UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

LIBERTY MUTUAL INSURANCE
COMPANY,
Plaintiff-Appellee,
                                                                      No. 96-1019
v.

YEAR ROUND POOL, INCORPORATED,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Beaufort.
Cameron McGowan Currie, District Judge.
(CA-94-323-9-22)

Argued: October 29, 1996

Decided: December 30, 1996

Before NIEMEYER, WILLIAMS, and MOTZ, Circuit Judges.

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Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.

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COUNSEL

ARGUED: Frank Francis Pape, Jr., Hilton Head Island, South Caro-
lina, for Appellant. Charles R. Norris, NELSON, MULLINS, RILEY
& SCARBOROUGH, L.L.P., Charleston, South Carolina, for Appel-
lee. ON BRIEF: Timothy D. Wise, NELSON, MULLINS, RILEY &
SCARBOROUGH, L.L.P., Charleston, South Carolina, for Appellee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Between 1987 and 1993, Liberty Mutual Insurance Company
("Liberty Mutual") provided workers' compensation insurance to
Year Round Pool Company ("Year Round") under the South Carolina
Assigned Risk Plan. In its initial application for insurance, Year
Round stated that it had two part-time employees and an annual pay-
roll of under $20,000. In fact, at that time Year Round employed
more than twenty workers with an annual payroll of over $300,000.
As a result of these misrepresentations, Year Round paid insurance
premiums that were substantially lower than those it should have
paid.

In subsequent years, Year Round did not correct the information
supplied to Liberty Mutual. Although Liberty Mutual sent Year
Round eight self-audit forms during the first four years, Year Round
did not return them. Without the completed forms, Liberty Mutual
presumed a 25 percent increase in payroll, and adjusted premiums
accordingly. Year Round paid these increased premiums, but even
with these increases, the payments remained well below what Year
Round should have been paying. Between 1987 and 1992, Year
Round submitted forty-four claims to Liberty Mutual. On April 13,
1992, Liberty Mutual conducted its first on-site audit of Year Round
and became aware of Year Round's misrepresentations.

On July 31, 1994, Liberty Mutual filed this action, based on diver-
sity of citizenship, against Year Round, alleging breach of contract
with fraudulent intent, fraud, and constructive fraud. After a three-day
trial, the jury found in favor of Liberty Mutual on all counts and
returned a verdict of $208,835.00. This amount was subsequently
reduced to $208,803.00 to reflect a $32.00 credit on Year Round's
account. Liberty Mutual moved to amend the verdict to allow for pre-
judgment interest. The court granted the motion, and assessed pre-

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judgment interest at 8.75 percent compounded monthly, thus
increasing the verdict to $345,773.00.

I.

Year Round first asserts that the district court erred in not granting
its motion for judgment as a matter of law on the theory that the stat-
ute of limitations barred Liberty Mutual from bringing claims under
all policies except those for 1992-93.

Under South Carolina law, a six-year statute of limitations applies
to all causes of action that accrued prior to April 5, 1988. S.C. Code
Ann. § 15-3-510,-530 (Law. Co-op. 1995). All claims accruing after
that date have a three-year statute of limitations.§ 15-3-530. South
Carolina determines accrual on the basis of the discovery rule. See
Wilson v. Shannon, 386 S.E.2d 257, 258 (S.C. Ct. App. 1989). One
is presumed to have discovered a cause of action"when the facts and
circumstances of an injury would put a person of common knowledge
and experience on notice that some claim against the defendant might
exist." Id. The focus therefore is on determining whether a party
acquired knowledge of any existing facts "`sufficient to put said party
on inquiry which, if developed, will disclose the alleged fraud.'"
Burgess v. American Cancer Soc'y, 386 S.E.2d 798, 799 (S.C. App.
Ct. 1989) (quoting Walter J. Klein Co. v. Kneece , 123 S.E.2d 870
(S.C. 1962)).

Year Round argues that several factors should have led Liberty
Mutual to discover it might have claims (except for those under the
1992-93 policies) prior to February 1991. Among these factors are
Year Round's submission of 32 workers' compensation claims from
28 different workers prior to February 1991 and Year Round's failure
to return any of the eight self-audit forms prior to February 1991.
Year Round also argues that it was improperly classified on Liberty
Mutual insurance records as a company engaged in maintenance
rather than in construction, and that many of its claims were for
construction-related injuries.

