Ellett Brothers, Incorporated v. United States Fidelity & Guaranty Company

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 ELLETT BROTHERS, INCORPORATED,
Plaintiff-Appellant,
v.
UNITED STATES FIDELITY &
GUARANTY COMPANY; FIDELITY AND
GUARANTY INSURANCE UNDERWRITERS,
INCORPORATED; ST. PAUL MERCURY
INSURANCE COMPANY,
Defendants-Appellees,
and
No. 01-1130  INTERNATIONAL INSURANCE COMPANY;
RLI INSURANCE COMPANY; MOUNT
HAWLEY INSURANCE COMPANY;
UNITED NATIONAL INSURANCE
COMPANY,
Defendants.
AMERICAN INSURANCE ASSOCIATION;
NATIONAL SHOOTING SPORTS
FOUNDATION; NATIONAL
ASSOCIATION OF INDEPENDENT
INSURERS,
Amici Curiae. 

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 ELLETT BROTHERS, INCORPORATED,
Plaintiff-Appellee,
v.
UNITED STATES FIDELITY &
GUARANTY COMPANY; FIDELITY AND
GUARANTY INSURANCE UNDERWRITERS,
INCORPORATED; ST. PAUL MERCURY
INSURANCE COMPANY,
Defendants-Appellants,
and
No. 00-2533  INTERNATIONAL INSURANCE COMPANY;
RLI INSURANCE COMPANY; MOUNT
HAWLEY INSURANCE COMPANY;
UNITED NATIONAL INSURANCE
COMPANY,
Defendants.
AMERICAN INSURANCE ASSOCIATION;
NATIONAL SHOOTING SPORTS
FOUNDATION; NATIONAL
ASSOCIATION OF INDEPENDENT
INSURERS,
Amici Curiae. 
Appeals from the United States District Court
for the District of South Carolina, at Columbia.
Dennis W. Shedd, District Judge.
(CA-00-1269-3-19)
Argued: September 27, 2001
Decided: December 28, 2001
Before WILKINSON, Chief Judge, and LUTTIG and
MICHAEL, Circuit Judges.
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Affirmed by published opinion. Judge Luttig wrote the opinion, in
which Judge Wilkinson joined. Judge Michael wrote an opinion con-
curring in part and concurring in the judgment.
COUNSEL
ARGUED: Thornwell Forrest Sowell, III, SOWELL, GRAY, STEPP
& LAFFITTE, L.L.C., Columbia, South Carolina, for Appellant. Wal-
ter J. Andrews, SHAW PITTMAN, McLean, Virginia, for Appellees.
ON BRIEF: Robert H. Jordan, A. Burns Jones, SOWELL, GRAY,
STEPP & LAFFITTE, L.L.C., Columbia, South Carolina, for Appel-
lant. Lon A. Berk, Michael S. Levine, SHAW PITTMAN, McLean,
Virginia; John E. Johnston, Jr., Laurel R.S. Blair, LEATHERWOOD,
WALKER, TODD & MANN, P.C., Greenville, South Carolina, for
Appellees. James C. Gray, Susan M. Glenn, NELSON, MULLINS,
RILEY & SCARBOROUGH, L.L.P., Columbia, South Carolina;
Mark R. Misiorowski, Richard Hodyl, Jr., WILLIAMS & MONT-
GOMERY & JOHN, LTD., Chicago, Illinois, for Amicus Curiae
NAII.
OPINION
LUTTIG, Circuit Judge:
Ellett Brothers, a handgun manufacturer, is a named defendant in
four lawsuits. In three of these lawsuits, the plaintiffs are California
municipalities who allege that Ellett’s marketing of handguns creates
public and private nuisances and violates the California Business and
Professions Code. The municipalities request injunctive relief to abate
the nuisances and to prevent violations of the Business and Profes-
sions Code, restitution to the public of funds obtained in violation of
the Code, disgorgement of profits acquired by violating the Code,
civil penalties for violating the Code, and costs of suit. One of these
three complaints, brought by southern California municipalities, also
requests attorneys’ fees and "further relief as the Court deems equita-
ble and just." J.A. at 474. The California municipalities do not seek
compensatory or punitive damages.
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In the fourth lawsuit, the NAACP alleges that Ellett created and
maintained an illegal secondary market for guns. J.A. at 587-89. It
seeks an injunction requiring Ellett to change its marketing practices,
an injunction requiring Ellett to contribute to a fund to supervise gun
dealers, attorneys’ fees, and "further relief as this Court deems just
and proper." J.A. at 594-96. The NAACP similarly does not seek
compensatory or punitive damages.
Ellett’s commercial general liability policy obligates its insurers to
pay "those sums that the insured becomes legally obligated to pay as
damages because of ‘bodily injury’ or ‘property damage’" and to
defend Ellett "against any ‘suit’ seeking those damages." J.A. at 190.
