the evidence in the light most
favorable to the respondents and eliminate from consideration all evidence to the
contrary." 

 (quoting Sheek, 

, 

).

LAW/ANALYSIS

 I.   ISSUES AS TO THE HOA

      A. Award of Coverage

Penn National argues the trial court improperly awarded coverage to Castillo and
JJA Construction after Castillo advised Penn National he did not want a defense
and refused to cooperate with Penn National. It contends Castillo's statement
combined with his failure to communicate with Penn National was sufficient to
terminate any duty it had to defend him. Penn National asserts that a policyholder
may decline the benefits of his policy if he chooses, including a defense. It
maintains Castillo's refusal operated as a knowing and voluntary relinquishment of
his rights under the policy that was fully viable under the law. We disagree.

"Insurance policies are subject to the general rules of contract construction. The
court must give policy language its plain, ordinary, and popular meaning." S.C.
Farm Bureau Mut. Ins. Co. v. Dawsey, 

, 

(Ct. App. 2006) (citation omitted). "Although exclusions in a policy are construed
against the insurer, insurers have the right to limit their liability and to impose
conditions on their obligations provided they are not in contravention of public
policy or a statutory prohibition." 

 "The court cannot torture the meaning of
policy language to extend coverage not intended by the parties." 

, 

.

"Questions of coverage and the duty of a liability insurance company to defend a
claim brought against its insured are determined by the allegations of the
complaint. If the underlying complaint creates a possibility of coverage under an
insurance policy, the insurer is obligated to defend." City of Hartsville v. S.C.
Mun. Ins. & Risk Fin. Fund, 

, 

 (2009)
(citation omitted). "An insurer's duty to defend is separate and distinct from its
obligation to pay a judgment rendered against an insured. However, these duties
are interrelated." 

, 

 (citation omitted). "If the facts
alleged in a complaint against an insured fail to bring a claim within policy
coverage, an insurer has no duty to defend. Accordingly, the allegations of the
complaint determine the insurer's duty to defend." 

 (citation omitted).

"Although the cases addressing an insurer's duty to defend generally limit this duty
to whether the allegations in a complaint are sufficient to bring the claims within
the coverage of an insurance policy, an insurer's duty to defend is not strictly
controlled by the allegations in the complaint." 

 (quoting USAA Prop. & Cas.
Ins. Co. v. Clegg, 

, 

 (2008)). "Instead, the
duty to defend may also be determined by facts outside of the complaint that are
known by the insurer." 

 (quoting Clegg, 

, 

).

"If the facts alleged in the . . . complaint fail to bring a claim within policy
coverage, [the insurance company] has no duty to defend." Prior v. S.C. Med.
Malpractice Liab. Ins. Joint Underwriting Ass'n, 

, 

 (Ct. App. 1991) (per curiam). "In examining the complaint, we must look
beyond the labels describing the acts, to the acts themselves which form the basis
of the claim against the insurer." 

 Our supreme court has found that "[d]espite
the use of the terms 'negligence' and 'recklessness[]' [in the complaint,] the
allegations charged the commission of an intentional tort only." S.C. Med.
Malpractice Liab. Ins. Joint Underwriting Ass'n v. Ferry, 

, 462, 

 (1987).

"The defense of such suits by the insurer is a valuable right of the insured for
which he pays and to which he is entitled by the very words of the policy."
Nationwide Mut. Ins. Co. v. Simmonds, 

, 

(1993) (quoting Am. Cas. Co. v. Howard, 

 (4th Cir. 1951)). Our
supreme court has "accord[ed] with those jurisdictions which distinguish an
insurer's obligation to provide a defense to its insured with its duty to provide
coverage." 

 In Allstate Insurance Co. v. Wilson, our supreme court determined
the insurer's "obligation to defend existed from the time the actions were instituted
and continued until it fulfilled its obligation under its policy, all of which was done
under a reservation of rights, notice of which had been given." 

,

 (1972).

In the present case, evidence supports the trial court's finding Castillo did not
decline coverage. Castillo's interaction with McLeod during the cold call in his
garage did not amount to him declining coverage as Penn National contends;
Castillo had a limited amount of information at the time of that interaction.
Accordingly, we affirm the trial court's award of coverage to Castillo and JJA.

         B. Policies' Notice and Cooperation Conditions and Prejudice

Penn National argues the trial court improperly failed to conclude Castillo violated
the notice and cooperation conditions contained in the policies as a matter of law.
It further argues because Castillo's violations of those conditions led to entry of
default and default judgment, the trial court erred in failing to find it suffered
substantial prejudice as a result. It asserts the trial court incorrectly found the rule
that entry of a default judgment against an insured substantially prejudices an
insurer applied only when the insurer had no notice of the suit before default was
entered. It contends Merit Insurance Co. 19 stands for the opposite proposition. It
asserts that in that case, the insurer had notice of the claim and legal proceedings
against the insured and was conducting settlement negotiations on the insured's
behalf. It maintains that in that case, the insured failed to forward copies of the
pleadings to the carrier, and the court found that entry of default against the insured
constituted substantial prejudice as a matter of law, even though the insurer was
aware of the suit.

Penn National also asserts it could not have unilaterally appointed counsel on
Castillo's behalf, avoiding entry of default, without his approval. It contends the
South Carolina Rules of Professional Conduct provide that a prospective client
must approve counsel before that attorney can act on the client's behalf and courts
have interpreted that rule as applicable in the insurer-appointed-counsel context. It
argues its inability to retain counsel on Castillo's behalf is not a ground upon which
it sought to deny coverage but the inability to hire counsel is the manner in which
it was prejudiced by Castillo's failure to tender the claim or cooperate, grounds
specifically mentioned in the ROR letter sent to Castillo following his refusal to

19
     Merit Ins. Co. v. Koza, 

, 

 (1980).
cooperate with McLeod and in its denial of Castillo's claim. It asserts the trial
court found consent existed by virtue of the insuring agreement and duty to defend.
Penn National contends authorities such as Twin City 20 and Eastwood
Construction 21 contradict that conclusion and hold the insured must consent to
counsel appointed by the carrier. It maintains the trial court erred in relying on an
ethics advisory opinion released eight years after the events in question and after
this issue was raised by Penn National in this litigation for the proposition that an
attorney could enter an appearance on behalf of the insured without the insured's
consent to the representation. It contends the advisory opinion conflicts with the
governing authority of Twin City and Eastwood Construction. It also asserts the
advisory opinion requires the insured be missing for the insurer to proceed without
consent, but Castillo's location was not in dispute. We disagree with Penn
National's arguments as to prejudice. Accordingly, we need not address whether
the trial court erred in failing to find Castillo violated the notice and cooperation
clauses.

"Nearly every insurance policy contains a provision requiring the insured to timely
notify its insurer when a lawsuit is filed against the insured." Neumayer v. Phila.
Indem. Ins. Co., 

, 

 (2019). "Common sense
dictates that the insurer must have notice of a claim or lawsuit in order to properly
investigate and defend against it, and these clauses ensure that the insurer receives
notice by imposing this obligation on the insured." 

 Recognizing the potential
inequities in permitting an insurer to avoid coverage to an innocent third party
merely because the at-fault party—the insured—did not inform its insurer of a
lawsuit, South Carolina "judicially adopted a notice-prejudice rule, whereby the
insurer had the burden to show that it was substantially prejudiced by the failure of
its insured to comply with the notice and cooperation provisions." 

 "This rule
prevented an insurer from relying on an immaterial breach by its own insured as a
defense to paying an injured third party." 

, 

.

"[A]n insurer's duty to defend is triggered when the underlying claim is brought
and thus 'pre-exists any obligation on the part of the insured as to notice or
compliance with the voluntary payment provision of an insurance contract.'"
Episcopal Church in S.C. v. Church Ins. Co. of Vt., 

, 828


20
   Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 

 (4th Cir. 2005).
21
   State Nat'l Ins. Co. v. Eastwood Constr. LLC, No. 6:16-cv-02607-AMQ, 

 (D.S.C. Sept. 5, 2018).
(D.S.C. 2014) (quoting Liberty Mut. Ins. Co. v. Black & Decker Corp., 

 (D. Mass. 2004)).

