UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DILMAR OIL COMPANY,
Plaintiff-Appellant,

v.
                                                                     No. 97-1554
FEDERATED MUTUAL INSURANCE
COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
for the District of South Carolina, at Florence.
Cameron McGowan Currie, District Judge.
(CA-96-114-4-22)

Argued: October 2, 1997

Decided: November 5, 1997

Before WILKINSON, Chief Judge, RUSSELL, Circuit Judge, and
BOYLE, Chief United States District Judge for the
Eastern District of North Carolina, sitting by designation.

_________________________________________________________________

Affirmed by unpublished opinion. Chief Judge Boyle wrote the opin-
ion, in which Chief Judge Wilkinson and Judge Russell joined.

_________________________________________________________________

COUNSEL

ARGUED: David Eliot Rothstein, NEXSEN, PRUET, JACOBS &
POLLARD, L.L.P., Columbia, South Carolina, for Appellant. Laura
Jean Hanson, MEAGHER & GEER, P.L.L.P., Minneapolis, Minne-
sota, for Appellee. ON BRIEF: Susan Batten Lipscomb, NEXSEN,
PRUET, JACOBS & POLLARD, L.L.P., Columbia, South Carolina,
for Appellant. Nicholas A. Gumpel, MEAGHER & GEER, P.L.L.P.,
Minneapolis, Minnesota; Richard R. Mehrhof, Jr., ALLGOOD,
CHILDS, MEHRHOF & MILLIANS, Augusta, Georgia, for Appel-
lee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit.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

_________________________________________________________________

OPINION

BOYLE, Chief District Judge:

Plaintiff-Appellant Dilmar Oil Co. Inc. (hereinafter"Dilmar"), a
South Carolina corporation, filed this action against Defendant Feder-
ated Mutual Insurance Co. ("Federated"), a Minnesota corporation, in
the United States District Court for the District of South Carolina.
Plaintiff's complaint included five causes of action under South Caro-
lina law: breach of contract, declaratory judgment, misrepresentation,
bad faith refusal to pay benefits, and illusory coverage. Defendant
filed an answer and a Motion for Summary Judgment, covering all of
Plaintiff's claims. The district court granted Federated's Motion on all
of Dilmar's claims. Dilmar timely appeals.

FACTS

Dilmar is a petroleum distributor headquartered in Latta, South
Carolina. Dilmar owns convenience stores and gasoline stations
throughout South Carolina, and supplies petroleum products to retail-
ers in the state. As part of its business, Dilmar maintains underground
and above-ground storage tanks to hold its inventory of petroleum
products.

Federated is an insurance company which marketed specialized
pollution liability insurance to companies in the petroleum industry.
Dilmar purchased successive Commercial Package Policies from Fed-

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erated in effect between January 1, 1987, and January 1, 1992. The
policy in effect from January 1, 1989, to July 1, 1989, is the policy
at issue in the present litigation.

The policy was a "claims made" policy, requiring a claim to be
made during the policy period to invoke coverage. It contained three
separate insuring agreements, two of which are at issue here. Insuring
Agreement 2 provides for reimbursement for "clean-up costs" because
of environmental damage which is asserted under statutory authority
of the government of the United States or any political subdivision
thereof. Insuring Agreement 3 was added to the policy by endorse-
ment, and provides "Voluntary `Clean-up Costs' Reimbursement."
Insuring Agreement 3 provides for reimbursement for"`clean-up
costs' initiated at the `insured site' during the policy period that the
insured incurs. . . ."

