UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

LIBERTY LIFE INSURANCE COMPANY,
Plaintiff-Appellee,

v.
                                                                   No. 98-1674
TRAVELERS INDEMNITY COMPANY OF
ILLINOIS,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Columbia.
Matthew J. Perry, Jr., Senior District Judge.
(CA-95-3585-3-0)

Argued: May 5, 1999

Decided: June 23, 1999

Before WILKINSON, Chief Judge, and WIDENER
and MOTZ, Circuit Judges.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: William Thomas Corbett, Jr., SHANLEY & FISHER,
Morristown, New Jersey, for Appellant. Kevin Kendrick Bell, ROB-
INSON, MCFADDEN & MOORE, P.C., Columbia, South Carolina,
for Appellee. ON BRIEF: Robert M. Vinci, SHANLEY & FISHER,
Morristown, New Jersey, for Appellant. David W. Robinson, II,
ROBINSON, MCFADDEN & MOORE, P.C., Columbia, South Caro-
lina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Liberty Life Insurance Company brought suit against its insurer,
Travelers Indemnity Company of Illinois, seeking damages from
Travelers for its failure to defend and indemnify Liberty Life in sev-
eral tort suits. The district court held that Travelers had a duty to
defend Liberty Life and indemnify it against any liability. Travelers
appeals, and we affirm.

I.

In 1993 and 1994 eight identical civil actions were filed in Ala-
bama state court against Liberty Life and one of its insurance agents,
Joe Teel. The suits charged Teel with fraud, misrepresentation, failure
to disclose, and wantonness, recklessness, and negligence in the sale
of insurance policies to the individual plaintiffs. They also asserted
vicarious liability claims against Liberty Life. Finally, the suits
asserted an independent cause of action against Liberty Life for negli-
gently or wantonly hiring, supervising, and retaining Teel. Each plain-
tiff claimed that he "suffered mental anguish; and he was otherwise
injured and damaged."

Liberty Life requested that its insurer, Travelers, defend and pro-
vide indemnity against the plaintiffs' hiring, supervision, and reten-
tion claims.* Some time before the suits were filed Travelers had
issued two insurance policies to Liberty Life -- a Commercial Gen-
eral Liability (CGL) policy and a Catastrophe Umbrella (Umbrella)
policy. Travelers declined to defend the suits, arguing alternatively
that the conduct alleged in the Alabama actions was outside the poli-
cies' coverage and that the claims fell within specific policy exclu-
sions.
_________________________________________________________________
*Liberty Life's errors and omissions carrier, Employers Reinsurance,
defended Liberty Life against the vicarious liability claims.

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On August 1, 1994, the first suit went to trial. After the first day
of trial the parties settled each claim except for the hiring, supervi-
sion, and retention claim against Liberty Life. That single claim then
went to the jury, which returned a verdict against Liberty Life and
awarded $2.5 million in punitive damages. Liberty Life subsequently
entered into a global settlement in the remaining cases for an addi-
tional $2.5 million.

Liberty Life then brought a diversity action against Travelers in the
United States District Court for the District of South Carolina seeking
indemnification, defense costs, prejudgment interest, and attorneys'
fees. On cross-motions for summary judgment, the district court
found that the conduct alleged in the Alabama suits was covered
under the CGL and Umbrella policies and that it did not fall within
the exclusions contained in those policies. Consequently, the court
held that Travelers was obligated to defend Liberty Life in the Ala-
bama suits and that Travelers was liable for the expenses Liberty Life
incurred in defending and settling those suits. Travelers appeals both
rulings.

II.

A.

Travelers first takes issue with the district court's holding that
Travelers had a duty to defend Liberty Life in the Alabama suits.
Travelers argues that the plaintiffs' hiring, supervision, and retention
claims were not covered by the CGL and Umbrella policies. The poli-
cies provide coverage for "bodily injury," which they respectively
define as "bodily injury, sickness or disease" and "disability, mental
anguish, mental injury, shock or fright resulting in or from otherwise
covered bodily injury."

Travelers maintains that it had no duty to defend Liberty Life
because the Alabama plaintiffs did not allege bodily injury. Travelers
contends that because each plaintiff claimed only"mental anguish;
and he was otherwise injured and damaged," each failed to allege the
physical manifestation of emotional trauma that was necessary to trig-
ger an obligation to defend. State Farm Mut. Auto. Ins. Co. v.

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Ramsey, 368 S.E.2d 477 (S.C. Ct. App.), aff'd, 374 S.E.2d 896 (S.C.
1988).

We disagree. An insurer has a duty to defend if"the underlying
complaint creates a possibility of coverage under an insurance pol-
icy." Isle of Palms Pest Control Co. v. Monticello Ins. Co., 459
S.E.2d 318, 319 (S.C. Ct. App. 1995), aff'd, 468 S.E.2d 304 (S.C.
1996). The plaintiffs' complaints certainly cleared this low threshold.
Not only did the complaints allege mental anguish, they specifically
included the more expansive "otherwise injured and damaged" lan-
guage. In addition, it was altogether foreseeable from the complaints
that the plaintiffs would have attempted to demonstrate physical man-
ifestations of emotional distress at trial as such proof could have led
to larger damage awards.