"[A]n insurer, seeking to relieve itself of liability because of the violation by the
insured of a cooperation clause in the policy, has the burden of showing not only
that the insured failed to cooperate within the meaning of the policy provision but
that it was substantially prejudiced thereby." Vaught v. Nationwide Mut. Ins. Co.,

, 

 (1967). "Such issue is generally one of fact
. . . . " 

"[A] liability insurer may successfully defend upon the ground that the insured has
violated the cooperation clause of the policy only when the breach has been
material and has resulted in substantial prejudice to the insurer." Twin City Fire
Ins. Co., 

-75 (quoting Evans v. Am. Home Assurance Co., 

, 

 (1969)). "In Evans, the insured allegedly refused to
participate in his defense, as conducted by an attorney that his insurance company
retained." Twin City Fire Ins. Co., 

. "[T]he insured's failure to
cooperate in Evans was ambiguous and the court held that the insurance company
had not met its burden of proving that he had refused to cooperate." 

An insurer can raise as a defense against actions brought by injured third parties an
insured's failure to comply with policy provisions if the insurer has been
substantially prejudiced by the insured's noncompliance. Merit Ins. Co., 

, 

. "Whe[n] the rights of innocent parties are jeopardized
by a failure of the insured to comply with the notice requirements of an insurance
policy, the insurer must show substantial prejudice to the insurer's rights." Vt. Mut.
Ins. Co. v. Singleton ex rel. Singleton, 

, 

 (1994).
"The burden of proof is upon the insurer to show not only that the insured has
failed to perform the terms and conditions invoked upon him by the policy contract
but in addition that it was substantially prejudiced thereby." Squires v. Nat'l
Grange Mut. Ins. Co., 

, 

 (1965).

"The driving force behind the notice-prejudice rule is that there is 'no sound reason
. . . to permit a mere technical noncompliance to deprive an innocent third party of
benefits to which he would otherwise be entitled.'" Neumayer, 

,

 (quoting Factory Mut. Liab. Ins. Co. of Am. v. Kennedy, 

, 

 (1971)). "Rather than provide a 'technical
escape-hatch' for the insurer to deny coverage, the notice-prejudice rule balances
both interests without a wholesale prohibition of these clauses." 

In Merit Ins. Co., the court found "prejudice is clearly established by the fact that a
default judgment was entered against the insured." 

, 

. In that case, "the suit papers in question were never forwarded to [the
insurer]. However, the evidence [wa]s in direct conflict as to whether [the insurer]
was notified that the papers had actually been served." 

, 

.

In Tucker v. State Farm Mutual Automobile Insurance Co., 

, 

 (1958), the supreme court had no doubt the insured's failure to
cooperate prejudiced the insurer in that case. The supreme court noted the trial
court correctly found the insurer "attempted to get [the insured] to come in. . . .
[The insurer] wrote him several letters, and there is no denial that he got the letters,
but he refused to answer them." 

, 

. "[The insured]
didn't show any cooperation at all and wouldn't show any unless he could be
assured that the hospital bills would be paid." 

 "That's why he was refusing to
sign anything . . ." 

 The trial court did not find "any conflict in the evidence . . .
to go to the jury, to show whether he did not cooperate." 

 The supreme court
recognized in addition to the trial court's findings, the insured repeatedly told the
attorney the insurer provided him that he "had decided to have nothing to do with
the action for damages against him; and he did not, which resulted in default
judgment." 

"Although South Carolina appellate courts have never held the entry of default
alone clearly establishes prejudice, the South Carolina Supreme Court has offered
guidance on how prejudice to an insurer can arise through the entry of default."
Founders Ins. Co. v. Richard Ruth's Bar & Grill LLC, 

, 183 (4th
Cir. 2019) (citing Hatchett v. Nationwide Mut. Ins. Co., 

, 

 (1964)). In Hatchett, an insured brought suit against an
uninsured motorist. 

, 

. The insured did not notify
its insurer of the suit until the uninsured motorist was in default. 

, 

. The South Carolina Supreme Court noted the insured had made no
effort to establish a reason for his "failure to comply with the terms of the contract"
requiring him to give notice "as soon as practicable." 

, 

. The court found the insurer had the right to provide a defense to the
uninsured motorist but the insured "refused to waive the default and permit an
answer to be filed" by the insurer. 

, 

. Instead,
the insured "chose to rest his position upon the rights he had acquired through
default which operated to the prejudice of the" insurer. 

, 

. The court found the insurer was "deprived of the opportunity . . . to
investigate promptly, to negotiate a settlement without the handicap of a default
position, or to" provide a defense, to make certain the insured recovered a fairly
established amount. 

"In Episcopal Church . . . [a South Carolina district court] examined whether,
under South Carolina law, an insured has the right to select counsel for its insured
based on [certain] language . . ." Eastwood Constr. LLC, 

, at
*10. "[T]he insurance policy examined in Episcopal Church did not specifically
state that the insurer has the right to select counsel. However, the policy stated that
the insurer has '"the right and duty to defend a lawsuit seeking damages which may
be covered under the Commercial Liability Coverage."'" 

 (citation omitted)
(quoting Episcopal Church, 

). The district court recognized
"South Carolina courts have found that where a policy provides an insurer with the
right and duty to defend, the insurer has 'the right and the duty to control the
defense until such time as it [i]s determined that it ha[s] no liability insurance
coverage.'" Episcopal Church, 

 (emphasis added by court)
(alterations by court) (quoting Allstate Ins. Co. v. Wilson, 

, 

 (1972)). The district court found the policy language provided the
insurer "the right to defend [the insured], and . . . under established South Carolina
law, that right includes the right to control the defense and select defense counsel."

In Eastwood Construction, "the . . . [p]olicies confer[red] upon [the insurer] 'the
right and duty to defend the insured against any "suit" seeking damages.'"
Eastwood Constr. LLC, 

, at *11. The district court determined,
"Based upon prevailing South Carolina law, this language gives [the insurer] the
right to select counsel. . . . [The insurer] has the right to select counsel to defend
[the insured] in the . . . lawsuit . . . ." 

 (citing Episcopal Church, 

).

Even though the insurer may have a duty to defend, "an insured must consent to
the counsel assigned by the insurance company." Twin City Fire Ins. Co., 

. The South Carolina Rules of Professional Conduct state, "A lawyer
shall not accept compensation for representing a client from one other than the
client unless: (1) the client gives informed consent . . . ." Rule 1.8(f), RPC, Rule
407, SCACR. In Twin City Fire Insurance Co., the Fourth Circuit Court of
Appeals determined that "[i]f the insured does not consent to counsel selected by
the insurance company, the insured may refuse the defense and pay for its own
defense. Stated differently, 'having refused the contractual terms of the policy, the
insured foregoes its right to compensation for defense fees.'" 

(quoting Finley v. Home Ins. Co., 

 (Haw. 1998)).
This court has previously found instructive an ethics advisory opinion directly
addressing an issue before the court, while recognizing the advisory opinion was
not binding on this court. Brooks v. S.C. Comm'n on Indigent Def., 

,
330 n.3, 

, 408 n.3 (Ct. App. 2017). In the Ethics Advisory Opinion
cited by the trial court, the insurance carrier had retained an attorney to defend the
insured in a lawsuit alleging negligent construction of a condominium project.
S.C. Bar Ethics Advisory Comm., Ethics Advisory Op. 19-04, 

,
at *1 (2019). The "[p]laintiff's counsel could not locate the [i]nsured," and the
"[i]nsured was served by publication." 

 "Despite repeated attempts, neither [the
i]nsurance [c]arrier nor [the a]ttorney c[ould] locate [the i]nsured regarding the
pending lawsuit." 

The opinion determined the attorney could appear on behalf of and defend the
insured at the insurance carrier's request if the carrier's contract with the insured
gave it the right to retain counsel to defend claims made against the insured. 

The opinion explained that when by contract, including insurance contracts, a
person "delegate[s] authority to another to choose counsel [and] conduct the
defense of a claim, . . . an attorney may reasonably rely upon the instruction of the
person's agent, in this situation [the i]nsurance [c]arrier, to appear and conduct the
defense of the case in the absence of any" contrary instructions by the missing
insured. Id. at *2 (footnote omitted). The opinion concluded the "[i]nsured's
contracting with [the i]nsurance [c]arrier through the insurance policy for a defense
constitutes consent (in the absence of any further communications from the
[i]nsured to the contrary) for [the a]ttorney to receive compensation from [the]
insurance [c]arrier for undertaking defense for [the i]nsured subject to [Rule]
1.8(f)." Id.

Here, Castillo did not notify Penn National of the lawsuit. However, in addition to
showing Castillo did not provide it with notice, Penn National must also show
prejudice because this case involves an innocent third party. Penn National clearly
received notice of the suit despite Castillo's failure to notify it. The trial court did
not err in finding Penn National was not substantially prejudiced by Castillo's
failure to notify it of the lawsuit. Because Penn National knew of the lawsuit well
before Castillo, it was not prejudiced by Castillo's failure to forward the paperwork
or contact it. Penn National had the opportunity to respond to the suit; it even filed
a motion for an extension to file an answer. It did not make any attempt to
investigate. Penn National had defended Castillo in similar suits in the past.
Based on its own knowledge of the suit, Penn National had opportunities, of which
it did not take advantage, to at least attempt to protect itself. Accordingly, the trial
court did not err in finding Penn National was not substantially prejudiced due to
lack of notice by Castillo.

