                                   UNPUBLISHED

                     UNITED STATES COURT OF APPEALS
                         FOR THE FOURTH CIRCUIT


                                     No. 17-1282


FOUNDERS INSURANCE COMPANY,

                   Plaintiff - Appellee,

            v.

RICHARD RUTH’S BAR & GRILL LLC; RICHARD RUTH, SR.; JANE RUTH;
GEORGE GIANNARAS, on behalf of Emmanuel Kehagias, as Guardian for
Emmanuel Kehagias,

                   Defendants - Appellants,

            and

HULL & COMPANY INC; BROWN & BROWN, INCORPORATED,

                   Defendants.



Appeal from the United States District Court for the District of South Carolina, at
Charleston. David C. Norton, District Judge. (2:13-cv-03035-DCN)


Argued: December 11, 2018                                Decided: February 21, 2019


Before NIEMEYER, DUNCAN and QUATTLEBAUM, Circuit Judges.


Affirmed by unpublished opinion. Judge Quattlebaum wrote the opinion, in which Judge
Niemeyer and Judge Duncan joined.
ARGUED: Kevin Roger Eberle, EBERLE LAW FIRM, LLC, Charleston, South
Carolina, for Appellants. Russell Frank Conn, CONN KAVANAUGH ROSENTHAL
PEISCH & FORD, Boston, Massachusetts, for Appellee. ON BRIEF: Andrew Watson,
BUTLER WEIHMULLER KATZ CRAIG LLP, Charlotte, North Carolina; M. Dawes
Cooke, Jr., John W. Fletcher, Jeffrey M. Bogdan, BARNWELL WHALEY
PATTERSON & HELMS, LLC, Charleston, South Carolina, for Appellee.


Unpublished opinions are not binding precedent in this circuit.




                                         2
QUATTLEBAUM, Circuit Judge:

       Founders Insurance Company (“Founders”) brought this action against Richard

Ruth’s Bar and Grill, LLC (“Ruth’s Bar”), Richard Ruth, Jane Ruth, George Giannaras

and others seeking a declaration that Founders is not required to indemnify Ruth’s Bar for

damages resulting from a bar fight in September 2012. The district court granted

summary judgment in favor of Founders finding that Ruth’s Bar failed to comply with the

notice provisions of the insurance policy, which caused substantial prejudice to Founders.

For the following reasons, we affirm. 1

                                            I.

       On September 29, 2012, a bar patron assaulted Emmanuel Kehagias at Ruth’s Bar

leaving Kehagias in a permanent, quasi-vegetative state. George Giannaras, Kehagias’

brother-in-law, was subsequently appointed as Kehagias’ legal guardian. 2 Kehagias later




       1
          This case originally came before us as a consolidated appeal involving both this
declaratory judgment action and Kehagias’ appeal relating to his bad faith action against
Founders (No. 17-1284). The two actions were consolidated at the district court. The
district court entered judgment in favor of Founders in the declaratory judgment action
and granted in part and denied in part Founders’ motion for summary judgment in the bad
faith action. Kehagias appealed the orders in both actions, and Founders cross-appealed
the order in the bad faith action. Founders moved to dismiss both appeals as
interlocutory, but subsequently moved to withdraw the motion to dismiss the declaratory
judgment appeal. We granted the motion to withdraw and decide the matters raised in the
declaratory judgment appeal (No. 17-1282) in this opinion. However, we granted the
motion to dismiss the appeal in the bad faith action (No. 17-1284) and dismissed
Founders’ cross-appeal in the bad faith action. (Nos. 17-1344 and 17-1348).
       2
        Throughout this opinion, we will use “Kehagias” to refer to both Mr. Kehagias
personally and his guardian.


                                            3
filed a negligence lawsuit against Ruth’s Bar and its owners to recover for damages

resulting from the assault.

       Richard Ruth is the owner of Ruth’s Bar, which is located in Mount Pleasant,

South Carolina. He operates the bar along with his wife, Jane Ruth. The Ruths 3 bought a

commercial general liability policy and a liquor liability policy (the “Policies”) from

Founders to insure Ruth’s Bar. Founders does not sell insurance directly to consumers.