The policy was subject to the "Coordination of Benefits With Gov-
ernmental Funding Programs" endorsement ("Coordination of Bene-
fits Endorsement," or "CBE"), which became effective on January 1,
1989. The CBE requires the insured to take all steps necessary to
become eligible to participate in state underground storage tank pollu-
tion clean-up funding programs, and provides that failure to secure
otherwise available state funds voids the policy to the extent that the
insured could have obtained such funds. In addition, the CBE pro-
vides that if the state program disqualifies underground tank owners
or operators with private liability insurance from participating in the
state program solely because of the existence of such insurance, then
the policy is void, allowing the insured to participate in the state pro-
gram: "If the inability to secure funds is directly attributable to the
existence of this insurance, coverage shall also be void so as to permit
contribution from any such governmental funding program." Feder-
ated informed Dilmar of the existence of this endorsement in a sepa-
rate letter before the effective date of the policy at issue.

In 1988, the South Carolina legislature enacted the South Carolina
State Underground Petroleum Environmental Response Bank Act of
1988 (the "SUPERB Act"), S.C. Code Ann. § 44-2-10 et seq., which
established a State-administered fund to finance the clean-up of con-
tamination from leaking underground storage tanks. Administration of
the Act is left to the South Carolina Department of Health and Envi-

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ronmental Control ("DHEC"), subject to review by the DHEC Board
and judicial review under the state Administrative Procedures Act.
S.C. Code Ann. §§ 44-2-115, 44-2-130(E)(1). The SUPERB Act con-
tains an early detection incentive amnesty program to encourage tank
owners to voluntarily examine their tanks and report contamination
promptly. Under this program, tank owners who reported contamina-
tion during the amnesty period were eligible to receive reimbursement
for "site rehabilitation" costs. S.C. Code Ann. § 44-2-110.

During the first half of 1989, Dilmar voluntarily tested several of
its sites, discovering contamination at eight sites, including its North-
side Texaco facility. Dilmar reported the contamination to DHEC,
seeking reimbursement of site rehabilitation costs under the SUPERB
Act. Dilmar also notified Federated of the contamination, and submit-
ted first-party voluntary clean-up cost claims to Federated. Federated
denied coverage for these claims by letters dated June 15, 1989, and
July 27, 1989, basing the denial on the CBE. Federated informed Dil-
mar that, "[b]ecause this endorsement applies to this situation, your
policy is voided for the above listed incidents." There is no doubt that
Federated's denials of coverage were proper under the CBE and the
SUPERB Act as they existed at the time.

Effective May 9, 1990, the South Carolina General Assembly
passed two amendments to the SUPERB Act that invalidated provi-
sions, such as Federated's CBE, in liability policies which required an
insured to exhaust funds available under the SUPERB program before
benefits are available from the insurer. S.C. Code Ann. § 44-70(A),
as amended on May 9, 1990, Act 473 § 3, 1990 Statutes at Large
2134-35. DHEC initially took the position that the 1990 Amendments
did not apply retroactively; this position changed in 1991, and the
General Assembly codified the retroactive application of the 1990
Amendments in 1992. Id., as amended July 1, 1992, Act 501, Part II,
§ 43(D), 1992 Statutes at Large 3318-19.

On September 3, 1992, DHEC wrote Dilmar regarding continued
SUPERB funding at one of the latter's sites, Food Chief #24. DHEC
said that it would be seeking reimbursement of funds already spent on
this sight because Federated's CBE was invalidated by the 1990 and
1992 Amendments, and the existence of private insurance made pay-
ments from the SUPERB account inappropriate. The letter continued:

                     4
"This office will, in the very near future, provide you with the total
amount of funds owed to the SUPERB Account by Dilmar Oil." In
response to Dilmar's complaints, DHEC later agreed to continue to
provide funding to Dilmar, but noted that the latter may need to enter
into a subrogation agreement with DHEC to assign its right to sue
Federated for reimbursement.

Dilmar heard from DHEC again on December 9, 1993, when
DHEC informed Dilmar that the latter owed $140,910.88 as a reim-
bursement for clean-up at the Food Chief #24 site (as well as
$219,097.29 for Food Chief #35 site).