Ellett seeks a declaratory judgment that its insurers must defend the
above-referenced lawsuits and indemnify Ellett. The district court,
concluding that the California municipalities and the NAACP seek
only equitable relief, and not damages, against Ellett, granted sum-
mary judgment to the insurers on the duty to defend claim. J.A. 163-
64. The district court also allowed Ellett to dismiss voluntarily its
indemnity claim against its insurers pursuant to Fed. R. Civ. P. 41.
J.A. at 123.
For the reasons that follow, we affirm.
I.
In appeal of the district court’s summary judgment to Ellett’s insur-
ers, Ellett argues that the term "damages" is susceptible to more than
one reasonable interpretation and that the district court therefore erred
in construing the term as necessarily limited to claims for "legal"
relief, as opposed to claims for either "legal" or "equitable" relief.
We have previously held that the term "damages" in an insurance
contract unambiguously means legal damages, and that "[a]s a general
rule comprehensive general liability policies do not extend coverage
to claims for equitable relief." Cincinnati Ins. Co. v. Milliken and Co.,
857 F.2d 979, 981 (4th Cir. 1988). See also Braswell v. Faircloth, 387
S.E.2d 707, 710-11 (S.C. Ct. App. 1989) (citing Milliken with
approval). We may well have been without authority, in the context
of the single contractual dispute at issue in Milliken, to so define the
term "damages" for all contracts in futuro, as each contract is to be
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interpreted according to the intent of the parties. However, our author-
ity therein to create a default rule of contract interpretation whereby,
in the absence of any contrary intent by the parties, the term "dam-
ages" in insurance contracts will be interpreted so as not to reference
equitable relief, would seem unassailable. And, here, that default rule
of contract interpretation is sufficient to sustain the district court’s
summary judgment, because there is nothing in the contract between
Ellett and its insurers that evidences an intention to include equitable,
in addition to legal, claims for relief, among those as against which
Ellett’s insurers must defend.
Ellett makes much of the fact that "damages" is not defined in the
policy, Appellant’s Br. at 21-22, and that South Carolina insurance
contracts are generally construed against the party that prepares them
and liberally in favor of the insured. McCracken v. Government
Employees Ins. Co., 325 S.E.2d 62 (1985). However, because neither
the South Carolina courts nor the parties to this contract have evinced
any intent to deviate from the default rule established in Milliken, we
hold that the term "damages," as used in this contract, does mean
legal damages only, and therefore does not extend to claims for equi-
table relief.
II.
As to whether the four lawsuits against Ellett seek legal damages,
as found by the district court, under South Carolina law a liability
insurance company’s obligation to defend its insured is determined by
the allegations of the underlying complaint. See R.A. Earnhardt Tex-
tile Mach. Div., Inc. v. South Carolina Ins. Co., 282 S.E.2d 856, 857
(S.C. 1981). If the suit includes any cause of action covered by the
policy, the insurer must defend, even if the suit joins other causes of
action beyond the policy’s scope. See Town of Duncan v. State Bud-
get & Control Board, 482 S.E.2d 768, 774 (S.C. 1997).
We have no difficulty concluding that none of the complaints seeks
"damages" against Ellett. Neither the California municipalities nor the
NAACP seek compensation for past injuries. Although they seek
money from Ellett in the form of restitution, disgorgement, civil pen-
alties, attorney’s fees, cost of suit, and (in the NAACP suit) contribu-
tion to a fund to monitor gun dealers, none of these constitutes
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"damages." Restitution and disgorgement require payment of the
defendant’s ill-gotten gain, not compensation of the plaintiff’s loss.
This court has described restitution as an "equitable remedy." See Mil-
liken, 857 F.2d at 980. And civil penalties, likewise, are not "dam-
ages" payable to the victim, but fines or assessments payable to the
government. The NAACP’s proposed fund to monitor gun dealers is
forward-looking, prospective relief —- not compensation for past
injuries inflicted.
The contract itself distinguishes costs and attorneys’ fees from
"damages," by obligating the insurers to pay these amounts only if the
insurer was required to defend the suit in the first place. J.A. 551. The
same is true for pre-judgment and post-judgment interest. Id. These
cannot be included within the meaning of "damages" in this contract.
Finally, although two of the complaints request "such further relief
as this court deems just," such language does not invoke the insurer’s
duty to defend. Under South Carolina law, the facts of the complaint
must allege that Ellett owes legal damages, Earnhardt, 282 S.E.2d at
857, and no such facts are alleged here. A prayer for "such further
relief" is not a factual allegation supporting a claim for legal damages.
III.
The district court also granted Ellett’s motion to dismiss without
prejudice its indemnity claim against its insurers, holding that the
claim was not ripe and that Ellett could be irreparably harmed with
respect to the underlying suits. J.A. at 123. The insurers cross-appeal,
arguing that this was error and that they were entitled to summary
judgment on the indemnity claim.