Instead, Founders uses insurance wholesalers to market and sell its insurance policies

through local, independent agents. In this case, the insurance wholesaler, Hull &

Company, Inc. (“Hull”), sold the Policies to Cherie DuMez, the Ruths’ longtime

insurance agent. The Ruths obtained the Policies from DuMez.

       The Policies required the Ruths to notify Founders as soon as practicable of any

occurrence which might result in a claim against the insured. Additionally, the Policies

required the Ruths to notify Founders of any claim made against the insured and of any

suit brought against the insured. The Policies also required the Ruths to provide Founders

with copies of any demands, notices, summonses, or legal papers received in connection

with any claim or suit. It is undisputed that the Ruths did not notify Founders, Hull or

DuMez of Kehagias’ injuries when they occurred in September 2012. However, the

Ruths did forward a notice of representation letter that Kehagias’ attorney sent to the

Ruths on November 21, 2012. The Ruths sent the notice of representation letter to

       3
         Throughout this opinion, we will use “the Ruths” to refer to Mr. and Mrs. Ruth
collectively and to Ruth’s Bar to the extent that Mr. and Mrs. Ruth were acting in a
representative capacity.


                                            4
DuMez who forwarded the notice to Hull. Hull received the notice of representation letter

on November 27, 2012.

       On December 19, 2012, Kehagias filed a negligence suit in South Carolina state

court against Ruth’s Bar, Mr. Ruth, Mrs. Ruth and others. The next day, Kehagias’

attorney sent copies of the summons and complaint to the Ruths with a letter requesting

that the Ruths forward the legal papers to their insurer or legal representative. 4 However,

the Ruths did not forward the legal papers to Founders or Hull. Although the Ruths claim

they forwarded the legal papers to DuMez, there is no evidence indicating that either the

Ruths or DuMez forwarded the legal papers to either Hull or Founders upon receipt. In

fact, Founders did not receive the legal papers until May 2013. 5

       On February 11, 2013, Kehagias asked the state trial court to enter default against

Ruth’s Bar because the Ruths never filed an answer to the lawsuit on its behalf. The state

court entered default against Ruth’s Bar on February 22, 2013, and referred the matter for


       4
        On January 8, 2013, Kehagias formally served the state court summons and
complaint on the Ruths.
       5
         In response to Founders’ motion for summary judgment, Kehagias submitted an
affidavit from Mrs. Ruth stating that she provided copies of Kehagias’ summons and
complaint to DuMez, the Ruths’ local insurance agent. The district court did not consider
the affidavit because it contradicted Mrs. Ruth’s prior deposition testimony. We need not
address whether the district court properly excluded Mrs. Ruth’s affidavit because it does
not affect the outcome of this case. Even if we assume Mrs. Ruth provided the legal
papers to DuMez, there is no evidence that DuMez is Founders’ agent for the purposes of
receiving notice, and there is no evidence that DuMez forwarded the legal papers to
Founders or Hull. In fact, DuMez testified she never received the legal papers from Mrs.
Ruth.




                                             5
a hearing on damages. Thereafter, on May 14, 2013, Hull contacted Founders regarding

the notice of representation letter from Kehagias’ attorney. Founders assigned an adjuster

two days later. On May 16, 2013, the adjuster obtained the summons and complaint from

the Ruths after contacting them about the case.

      After receiving the legal papers, Founders hired an attorney to defend the Ruths in

the underlying state court action. The Ruths’ attorney asked Kehagias to consent to relief

from the entry of default, but Kehagias refused. The Ruths’ attorney then filed a motion

to set aside the default, which the state court denied. On April 25, 2014, the state court

issued an order of judgment against both Ruth’s Bar and the Ruths individually awarding

five million dollars in damages to Kehagias.

      The Ruths appealed the judgment. The Ruths then assigned Kehagias their rights

against Founders in return for a covenant not to execute the judgment. After the

assignment, the Ruths instructed Founders to withdraw the appeal in the state appellate

courts, and Founders complied. On November 25, 2014, the state trial court entered final

judgment against the Ruths.

      In the interim, in November 2013, Founders filed a declaratory judgment action in

federal court against Ruth’s Bar, the Ruths individually and Kehagias, among others.

Kehagias answered the complaint and asserted counterclaims 6 against Founders. The

district court granted summary judgment to Founders on all of Founders’ declaratory


      6
       The only counterclaim at issue in this appeal is Kehagias’ claim for medical
payments under Coverage C of the commercial general liability policy.


