Roger Twenhafel v. State Auto Property & Casualty ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-4275
R OGER T WENHAFEL, d/b/a
C ONSOLIDATED S ERVICES,
Plaintiff-Appellee,
v.
S TATE A UTO P ROPERTY AND
C ASUALTY INSURANCE C OMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Illinois.
No. 08 CV 117—G. Patrick Murphy, Judge.
A RGUED M AY 14, 2009—D ECIDED S EPTEMBER 14, 2009
Before R OVNER and E VANS, Circuit Judges, and
V AN B OKKELEN, District Judge.Œ
V AN B OKKELEN, District Judge. Roger Twenhafel insured
his business property through an “open peril” insurance
Œ
The Honorable Joseph S. Van Bokkelen, United States District
Court Judge for the Northern District of Indiana, sitting by
designation.
2 No. 08-4275
policy issued by State Auto Property and Casualty Insur-
ance Company (“State Auto”). Twenhafel sought
coverage under the policy for loss of his raw wood in-
ventory damaged by rain as a result of a severe storm.
State Auto denied Twenhafel’s claim on the basis that
the loss was excluded from coverage because the
inventory was damaged by rain while it was “in the
open.” Twenhafel filed suit in the Circuit Court of Jackson
County, Illinois, alleging that State Auto breached the
policy. State Auto removed the case to federal court,
where the parties filed cross-motions for summary judg-
ment on the issue of liability. Twenhafel also moved for
summary judgment on the issue of damages. The
district court entered summary judgment in favor of
Twenhafel and awarded damages, prejudgment and
postjudgment interest, and costs. State Auto now appeals.
We affirm the judgment of the district court except on
the issue of prejudgment interest. On that issue we
vacate and remand for further proceedings consistent
with this opinion.
I.
Twenhafel manufactures kitchen and bathroom cabi-
nets. On September 22, 2006, a violent storm blew through
Murphysboro, Illinois, where Twenhafel’s business is
located. Before the storm, Twenhafel had some of the wood
inventory he uses to make cabinets stored outdoors under
an industrial covering or tarp. The tarp was secured with
six-by-six oak beams and large concrete blocks which
weighed about ninety pounds each and had been placed on
No. 08-4275 3
top of the tarp. The storm lifted the tarp, along with the
beams and blocks, and dropped them on the roof of a
building about 150 feet away. As a result of the violent
storm, the wood inventory was damaged by rain. The
storm did not cause any other damage to Twenhafel’s
property, except for some minor damage to the building’s
roof, which was repaired by Twenhafel’s employees.
The insurance policy State Auto issued to Twenhafel
was an “open peril” policy which covers all losses unless
specifically excluded under the terms of the policy.
Twenhafel made a claim under the policy for the loss of
his wood inventory. State Auto denied Twenhafel’s claim,
relying on the following specific policy exclusion:
CAUSES OF LOSS—SPECIAL FORM
B. Exclusions
2. We will not pay for loss or damage caused
by or resulting from any of the following:
....
j. Rain, snow, ice or sleet to personal property
in the open.
(App. at 10-11.)
Twenhafel filed suit in the Circuit Court of Jackson
County, Illinois, alleging that State Auto breached the
terms of the insurance policy by refusing to pay for
the damage to the wood inventory. After State Auto
removed the case to federal court, the parties filed cross-
motions for summary judgment on the issue of liability.
Twenhafel also moved for summary judgment on the
4 No. 08-4275
issue of damages. Twenhafel asserted that the wood
inventory was not “in the open” because it was covered
by an industrial tarp; therefore, he was entitled to
coverage under the policy. State Auto contended that
the loss was not covered under the policy because the
inventory was damaged by rain while it was “in the
open.” The phrase “in the open” was not defined in
the policy.
In considering the meaning of the phrase “in the
open” the district court found the policy contained no
ambiguity and that “in the open” is commonly under-
stood to mean something that is exposed to the elements
with no protection at all. Because Twenhafel’s wood
inventory was covered by an industrial tarp, it was not
exposed to the elements.
The district court therefore granted summary judg-
ment in favor of Twenhafel and against State Auto.
The district court entered judgment in favor of
Twenhafel, in the amount of $81,678.10, and awarded
prejudgment interest at the rate of 6.98% per annum,
postjudgment interest at a rate of .96% per annum, and
costs. State Auto now appeals.
II.
This case is one of first impression in our circuit. It is
before us on appeal from a grant of summary judgment,
which we review de novo, and draw all inferences in
favor of the nonmoving party. Bilthouse v. United States,
553 F.3d 513, 514 (7th Cir. 2009) (citing Breneisen v.
No. 08-4275 5
Motorola, Inc., 512 F.3d 972, 977 (7th Cir. 2008)). Summary
judgment is proper “where there are no genuine issues
of material fact and the moving party is entitled to judg-
ment as a matter of law.” Id. at 514-15 (citing Fed. R. Civ.