B.

Travelers next argues that Liberty Life's conduct fell within two of
the policies' interrelated exclusions. The first-- the Professional Ser-
vices exclusion -- provides that Travelers will not extend coverage
under the policies for injury "due to the rendering or failure to render
any professional service" in connection with"insurance company
operations" or "insurance operations," respectively. The second -- the
Insurance and Related Operations exclusion -- provides that Travel-
ers will not cover bodily injury "for which the insured may be held
liable because of" the "failure to discharge, or the improper discharge
of, any obligation or duty, contractual or otherwise."

Travelers maintains that Liberty Life's hiring, supervision, and
retention of Teel were professional services or were otherwise duties
related to contracts or treaties of insurance. Travelers reads these
exclusions too broadly. Each, by its very terms, is limited to services
and duties inhering specifically in the insurance industry. Liberty
Life's hiring, supervising, and retaining of its employees requires no
specialized knowledge separate and apart from that required in any
business. Activities such as performing background checks or review-
ing an employee's performance are personnel actions that are com-
mon to most businesses. There is nothing about these routine
employment practices that is peculiar to the insurance industry.

                    4
Indeed, reading the exclusions as broadly as Travelers suggests
would eviscerate the policies. Under Travelers' interpretation every-
thing Liberty Life does, whether part of its core insurance function or
not, would fall under the exclusions. In short, Liberty Life would have
no coverage.

In a final attempt to disclaim a duty to defend, Travelers departs
from the language of the policies and looks to general principles of
South Carolina law. Citing McPherson v. Michigan Mut. Ins. Co., 426
S.E.2d 770 (S.C. 1993), Travelers argues that a claim against a princi-
pal for negligent supervision is excluded from coverage if that claim
is dependent upon the uncovered or excluded conduct of the princi-
pal's agents. See also Federated Mut. Ins. Co. v. Piedmont Petroleum
Corp., 444 S.E.2d 532 (S.C. Ct. App. 1994); Sphere Drake Ins. Co.
v. Litchfield, 438 S.E.2d 275 (S.C. Ct. App. 1993). Because Teel's
fraud fell within the Professional Services and Insurance Related
Operations exclusions of the two policies, and Liberty Life's liability
would not have come about without Teel's conduct, Travelers argues
that Liberty Life's own conduct was excluded.

Travelers misreads McPherson. In McPherson, the plaintiff was
injured when a Charleston police officer used his police cruiser in an
attempt to stop a fleeing prowler. The plaintiff's complaint charged
the city with negligently training and supervising its officers in the
use of patrol cars. Charleston's insurer denied coverage on the basis
of an exclusion in Charleston's policy for injury"arising out of the
ownership . . . of any automobile." McPherson , 426 S.E.2d at 771 n.1.
The Supreme Court of South Carolina agreed, noting that "Charles-
ton's alleged negligence is based on its duties as the owner of an auto-
mobile." Id. at 772. Rather than minting the broad principle that
Travelers suggests, however, the court simply applied the exclusion
in Charleston's policy to the city's own conduct. Because we have
held that the exclusions in Liberty Life's policies do not apply to the
company's own conduct, McPherson is inapposite.

C.

Travelers also argues that, even if it had a duty to defend Liberty
Life, it had no duty to indemnify. Liberty Life's policies cover only
bodily injury caused by an "occurrence," which they define as "an

                    5
accident, including continuous or repeated exposure to substantially
the same general harmful conditions." The policies also exclude con-
duct that is "expected or intended from the standpoint of the insured."

Travelers notes that a duty to indemnify springs from the facts
actually discovered or proven at trial. See Howard v. Allen, 176
S.E.2d 127, 129 (S.C. 1970) ("There is no obligation to defend until
an action is brought and no obligation to indemnify until a judgment
against the insured is obtained."). Because a finding that Liberty Life
acted wantonly was necessary to the jury's award of punitive dam-
ages, Travelers argues that Liberty Life's conduct was not accidental
and was therefore not an occurrence. Further, Travelers argues that
the conduct was excluded because it was intentional.

We disagree. South Carolina law defines an accident as "an effect
which the actor did not intend to produce and . . . cannot be charged
with the design of producing." Goethe v. New York Life Ins. Co., 190
S.E. 451, 458 (S.C. 1937) (internal quotation marks omitted). More-
over, for an intentional conduct exclusion to apply, the actor must
have intended the consequences of his actions. Vermont Mut. Ins. Co.
v. Singleton, 446 S.E.2d 417, 420 (S.C. 1994). Although it is true that
wantonness may involve a higher degree of culpability than simple
negligence, it does not represent intentional conduct. Indeed, the Ala-
bama trial court specifically instructed the jury that a finding of wan-
tonness did not include a finding that Liberty Life intended for its
agents to defraud its policy holders. Consequently, Liberty Life's con-
duct was an occurrence under the policies.

III.

For the foregoing reasons, the judgment of the district court is

AFFIRMED.

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