                                               6
judgment claims and on Kehagias’ counterclaims. Kehagias appeals the district court’s

decision to grant summary judgment to Founders. We have jurisdiction of this appeal in

accordance with 28 U.S.C. § 1291.

                                            II.

       We review the district court’s decision to grant summary judgment de novo.

Variety Stores, Inc. v. Wal-Mart Stores, Inc., 888 F.3d 651, 659 (4th Cir. 2018). When

considering a motion for summary judgment, courts must view the evidence in the light

most favorable to the nonmoving party. Id. “The court shall grant summary judgment if

the movant shows that there is no genuine dispute as to any material fact and the movant

is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A factual dispute is

genuine if a reasonable jury could return a verdict for the nonmoving party, and a fact is

material if it could affect the outcome of the case under governing law. Variety Stores,

888 F.3d at 659 (citing Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568

(4th Cir. 2015)). Once a party moves for summary judgment, the nonmoving party has

the burden to offer sufficient proof in the form of admissible evidence to show that there

is a genuine issue of material fact for trial. Id. (citing Guessous v. Fairview Prop. Invs.,

LLC, 828 F.3d 208, 216 (4th Cir. 2016)). When the nonmoving party fails to meet this

burden, summary judgment is appropriate. Fed. R. Civ. P. 56(a).

                                            III.

       Kehagias appeals the district court’s order granting summary judgment on two

grounds. First, Kehagias argues the district court erred by granting summary judgment to

Founders on its declaratory judgment claim finding Founders is not required to indemnify

                                             7
Ruth’s Bar under the Policies. Second, Kehagias claims that the court erred in granting

summary judgment to Founders on Kehagias’ counterclaim for medical payments under

the Policies. Both parties agree that South Carolina law governs the disposition of this

case. We apply the law of South Carolina in resolving this appeal. See Erie R.R. Co. v.

Tompkins, 304 U.S. 64, 78 (1938) (“Except in matters governed by the Federal

Constitution or by acts of Congress, the law to be applied in any case is the law of the

state.”).

                                             A.

        We first address whether the district court properly granted summary judgment to

Founders on its declaratory judgment claim. The district court found that the Ruths

breached the terms of the Polices when they failed to provide Founders with notice of

Kehagias’ lawsuit. The district court concluded this breach caused substantial prejudice

to Founders’ rights and, consequently, Founders has no duty to indemnify the Ruths

under the Policies. Kehagias argues that the court erred in granting summary judgment

because the Ruths complied with the notice provisions of the policy by providing

Founders with the notice of representation letter from Kehagias’ attorney in November

2012. Kehagias further claims that even if the Ruths did not technically comply with the

notice provisions of the Policies, Founders suffered no prejudice due to their

noncompliance.

        “It is well settled that, unless waived by the insurer, the failure of an insured to

comply with policy provisions as to notice or forwarding suit papers, which are by the

terms of the contract made conditions precedent to liability, will bar recovery.” Hatchett

                                             8
v. Nationwide Mut. Ins. Co., 244 S.C. 425, 435, 137 S.E.2d 608, 613 (1964). The purpose

of a notice requirement in an insurance policy is to allow for investigation of the facts and

to assist the insurer in preparing a defense. Vermont Mut. Ins. Co. v. Singleton, 316 S.C.

5, 11, 446 S.E.2d 417, 421 (1994). Although the failure of the insured to comply with a

notice requirement may bar recovery by the insured, where the rights of innocent parties

are threatened by a failure of the insured to comply with the notice requirements of the

policy, the insurer must show that its rights have been substantially prejudiced by the

insured’s failure to provide notice before recovery is barred. Id. at 12, 446 S.E.2d at 421.

Therefore, we must first look to see whether the Ruths breached the notice provisions of

the Policies. Second, we must examine whether Founders was substantially prejudiced by

the Ruths’ failure to comply with the notice provisions of the Policies.

                                             1.

