                               UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT


                               No. 14-2268


EVANSTON INSURANCE COMPANY,

                 Plaintiff - Appellant,

           v.

AGAPE SENIOR PRIMARY     CARE,    INC.;   SCOTT   MIDDLETON;   FLOYD
CRIBBS; KEZIA NIXON,

                 Defendants - Appellees,

           and

VICKIE WATTS, as Personal Representative of the Estate of
Dorothy Jones; MEREDITH WOFFORD; DORA ELIZABETH HANNA, by
and through her Personal Representative, King C. Hanna, Jr.,
and on behalf of a Class of Individuals Similarly Situated;
AGAPE SENIOR, LLC; JACKSON & COKER LOCUM TENENS, LLC, a/k/a
Jackson and Coker; LAFAY WALKER, as Personal Representative
of the Estate of Martha Sellers Blackwelder; AMANDA CURTIS;
PRESTON WAYNE CHANDLER, as Personal Representative of the
Estate of Mildred Louise Chandler, deceased; PATTY LARIMORE,
as Personal Representative of the Estate of Annie Larimore,
deceased; THE ESTATE OF CLARICE POTTER; AGAPE NURSING &
REHABILITATION, INC.; AGAPE ASSISTED LIVING, INC.; AGAPE
COMMUNITY HOSPICE, INC.; CAROLINAS COMMUNITY HOSPICE, INC.,

                 Defendants.



Appeal from the United States District Court for the District of
South Carolina, at Columbia.    Joseph F. Anderson, Jr., Senior
District Judge. (3:13-cv-00655-JFA)


Argued:   October 28, 2015                   Decided:   January 15, 2016
Before NIEMEYER and MOTZ, Circuit Judges, and M. Hannah LAUCK,
United States District Judge for the Eastern District of
Virginia, sitting by designation.


Affirmed by unpublished per curiam opinion.


ARGUED: Paul Lindsey Fields, Jr., FIELDS HOWELL, Atlanta,
Georgia, for Appellant.    Shaun C. Blake, ROGERS LEWIS JACKSON
MANN & QUINN, LLC, Columbia, South Carolina, for Appellees. ON
BRIEF: Gregory L. Mast, FIELDS HOWELL, Atlanta, Georgia, for
Appellant. Jenkins M. Mann, ROGERS LEWIS JACKSON MANN & QUINN,
LLC, Columbia, South Carolina, for Appellees.


Unpublished opinions are not binding precedent in this circuit.




                                2
PER CURIAM:

     In     2012,     Evanston     Insurance            Company     issued       a     renewed

Professional Liability Insurance Policy to Agape Senior Primary

Care,    Inc.   and   certain     of    its       employees,       doctors,      and       nurse

practitioners,        including      Kezia         Nixon    and     Dr.     Floyd       Cribbs

(collectively, “Agape”).             Unbeknownst to any other employee at

Agape,    Ernest      Osei    Addo      had        stolen    Dr.        Arthur       Kennedy’s

identity, and was fraudulently practicing medicine as an Agape

“physician” ostensibly insured by Evanston. Once Addo’s deceit

was uncovered, Evanston sought to rescind the policy as to all

participants      based      on   Addo’s          fraudulent       conduct       and       false

statements on his insurance application.

     Evanston and Agape sought a declaration from the United

States District Court for the District of South Carolina as to

whether the fraudulent misrepresentations on an application for

medical malpractice insurance by one person who masqueraded as a

board-certified       doctor,     fooling         employers       and    patients       alike,

should    vitiate      coverage        for        all   other      innocent          insureds,

including       the   medical     entity           that     employed       him       and    its

employees.       For the reasons that follow, we affirm the district

court conclusion that South Carolina law and its principles of

equity demand that coverage for the innocent co-insureds remain

in place.



                                              3
                                           I.

        In the declaratory judgment action, both parties moved for

summary    judgment,      largely     agreeing       as    to   the     facts.        Agape

employs    physicians      and    nurse     practitioners,            sending    them    to

nursing    homes    and    assisted      living      facilities        with    the    Agape

name.      Agape    uses    an    “integration        of    services”         model    that

requires each patient to be treated by multiple physicians and

nurse practitioners.