Finally, on June 30, 1994, DHEC informed Dilmar that Dilmar's
Northside Texaco site was the most likely source of contamination at
the Rice Planters restaurant, and demanded that Dilmar begin abate-
ment procedures. On August 22, 1994, Dilmar's counsel wrote to
Federated informing the latter of a DHEC "directive" associated with
the Rice Planters restaurant and demanding that Federated defend and
indemnify Dilmar for "any liability incurred in connection with this
location, including site rehabilitation costs and third party bodily
injury and property damage claims." On January 23, 1995, Federated
denied coverage for this claim.

DISCUSSION

Summary judgment disposes of factually unsupported claims or
defenses, and requires the party opposing such a motion to come for-
ward with a showing of the existence of a genuine issue of material
fact for trial. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S.
317, 323-25 (1986). The party moving for summary judgment must
allege the absence of a general issue of material fact in the pleadings
of the other party. Celotex, 477 U.S. at 324. A summary judgment
motion requires the court to look beyond the pleadings and ask
whether there is a need for trial. Matsushita Electric Industr. Co., Ltd.
v. Zenith Radio Corporation, 476 U.S. 574, 487 (1986). A district
court's grant of summary judgment is subject to de novo review.
Carbon Fuel Co. v. USX Corp., 100 F.3d 1124, 1132 (4th Cir. 1996).

A. The Statute of Limitations.

Breach of contract claims are governed by a three-year statute of
limitation in South Carolina. S.C. Code Ann. § 15-3-530(1). As an

                     5
affirmative defense, Dilmar argues, the burden is on the defendant to
establish the expiration of the statutory time. Brown v. Finger, 124
S.E.2d 781, 786 (S.C. 1962). If there is conflicting evidence, the issue
should be decided by the finder of fact at trial and not by court on
summary judgment motion. Garner v. Houck, 435 S.E.2d 847, 849
(S.C. 1993); see Santee Portland Cement Co. v. Daniel Int'l. Corp.,
384 S.E.2d 693 (S.C. 1989).

Dilmar asserts that Federated's contractual duty under its policy to
reimburse Dilmar for costs incurred in cleaning up Dilmar's contami-
nated sites did not arise until December 9, 1993. The parties agree
that the sole basis for Federated's denials of coverage in 1989 was the
CBE in Dilmar's insurance policy. Dilmar says, however, that the
CBE operated to render the policy conditionally void, only to allow
the insured to become eligible for SUPERB funding. Thus, the 1990
Amendments merely removed the basis on which Federated had pre-
viously denied coverage. Because Dilmar did not resubmit its claim
at that time, the argument goes, Federated cannot be said to have
denied coverage yet.

Dilmar misconceives of the effect of the Amendments. The CBE
caused Federated to deny coverage in 1989; the policy was "void for
that claim." The 1990 Amendments did not render the earlier denial
"ineffective." Rather, they removed the legal basis for the denials, and
gave rise to a cause of action for breach of contract and declaratory
judgment.

Getting beyond the 1990 or 1992 Amendments would be insuffi-
cient for Dilmar, since it still needs to get beyond January 12, 1993,
in order to avoid the time bar for its breach of contract claim. Dilmar
proceeds to argue that as long as it was covered by the SUPERB pro-
gram, Federated had no contractual duty to reimburse Dilmar,
because Dilmar had not yet "incurred" any costs that would be recov-
erable under the policy. Insuring Agreement 3 provides for reimburse-
ment for clean-up costs initiated at the insured site during the policy
period that the insured "incurs." Dilmar argues that "incur" merely
means "to become liable for," and it had not become liable for any
costs while it was covered by SUPERB.