A plaintiff’s motion to voluntarily dismiss a claim should not be
denied absent plain legal prejudice to the defendant, see Andes v. Ver-
sant Corp., 788 F.2d 1033, 1036 (4th Cir. 1986). A district court’s
decision to grant such a motion is reviewed for abuse of discretion,
see Davis v. USX Corp., 819 F.2d 1270 (4th Cir. 1987). We hold that
the district court did not abuse its discretion in dismissing Ellett’s
indemnification claim without prejudice. First, under South Carolina
law, while the duty to defend is based on the allegations in the com-
plaint, see Earnhardt, 282 S.E.2d at 857, the duty to indemnify is
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based on evidence found by the factfinder, see Jourdan v.
Boggs/Vaughn Contracting, Inc., 476 S.E.2d 708, 711 (S.C. Ct. App.
1986). Because no findings of fact have been made in the four law-
suits against Ellett, the indemnity claim is not ripe and the district
court correctly dismissed it. Moreover, the insurers will not be irrepa-
rably harmed by granting Ellett’s motion to voluntarily dismiss its
indemnity complaint, as the prospect of a subsequent lawsuit does not
constitute prejudice for purposes of Rule 41(a)(2). See Davis, 819
F.2d at 1274.
For the reasons given, the judgment of the district court is affirmed.
AFFIRMED
MICHAEL, Circuit Judge, concurring in part and concurring in the
judgment:
I concur in the judgment and in part III of the majority’s opinion.
The majority, relying on our 1988 decision in Cincinnati Ins. Co. v.
Milliken & Co., 857 F.2d 979 (4th Cir. 1988), interprets South Caro-
lina law to mean that the term "damages" in an insurance contract
generally refers to legal damages and not to equitable relief. South
Carolina law, however, has not remained static since 1988, and it now
appears that "damages" can include equitable relief in some instances.
At the very least, the question is unsettled. I therefore respectfully
decline to join parts I and II of the majority’s opinion. Regardless of
the state of South Carolina law on the legal/equitable distinction, con-
tract terms are nevertheless limited to their ordinary, plain meaning.
Here, the underlying lawsuits do not seek "damages" in the plain
sense of the word: they do not seek compensation for past injuries.
Accordingly, I vote to affirm the judgment.
I.
The majority cites Braswell v. Faircloth, 387 S.E.2d 707 (S.C. Ct.
App. 1989), as an indication that the legal/equitable distinction in Mil-
liken has been reaffirmed by the South Carolina courts. Braswell does
cite Milliken with approval, but not for the proposition that "damages"
means legal damages. Indeed, the ultimate holding in Braswell
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appears to conflict with Milliken’s legal/equitable distinction. To the
extent that South Carolina case law deviates from or contradicts our
holding in Milliken, we must defer to the courts of South Carolina.
See Gooding v. Wilson, 405 U.S. 518, 526 n.3 (1972).
In Braswell the South Carolina Court of Appeals was presented
with an action by the lessor of property who sought a declaration that
his former lessee’s insurance policy covered costs for the removal of
stored chemicals from the property and costs for a government-
ordered cleanup of a chemical spill on the property. Braswell, 387
S.E.2d at 708-09. The insurance contract in Braswell, like the contract
here, limited coverage to lawsuits seeking "damages" resulting from
"property damage" and did not define the term "damages." Id. at 709.
The trial court had dismissed all of the lessor’s claims as falling out-
side the definition of "property damage." Id. at 710. In addition, the
trial court had held that the lessor’s lawsuit "was restitutionary in
nature because it was an attempt to restore the status quo," and there-
fore the suit sought only equitable relief, which did not count as a suit
seeking "damages." Id.
On appeal the lessor in Braswell sought to distinguish Milliken by
arguing that his action was "not a suit for restitution or equitable relief
but . . . a suit for damages for breach of contract." Id. at 711. The
South Carolina Court of Appeals brushed aside the question of
whether the suit was legal or equitable, saying, "[c]all it what you
may, the underlying issue is whether [the lessee’s] insurer must
indemnify under its policy for the costs incurred in complying with
a government directive." Id. The court resolved this coverage issue by
looking at whether the suit sought costs associated with remediating
past or future injuries. As to stored chemicals that had "not yet caused
physical injury to property," the court held: "under the authority of
[Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir. 1987),]
and Milliken and Company . . . the costs of removal of the stored
waste is [sic] not covered." Id. As to the costs of the government-
ordered cleanup of the chemical spill, the court held that "an occur-
rence causing property damage did result . . . as to the . . . damages
directly related to the contamination of the land by [the] spill [of the
1000 gallons of chemicals]." Id. The South Carolina Court of Appeals
reversed the trial court on this one issue, concluding that the costs
associated with cleanup of the chemical spill were covered under the
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insurance policy. Id. While the court did not say so explicitly, it nec-
essarily determined that these costs constituted "damages" as that
term was used in the policy. Cf. Hazen Paper Co. v. USF&G, 555
N.E.2d 576, 582-83 (Mass. 1990) (holding that costs for removal of
115 drums of hazardous materials were not covered because no dam-
age had occurred, but that costs for a government-ordered cleanup of
spilled hazardous materials were "damages" and therefore covered).