        Sometime around February 2012, Agape hired a man who held

himself out to be Dr. Arthur Kennedy, a South Carolina board

certified physician.             Neither Agape nor any of its employees

knew that “Kennedy” was actually Ernest Osei Addo, who was not a

South Carolina board-certified physician.                       Addo had stolen the

identity of Dr. Kennedy, a former friend of Addo who was out of

the country during Addo’s fraudulent conduct at Agape.                                Using

Dr.   Kennedy’s     identity,       Addo    had      obtained     a    South     Carolina

driver’s license with his own photo and previously had gained

employment as a physician with the South Carolina Department of

Mental Health.

        In August 2012, approximately six months after hiring Addo,

Agape    learned    of    the    fraud     after     police      arrested       Addo    and

notified Agape of Addo’s true identity.                         A federal court in

South    Carolina    sentenced       Addo       to   two   years      of   imprisonment

following his conviction for aggravated identity theft in 2014.

                                            4
All parties agree that Addo fraudulently portrayed himself as

Dr. Kennedy and that Addo’s conduct was dishonest, illegal, and

intentional.

      Prior     to   Addo’s    criminal        conviction,      in   2011,    Evanston

issued      Physicians,        Surgeons,         Dentists        and      Podiatrists

Professional Liability Insurance Policy No. MM-820866 for the

policy    period     August 1,      2011   to    August   1,     2012   (the   “First

Policy”).       On February 11, 2012, Addo filled out an individual

application for insurance through Evanston, representing himself

to   be   Dr.    Kennedy      and   board-certified        in    family      medicine.

Evanston had no other information regarding “Kennedy” except the

application.         After     receiving        Addo’s    application,        Evanston

issued Endorsement 10-10, adding “Kennedy” to the First Policy

and charging an additional $4,000 premium for “Kennedy.”

      On July 15, 2012, all applicants, including the individual

physicians,      Addo,       and    Agape,       submitted       separate      renewal

applications.        Thereafter, Evanston issued Policy No. MM-822351

(the “Renewal Policy”) for the period from August 1, 2012 to

August 1, 2013. Had Addo’s identity been disclosed, Evanston

would not have issued Endorsement 10-10 or the Renewal Policy.

      The First Policy and the Renewal Policy were identical in

relevant part, with the exception of the addition of Kennedy’s

name to the list of insured physicians to the Renewal Policy.

The Policies provided for two different coverages:                      “Coverage A:

                                           5
Individual Liability Coverage” (“Coverage A”) and “Coverage B:

Association,    Corporation        or    Partnership         Liability        Coverage”

(“Coverage    B”).    Coverage     A    related    to    a    list     of    individual

physicians,    each    of   whom       applied    for    insurance          separately.

Coverage B applied to Agape and certain of its employees.

     Three     lawsuits     have        been     filed       against        Agape   that

potentially relate to the declaratory judgment case on appeal. 1

Evanston currently defends Agape in the lawsuits, all of which

proceed in South Carolina Courts of Common Pleas. 2



     1 Other entities have given notice of intent to file suit or
sent letters suggesting they might sue.
     2   The relevant suits are:

     (1) The Hanna Class Action Lawsuit:       This class action
lawsuit was filed against Agape, Scott Middleton, Agape’s CEO,
and Jackson & Coker Locum Tenens, LLC (“Jackson”) in the Court
of Common Pleas for Richland County, South Carolina. Jackson
operates as a physician recruitment and staffing agency and
recommended Addo’s employment to Agape. Defendants removed the
action to the United States District Court for the District of
South Carolina, Columbia Division. Hanna v. Agape Sr. LLC, No.
3:12cv2872 (D.S.C. filed Oct. 4, 2012) (Anderson, J.).

     In February 2014, the Hanna plaintiffs filed their first
amended complaint raising eight causes of action for negligent
conduct stemming from Agape and Middleton’s hiring of Addo. The
lawsuit does not allege medical malpractice by any doctors other
than Addo.    The district court remanded the action to state
court before a second amended complaint was filed in the Class
Action Lawsuit.   Hanna, No. 3:12cv2872 (D.S.C. Jan. 20, 2015)
(order granting motion to remand) (Anderson, J.).

