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Note: As part of providing workers’ compensation policies to employers regarded as high risk, the South Carolina Department of Insurance (SCDOI) approved a certain Loss Sensitive Rate Plan (LSRP) to be mandatory “for all assigned risk insureds with a standard premium equal to or exceeding [USD]200,000.” An LSRP is a policy with premiums adjusted post-term based on the “actual occurrence of claims.” SCDOI delegated administration of the LSRP to the National Council on Compensation Insurance (the Council). The Council required that any such policy issued bear a particular endorsement as a notification that the insured could be subjected to the LSRP. Ard Trucking Company (Insured) applied for and received a one-year policy from Travelers Property Casualty Company of American (Insurer) which included the endorsement and stated that “you may qualify to have the cost of your insurance subjected to the assigned risk mandatory [LSRP].” The policy, however, did not list South Carolina among the applicable jurisdictions.

Subsequently, Insured notified Insurer that its “estimated annual premiums exceeded [USD]200,000.” Accordingly, Insurer issued a replacement policy for the same term with an increased premium and a stated “LSRP Contingent Deposit [of] [USD]52,116.” Although the replacement policy included the same notification endorsement (omitting South Carolina from applicable jurisdictions), another endorsement was added “to explain the rating plan and how the Assigned Risk [LSRP] premium will be determined.” (Emphasis added). Pursuant to the new policy, Insured obtained a USD 52,116 letter of credit issued by Carolina Bank in favor of Insurer. When the policy ended, Insurer audited Insured’s operations to determine the final premium. After Insured paid the premium amount Insurer calculated post-audit, Insurer claimed that Insured still owed USD 175,064 under the LSRP. When Insured refused to pay citing the policy endorsement omitting South Carolina, Insurer fully drew on the letter of credit. In turn, Insured sued Insurer for breach of contract and conversion. Both parties moved for summary judgment. The trial court granted judgment in favor of Insured finding the LSRP inapplicable to the replacement policy as a matter of law. Insurer appealed. The Court of Appeals of South Carolina, Williams, Thomas and McDonald, JJ., reversed.

Both parties conceded during oral argument that the policy was unambiguous. In reviewing the text of the replacement policy, the appellate court noted the stated LSRP “rating mode” as well as the presence of the LSRP Contingent Deposit. Acknowledging that South Carolina was omitted from the list of applicable jurisdictions, the appellate court concluded that the clear text of the additional endorsement was provided to explain the LSRP rating plan and how, in fact, it would be determined. Accordingly, the appellate court reversed the trial court’s finding that the LSRP did not apply to the replacement policy as a matter of law.

[MJK]

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