Additionally, Penn National has not shown it was prejudiced by Castillo's alleged
lack of cooperation. While it asserts it was prejudiced because it was ethically
unable to appoint counsel here without Castillo's express permission, we note that
both Twin City and Eastwood Construction are federal court opinions.
Accordingly, the trial court is not bound by them. See Laffitte v. Bridgestone
Corp., 

, 473 n.9, 

, 162 n.9 (2009) ("[A] federal court
decision interpreting state law is not binding on this [c]ourt."). Further, the trial
court found the facts in those cases were distinguishable from those here. Here,
the record contains no evidence of Penn National attempting to assign counsel to
Castillo. Therefore, the cases in which the insurer attempted to assign counsel to
the insured do not decide this case. Additionally, the ethics opinion relied upon by
the trial court, while not controlling, is instructive and persuasive authority, and it
did not serve as the only basis for the court's decision. Moreover, as Penn National
never attempted to hire an attorney for Castillo, we are unpersuaded by its
assertion it was prejudiced because it could not ethically do so.

Based on our finding Penn National has not shown it was prejudiced, we do not
need to address its arguments on Castillo's failure to notify or failure to cooperate.
See Futch v. McAllister Towing of Georgetown, Inc., 

, 

 (1999) (declining to address an issue when other issues are
dispositive of the matter).

      C. HOA's Claim for Indemnification as a Judgment Creditor

Penn National argues the HOA's claim for indemnification as a judgment creditor
of the insureds fails because the insureds are not entitled to coverage. Penn
National asserts the HOA, as a judgment creditor of the Castillo entities' rights
under the policies, stands in the shoes of Castillo and JJA Construction in seeking
coverage under the policies and is only entitled to satisfy its award or judgment to
the extent the insureds would be entitled to coverage. It contends the HOA is not
entitled to coverage because Penn National appropriately denied coverage. It
asserts the Castillo entities are not entitled to coverage under the policies because
they breached the conditions for coverage under the policies by failing to tender
the Persimmon Hill litigation to Penn National or to cooperate with Penn National
in its investigation and defense of such litigation. We disagree.
"[A]n injured party who brings suit against a liability carrier in order to collect on a
judgment previously acquired against an insured is possessed of all rights of the
insured and subject to all defenses that exist as between the insured and the
insurance carrier." Lee v. Gulf Ins. Co., 

, 

(1966). "[T]he injured person[] has no greater right under the liability insurance
policy than has the insured or his estate." Crook v. State Farm Mut. Auto. Ins. Co.,

, 

 (1960). When the insurer never afforded
any coverage to the insured, the "judgment creditors [could not recover because
they] have no greater rights under the binder herein involved than" the insured. S.
Farm Bureau Cas. Ins. Co. v. Ausborn, 

, 648, 

, 913
(1967).

Penn National's argument relies on the premise that JJA was not entitled to
coverage because he declined that coverage. As described above, JJA was entitled
to coverage, and the trial court did not err in relation to this argument.
Accordingly, we affirm as to this issue.

      D. Bad Faith Claim

Penn National argues the trial court's findings were insufficient to satisfy the legal
standards for a bad faith claim. It asserts its "Failure to Conduct an Investigation"
was not unreasonable conduct as a matter of law. It maintains mailing ROR letters
to an incorrect address cannot sustain a bad faith claim because that act did not
"Result In" a denial of benefits. It further argues that asking Castillo whether he
wanted a defense was a reasonable behavior as a matter of law. Additionally, it
asserts no competent evidence supports the trial court's finding Penn National
"Violated its Own Policies and Procedures." Moreover, it contends its references
to denying the claim in its claim notes did not "Result In" the denial of the claim.
Finally, it maintains the trial court's finding Penn National requested an extension
of Castillo and JJA Construction's answer deadline without intention to respond is
unsupported by the evidence and cannot support the bad faith claim. It maintains
competent evidence does not support the trial court's conclusion it "violated its
own policies and procedures" because no evidence of its policies and procedures
was authenticated or admitted at trial. It contends this finding is based upon the
trial court's conclusion it violated its "claims manual" by failing to take Castillo's
recorded statement during McLeod's meeting with him. Penn National contends
this finding of fact is completely unsupported by evidence in the record, as no
"claims manual" was ever introduced as evidence. We disagree.
"In this jurisdiction it has long been recognized that insurance is a business
affected with a public interest." In re Mt. Hawley Ins. Co., 

, 

 (2019) (quoting Hinds v. United Ins. Co. of Am., 

, 

 (1966)). "In furtherance of this policy, [our supreme
c]ourt has recognized, in addition to a breach of contract action, a separate tort
action for an insurer's bad-faith refusal to pay benefits under an insurance policy,
whether for a first-party claim or a third-party claim." Id.; see also Liberty Mut.
Fire Ins. Co. v. JT Walker Indus., Inc., 

, 186 (4th Cir. 2014)
("South Carolina recognizes a common law tort action for an insurer's bad faith in
exercising duties owed to policyholders.").

"Bad faith is a knowing failure on the part of the insurer to exercise an honest and
informed judgment in processing a claim." Am. Fire & Cas. Co. v. Johnson, 

, 

 (Ct. App. 1998).

             Bad faith refusal to pay first party benefits under a
             contract of insurance includes: (1) the existence of a
             mutually binding contract of insurance between the
             plaintiff and the defendant; (2) refusal by the insurer to
             pay benefits due under the contract; (3) resulting from the
             insurer's bad faith or unreasonable action in breach of an
             implied covenant of good faith and fair dealing arising on
             the contract; (4) causing damage to the insured.

Howard v. State Farm Mut. Auto. Ins. Co., 

, 

(1994). "Whether an insurance company is liable for bad faith must be judged by
the evidence before it at the time it denied the claim or if the insurance company
did not specifically deny the claim by the evidence it had before it at the time the
suit was filed." 

, 450 S.E.2d at 584. "An insured may recover damages
for a bad faith denial of coverage if he or she proves there was no reasonable basis
to support the insurer's decision to deny benefits under a mutually binding
insurance contract." Cock-N-Bull Steak House, Inc. v. Generali Ins. Co., 

, 

 (1996) (quoting Dowling v. Home Buyers Warranty
Corp., 

, 

 (1991)).

An insurer acts in bad faith when no reasonable basis supports the insurer's
decision to contest a claim. BMW of N. Am., LLC v. Complete Auto Recon Servs.,
Inc., 

, 

 (Ct. App. 2012). "However, whe[n]
an insurer has a reasonable ground for contesting a claim, there is no bad faith."

 "Additionally, this good faith obligation includes an insurer's duty to
investigate a claim." 

 "Importantly, an insured need not prove a breach of an
express contractual provision as a prerequisite to bringing a bad faith cause of
action." 

 "An insurer is not insulated from liability for bad faith merely because
there is no clear precedent resolving a coverage issue raised under the particular
facts of the case." Mixson, Inc. v. Am. Loyalty Ins. Co., 

, 

 (Ct. App. 2002).

"[I]f an insured can demonstrate bad faith or unreasonable action by the insurer in
processing a claim under their mutually binding insurance contract, he can recover
consequential damages in a tort action. Actual damages are not limited by the
contract." Nichols v. State Farm Mut. Auto. Ins. Co., 

, 

 (1983).

The record contains evidence to support the trial court's finding of bad faith. Some
of the instances of bad faith the trial court found were Penn National's failure to
investigate; its failure to check its own records for Castillo's contact information;
its knowledge Castillo never received any of its RORs; its application of terms not
in the policy (requiring Castillo to request a defense); and its not informing Castillo
of all of the pertinent information known to it about the claim. The trial court did
not err in finding Penn National acted in bad faith. Accordingly, we affirm the
award of damages for the bad faith cause of action to the HOA.