Dilmar's attempt to finesse the definition of "incur" is unavailing:
when Dilmar hired its own environmental consultants in 1989 it

                     6
incurred its first cost. Dilmar initially paid all such costs out-of-
pocket and submitted the bills to DHEC for SUPERB reimbursement.
Dilmar would be the party to whom a contractor would look for ulti-
mate payment if SUPERB failed to reimburse it. Mere reimbursement
by the state does not change the ultimate liability for the costs. As
Federated points out, the SUPERB Act provides for"reimburse[ment]
for reasonable costs incurred in connection with the site rehabilitation.
. . ." S.C. Code Ann. § 44-2-130(A). The state does not reimburse
costs until they are "incurred."

Dilmar was put on notice that it had a claim against Federated no
later than when the 1992 Amendment became effective: the 1990
Amendments invalidated the CBE, and the 1992 Amendment made
this invalidation retroactive. Thus, the costs incurred by Dilmar were
then subject to reimbursement under the insurance policy, and the
contract claim accrued: A cause of action accrues in South Carolina
if the party asserting the claim can maintain an action to enforce it.
That is the moment the plaintiff has a legal right to sue on it. Brown
v. Finger, 124 S.E.2d 781, 785 (S.C. 1962).

Dilmar tries to avoid this by arguing that the discovery rule oper-
ated here to toll the running of the statute of limitations. The discov-
ery rule applies to breach of contract actions to toll the running of the
statute of limitations until the injury is discovered or should have
been discovered. Santee Portland Cement Co. v. Daniel Int'l. Corp.,
384 S.E.2d 693, 694 (S.C. 1989). "[T]he statutory period of limita-
tions begins to run when a person could or should have known,
through the exercise of reasonable diligence, that a cause of action
might exist in his or her favor, rather than when a full-blown theory
of recovery is developed." Christiansen v. Mikell, 476 S.E.2d 692,
694 (S.C. 1996). It is immaterial that the claimant did not know the
exact nature of the wrong or extent of the damages at the time. Id.

Here, it is undisputed when Dilmar knew, or should have known,
that the contract had been breached, when the 1992 Amendment were
passed, at the latest. Failure to appreciate the effect of the 1990 and
1992 Amendments cannot toll the running of the statute of limita-
tions. The DHEC even informed Dilmar in the September 3, 1992,
letter that Federated's CBE was invalid and unenforceable. Dilmar
responded to this letter by saying that it could challenge Federated's

                     7
coverage denial, but disclaiming any responsibility to do so. DHEC
subsequently kept paying, but informed Dilmar that DHEC might
itself sue Federated, and subrogation would be needed. At this point,
Dilmar knew that the CBE was invalidated by statute, that it was ripe
for litigation, and that Federated was not going to be paying Dilmar
for costs DHEC said Dilmar owed.

The district court was therefore correct to grant Federated's sum-
mary judgment motion on the breach of contract claim because that
claim was time-barred by South Carolina's three-year statute of limi-
tations.

B. Liability for the Rice Planters Clean-up.

The district court also granted summary judgment with respect to
Federated's argument that it had no liability to Dilmar on DHEC's
ordered clean-up of the Rice Planters restaurant site, holding that
there was no claim during any applicable policy period. There needed
to be a demand from DHEC to Dilmar during an applicable policy
period because the relevant contract provision, Insuring Agreement 2,
requires Federated to cover costs that the insured incurs because of a
governmental demand asserted under statutory authority. Dilmar
argues that the court was incorrect because DHEC's demand with
respect to Rice Planters, made on June 30, 1994, was merely a contin-
uation of Dilmar's previous claim for the Northside Texaco site,
which DHEC said was the "most probable source of contamination"
at Rice Planters.

Because Dilmar voluntarily investigated the Northside Texaco site
in the Spring of 1989, during its initial SUPERB Act-inspired investi-
gations, reported it, and began remediating it at that time, Dilmar
claims that Insuring Agreement 3 applies. That provision covers reim-
bursement for costs associated with voluntarily initiated clean-up pro-
grams. The mere fact that DHEC later wrote Dilmar requesting that
it clean up the contamination from that site which spread to an adjoin-
ing property does not relieve Federated of its existing duty to cover
the costs.