Year Round relies on Kreutner v. David, 465 S.E.2d 88 (S.C.
1995). In Kreutner, a lender brought a negligence action against an
escrow agent who had guaranteed that a borrower would repay a loan.

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The Supreme Court of South Carolina found that the cause of action
accrued when the agent failed to comply with more than nine requests
for the mortgage and title policy, because at that point, the lender
should have known that she might have a claim against the agent.

Year Round contends that Liberty Mutual's claim should similarly
be held to have accrued after Year Round failed to return eight self-
audit forms. However, Year Round's failure to complete the self-audit
forms did not necessarily put Liberty Mutual on notice as to Year
Round's fraud; failure to complete the forms simply led to the pre-
sumption that Year Round had increased its workforce by 25 percent.
Year Round was not required to return the self-audit forms in order
to obtain insurance from Liberty Mutual; in contrast, the documents
at issue in Kreutner, the mortgage and title policy, were essential to
the transaction.

The district court allowed all of Liberty Mutual's claims to go for-
ward because it determined that a factual question was presented as
to whether Liberty Mutual could be held to have reasonably discov-
ered Year Round's fraudulent actions only when it conducted an on-
site audit in April 1992. We agree. This question was properly pres-
ented to the jury. See Wilson Group, Inc. v. Quorum Health
Resources, Inc., 880 F. Supp. 416, 424 (D.S.C. 1995) (noting that typ-
ically, "determining whether the discovery rule will relieve a plaintiff
from the operation of the statute of limitations is a question for the
jury"). The jury decided in favor of Liberty Mutual; there was no
error.

II.

All of Year Round's remaining arguments on the merits are equally
groundless.

First, Year Round contends that there was no contract between the
parties. Year Round's reliance on Stanley Smith & Sons v. Limestone
College, 322 S.E.2d 474 (S.C. Ct. App. 1984), is misplaced; that case
involved an implied contract for which no evidence was presented.
Here, there was significant evidence to support a conclusion that the
parties agreed to the material terms of the contract.

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Year Round argues that Liberty Mutual did not prove either reli-
ance or damages, both of which are necessary elements of a fraud
claim. Liberty Mutual introduced sufficient evidence of reliance. Lib-
erty Mutual had a right to rely on Year Round's application; the very
purpose of an application for insurance is to provide information upon
which the insurer can rely. As for damages resulting from Year
Round's misrepresentation, the usual rule is that a plaintiff may
recover for "harms proximately caused by the misrepresentation." 2
Dan B. Dobbs, Dobbs Law of Remedies § 9.3(2) (1993). In accor-
dance with that formula, Liberty Mutual requested, and the jury
awarded, damages equal to the difference between the premiums it
received from Year Round and those it would have received had Year
Round correctly reported its annual payroll and workforce, i.e.,
$208,835.00.

Year Round next asserts that Liberty Mutual changed the underly-
ing policy with regard to the classification of the nature of Year
Round's work such that Year Round's endorsement was necessary,
and no endorsement was obtained for policies from 1987 through
1992. But no endorsement was necessary because Liberty Mutual
never changed any of these policies. Rather, Liberty Mutual sought
compensation for Year Round's fraudulent misrepresentation in the
initial application for insurance coverage of the nature and scale of
Year Round's business. The jury awarded Liberty Mutual damages
based on an assessment of what Liberty Mutual would have received
from Year Round absent this misrepresentation. Seeking a remedy in
court to fraud does not constitute an unauthorized change in a contract
such that endorsement of the other party is required. This argument
therefore fails.

Year Round also contends that the district court erred when it
denied Year Round's motion for judgment as a matter of law with
respect to Liberty Mutual's failure to conduct an audit within ninety
days of the end of the period covered by policies. To the extent Lib-
erty Mutual did not fulfill its responsibilities under the South Carolina
Assigned Risk Plan, the State may have a possible cause of action
against the insurer. This does not, however, give rise to a cause of
action by a third party. Year Round erroneously relies on Boyd v.
State Farm Mut. Auto. Ins. Co., 195 S.E.2d 706 (S.C. 1973); there is

                    5
no indication here that Liberty Mutual acted on the basis of a corpo-
rate policy that was inconsistent with statutory law.

After careful review of the record and the parties' briefs and oral
argument, we similarly reject all of Year Round's remaining argu-
ments on the merits.

III.