Thus, Braswell cites Milliken approvingly for the idea that "future
response costs" do not constitute "damages" because no physical
injury has yet occurred. Compare Braswell, 387 S.E.2d at 711, with
Milliken, 857 F.2d at 980. Nevertheless, Braswell in effect rejects
Milliken’s categorical rule excluding equitable relief from the term
"damages" because Braswell awarded coverage for environmental
cleanup costs that the trial court had categorized as equitable relief.
See Nancy W. Monts, Insurance Coverage for Superfund Claims: Are
Response Costs Recoverable Damages?, 41 S.C. L. Rev. 871, 878-79
(1990) (noting that the holding in Braswell implicitly contradicts Mil-
liken’s legal/equitable distinction).
Neither the South Carolina Supreme Court nor its Court of Appeals
has fully addressed whether "damages" can include equitable relief in
the insurance context. In this case, the result is the same whether we
interpret the term "damages" to mean only "legal damages" or simply
to mean compensation for past injury. The interpretation chosen,
however, can make a difference in other contexts. For example, the
question of whether the term "damages" in an insurance contract
encompasses equitable environmental cleanup costs is an intensely
disputed area of state contract and insurance law. See, e.g., Braswell,
387 S.E.2d 707; Boeing Co. v. AETNA Cas. & Sur. Co., 784 P.2d 507,
515 (Wa. 1990) (rejecting a federal court’s prior interpretation of
Washington law and stating, "we agree with the majority of cases
across the country that the plain meaning of damages does not distin-
guish between sums awarded on a ‘legal’ or ‘equitable’ basis and that
the plain meaning of damages may include cleanup costs to the extent
that these costs are incurred because of property damage."); Farmland
Indus., Inc. v. Republic Ins. Co., 941 S.W.2d 505 (Mo. 1997); Bausch
& Lomb Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021 (Md. 1993).
Because this case may be resolved on an alternate and well-
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established ground, I would not apply our rule in Milliken, which
appears to be in conflict with the result in Braswell.
II.
The legal/equitable distinction aside, the lawsuits underlying this
case still do not seek "damages" as that term is commonly understood.
South Carolina law provides that a term in an insurance contract, as
in contracts generally, should not be expanded beyond "its plain, ordi-
nary and popular meaning." State Farm Fire & Cas. Co. v. Breazell,
478 S.E.2d 831, 832 (S.C. 1996). The term "damages" is ordinarily
meant to include "the estimated reparation in money for detriment or
injury sustained." Webster’s Third New Int’l Dictionary of the English
Language 571 (1989); see also Farmland Industries, 941 S.W.2d at
508; Bausch & Lomb, 625 A.2d at 1032 (rejecting this court’s state-
ment of Maryland law in Maryland Cas. Co. v. Armco, Inc., 822 F.2d
1348 (4th Cir. 1987)).
Here, the underlying lawsuits seek an injunction to abate a nui-
sance, restitution, disgorgement of profits, civil penalties, attorneys’
fees, costs, and contribution to a fund to monitor gun dealers. None
of these remedies would repair or compensate for injuries sustained
in the past by victims of gun violence. An injunction to abate a nui-
sance, specifically, one requiring changes in the methods of distribut-
ing and marketing firearms, is forward looking relief to prevent future
harm, not relief to redress past harm. Likewise, monies for a fund to
monitor gun dealers are not costs of past injuries, nor are attorneys’
fees and court costs. Civil penalties are fines payable to the govern-
ment to punish and deter bad conduct, not payments of the costs of
an injury or harm. In some cases, equitable relief in the form of resti-
tution or disgorgement is used to restore damaged property or goods,
as in the case of environmental cleanup, and thus the relief may fall
within the ordinary meaning of "damages." See Bausch & Lomb, 625
A.2d at 1032-33 (environmental cleanup costs required by the govern-
ment’s restitutionary claims fall within the common usage of "dam-
ages"). Here, however, the gun makers’ and distributors’ revenue that
would be subject to restitution and disgorgement would be paid into
public treasuries. There is no indication that the funds would be paid
to the victims of gun violence. Therefore, the restitution and disgorge-
ment is not sought to compensate for or repair past injuries. All in all,
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because the underlying lawsuits do not seek "damages" in the ordi-
nary sense, I concur in the judgment affirming the award of summary
judgment to the defendant-insurers on the duty to defend claim.
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