P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
The parties agree that the substantive law of Illinois
governs this diversity action. “Under Illinois law, the
interpretation of an insurance policy is a question of
law that is properly decided by way of summary judg-
ment.” BASF AG v. Great Am. Assurance Co., 522 F.3d
813, 818-19 (7th Cir. 2008). As explained in BASF AG:
A court’s primary objective in construing the
language of an insurance policy is to ascertain and
give effect to the intentions of the parties as
expressed by the language of the policy. In performing
that task, the court must construe the policy as a
whole, taking into account the type of insurance
purchased, the nature of the risks involved, and the
overall purpose of the contract. Where the terms of
an insurance policy are clear and unambiguous,
they must be applied as written; but where am-
biguity exists, the terms will be strictly construed
against the drafter. Policy terms are ambiguous if
they are reasonably susceptible to more than one
interpretation, not simply if the parties can suggest
creative possibilities for their meaning, and a court
will not search for ambiguity where there is none.
Id. at 819 (citations and quotation marks omitted). Here,
State Auto must establish that the policy’s exclusion
applies to Twenhafel.
6 No. 08-4275
A.
State Auto asserts that the district court erred in
finding that Twenhafel’s wood inventory loss was not
excluded from coverage under the terms of the policy.
State Auto relies on a New Jersey appellate court’s
decision in Victory Peach Group, Inc. v. Greater N.Y. Mut.
Ins. Co., 707 A.2d 1383 (N.J. Super. Ct. App. Div. 1998).
State Auto contends Victory Peach stands for the proposi-
tion that the phrase “in the open” means “outside.”
State Auto, however, misunderstands Victory Peach.
The court in Victory Peach defined the phrase “in the
open” as commonly being understood to mean some-
thing that is exposed to the elements. Victory Peach,
707 A.2d at 1385-86. The Victory Peach court equated the
phrase “in the open” with being left outdoors without
protection from the elements: “[T]he phrase ‘in the
open’ would mean to the reasonable insured being left
exposed to the elements. Indeed, the dictionary defini-
tion of ‘open’ includes ‘the open air or the outdoors.’ ” Id.
In Victory Peach, the insured stored personal property
in a building which had a damaged roof. The workers
repairing the roof securely nailed three large vinyl tarps
over portions of the damaged roof because the repairs
could not be completed in one day. Subsequently, a
severe rainstorm blew the tarps off the roof, allowing
the water to get into the building and damage the
property stored inside it.
The insured in Victory Peach was covered by a similar
policy exclusion for “loss or damage caused by or
No. 08-4275 7
resulting from ‘rain, snow, ice or sleet to personal
property in the open.’ ” Victory Peach, 707 A.2d at 1385.
The insurer would not cover the insured’s losses
asserting that the loss was excluded from coverage. In
finding for the insured, the court reasoned that because
the property was inside the building, it was not left
exposed to the elements with no protection:
As the damaged property was located in the interior
of the building, it was not left “in the open.” Assuming
that the unfinished repairs left some exposed seams
in the roof, there is nothing in this record, such as it
is, that would reasonably suggest there was a gaping
hole which exposed the interior of the building
openly to the elements. The damage to Victory Peach’s
personal property, then, is covered under the policy.
Id. at 1386.
Accordingly, we agree with the district court that
Victory Peach does not stand for the proposition that only
property stored inside a building is entitled to coverage.
Instead, coverage applies in those instances where prop-
erty is protected from exposure to the elements. Therefore,
State Auto’s reliance on this case is without merit.
Next, State Auto cites to North Texas Constr. Co. v. United
States Fire Ins. Co., 485 S.W.2d 389 (Tex. App. 1972), assert-
ing that the facts are very similar to this case. In North
Texas, the court denied coverage under a policy for
damage to sheets of galvanized steel that were to be
used in the construction of a hangar. After the insured’s
workers unwrapped the sheets, they were placed on
boards outdoors and covered with polyethylene and
8 No. 08-4275
weighted down. Subsequently, a storm blew the
coverings from the metal sheets and water got in
between the sheets. The policy at issue contained an
exclusion for “loss or damage to property in the open
caused by rain; or by deterioration; or by rust.” Id. at 390.
The appellate court affirmed the district court’s
findings that the plaintiff’s loss fell within the policy’s
exclusionary terms.
We do not find State Auto’s reliance on North Texas
persuasive because the phrase “in the open” was not
defined in the court’s decision and the policy’s exclusion
is very different from the one at issue here. Therefore,
we agree with the district court that the North Texas
decision does not help State Auto’s position.
“A court’s primary objective in construing the
language of an insurance policy is to ascertain and give
effect to the intentions of the parties as expressed by the
language of the policy.” BASF AG, 522 F.3d at 819 (quoting
Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d
307, 314 (Ill. 2006)). The plain language of the policy
shows that the parties intended that all losses were to
be covered unless specifically excluded under the terms
of the policy. One exclusion was for damage that occurred
to personal property while it was “in the open”; however,
that phrase is not defined anywhere in the policy. Here,
the common or ordinary meaning of the phrase controls.
We find that the phrase “in the open” means being left
exposed to the elements or, in other words, being unpro-
tected from the elements. While State Auto would ask us
to hold that the phrase “in the open” means something
No. 08-4275 9
different than its common or ordinary meaning, we
find that the terms of the policy “must be applied as
written” because they are clear and unambiguous, and
not susceptible to more than one interpretation. Id.