     (2) The Larimore Lawsuit: The Larimore estate filed a
complaint against Agape, two nursing homes, and Dr. Cribbs. The
complaint contains two counts of medical malpractice and
(Continued)
                                          6
     After       the    filing    of   the    Class       Action     Lawsuit,      Evanston

brought    a     separate       declaratory        action       against   Agape     in       the

United States District Court for the District of South Carolina,

Columbia       Division. 3       Evanston     sought        a    “determination         as    to

whether it has a duty to defend and/or indemnify the parties who

have been named in underlying lawsuits (both filed and unfiled)

against [Agape].”          Evanston filed a motion for summary judgment,

seeking    a    ruling    “that     the    [Renewal        Policy]    does    not       afford

coverage for the underlying suits and that [Evanston] is not

required to defend or indemnify.”                        Agape filed a cross-motion

for summary judgment, requesting a ruling “that the [Renewal

Policy]     does       afford    coverage         for    the     claims     made    in       the

underlying actions.”

     The district court issued its amended order on the cross

motions    for       summary    judgment     in    October       2014.      The    district

court noted that the Supreme Court of South Carolina held in

McCracken       v.    Gov’t    Emps.   Ins.       Co.,    325    S.E.2d     62,    64    (S.C.



highlights   poor   care  by   Dr.   Cribbs,                        Addo,     and        Nurse
Practitioners Nixon and Tonja Gantt.

     (3) The Curtis Lawsuit:    In August 2013, Amanda Curtis
filed suit against Agape and Jackson.    The complaint alleges
assault and battery; defamation, libel, and slander; and,
negligence based on Agape’s hiring and retention of Addo, who
treated Ms. Curtis.
     3 Judge Anderson presided over both the Class Action Lawsuit
and the present case.


                                              7
1985), that “in the absence of any statute or specific policy

language    denying      coverage      to    a   co-insured      for    the    arson   of

another co-insured, the innocent co-insured shall be entitled to

recover his or her share of the insurance proceeds.”                          McCracken,

325    S.E.2d   at   64.     Without    express       guidance       from   the   Supreme

Court of South Carolina as to whether the innocent co-insured

doctrine applied outside of the arson context, or whether the

fraudulent application by one insured voided the contract ab

initio as to others, the district court addressed this novel

circumstance within the bounds of what would be South Carolina

law.      Private      Mortg.    Inv.       Servs.,    Inc.    v.     Hotel    and   Club

Assocs.,    Inc.,      296    F.3d   308,     312     (4th    Cir.    2002)   (citation

omitted); Brendle v. Gen. Tire & Rubber Co., 505 F.2d 243, 245

(4th Cir. 1974).

       The court ruled that the Renewal Policy was void as to Addo

because of his fraudulent misrepresentations.                        The court did not

“impute” Addo’s conduct to Agape, finding that (1) Addo applied

separately for the Policies and Agape had no knowledge of his

fraud; (2) the Renewal Policy demonstrated an intent to provide

separate insurance coverage for the “co-insureds” and thus the

Renewal Policy was not void ab initio; (3) Exclusion A did not

bar    coverage   of    the    other    named       insureds    for    malpractice     or

personal injury committed in violation of any law or ordinance

unless it was committed by or at the direction of “the Insured”;

                                             8
(4) Endorsement 5, read in conjunction with Endorsement 7, was

ambiguous     and     should     be     construed       to     afford      the    maximum

coverage, meaning that not only were the named physicians and

nurses covered by the Renewal Policy but also any employee or

volunteer; (5) the Renewal Policy did not provide Agape coverage

for   its    own    negligent     acts;   and,        (6)    the   “Medical      Director

Exclusion”     barred    coverage       for     any    insured      while    acting    as

medical director, but the exclusion could not be applied to a

specific case without more factual development. 4                       Evanston filed

the present appeal.

                                          II.

      This    Court    reviews     a    district       court's     grant    of    summary

judgment de novo.        Roe v. Doe, 28 F.3d 404, 406 (4th Cir. 1994).

Summary judgment should be granted if, after reviewing all the

pleadings,         depositions,        affidavits,          and     other        documents

submitted by the parties, the Court finds that the moving party

is entitled to judgment as a matter of law.                             Id. at 406–07

(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986);

Celotex Corp. v. Catrett, 477 U.S. 317 (1986)).                         In evaluating

the evidence, the court must draw all reasonable inferences in

favor of the non-moving party.                Id. at 407.          “Similarly, in our

de novo review, this court must draw all reasonable inferences


      4   Evanston did not challenge this ruling on appeal.


                                           9
in   favor     of    the   appellant.”           Id.    (citing     United         States    v.

