Smallwood v. Ocean Harbor Casualty Insurance Company
4:23-cv-06197
| D.S.C. | Aug 4, 2025Background
- Plaintiffs Tony and Beth Smallwood held an insurance policy with Ocean Harbor Casualty Insurance for their mobile home in Conway, SC covering July 2021–July 2022.
- In May 2022, during an unrelated inspection, damage (sagging subflooring) was discovered linked to humidity and condensation; no evidence of plumbing leaks was found.
- Plaintiffs filed a claim for the damage, which was denied by Ocean Harbor based on policy exclusions for wear and tear and similar conditions.
- Plaintiffs obtained an independent inspection, which found water damage from HVAC condensation; Plaintiffs also notified the HVAC installer of alleged defective installation.
- Plaintiffs sued Ocean Harbor in state court for breach of contract and bad faith denial; defendant removed the case to federal court and moved for summary judgment.
- The court reviewed all facts in the light most favorable to the Plaintiffs (the non-moving party) in considering summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether policy exclusions bar coverage for damage | Exclusions don't apply; defendant failed to investigate | Damage was excluded (wear and tear etc.); no "loss" under policy | Genuine dispute; summary judgment denied |
| Whether the denial was made in bad faith | Defendant acted unreasonably by not determining cause | Had reasonable basis to deny; exclusions plainly applied | Enough facts in dispute for jury |
| Whether post-denial evidence can justify denial | Only reasons in original denial letter are valid | Post-denial evidence supports exclusion | Post-denial evidence not permitted |
| Whether sufficient facts exist for breach/bad faith | Jury could find breach and bad faith given investigation | Facts are undisputed; no triable issue exists | Triable issues remain |
Key Cases Cited
- Scott v. Harris, 550 U.S. 372 (2007) (sets standard for viewing facts on summary judgment)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (explains materiality and genuine issue standards for summary judgment)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (describes moving party's burden on summary judgment)
- Crossley v. State Farm Mut. Auto. Ins., 415 S.E.2d 393 (S.C. 1992) (articulates elements of insurance bad faith claim)