       We first address whether the Ruths failed to comply with the relevant policy

provisions regarding notice to the insurer and forwarding of legal papers. The Policies

required the Ruths to provide Founders with notice of any lawsuit filed against them. The

commercial general liability policy required the Ruths to notify Founders “as soon as

practicable” if “a claim is made or ‘suit’ is brought against any insured[.]” J.A. 493. In

addition, the commercial general liability policy required the Ruths to “immediately send

[Founders] copies of any demands, notices, summons or legal papers received in

connection with the claim or ‘suit’[.]” J.A. 493. The liquor liability policy also required

the Ruths to provide written notice of a claim or suit and to provide Founders with



                                             9
“copies of any demands, notices, summonses, or legal papers received in connection with

the claim or ‘suit’ within seventy-two (72) hours[.]” J.A. 511.

       Here, Founders did not receive notice of the lawsuit or copies of the legal papers

until after the state court entered default in favor of Kehagias. There are no facts in the

record indicating that Founders ever received notice that Kehagias filed a lawsuit prior to

the entry of default. Additionally, there are no facts indicating that Founders received

copies of the legal papers prior to the entry of default.

       Even so, Kehagias argues that the Ruths provided Founders with sufficient notice

under the Policies by forwarding the notice of representation letter sent by Kehagias’

attorney. Because Hull received the notice of representation letter prior to the entry of

default in the underlying action, Kehagias argues Founders was on notice of a potential

claim under the policy. However, this argument is misplaced. Even where an insurer has

actual knowledge of a potential claim or occurrence triggering coverage under the policy,

the insured is not relieved of his contractual obligation to provide the legal papers to the

insurer unless the insurer waives that policy provision. See Merit Ins. Co. v. Koza, 274

S.C. 362, 365−66, 264 S.E.2d 146, 148 (1980) (holding that an insurer’s knowledge of

process being served did not constitute waiver of insured’s contractual obligation to

forward legal papers). Based on the Policies, the Ruths were required to provide

Founders with notice that Kehagias filed a lawsuit and to forward the legal papers to

Founders. The Ruths were not relieved of that contractual obligation because they

forwarded Founders the notice of representation letter from Kehagias’ attorney, which

simply constitutes notice of a potential claim. Furthermore, we find no evidence in the

                                              10
record indicating that Founders waived any notice provisions under the policy.

Accordingly, we find there is no genuine issue of material fact as to whether the Ruths

breached the Policies by failing to provide Founders with notice of the underlying lawsuit

and by failing to forward the legal papers to Founders.

                                            2.

      Because we find the Ruths breached the notice provisions of the Policies, we now

address whether Founders’ rights were substantially prejudiced by the Ruths’ failure to

provide notice.

       Under South Carolina law, “prejudice is clearly established by the fact that a

default judgment was entered against the insured” in the underlying lawsuit. Koza, 274

S.C. at 364, 274 S.E.2d at 147 (citing Hargrove v. CNA Insurance Group, 228 Pa. Super.

336, 340, 323 A.2d 785, 787 (1974)). 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. See Hatchett v. Nationwide Mut. Ins. Co., 244 S.C. 425, 434, 137 S.E.2d

608, 612−13 (1964). We find Hatchett instructive.

       In Hatchett, the insured was involved in an accident and had uninsured motorist

coverage through Nationwide. Id. at 428, 137 S.E.2d at 609. The insured filed suit against

the other driver, an uninsured motorist, but he did not notify Nationwide of the suit until

after the driver was in default. Id. at 428, 137 S.E.2d at 609−10. The insured then refused

to waive the default and allow Nationwide to file an answer on behalf of the driver. Id. at

428, 137 S.E.2d at 610. At this point, Nationwide withdrew from participation in the

                                            11
defense. Id. at 428, 137 S.E.2d at 610. A jury subsequently returned a verdict in favor of

the insured, and Nationwide denied coverage on the grounds that the insured failed to

provide notice of the accident and suit as required by the policy. Id. at 428−29, 137

S.E.2d at 610. The insured then sued Nationwide seeking coverage for the default

judgment. Id. at 427, 137 S.E.2d at 609. After the trial court directed a verdict for the

insured, Nationwide appealed. Id. at 427−28, 137 S.E.2d at 609.