Year Round Pool objects on three grounds to the district court's
award of prejudgment interest to Liberty Mutual in the amount of
8.75 percent compounded monthly.

First, Year Round argues that compounded prejudgment interest is
not permitted under South Carolina law. That argument is well
founded. Section 34-31-20 of the South Carolina Code provides:

          In all cases of accounts stated and in all cases wherein any
          sum or sums of money shall be ascertained and, being due,
          shall draw interest according to law, the legal interest shall
          be at the rate of eight and three-fourths percent per annum.

S.C. Code Ann. § 34-31-20(A) (Law. Co-op. 1995). This provision
applies unless there is an agreement between the parties that sets forth
an interest rate. Turner Coleman, Inc. v. Ohio Constr. & Eng'g, Inc.,
251 S.E.2d 738, 740 (S.C. 1979); J.C. White Lumber Co. v. Allen, 410
S.E.2d 588, 590 (S.C. Ct. App. 1991). Moreover, barring agreement
to the contrary, the legal rate also applies to prejudgment interest.
Englert, Inc. v. Netherlands Ins. Co., 433 S.E.2d 871, 875 (S.C. Ct.
App. 1993) (per curiam) (applying legal rate to prejudgment interest).
The legal rate is 8.75 percent per annum, not 8.75 percent com-
pounded monthly.

Moreover, although compounded interest is generally disfavored,
45 Am. Jur. 2d § 76 Interest and Usury (1969), in certain circum-
stances it is permitted. For example, compound interest may be
awarded when state law allows it to be awarded against those who
have breached fiduciary responsibilities. See, e.g., Federal Sav. &
Loan Ins. Corp. v. Quality Inns, Inc., 876 F.2d 353, 358-59 (4th Cir.

                    6
1989) (holding that plaintiff was entitled to compound prejudgment
interest under Maryland law for breaching fiduciary duty); 45 Am.
Jur. 2d § 80; Restatement (Second) of Trusts § 207 cmt. d (1959). In
addition, courts have held that interest can be collected on overdue
interest, which resembles compound interest. Carolina Sav. Bank v.
Parrott, 8 S.E. 199 (S.C. 1888); 45 Am. Jur. 2d§ 83. Further, a stat-
ute may provide for compound interest. United States v. Glasser, 287
F.2d 433 (7th Cir. 1961); 47 C.J.S. Interest & Usury § 24 (1982). But
here no South Carolina statute allows for compounding prejudgment
interest. Nor does this case present us with a breach of fiduciary duty
or interest to be collected on overdue interest. Accordingly, the dis-
trict court erred in compounding interest.

Year Round also maintains that the court erred in applying the
legal rate of 8.75 percent to the prejudgment interest. Prejudgment
interest should be awarded at a rate that compensates a party for the
delay in recovering damages. Montgomery Ward & Co. v. Collins
Estate, Inc., 268 F.2d 830, 839 (4th Cir. 1959) (applying South Caro-
lina law). The district court did not abuse its discretion in determining
that the legal rate of interest represents the rate that most appropri-
ately compensates Liberty Mutual.

Finally, Year Round disagrees with the date from which the district
court awarded interest. In Babb v. Rothrock, 426 S.E.2d 789 (S.C.
1993), the South Carolina Supreme Court stated:

          The law allows prejudgment interest on obligations to pay
          money from the time when, either by agreement of the par-
          ties or operation of law, the payment is demandable, if the
          sum is certain or capable of being reduced to certainty. . . .
          The proper test for determining whether prejudgment inter-
          est may be awarded is whether or not the measure of recov-
          ery, not necessarily the amount of damages, is fixed by
          conditions existing at the time the claim arose.

Id. at 791. Accord APAC Carolina, Inc. v. Town of Allendale, 41 F.3d
157, 166 (4th Cir. 1994). Year Round maintains that prejudgment
interest should be assessed from April 13, 1992, the date upon which
Liberty Mutual conducted its on-site audit, rather than from February
1987. The February date meets the Babb test of "being demandable"

                     7
"by agreement of the parties" because the parties entered into an
agreement at that time in which Year Round agreed to pay for the pre-
miums based on the number of people working for it.

IV.

For the reasons stated above, the order of the district court is
affirmed in all respects except for the compounding of prejudgment
interest. The case is remanded so that the court can award prejudg-
ment interest at the proper rate of 8.75 percent per annum.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED

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