      E. Punitive Damages

Penn National argues the trial court's findings of fact do not support a punitive
damages award. It asserts the bad faith conduct identified by the trial court, even if
taken as true, does not rise to the level of willfulness or reckless disregard of
Castillo's and JJA Construction's rights sufficient to merit an award of punitive
damages. It contends its election not to retain experts, interview witnesses, or
conduct a recorded statement with Castillo about the merits of the case was a
reaction to Castillo's silence with regard to the claim and ultimately, to his
declination of a defense. Penn National further contends no evidence in the record
supports the finding that its asking Castillo whether he wanted its assistance in the
matter was done in knowing contravention of his policy rights. It maintains the
record shows it affirmatively sought Castillo's response on that issue following his
failure to contact it for more than six months after receiving the suit papers. It
argues no evidence in the record shows it deliberately mailed its ROR letters to an
incorrect address; it asserts Gross admitted he made a mistake in addressing the
letter to only one of the two addresses on file for Castillo but did not admit to any
deliberate or conscious decision to improperly mail the letter to an old address.
Penn National maintains that prospectively asking Castillo whether he wanted a
defense was reasonable as a matter of law given that the question followed months
of silence following his failure to contact it for months after being notified of the
lawsuit pending against him and his corporation. Additionally, Penn National
asserts that all letters were copied to Castillo's agent, which suggests there was no
willing or reckless attempt to have Castillo waive any benefits due under the
policy. We disagree.

"An award of punitive damages is left almost entirely to the discretion of the jury
and trial judge." Jordan v. Holt, 

, 

 (2005).
The basis for allowing the trial court this discretion is because it "heard the
evidence and was more familiar than we with the evidentiary atmosphere at trial,"
which gives it a more informed view than an appellate court. 

 (quoting Lucht v.
Youngblood, 

, 

 (1976)). In reviewing a
damages award, we do not weigh the evidence, but determine if any evidence
supports the award. Austin v. Specialty Transp. Servs., Inc., 

,

 (Ct. App. 2004). "This [c]ourt must affirm the trial court's
punitive damages finding for the Respondents if any evidence reasonably supports
the [trial court's] factual findings." 

, 

. This court "must
affirm the trial court's finding of punitive damages if any evidence reasonably
supports the [trial court's] factual findings." Jordan, 

, 

.

In Jordan, the trial court awarded a party punitive damages on one of its claims
following a bench trial. 

, 

. The supreme court found
because the trial court awarded punitive damages on a cause of action that was an
action at law, the case was one at law and the trial court's findings would be upheld
on appeal unless no evidence supported the findings. 

, 

.
The supreme court reversed the court of appeals in that case because it "improperly
assessed the facts of th[e] case based on its own view of the evidence instead of
determining whether the trial court's findings lacked evidentiary support." 

"If the[] elements [of a cause of action for bad faith] are pleaded and proved, the
insured's remedy is not limited to the face amount of the contract." Crossley v.
State Farm Mut. Auto. Ins. Co., 

, 

 (1992).
"[I]f [an insured] can demonstrate the insurer's actions were willful or in reckless
disregard of the insured's rights [in a bad faith action], he can recover punitive
damages." Nichols, 

, 

.
"The purposes of punitive damages are to punish the wrongdoer and deter the
wrongdoer and others from engaging in similar reckless, willful, wanton, or
malicious conduct in the future" as well as "to vindicate a private right of the
injured party by requiring the wrongdoer to pay money to the injured party." Clark
v. Cantrell, 

, 

 (2000). "At least three
important purposes are served by a punitive damages award: (1) punishment of the
defendant's reckless, willful, wanton, or malicious conduct; (2) deterrence of
similar future conduct by the defendant or others; and (3) compensation for the
reckless or willful invasion of the plaintiff's private rights." Mellen v. Lane, 

, 

 (Ct. App. 2008). "The paramount purpose for
awarding punitive damages is not to compensate the plaintiff but to punish and set
an example for others." 

To receive a punitive damages award, "the plaintiff has the burden of proving by
clear and convincing evidence the defendant's misconduct was willful, wanton, or
in reckless disregard of the plaintiff's rights." Welch v. Epstein, 

,

 (Ct. App. 2000). "A tort is characterized as reckless, willful[,]
or wanton if it was committed in such a manner or under such circumstances that a
person of ordinary reason and prudence would have been conscious of it as an
invasion of the plaintiff's rights." Taylor v. Medenica, 

, 

 (1996). "A conscious failure to exercise due care constitutes
willfulness." McCourt ex rel. McCourt v. Abernathy, 

, 

 (1995).

The trial court did not err in finding Penn National's behavior warranted the
imposition of punitive damages in favor of the HOA. The trial court found that
Penn National took a position unsupported by the policies or law that Castillo had
to request a defense before it would provide one to him, despite the fact that his
policies and his payments entitled him to one. In the previous section, we affirmed
the trial court's finding of bad faith. Based on that finding, the award of punitive
damages was justified. Additionally, it appears from Heinze's testimony Penn
National has engaged in similar behavior before. Accordingly, we affirm the
award of punitive damages to the HOA.

II.   ISSUES AS TO PORTRAIT HOMES

      A. Award of Coverage

Penn National argues the trial court improperly awarded coverage to Portrait
Homes as an additional insured. First, Penn National asserts the trial court
improperly considered parol evidence to interpret unambiguous language in the
Penn National policies. Alternatively, Penn National contends the documents in its
underwriting file do not establish Castillo intended to remain a named insured after
he formed JJA Construction, Inc. Penn National also maintains Portrait Homes did
not have a contract with JJA Construction, Inc. even if JJA Construction, Inc. did
business as JJA Framing. Additionally, Penn National argues the trial court
improperly relied on certificates of insurance to find Portrait Homes qualified as an
additional insured. Finally, Penn National posits the trial court incorrectly found
the Master Agreement governed JJA's Work at Persimmon Hill. 22 We disagree.


22
  In Penn National's 59(e), SCRCP, motion, it argued the trial court "improperly
look[ed] beyond the plain terms of the policies and Castillo's contract with . . .
Portrait Homes . . . to ascertain the parties' 'intentions' where the contractual terms
are unambiguous." Penn National's motion asserted "the court's finding that
Portrait Homes is an additional insured under either of the additional insured
endorsements . . . is improperly premised on evidence beyond the contracts." The
only issue Penn National raised with the consideration of the other evidence was
the trial court should not have considered it because the contracts were not
ambiguous. "[A]n appellate court cannot address an issue unless it was raised to,
and ruled upon by, the trial court." Smith v. Phillips, 

, 

 (1995) (per curiam). The transcript from the posttrial hearing—
along with much of the transcript from trial—was not included in the record on
appeal. However, the trial court's posttrial order referenced the argument the
Master Agreement should not be considered because it was signed after the
Housing and Purchase Order Contracts and expressly rejected the argument. Thus,
Penn National presumably raised this argument to the trial court to some extent,
and the trial court did in fact rule on it.

Accordingly, we will err on the side of caution and address the argument as to the
timing of the signing of the Master Agreement because the trial court had the
opportunity to consider it and actually ruled on it. See Queen's Grant II Horizontal
Prop. Regime v. Greenwood Dev. Corp., 

, 

 (Ct. App. 2006) ("Error preservation principles are intended to enable the trial
court to rule after it has considered all relevant facts, law, and arguments. The
rationale for the rule is that until the trial court considers the matter and makes a
ruling, an appellate court is unable to find error." (citation omitted)); Atl. Coast
Builders & Contractors, LLC v. Lewis, 

, 

(2012) ("Issue preservation rules are designed to give the trial court a fair
opportunity to rule on the issues, and thus provide us with a platform for
"In construing or interpreting a contract, 'it is axiomatic that the main concern of
the court is to ascertain and give effect to the intention of the parties.'" Bluffton
Towne Ctr., LLC v. Gilleland-Prince, 

, 

 (Ct.
App. 2015) (quoting Progressive Max Ins. Co. v. Floating Caps, Inc., 

, 

 (2013)). "If [a contract's] language is plain, unambiguous,
and capable of only one reasonable interpretation, no construction is required and
the contract's language determines the instrument's force and effect." 

 (quoting
Progressive Max Ins. Co., 

, 

). "In construing and
determining the effect of a written contract, the intention of the parties and the
meaning are gathered primarily from the contents of the writing itself, or, as
otherwise stated, from the four corners of the instrument . . . ." Silver v. Aabstract
Pools & Spas, Inc., 

, 

 (Ct. App. 2008)
(quoting McPherson v. J.E. Sirrine & Co., 

, 

(1945)). "If a contract is unambiguous, extrinsic evidence cannot be used to give
the contract a meaning different from that indicated by its plain terms." Watson v.
Underwood, 

, 

 (Ct. App. 2014) (quoting
Bates v. Lewis, 

, 161 n.1, 

, 909 n.1 (Ct. App. 1993)).
"Whe[n] the language of a contract is plain and capable of legal construction, that
language alone determines the instrument's force and effect." 

 (alteration by
court) (quoting Jordan v. Sec. Grp., Inc., 

, 

(1993)).