Dilmar's claims are incorrect. DHEC's order to clean up the Rice
Planters site constituted a government mandate triggering Insuring

                    8
Agreement 2. This government mandate was only received in June
1994, however, four years after the last Federated policy expired. And
this ordered clean-up was not a continuation of an earlier voluntary
clean-up claim.

Dilmar is attempting to bootstrap the Rice Planters claim onto the
earlier voluntary clean-up coverage for the Northside Texaco site
under Agreement 3. First, the language of the insurance contract is
unambiguous: the insuring agreements are mutually exclusive and
provide coverage for three distinct events. Allowing a claim trigger-
ing one insuring agreement to implicate coverage under one of the
other insuring agreements would torture the clear and unambiguous
policy language and extend coverage that was never intended by Fed-
erated.

Next, the policy provides no coverage for the Rice Planters claim.
It says that coverage for the Rice Planters claim, if it exists, is only
under Insuring Agreement 2, providing coverage for reimbursement
of government-mandated clean-up costs. This agreement requires that
"[n]otice asserting such obligation must first be received by [the
insured] during the policy period." DHEC only mandated clean-up in
June 1994, well after the "policy period." Dilmar attempts to argue
that this is covered by Insuring Agreement 3, but it must show that
the Rice Planters site was to have been included in the voluntary
clean-up Dilmar was conducting at Northside Texaco. When Dilmar
submitted its 1989 claim for Northside Texaco, however, only Agree-
ment 3 was implicated because there was no government or third
party demand made of Dilmar. The proposed clean-up at Rice Plant-
ers is not voluntary--DHEC ordered it. It does not matter whether the
contamination at Rice Planters is from Northside Texaco; the disposi-
tive issue is whether the clean-up is being conducted voluntarily.
Insuring Agreement 3 only applies to voluntary clean-up cost reim-
bursement, not to government-ordered clean-up, as is the case here.
Allowing Dilmar to obtain coverage for a government-mandated
clean-up under the insuring agreement providing coverage for volun-
tary clean-up costs incurred would render Insuring Agreement 2 a
nullity.

The district court was thus correct to grant summary judgment for
Federated on Dilmar's demand for coverage of the Rice Planters
clean-up.

                    9
C. Abandonment of the Bad-faith Claim.

In its complaint, Dilmar included a cause of action for bad faith
refusal to pay insurance benefits. Dilmar initially argued that Feder-
ated's failure to affirmatively provide notice of the passage of the
1990 Amendments was the basis for the bad faith claim (Dil. Opp. to
Mot. for S.J. at 21). In its supplemental brief to the district court, sub-
mitted after the hearing on Federated's Motion for Summary Judg-
ment, Dilmar said, "Although Federated did not voluntarily offer
coverage to Dilmar after the 1990 Amendments became effective,
Federated's failure to volunteer coverage should not be considered a
denial of coverage, because Dilmar never made a demand for cover-
age at that time" (Dil. Supp. Opp. to Mot. for S.J. at 3). The district
court held that by "acknowledging that Federated's failure to volun-
teer coverage where no re-tender had been made was not a `denial'
of coverage, Dilmar has necessarily abandoned its bad faith claim."

In arguing bad faith as of the 1990 Amendments at the summary
judgment stage, which Dilmar did in its original opposition to Feder-
ated's motion, Dilmar was arguing for a 1990 accrual date for its
claims. Thus, Dilmar had to change its position in the supplemental
brief. However, by changing its argument to say that Federated's fail-
ure to volunteer coverage in 1990 was not a denial of coverage, Dil-
mar was no longer asserting a bad faith claim.

Dilmar abandoned its bad faith cause of action in its supplemental
opposition to Federated's Motion for Summary Judgment. The district
court correctly decided this issue in granting summary judgment.

CONCLUSION

The judgment of the district court is affirmed in its entirety.

AFFIRMED

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