Diebold, Inc., 369 U.S. 654, 655 (1962)).

      The Supreme Court of South Carolina applies the “general

rules of contract construction” to construe insurance policies.

B.L.G. Enters., Inc. v. First Fin. Ins. Co., 514 S.E.2d 327, 330

(S.C.     1999)      (citations    omitted).           “Ambiguous      or      conflicting

terms     in   an    insurance    policy     must      be    construed      liberally       in

favor     of    the     insured     and     strictly         against     the       insurer.”

Williams v. Gov’t Empls. Ins. Co. (GEICO), 762 S.E.2d 705, 710

(S.C. 2014) (quoting Diamond State Ins. Co. v. Homestead Indus.,

Inc., 456 S.E.2d 912, 915 (S.C. 1995)).

      A    common     general     contract       principle      “allows        an    injured

party to void a contract when that party’s assent to the bargain

is induced by the fraudulent or material misrepresentation of

the other contracting party, and the injured party relied on the

misrepresentation in question.”                  Robert H. Jerry, II & Douglas

R. Richmond, Understanding Insurance Law, 738 (5th ed. 2012).

Some states, including South Carolina, statutorily modify the

traditional         contract     principle       in    the    insurance        context      by

requiring      the    insured     party    to    have    intended      to    defraud        the

insurance      company.          Id.;     see,    e.g.,      S.C.   Code       §    38-71-40

(requiring intent to defraud in order to rescind accident and

health insurance policies).



                                            10
      “Rescission is an equitable remedy that attempts to undo a

contract      from     the   beginning         as       if    the       contract      had     never

existed.”        ZAN, LLC v. Ripley Cove, LLC, 751 S.E.2d 664, 669

(S.C. 2013) (citation omitted).                     In order to completely rescind

a   contract,      the    plaintiff      must        show         a    breach    that       is   “so

substantial      and     fundamental      as       to    defeat         the   purpose       of   the

contract.”       Id.     Thus, “[r]escission will not be granted for a

minor    or    casual     breach    of    a     contract,              but    only    for     those

breaches which defeat the object of the contracting parties.”

Id. (citations omitted).

                                          III.

                                              A.

        Evanston      contends    that    the        innocent           co-insured      doctrine

does not apply, and that “principles of general contract law

regarding      fraudulent        procurement            support         rescission       of      the

entire policy.”          We disagree.         South Carolina law and principles

of equity weigh in favor of allowing coverage for the innocent

co-insured parties, who are the individual doctors, nurses, and

Agape.        South    Carolina    law    disfavors               rescission         against     the

insured.      In particular, under South Carolina law, three factors

tip the equity scales in favor of Agape:                              (1) as the insurer and

drafter, Evanston could have included forfeiture language in the

policy;    (2)     neither    Agape      nor    any          of   its    employees       had     any

knowledge of Addo’s fraud, rendering them “innocent” under South

                                              11
Carolina law; and, (3) the public interest would not be served

through rescission.

       South Carolina construes insurance policies “liberally in

favor of the insured and strictly against the insurer.”                                          USAA

Prop. and Cas. Ins. Co. v. Clegg, 661 S.E.2d 791, 797 (S.C.

2008)    (citation          omitted).          In     the      face        of    an   action     for

rescission,          the    Supreme      Court       of     South      Carolina        repeatedly

confirms       that       “[f]orfeitures        of    insurance            contracts       are   not

favored.”          Puckett v. State Farm Gen. Ins. Co., 444 S.E.2d 523,

524 (S.C. 1994); Johnson v. S. State Ins. Co., 341 S.E.2d 793,

794 (S.C. 1986); Small v. Coastal States Life Ins. Co., 128

S.E.2d 175, 177 (S.C. 1962).

       Within this context, the Court addresses the issues in this

case.     First, the Supreme Court of South Carolina in McCracken

noted    that       insurers,       as   drafters         of    insurance          policies,      can

include       express       policy    language        supporting            their     position     to

rescind for the intentional misrepresentation of any applicant.