"Under the parol evidence rule, extrinsic evidence is inadmissible to vary or
contradict the terms of a contract. 'However, if a contract is ambiguous, parol
evidence is admissible to ascertain the true meaning and intent of the parties.'" HK

meaningful appellate review." (quoting Queen's Grant II Horizontal Prop. Regime,
368 S.C. at 373, 

)).

However, Penn National did not raise in its 59(e) motion the argument that the
certificate of insurance's limiting language rendered it inappropriate to consider
and the record does not contain any argument by Penn National to that affect.
Therefore, we find this argument unpreserved and do not address it. See Palmetto
Wildlife Extractors, LLC v. Ludy, 

, 705, 

, 867 (Ct.
App. 2022) ("When a party receives an order that grants certain relief not
previously contemplated or presented to the trial court, the aggrieved party must
move, pursuant to Rule 59(e), SCRCP, to alter or amend the judgment in order to
preserve the issue for appeal." (alteration omitted) (quoting In re Timmerman, 

, 

 (Ct. App. 1998))).
New Plan Exch. Prop. Owner I, LLC v. Coker, 

, 

 (Ct. App. 2007) (citation omitted) (quoting Koontz v. Thomas, 

, 

 (Ct. App. 1999)). "Resort to construction by a party is
only done when the contract is ambiguous or there is doubt as to its intended
meaning." Watson, 

, 

-62 (quoting Jordan, 

, 

).

"A contract is ambiguous only when it may fairly and reasonably be understood in
more ways than one." Id. at 455, 

 (quoting Jordan, 

, 

). "A contract is ambiguous when the terms of the contract
are reasonably susceptible to more than one interpretation. The uncertainty in
interpretation can arise from the words of the instrument, or in the application of
the words to the object they describe." Pee Dee Stores, Inc. v. Doyle, 

, 

 (Ct. App. 2009) (citations omitted). An ambiguous
contract is one that "is capable of more than one meaning when viewed objectively
by a reasonably intelligent person who (1) has examined the context of the entire
integrated agreement; and (2) is cognizant of the customs, practices, usages, and
terminology as generally understood in the particular trade or business." Laser
Supply & Servs., Inc. v. Orchard Park Assocs., 

, 

 (Ct. App. 2009).

Whether a contract's language is ambiguous is a question of law for the court.
Williams v. Gov't Emps. Ins. Co. (GEICO), 

, 

(2014). "The construction of a clear and unambiguous contract is a question of law
for the court to determine." 

 "If the court decides the language is ambiguous,
however, evidence may be admitted to show the intent of the parties, and the
determination of the parties' intent becomes a question of fact for the fact-finder."23

23
   Portrait Homes refers to the alleged ambiguities as latent, as opposed to patent.
"A patent ambiguity is one that arises upon the words of a will, deed, or contract.
A latent ambiguity exists when there is no defect arising on the face of the
instrument, but arising when attempting to apply the words of the instrument to the
object or subject described." Beaufort Cnty. Sch. Dist. v. United Nat'l Ins. Co., 

, 

 (Ct. App. 2011) (citation omitted). This court has
previously held the "[i]nterpretation of an unambiguous policy, or a policy with a
patent ambiguity, is for the court," while the "[i]nterpretation of a policy with a
latent ambiguity is for the jury." 

, 

. Portrait Homes
acknowledges recent South Carolina jurisprudence has disregarded the distinction
between the types of ambiguities and left the interpretation of both types to the
"Noncontradictory terms and conditions may be implied in a contract when the
circumstances warrant it to effectuate the manifest intention of the parties." S.
Realty & Constr. Co. v. Bryan, 

, 

 (Ct. App.
1986). "[T]he literal interpretation of policy language will be rejected where its
application would lead to unreasonable results and the definitions as written would
be so narrow as to make coverage merely 'illusory.'" S.C. Farm Bureau Mut. Ins.
Co. v. Kennedy, 

, 

 (2012). "Court[s] will
look to the reasonable expectations of the insured at the time when he entered into
the contract if the terms thereof are ambiguous or conflicting . . . ." Bell v.
Progressive Direct Ins. Co., 

, 

 (2014)
(quoting Hallowell v. State Farm Mut. Auto. Ins. Co., 

 (Del.
1982)).

"Common sense and good faith are the leading touchstones of construction of the
provisions of a contract; where one construction makes the provisions unusual or
extraordinary and another construction which is equally consistent with the
language employed would make it reasonable, fair and just, the latter construction
must prevail." C.A.N. Enters., Inc. v. S.C. Health & Human Servs. Fin. Comm'n,

, 

 (1988). "In the construction of insurance
contracts, it is vitally essential that the courts do not ignore the fact that the
primary object of all insurance is to insure, and . . . such contracts must be liberally
construed in favor of the insured." Parker v. Jefferson Standard Life Ins. Co., 

, 

 (1930). "[A]n ambiguity must be resolved in
favor of the insured and construed most strongly against the insurer." Columbia
Coll. v. Pa. Ins. Co., 

, 

 (1967). "The
construction placed upon a contract by the parties themselves, if not determinative,
is entitled to great weight." Payne v. Duke Power Co., 

, 

 (1991). "Ambiguous language in a contract should be construed
liberally and most strongly in favor of the party who did not write or prepare the
contract and is not responsible for the ambiguity . . . ." Ecclesiastes Prod.
Ministries v. Outparcel Assocs., LLC, 

, 

(Ct. App. 2007) (quoting Myrtle Beach Lumber Co. v. Willoughby, 

,

jury. This court has explicitly recognized and applied this trend. See Harbin v.
Williams, 

, 8, 

, 495 (Ct. App. 2019) ("Following our
supreme court's recent trend . . . , we find the ambiguity . . . presented a question of
fact, and the trial court did not err in submitting the ambiguity to the jury.").
Because this case was resolved by bench trial, the trial court was responsible for
interpreting any ambiguities and that interpretation was a question of fact.


 (1981)). "[A]ny ambiguity in a contract, doubt, or uncertainty
as to its meaning should be resolved against the party who prepared the contract or
is responsible for the verbiage." 

 (quoting Myrtle Beach Lumber Co., 

, 

).

"Under South Carolina law, two contracts executed at different times relating to the
same subject matter, entered into by the same parties, are to be construed as one
contract and considered as a whole." Moshtaghi v. The Citadel, 

,

 (Ct. App. 1994). "[W]here the instruments have not been
executed simultaneously but relate to the same subject matter and have been
entered into by the same parties, the transaction comprising the contract will be
considered as a whole." Klutts Resort Realty, Inc. v. Down'Round Dev. Corp., 

, 

 (1977). "This is true even though the transaction
consumed more than one day; the date of the writings constituting such transaction
is immaterial." 

"A contract is good between the parties, no matter how incorrect the names used in
the paper may be, if it appears they were intended as the names of the parties to be
bound by the contract or to receive its benefits." Cobb & Seal Shoe Store v. Aetna
Ins. Co., 78 S.C. 388, 389, 

, 1099 (1907). "A corporation, as well
as individuals, may have or be known by several names in the transaction of its
general business so that it may enforce, as well as be bound by, contracts entered
into in an adopted name other than the regular name under which it was
incorporated." Long v. Carolina Baking Co., 

, 

(1939). "If a corporation has acquired a name by usage, an adjudication against it
by the name so acquired is valid and binding." 

 (emphasis omitted).

First, whether the policies contained ambiguities was a question of law for the trial
court. "In an action at law tried without a jury, an appellate court's scope of review
extends merely to the correction of errors of law." Temple v. Tec-Fab, Inc., 

, 

 (2009). "The [c]ourt will not disturb the
trial court's findings unless they are found to be without evidence that reasonably
supports those findings." 

, 

. The policies listed JJA
Construction, Inc. as an individual and Jose Castillo d/b/a JJA's Framing's business
address as the work location's address. Therefore, the trial court did not err in
finding the contract ambiguous. Accordingly, the trial court was not bound to the
four corners of the contracts and could look at extrinsic evidence to interpret the
policies. Thus, the trial court did not err in considering parol evidence.
Regarding the three policies with Endorsement 71 11 45, the trial court did not err
in finding Portrait Homes was entitled to coverage because Jose Castillo d/b/a JJA
Framing qualified as a named insured under the policies. On March 2, 2005, Penn
National received a two-page document requesting it to change the name on the
policy to "JJA Construction, Inc." The trial court noted this document had answers
filled in for the portion that stated "[n]ame change only" and remained blank for
the portion that stated "[f]ormation of a new entity." Additionally, the trial court
observed the only change between the policies after Penn National processed the
request was JJA Construction, Inc. becoming the named insured; the policy
number, form of business, business description, and premium basis all remained
the same. Therefore, Penn National's underwriting file indicated Jose Castillo
d/b/a JJA Framing was the same business as JJA Construction, Inc. Indeed,
Castillo testified that was the case at trial.