State Auto, as the drafter of the policy, was in the best
position to define what was meant by “in the open” if
it meant something other than the common or ordinary
meaning.
State Auto contends that equating the phrase “in the
open” with “exposed to the elements” would lead to
an absurd result because such an interpretation does not
take into account the adequacy of the protection in ques-
tion. State Auto argues that, under such an interpreta-
tion, a pile of wood covered by newspapers would not
be “in the open” because the wood was not “exposed to
the elements.” We find State Auto’s contention with-
out merit because a reasonable person would not think
that newspapers would protect property from exposure
to the elements. Therefore, the interpretation does not
lend itself to absurdity.
We affirm the district court on the issue of liability. The
loss to Twenhafel’s wood inventory was covered under
the terms of the policy because it did not fall within
the policy’s exclusionary terms. The district court
properly found that Twenhafel’s wood inventory was not
“in the open” when it was damaged because it was se-
curely covered by a tarp and not left exposed to
the elements. Therefore, adequacy of protection is not
at issue.
10 No. 08-4275
B.
State Auto also asserts that the district court erred in
its damage award because there was a genuine issue
of material fact regarding the amount of Twenhafel’s
loss. State Auto contends that Twenhafel testified at his
deposition that he did not know the value of the
inventory loss. However, Twenhafel later submitted an
affidavit stating that the “value of the wood inventory
damaged on September 22, 2006 [was] $81,678.10.” (App.
at 26.)
The district court awarded Twenhafel $81,678.10 in
damages on the basis of his affidavit. As the owner of
the inventory, Twenhafel was in a position to know or
ascertain what the value of the damaged wood was;
the fact that he was unable to quantify the value at his
deposition did not mean that he could never do so. State
Auto did not object to Twenhafel’s affidavit or present
its own evidence of the value of Twenhafel’s inventory
loss. Because State Auto failed to produce evidence
that contradicted Twenhafel’s affidavit, the district court
appropriately relied on his affidavit. See Fed. R. Civ. P.
56(e)(2) (“When a motion for summary judgment is
properly made and supported, an opposing party may
not rely merely on allegations or denials in its own plead-
ing; rather, its response must—by affidavits or as other-
wise provided in this rule—set out specific facts
showing a genuine issue for trial. If the opposing party
does not so respond, summary judgment should, if ap-
propriate, be entered against that party.”) Therefore,
we affirm the district court on the issue of damages.
No. 08-4275 11
C.
Finally, State Auto objects to the district court’s award
of prejudgment interest because the extent of
Twenhafel’s damages was not liquidated or subject to
an easy determination at the time of the loss. The
district court awarded Twenhafel prejudgment interest
at the rate of 6.98% per annum, the average prime rate
for the period September 22, 2006 (the date of the loss)
through November 26, 2008 (the date of judgment).
“A district court’s decision to award or deny prejudg-
ment interest will not be disturbed unless that decision
constitutes an abuse of discretion.” Liu v. Price Waterhouse
LLP, 302 F.3d 749, 757 (7th Cir. 2002). The Illinois Interest
Act provides that “[c]reditors shall be allowed to receive
at the rate of five (5) per centum per annum for all
moneys after they become due on any bond, bill, promis-
sory note, or other instrument of writing.” 815 Ill. Comp.
Stat. Ann. 205/2 (West 2009). Under Illinois law, “an
insurance policy is a written instrument covered by [the
Illinois Interest Act].” J.R. Couch v. State Farm Ins. Co.,
666 N.E.2d 24, 27 (Ill. App. Ct. 1996). Prejudgment interest
is appropriate where the sum due or damages are “liqui-
dated or subject to an easy determination by calculation
or computation.” Id. (citing Boyd v. United Farm Mut.
Reinsurance Co., 596 N.E.2d 1344, 1350 (Ill. App. Ct. 1992)).
“Absent some type of bad, vexatious, or unreasonable
conduct prejudgment interest should be awarded at the
statutory rate of 5% on written instruments.” Platinum
Tech., Inc. v. Fed. Ins. Co., 282 F.3d 927, 934 (7th Cir. 2002).
Because the amount of damages was readily deter-
minable, the district court did not abuse its discretion
12 No. 08-4275
in awarding Twenhafel prejudgment interest. However,
nothing in the record supports a rate of interest in excess
of the statutory rate of 5%. There is no mention in the
district court’s opinion that State Auto’s actions
constitute “bad, vexatious, or unreasonable conduct” so
as to justify the higher rate. Twenhafel also does not
allege any such conduct in his complaint and did not
present any evidence to the district court. Accordingly,
the district court abused its discretion in awarding
Twenhafel prejudgment interest at the rate of 6.98%.
Therefore, we vacate that award.
III.
Accordingly, the judgment of the district court is
A FFIRMED except on the issue of prejudgment interest.
On that issue we V ACATE and R EMAND for further pro-
ceedings consistent with this opinion.
A FFIRMED IN P ART, V ACATED IN P ART,
and R EMANDED IN P ART.
9-14-09