325 S.E.2d at 64.                  In McCracken, the South Carolina Supreme

Court     held       that     an     innocent        wife      could        recover     insurance

proceeds       notwithstanding           her    husband’s            arson       of   their    home.

Id.;    see    also        Nationwide     Mut.      Ins.       Co.    v.     Comm’l     Bank,     479

S.E.2d 524, 527 (S.C. Ct. App. 1996) (distinguishing McCracken

because       of    its     emphasis     on    the     absence         of       language   denying

payment       when    insured        engaged     in       fraud).           Evanston,      as     the

                                                12
insurer    and     drafter,       could    easily      have    included          provisions

limiting     coverage        in   the     face    of    fraud        by    one    discrete

applicant.        It did not do so.               The district court correctly

noted     that    South      Carolina      and    other   states           emphasize   the

existence of such provisions, when they are present, in order to

limit coverage.         See Evanston Ins. Co. v. Watts, 52 F. Supp. 3d

761, 769 (D.S.C. 2014) (citing K & W Builders, Inc. v. Merchs. &

Bus. Men’s Mut. Ins. Co., 495 S.E.2d 473, 477 (Va. 1998); S.C.

Farm Bureau Mut. Ins. Co. v. Kelly, 547 S.E.2d 871, 876 (S.C.

Ct. App. 2001)).

     Second, given the reasoning articulated in McCracken, the

district court did not err in its forecast that South Carolina

would extend the innocent co-insured doctrine beyond the context

of arson and into other areas of insurance.                     McCracken looked to

the parties’ respective responsibility for bad acts, explicitly

rejecting    a     requirement      that    the   court       look    to    the    relative

obligations       of   the   parties.       Instead,      the    court       adopted   the

innocent co-insured doctrine that examines the liabilities of

the parties for the fraudulent act.                    See McCracken, 325 S.E.2d

at 63–64.        South Carolina statutory law reinforces the view that




                                            13
the insured usually must exhibit some fault in order to support

vitiation of an insurance policy. 5

       Finally, public policy considerations—appropriate to weigh

in   this     equitable     action—reinforce         that       the    district      court

arrived at the proper outcome under South Carolina law.                           Equity

cannot demand that the actions of one corrupt applicant, who

conned Agape and Evanston alike, deprive the innocent insureds

of   the    benefit    of   their   contract.           Agape    and    its   employees

separately      applied     for   medical       malpractice      insurance      in    good

faith, and they would be left without such insurance through no

fault of their own.          Evanston accepted individual premiums as to

each       insured    and   seemingly       spread       the     risk     accordingly.

Further,       and     perhaps      more        important        in     an    equitable

determination,        rescission    would       leave    the     public      essentially

unprotected on matters of medical malpractice brought against



       5
       Under South Carolina statutory law, an accident or health
insurance policy is not void ab initio despite a material
misrepresentation made in the application unless “the false
statement was made with actual intent to deceive or unless it
materially affected either the acceptance of the risk or the
hazard assumed by the insurer.”    S.C. Code § 38-71-40.   South
Carolina common law places the burden on the insurer to show, by
clear and convincing evidence, that: (1) the statements made on
the application were untrue; (2) the applicant knew the
statements were false; (3) the statements were material to the
risk; (4) the insurer relied on the false statements; and, (5)
the statements were made with the intent to deceive and defraud
the company. Lanham v. Blue Cross & Blue Shield of S.C., Inc.,
563 S.E.2d 331, 334 (S.C. 2002).



                                           14
every other Agape employee.                 See First Am. Title Ins. Co. v.

Lawson, 827 A.2d 230, 240 (N.J. 2003).

      The     district     court       faced     a     novel    application          of    the

innocent      co-insured         doctrine      otherwise        employed        by        South

Carolina      courts.    For     the    reasons        stated   above,    the    district

court did not err when it concluded that South Carolina would

not allow rescission under the facts of this case.                         Accordingly,

the   Court     will    affirm    the    district        court’s     holding     that      the

Renewal Policy is not void ab initio.

                                            B.

      Evanston next argues that, if the Renewal Policy is not

void ab initio, the district court erred in allowing coverage of

claims    for    “administrative         failures,”        as   opposed    to    limiting

coverage to claims for “medical malpractice or personal injury.” 6

Evanston      fundamentally        misunderstands           the      district        court’s

decision.