The trial court also did not err in alternatively finding Portrait Homes was entitled
to coverage under the policies with Endorsement 71 11 45 because the contracts
between Portrait Homes and Jose Castillo d/b/a JJA Framing also bound JJA
Construction, Inc. The trial court noted that the underlying lawsuits alleged both
Castillo and JJA Construction, Inc. did business as JJA Framing. The trial court
also cited several exhibits that showed Gross recognized the underlying lawsuits
alleged both Castillo and JJA Construction, Inc. were doing business as JJA
Framing and provided that information to Parsons. Additionally, Castillo testified
that JJA Construction, Inc. did business as JJA Framing. Therefore, the
requirement for a written contract with a named insured was satisfied because the
contracts bound JJA Framing, and JJA Construction, Inc. did business as JJA
Framing.

Regarding the two policies with Endorsement CG 20 37, the trial court did not err
by concluding the parties intended the policies to cover all work JJA Framing did
for Portrait Homes and implying that term into the contract. The policies had
latent ambiguities because they listed the work location as JJA Framing's business
address instead of the construction site. The trial court considered the certificate of
insurance, which listed the location as "work done," and determined the parties
intended the policies to cover all work JJA Framing did for Portrait Homes. It did
not err by implying that term into the void left by eliminating the scrivener's error.
Additionally, the trial court did not err in finding the parties intended to encompass
the state and project specific entities like Portrait Homes by listing the names of
the parent companies in the policies.
Finally, Penn National argues the trial court improperly considered the Master
Agreement because (1) it became effective about six months after Castillo
executed the Housing and Purchase Order Contract; (2) it does not mention the
Persimmon Hill project; and (3) it only applies prospectively and does not impact
preexisting Housing and Purchase Order Contracts. In the order ruling on Penn
National's Rule 59(e) motion, the court noted it had "found as a matter of fact that
the Master Agreement and the Housing and Purchase Order Contract both apply to
the Persimmon Hill project." The court was "unpersuaded by Penn National's
contention that the Master Agreement did not apply to the Persimmon Hill project
simply because it was signed after the Housing and Purchase Order Contract was
initially signed." Further, the court determined, "Even if the Master Agreement . . .
[wa]s determined not to have applied to the Persimmon Hill project because [of the
timing], two other independent grounds support the [c]ourt's finding that the
contract between Portrait Homes and JJA Framing required the additional insured
coverage to include completed operations." The court found, "First, the evidence
at trial establishes as a matter of fact that there would have been another Master
Agreement in place between Portrait Homes and JJA Framing before the Housing
and Purchase Order Contract was initially signed." The court also found, "Second,
. . . the certificate of insurance . . . relating to additional insured coverage under
endorsement 71 11 45 shows that everyone involved . . . believed Portrait Homes
was covered for completed operations because endorsement 71 11 45 was attached
to the certificate of insurance and was titled 'Automatic Additional Insured --
Owners, Contractors And Subcontractors (Completed Operations).'" (emphasis
added by trial court). Our standard of review instructs us to affirm the trial court's
findings if any evidence supports them. See Temple, 

, 

 ("The [c]ourt will not disturb the trial court's findings unless they are found
to be without evidence that reasonably supports those findings."). The record
contains evidence to support the court's findings as to the Master Agreement.
Accordingly, we affirm the award of coverage to Portrait Homes as an additional
insured.

      B. Waiver of Right to Contest

Penn National argues the trial court incorrectly concluded Penn National waived its
right to contest Portrait Homes' additional insured status. We disagree.

"[A]n insurer [that] has denied coverage on some other basis is precluded from
defending against an action on a liability policy on the ground that the insured
failed to comply with its requirements as to notice and forwarding of suit papers."
Washington v. Nat'l Serv. Fire Ins. Co., 

, 

(1969). "[W]aiver cannot create coverage and cannot bring into existence
something not covered in the policy." Laidlaw Env't Servs. (TOC), Inc. v. Aetna
Cas. & Sur. Co., 

, 53, 

, 852 (Ct. App. 1999) (quoting
Alverson v. Minn. Mut. Life Ins. Co., 

, 

 (Ct.
App. 1985)).

The trial court's reason for discussing waiver in this case is unclear. Penn National
did not assert that any policy exclusions barred coverage for Portrait Homes.
Nevertheless, the trial court made clear that it did not rule Portrait Homes was
entitled to coverage under the Penn National policies based on the doctrine of
waiver. In the posttrial order, the trial court reiterated that it ruled that Portrait
Homes had met its burden of proving it met the requirements to trigger coverage
under the additional insured endorsements and the insuring agreements. Therefore,
we affirm as to this issue. See McCall v. Finley, 

, 

, 28
(Ct. App. 1987) ("[W]hatever doesn't make any difference, doesn't matter.").

      C. Damages for Breach of Duty to Indemnify

Penn National argues that Portrait Homes sustained no damages for breach of the
duty to indemnify because it was fully indemnified by its own insurer. We
disagree.

"[I]f one party is entitled to indemnity from another, the right to indemnity is not
defeated by the fact that the loss to be indemnified for was actually paid by an
insurance company." Otis Elevator, Inc. v. Hardin Constr. Co., 

,

 (1994) (quoting Tillman v. Wheaton-Haven Recreation Ass'n,

, 1230 (4th Cir. 1978)). In Otis, our supreme court determined the
trial court had erred in reducing the damages the jury awarded by the amount an
insurer had paid in settlement. Id. at 300, 450 S.E.2d at 45.

The trial court did not err in determining Portrait Homes sustained damages from
Penn National's breach of the duty to indemnify. Like the trial court, we note that
Penn National's argument is not supported by binding South Carolina precedent.
Penn National cites two South Carolina cases that are distinguishable from this
case because they dealt with a breach of the duty to defend rather than the duty to
indemnify. Additionally, while Portrait Homes acknowledged that any recovery
for Penn National's breach of the duty to indemnify would flow back to Admiral,
Portrait Homes would benefit because that would replenish its policy limits with
Admiral. Therefore, the trial court did not err in deciding Portrait Homes sustained
damages from the breach of the duty to indemnify.
      D. Bad Faith Claim

Penn National argues the trial court erred in finding that Portrait Homes proved its
bad faith claim. Penn National asserts it did not perform its investigation in bad
faith, it did not fail to respond to claim communications, and its incomplete
statement of the grounds for denial did not support the bad faith claims. We
disagree.

             Bad faith refusal to pay first party benefits under a
             contract of insurance includes: (1) the existence of a
             mutually binding contract of insurance between the
             plaintiff and the defendant; (2) refusal by the insurer to
             pay benefits due under the contract; (3) resulting from the
             insurer's bad faith or unreasonable action in breach of an
             implied covenant of good faith and fair dealing arising on
             the contract; (4) causing damage to the insured.

Howard, 

, 

. "Whether an insurance company is
liable for bad faith must be judged by the evidence before it at the time it denied
the claim or if the insurance company did not specifically deny the claim by the
evidence it had before it at the time the suit was filed." 

, 450 S.E.2d at
584. "An insured may recover damages for a bad faith denial of coverage if he or
she proves there was no reasonable basis to support the insurer's decision to deny
benefits under a mutually binding insurance contract." Cock-N-Bull Steak House,
Inc., 

, 

 (quoting Dowling, 

, 

).

An insurer acts in bad faith when no reasonable basis supports the insurer's
decision to contest a claim. BMW of N. Am., LLC, 

, 

. "However, whe[n] an insurer has a reasonable ground for contesting a claim,
there is no bad faith." 

 "Additionally, this good faith obligation includes an
insurer's duty to investigate a claim." 

 "Importantly, an insured need not prove
a breach of an express contractual provision as a prerequisite to bringing a bad
faith cause of action." 

 Further, "[a]n insurer is not insulated from liability for
bad faith merely because there is no clear precedent resolving a coverage issue
raised under the particular facts of the case." Mixson, Inc., 

, 

.
Also, "it is axiomatic that an insured must be provided sufficient information to
understand the reasons the insurer believes the policy may not provide coverage."
Harleysville Grp. Ins. v. Heritage Cmtys., Inc., 

, 

 (2017). "A reservation of rights letter must give fair notice to the insured
that the insurer intends to assert defenses to coverage or to pursue a declaratory
relief action at a later date." 