          In overturning the trial court, the South Carolina Supreme Court noted the

following: (1) the insured made no effort to establish a reason for his failure to comply

with the insurance contract; (2) the insured refused to waive the default and permit

Nationwide to file an answer on behalf of the defendant in the underlying action; and (3)

the insured “chose to rest his position upon the rights he had acquired through default

which operated to the prejudice of the insurance company.” Id. at 434, 137 S.E.2d at 613

(emphasis added). The court further explained that the insured’s failure to comply with

the policy and provide timely notice of the suit deprived Nationwide of the opportunity

“to investigate promptly, to negotiate a settlement without the handicap of a default

position, or to sponsor the defense of the uninsured motorist . . . .” Id. at 434, 137 S.E.2d

at 613.

          Here, as in Hatchett, Founders did not receive notice of Kehagias’ lawsuit until the

Ruths were in default in the underlying action. Kehagias then refused to waive the default

after Founders undertook its defense obligations under the Policies, and the state court

denied the Ruths’ motion to set aside the default. Because Founders was unable to obtain

relief from default, Founders did not have the opportunity to properly investigate the

                                               12
case, to raise defenses to the lawsuit or to negotiate a settlement without the handicap of

the default position. This, in turn, led to the entry of a five million dollar default

judgment against the Ruths. The Ruths’ attorney appealed, but the Ruths instructed their

attorney to withdraw the appeal after they assigned Kehagias their rights against

Founders. Based on these facts, we find there is no genuine issue of material fact as to

whether Founders’ rights were substantially prejudiced by the Ruths’ failure to provide

notice of the lawsuit and copies of the legal papers. Therefore, summary judgment is

appropriate in favor of Founders.

                                            B.

       Kehagias next claims that the district court erred in granting summary judgment to

Founders on Kehagias’ counterclaim for medical payments under the Policies. We find

Founders is entitled to summary judgment on this claim as well.

       Coverage C under the commercial general liability Policy contains Medical

Payments coverage of five thousand dollars provided that “expenses are incurred and

reported to us within one year of the date of the accident[.]” J.A. 489. Kehagias contends

that he complied with the terms of the policy because the offer of compromise he sent to

Founders included evidence that Kehagias’ medical bills far exceeded five thousand

dollars. Founders contends that it is not required to provide coverage for medical

payments because Kehagias refused to provide medical bills to Founders even after

Founders specifically requested the medical bills.

       Founders provided Kehagias with copies of the Policies on August 9, 2013. On

August 27, 2013, Kehagias submitted a settlement demand which included Kehagias’

                                            13
medical discharge forms, but not medical bills showing he incurred medical expenses. In

response, Founders requested copies of the medial bills and an extension of time to

respond to the demand. Kehagias denied both requests. As a result, Kehagias failed to

provide documentation showing that he had incurred medial expenses within one year of

the accident as required by the Policies. Kehagias does not contest the fact that he failed

to provide the medical bills within one year of the accident. He simply argues that his

failure to provide proof that he incurred medical expenses is not controlling because

Founders was not prejudiced by his failure to provide the medical bills. We find this

argument unpersuasive.

       An insurer must show substantial prejudice “[w]here the rights of innocent third

parties are jeopardized by a failure of the insured to comply with the . . . requirements of

an insurance policy . . . .” Vermont Mut. Ins. Co., 316 S.C. at 12, 446 S.E.2d at 421

(citing Factory Mut. Ins. Co. v. Kennedy, 256 S.C. 376, 182 S.E.2d 727 (1971)).

Kehagias was not an innocent third party in this instance, and his rights were not

jeopardized by the insured. Rather, Founders denied coverage because Kehagias himself

refused to provide medical bills after Founders specifically requested the medical bills

directly from Kehagias’ attorney. Kehagias cannot now claim that he is an innocent third

party when his own failure to provide medical bills led to the denial of coverage.

Therefore, we find there is no genuine factual issue as to whether Kehagias failed to

report his medical expenses, and Founders is entitled to judgment as a matter of law.




                                            14
                                           IV.

      For the foregoing reasons, we find there is no genuine issue of material fact

regarding whether the Ruths failed to comply with the relevant provision of the Policies

and whether Founders’ rights were substantially prejudiced by the Ruths’ noncompliance.

Accordingly, Founders is entitled to summary judgment on its declaratory judgment

claim and on Kehagias’ claim for medical payments. The order of the district court is

                                                                            AFFIRMED.




                                           15