      The district court plainly held that the policy provided

coverage to Agape “for the acts and omissions of all Coverage A

Named Insureds and Coverage B Named Insureds, to the extent such

individuals      were    acting     within       the    scope   of    their     duties      on

behalf of [Agape.]”            Nowhere did the district court’s decision



      6No party disputes that “Dr. Kennedy” and Addo, whose name
appears nowhere on the insurance policy, lack coverage.



                                            15
extend      such    coverage        to    Agape       for     its     own   administrative

failures.          Indeed,    the    district         court     observed,      albeit       in   a

footnote, that the policy did not “provide coverage to [Agape]

for   any    of     its    own      negligent         acts.”        A   reading     of      this

malpractice policy to exclude coverage for Agape’s own negligent

administrative acts such as negligent hiring and retention is

not   in    error.         Accordingly,         the    Court     affirms     the    district

court’s     interpretation          of    its    finding       of   coverage       under     the

policy.

      Evanston further asserts that the district court improperly

construed Exclusion A, which states:

      This policy does not apply to:

      A.   any Malpractice or Personal Injury committed in
      violation of any law or ordinance; to any Claim based
      upon or arising out of any dishonest, fraudulent,
      criminal, malicious, knowingly, wrongful, deliberate,
      or intentional acts, errors or omissions committed by
      or at the direction of the Insured . . . .

Additional exclusions, lettered B through S, followed Exclusion

A.    Evanston avers that the district court failed to apply this

exclusion and instead allowed coverage for claims against Named

Insureds arising from the acts and omissions of Addo.                               Evanston

again misinterprets the district court’s decision.

      The    district        court       correctly      concluded       that    “all     other

Coverage     A     Named     Insureds      are       entitled    to     coverage,      to    the

extent a claim exists that would trigger their coverage under


                                                16
the   [Renewal     Policy].”           As   discussed       above,     the   phrase   “all

other     Coverage      A    Named     Insureds”         does    not   include    Addo    or

Kennedy.        The district court noted that coverage extended only

to claims arising from “the acts and omissions of all Coverage A

Named Insureds and Coverage B Named Insureds, to the extent such

individuals      were       acting    within       the   scope    of   their     duties   on

behalf of [Agape.]”                In sum, the district court did not hold

that coverage extends to claims arising from Addo’s acts and

omissions. 7      Accordingly, the Court affirms the district court’s

interpretation of Exclusion A.

      Finally, Evanston argues that the district court failed to

apply     its    rulings      to     each   individual          lawsuit   and    potential

lawsuit presented to the court, contending that the district

court’s order has caused more disputes.                           “It is well settled

that an insurer's duty to defend is based on the allegations of

the underlying complaint.”                  B.L.G. Enters., 514 S.E.2d at 330.

“In examining the complaint, a court must look beyond the labels

describing the acts to the acts themselves which form the basis

of the claim against the insurer.”                         Collins Holding Corp. v.

Wausau Underwriters Ins. Co., 666 S.E.2d 897, 899 (S.C. 2008).



      7Indeed, Agape conceded that, as a result of Exclusion A,
it lacks coverage “for a claim where the sole basis of liability
against [Agape] is vicarious liability for the actions or
omissions of Addo.”



                                              17
     The record shows the existence of three filed lawsuits:

the Class Action Lawsuit, the Larimore Lawsuit, and the Curtis

Lawsuit.     However, none of the parties in interest in these

suits were brought before the district court.               See A.S. Abell

Co. v. Chell, 412 F.2d 712, 717 (4th Cir. 1969) (noting that the

district court may withhold declaratory relief for nonjoinder of

interested parties).          Accordingly, the district court did not

err when it made no declarations regarding a duty to defend

against lawsuits not properly before it.

                                     IV.

     For   the    foregoing    reasons,    the   district   court   correctly

interpreted the policy and committed no error when it applied

the innocent co-insured doctrine to the novel circumstances of

this case.       South Carolina law and principles of equity demand

that fraudulent misrepresentations on an application for medical

malpractice insurance by a person posing as a doctor should not

vitiate the insurance policy as to his or her innocent employer

and fellow employees.

     Accordingly, the judgment of the district court is

                                                                    AFFIRMED.




                                     18