, 

 (quoting United Nat'l
Ins. Co. v. Waterfront N.Y. Realty Corp., 

 (S.D.N.Y. 1996)).
The explanation must be unambiguous and "[g]rounds not identified in the
reservation of rights may not be asserted later by the insurer." 

, 

 (quoting Desert Ridge Resort LLC v. Occidental Fire & Cas. Co. of
N.C., 

 (D. Ariz. 2015)).

The trial court did not err in finding that Penn National acted in bad faith. The
record contains evidence to support the trial court's finding that Penn National
failed to respond to Portrait Homes' request for policy benefits for seventeen
months. Additionally, Penn National acknowledged in the posttrial hearing its
response was untimely. Moreover, Penn National also admitted it provided an
inaccurate reason for denying coverage to Portrait Homes. Further, Penn National
failed to reasonably investigate Portrait Homes' request for additional insured
status because Penn National did not review the underwriting file or other
information it had available before it decided to deny coverage. Because evidence
supports the trial court's findings, we affirm the court's decision Penn National
acted in bad faith.

      E. Punitive Damages

Penn National argues no competent evidence supports the trial court's finding of
willful conduct or reckless disregard in support of the punitive damages award.
We disagree.

"The purposes of punitive damages are to punish the wrongdoer and deter the
wrongdoer and others from engaging in similar reckless, willful, wanton, or
malicious conduct in the future." Clark, 

, 

.
"Punitive damages also serve to vindicate a private right of the injured party by
requiring the wrongdoer to pay money to the injured party." 

, 

.

The trial [court] is vested with considerable discretion over the amount of a
punitive damages award." Austin, 

, 

. Appellate
courts' "review of the amount of punitive damages is limited to correction of errors
of law." 

The trial court did not err in awarding punitive damages to Portrait Homes. Many
of the trial court's findings that support its bad faith determination also support its
determination that Penn National's conduct was willful and reckless. Penn
National took seventeen months to respond to Portrait Homes, Penn National sent
Portrait Homes an incorrect reason for denying coverage, and Penn National did
not review its underwriting file before deciding to deny coverage. Additionally,
Gross testified he denied all but one of the roughly thirty claims he handled at Penn
National for additional insured status, and the trial court noted that Penn National
internally indicated it was likely going to deny coverage two months before any
coverage analysis took place. Accordingly, we affirm the award of punitive
damages to Portrait Homes.

III.   ISSUES COMMON TO PORTRAIT HOMES AND THE HOA

       A. Time-On-Risk Formula

Penn National argues the trial court failed to apply the supreme court's time-on-risk
formula from Crossmann II for apportioning damages to Penn National's policy
periods. We disagree.

"An insurance company fails to defend at its own peril, but it is obligated to defend
only actions involving claims covered by the insuring contract." Stroup Sheet
Metal Works, Inc. v. Aetna Cas. & Sur. Co., 

, 

 (1977). "[T]he terms of an insurance policy must be construed most liberally
in favor of the insured and where the words of the policy are ambiguous, or where
they are capable of two reasonable interpretations[,] that construction will be
adopted which is most favorable to the insured." Kingman v. Nationwide Mut. Ins.
Co., 

, 

 (1964). "[T]he provisions of an
insurance policy are to be liberally construed in favor of the insured and strictly
construed against the company which prepared the policy." Whittington v. Ranger
Ins. Co., 

, 

 (1973).

In Crossmann II, our supreme court abandoned the joint and several/all sums
approach for determining insurance coverage for progressive property damage
cases because that approach ignored "critical language limiting the insurer's
obligation to pay to sums that are attributable to property damage that occurred
during the policy period." 

, 

. Our supreme court
found that "the scope of an insurer's duty to indemnify was limited to damages
accrued during the insurer's time on the risk, overruling earlier case law that held
an insurer's liability was joint and several." Heritage Cmtys., Inc., 

,

 (citing Crossmann II, 

, 

).
"An ideal application of the 'time on risk' approach would require the finder of fact
to determine precisely how much of the injury-in-fact occurred during each policy
period and precisely what quantum of the damage award in the underlying suit was
attributable to that injury." Crossmann II, 

, 

.
"Unfortunately, it is often 'both scientifically and administratively impossible' to
make such determinations." 

 (quoting Bos. Gas Co. v. Century Indem. Co., 

, 301 (Mass. 2009)).

             In cases where it is impossible to know the exact measure
             of damages attributable to the injury that triggered each
             policy, courts have looked to the total loss incurred as a
             result of all of the property damage and then devised a
             formula to divide that loss in a manner that reasonably
             approximates the loss attributable to each policy period.

Id. at 64-65, 

.

However, our supreme court noted that "[t]his formula is not a perfect estimate of
the loss attributable to each insurer's time on the risk. Rather, it is a default rule
that assumes the damage occurred in equal portions during each year that it
progressed." 

, 

. "If proof is available showing that the
damage progressed in some different way, then the allocation of losses would need
to conform to that proof. However, absent such proof, assuming an even
progression is a logical default." 

 "[W]he[n] it is impracticable to calculate the
exact measure of damages attributable to the injury that triggered each policy, the
default rule is that an insurer's pro rata share of the damages is a function of the
total number of years damages progressed and the portion of those years a
particular insurer provided coverage." Heritage Cmtys., Inc., 

, 

 (citing Crossmann II, 

, 

).

In Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual
Insurance Co. (Crossmann III), the trial court "computed the pro rata allocation [of
damages] based on a daily loss rather than an annual loss" because one insurer had
coverage for less than a year and another had coverage for less than two years. 

, 

 (Ct. App. 2015). This court found the trial
court did not err in the methodology it employed to calculate the time at risk. 

The court noted, our supreme court in Crossmann II ruled that "the default rule is
subject to alteration at the discretion of the trial court." 

Here, the trial court did not err in its damages calculations. Crossmann III
explained that the Crossmann II formula is the default rule but the trial court can
alter it at its discretion. The trial court found that it needed to modify the time-on-
risk analysis in this case because the Penn National policies contained different
language than the policies in Crossmann II. The trial court noted that the policies
stated that "[p]roperty damage which occurs during the period of a Penn National
policy 'includes any continuation, change or resumption of that . . . 'property
damage' after the end of the policy period." Therefore, the trial court concluded
that "the progressive property damage caused by continuous or repeated exposure
to water intrusion occurring after the end of a policy period is deemed to be
included in what is covered by the policy." The trial court determined that the
recoverable damages of $3,850,000 exceeded the $500,000 limit of the five Penn
National policies and ruled that the total amount covered by the polices was
$2,500,000. We find no error in the trial court's reasoning and calculations.
Therefore, the trial court did not abuse its discretion in modifying the time-on-risk
formula from Crossmann II. Accordingly, we affirm as to this issue.

         B. Attorney's Fees

Penn National argues the trial court improperly awarded Portrait Homes and the
HOA attorney's fees. It contends Castillo and JJA Construction incurred no
attorney's fees. It also asserts Penn National owed the HOA no duty to defend. It
further contends Portrait Homes was defended in the underlying case and does not
satisfy the requirements of Hegler.24 It further contends South Carolina courts
"have not awarded attorneys' fees as consequential damages in [insurance bad
faith] tort actions." It also asserts the HOA's request for an additional contingency
fee goes far beyond the scope of Hegler. We disagree.

Generally, attorney's fees are not recoverable unless authorized by contract or
statute. Baron Data Sys., Inc. v. Loter, 

, 

(1989). The award of attorney's fees under a contract is left to the discretion of the
trial court and will not be disturbed unless the court abused that discretion. 

, 377 S.E.2d at 297. "An abuse of discretion occurs when the decision is
controlled by some error of law or is based on findings of fact that are without


24
     Hegler v. Gulf Ins. Co., 

, 

 (1978).
evidentiary support." Degenhart v. Burriss, 

, 

(Ct. App. 2004).

             The determination of whether statutory attorney fees
             should be awarded is treated as one in equity. See Brown
             v. State Farm Mut. Ins. Co., 

, 

 (1980) (wherein the supreme court treated as
             equitable the trial court's determination of whether to
             award attorney fees under . . . [section] 38-9-320 [of the
             South Carolina Code] (1976) for bad faith failure to pay
             insurance claim).

Kilcawley v. Kilcawley, 

, 

 (Ct. App. 1994).

"In reviewing the award in issue, therefore, this court may take its own view of the
preponderance of the evidence." 

 "Even whe[n] this court may find facts in
accordance with its own view of the preponderance of the evidence, we are not
required to disregard the factual findings of the trial judge who saw and heard the
witnesses and was in a better position to judge their credibility and demeanor." 

"An insurer is liable to the policy holder for all reasonable attorneys' fees for the
prosecution of the case against the insurer if the trial judge finds the refusal to pay
the policyholder's claim was without reasonable cause or in bad faith." Mixson,
Inc., 

, 

 (citing 

(Supp. 2001)). "Determination of an insurer's liability for attorneys' fees pursuant
to . . . section 38-59-40 . . . is a matter for decision by the trial judge. In making
this determination, the trial judge must ascertain whether or not an insurer's refusal
to pay a claim was without reasonable cause or in bad faith." Dorman v. Allstate
Ins. Co., 

, 

 (Ct. App. 1998) (citations
omitted). "The factual finding of unreasonableness or bad faith is a condition
precedent to an award of attorney's fees under . . . section [38-59-40]." Flynn v.
Nationwide Mut. Ins. Co., 

, 

 (Ct. App. 1984).
"The determination of whether attorney's fees should then be awarded is one in
equity, made without the aid of a jury. Thus, we are free to find facts in
accordance with our view of the preponderance of the evidence." 

In Town of Winnsboro v. Wiedeman-Singleton, Inc., 

, 

 (1992), our supreme court allowed a contractor to recover attorney's fees
and costs expended in defending the negligence of its subcontractor when the
subcontractor negligently performed its contract with the contractor and because of
that negligence and breach of contract directed toward the contractor, the
contractor was forced to defend an action.

In Addy v. Bolton, 

, 

 (1971), the supreme court
noted "the lossors seek to recover from the contractor the attorneys' fees incurred
by them in defending themselves against the claim asserted by the tenants." The
court determined, "The weight of authority sustains their right of recovery, either
on the theory of an implied contract to indemnify, or because they were put to the
necessity of defending themselves against the lessees' claim by the tortious conduct
of the contractor, or by his breach of contract." 

The supreme court explained:

             It is generally held that where the wrongful act of the
             defendant has involved the plaintiff in litigation with
             others or placed him in such relation with others as
             makes it necessary to incur expense to protect his
             interest, such costs and expenses, including attorneys'
             fees, should be treated as the legal consequences of the
             original wrongful act and may be recovered as damages.
             In order to recover attorneys' fees under this principle,
             the plaintiff must show: (1) that the plaintiff had become
             involved in a legal dispute either because of a breach of
             contract by the defendant or because of defendant's
             tortious conduct; (2) that the dispute was with a third
             party—not with the defendant; and (3) that the plaintiff
             incurred attorneys' fees connected with that dispute. If
             the attorneys' fees were incurred as a result of a breach of
             contract between plaintiff and defendant, the defendant
             will be deemed to have contemplated that his breach
             might cause plaintiff to seek legal services in his dispute
             with the third party.

, 

-10 (quoting 22 Am. Jur. 2d Damages § 166).

In Hegler, the supreme court looked at the right to recover attorney's fees under
contract. 

, 

. The supreme court found that
attorney's fees should have been awarded "for the defense of the declaratory action
brought by [the insurer] to avoid coverage under the policy." 

, 

. The supreme court stated:
             The applicable policy provisions require the [insurer] (1)
             to pay on behalf of [the insured] all sums which [the
             insured] shall become legally obligated to pay as
             damages because of bodily injury or property damage,
             and (2) "to defend any suit against the insured . . .
             seeking damages on account of such bodily injury or
             property damage, even if any of the allegations of the suit
             are groundless, false[,] or fraudulent."

, 

.

The supreme court noted that "[w]hile [the insurer] agreed, under a reservation of
rights, to defend the action for damages brought against [the insured], it
simultaneously brought the declaratory judgment action seeking a determination
that it was not liable under the policy or obligated to defend." 

, 

. The court found the insured "was, therefore, forced to employ
counsel to defend against [the insurer's] denial of any obligation to continue the
defense of the damage action." 

 The supreme court stated, "The declaratory
judgment action established [the insurer's] obligation under the policy to defend the
action for damages. If [the insurer] had refused initially to defend, it would
undoubtedly have been liable for the payment of counsel fees incurred by [the
insured] in the defense of the damage action." 

 The supreme court observed the
insurer did not refuse from the beginning, but instead "began the defense and then
sought, through the declaratory judgment action, to avoid any obligation to
continue to defend." 

 The court found the insured had "to employ counsel to
resist the contention by [the insurer] of lack of coverage" "[i]n order to obtain [the
insurer's] continued defense of the action for damages." 

The supreme court held:

             There is no material difference in the legal effect between
             an outright refusal to defend and in undertaking the
             defense under a reservation of rights until a declaratory
             judgment is prosecuted to resolve the question of
             coverage. In either event, an insured must employ
             counsel to defend in the first instance in the damage
             action and in the second in the declaratory judgment
             action to force the insurer to provide the defense. In
             both, the counsel fees are incurred because of the
             insurer's disclaimer of any obligation to defend.

The court determined in Hegler "[t]he action of [the insurer] amounted to a
wrongful breach of its contractual obligation to defend." 

 "The legal fees
incurred by [the insured], in successfully asserting his rights against [the insurer's]
attempt in the declaratory judgment action to avoid its obligation to defend, were
damages arising directly as a result of the breach of the contract." 

,

.

"Courts applying South Carolina bad faith law have not awarded attorney's fees as
consequential damages in tort actions." JT Walker Indus., Inc., 554 F. App'x at
191. The only case that speaks directly to this issue is a federal district court case
in which "the court held that a plaintiff could not recover attorney's fees incurred in
prosecuting a bad faith insurance claim." Id. (citing Andrews v. Cent. Sur. Ins. Co.,

 (D.S.C. 1967)).

"Our case law and court rules make clear that when a contract or statute authorizes
an award of attorney's fees, the trial court must make specific findings of fact on
the record for each of the required factors to be considered." Griffith v. Griffith,

, 

 (Ct. App. 1998). The factors a trial
court should consider in determining reasonable attorney's fees are "(1) nature,
extent, and difficulty of the legal services rendered; (2) time and labor devoted to
the case; (3) professional standing of counsel; (4) contingency of compensation;
(5) fee customarily charged in the locality for similar services; and (6) beneficial
results obtained." Blumberg v. Nealco, Inc., 

, 

 (1993).

"Where an attorney's services and their value are determined by the trier of fact, an
appeal will not prevail if the findings of fact are supported by any competent
evidence." Williamson v. Middleton, 

, 

 (Ct.
App. 2007) (quoting Baron Data Sys., Inc., 297 S.C. at 384, 377 S.E.2d at 296),
aff'd in part, rev'd in part, 

, 

 (2009).

The trial court did not err in the award of attorney's fees to Portrait Homes. In
Hegler, our supreme court decided that "legal fees incurred by [the insured], in
successfully asserting his rights against [insurer's] attempt in the declaratory
judgment action to avoid its obligation to defend, were damages arising directly as
a result of the breach of the contract." 

, 

.
Here, the trial court found Penn National breached its duties to defend and
indemnify Portrait Homes and Portrait Homes sustained damages as a result.
Therefore, the trial court was permitted to award attorney's fees. In the posttrial
motions and punitive damages order, the trial court found (1) presentation of the
issues was not a simple task; (2) the amount of time and labor devoted to the case
was reasonable; (3) Portrait Homes' attorney tried the case in a competent, well-
prepared manner; (4) the contingency of compensation did not apply because the
fee agreement was a billable hour arrangement; (5) the hourly rate of $250, as well
as a rate of $125 for travel, was within the range of customarily charged in the
area; and (6) the results were very beneficial. The trial court awarded to Portrait
Homes attorney's fees of $237,462.50 and costs of $12,540.76 for a total of
$250,003.26. This award is reasonable. Accordingly, we affirm the award of
attorney's fees to Portrait Homes.

As to the HOA, the trial court's award of attorney's fees was for the assigned
breach of duty to defend and duty to indemnify. The court indicated case costs of
$51,332.03 and attorney's fees of $1,790,049.10 were reasonable and "would be
awarded should the HOA have elected the remedy of Breach of the Duty to Defend
and Indemnify." The trial court noted the HOA filed an election of remedies,
electing to recover for the bad faith and the breach of the duty of good faith and
fair dealing rather than the breach of the duty to defend and duty to indemnify.
The court recognized the supreme court has held attorney's fees under section 38-
59-40 only apply to breach of contract actions. Accordingly, because the trial
court did not actually award the HOA attorney's fees based on the HOA's election,
we need not address the arguments concerning the HOA's attorney's fees. See
Finley, 

, 

 ("[W]hatever doesn't make any difference,
doesn't matter.").

CONCLUSION

For the forgoing reasons, the learned trial court's orders are

AFFIRMED.

VINSON, J., and LOCKEMY, A.J., concur.