DocketNumber： No. 1:10-cv-00843-LJM-MJD
Judges： McKinney
Filed Date： 11/21/2011
Status： Precedential
Modified Date： 11/7/2024
ORDER
This matter comes before the Court on plaintiffs, Union Savings Bank (“Union Savings”), Motion for Partial Summary Judgment [dkt. no. 44]; defendant’s, Allstate Indemnity Company (“Allstate”), Cross-Motion for Summary Judgment [dkt. no. 48]; and third-party defendant’s, Kristen Tod (“Ms. Tod”), Motion for Summary Judgment [dkt. no. 46]. This matter centers on the scope of third-party defendant’s, Scott Tod (“Mr. Tod”), Allstate Landlords Package Policy AS84 (the “Landlords Policy”). The property in question is located at 14930 Sulky Way, Carmel, Hamilton County, Indiana 46032 (the “Property”). The Landlords Policy lists Union Savings as the mortgagee of the Property. Union Savings seeks a declaration from the Court that the Landlords Policy provides it with coverage for damage to the Property. Union Savings further seeks damages for breach of contract and Allstate’s bad faith in denying Union Savings’ claim. Union Savings has only moved for summary judgment on its declaratory judgment request. Allstate seeks a declaration from the Court that the Landlords Policy does not provide coverage to either the Tods or Union Savings for the damage to the Property, as well as summary judgment on Union Savings’ bad faith and breach of contract theories. Ms. Tod, having disclaimed any interest in the Landlord’s Policy, seeks dismissal from the case. For the following reasons, the Court GRANTS Union Savings’ Motion for Partial Summary Judgment [dkt. no. 44]; GRANTS in PART and DENIES in PART Allstate’s Cross-Motion for Summary Judgment [dkt. no. 48], and GRANTS Ms. Tod’s Motion for Summary Judgment [dkt. no. 46].
I. BACKGROUND
On October 27, 2006, the Tods purchased the Property. Grass Dep. Exs. AB. Although there is some dispute as to whether Ms. Tod signed the promissory note that was secured by a mortgage on the Property, there is no dispute that Union Savings was the mortgagee of the Property. Stewart Aff. Ex. 1. On February 23, 2008, Mr. Tod obtained the Landlords Policy for the Property. Id.
On January 2, 2009, Union Savings notified the Tods that they were in default on their loan and that Union Savings would soon begin foreclosure proceedings. Grass Dep. Ex. D. On January 5, 2009, Union Savings engaged an outside contractor to visually inspect the exterior of the Property prior to initiating foreclosure proceedings. Id. Ex. E. In its report, the contractor noted that the water and electricity were “off.” Id. On March 3,2009, Union Savings sent an appraiser to assess the Property. Stewart Aff. Ex. 5. The appraiser discovered water in the basement of the Property and notified Union Savings. Id. Union Savings immediately notified Allstate of the damage. Id. On March 6, 2009, Union Savings filed a formal claim under the mortgagee clause in the Landlords Policy. Id.
On March 25, 2009, by letter, Allstate initially denied Union Savings’ claim. Compl. Ex. B. Citing exclusions in the Landlords Policy for water damage, All
On November 30, 2009, after consultation with outside counsel and a forensic expert, Allstate concluded that Union Savings’ loss was excluded under Section I of the Landlords Policy. Id. Ex. E. Specifically, Allstate cited language excluding coverage for a loss consisting of or caused by “[w]ater or any other substance that overflows from a sump pump.” Id.
The Landlords Provision contains a mortgagee clause. It provides in relevant part:
Mortgagee
A covered loss will be payable to the mortgagees named on the policy declarations to the extent of their interest and in the order of precedence. All provisions of Section I of this policy apply to these mortgagees.
We will:
a) protect the mortgagee’s interest in a covered building structure in the event of an increase in hazard, intention or criminal acts of, or directed by, an insured person, failure by any insured person to take all reasonable steps to save a preserve property after a loss, a change in ownership, or foreclosure if the mortgagee has no knowledge of these conditions.
Landlords Policy at 19. The pertinent portion of Section I provides:
Losses We Do Not Cover Under Coverages A and B:
A. We do not cover loss to the property ... consisting of or caused by:
2. Water or any other substance that backs up through sewers or drains.
3. Water or any other substance that overflows from a sump pump, sump pump well or other system designed for the removal of subsurface water which is drained from a foundation area of a structure.
4. Water or any other substance on or below the surface of the ground, regardless of its source. This includes water or any other substance which exerts pressure on, or flows, seeps or leaks through, any part of the residence premises.
7. The failure by any insured person to take all reasonable steps to save and preserve property when the property is endangered by a loss we cover.
8. Any substantial change or increase in hazard, if changed or increased by any means within the control or knowledge of an insured person.
9. Intentional or criminal acts of, or at the direction of, an insured person, if the loss that occurs:
a) may be reasonably expected to result from such acts; or
b) is the intended result of such acts.
*628 This exclusion applies regardless of whether an insured person is actually charged with, or convicted of, a crime.
Landlords Policy at 7-8.
The Court includes additional facts below as necessary.
II. STANDARD
As stated by the Supreme Court, summary judgment is not a disfavored procedural shortcut, but rather is an integral part of the federal rules as a whole, which are designed to secure the just, speedy, and inexpensive determination of every action. See Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). See also United Ass’n of Black Landscapers v. City of Milwaukee, 916 F.2d 1261, 1267-68 (7th Cir.1990). Motions for summary judgment are governed by Federal Rule of Civil Procedure 56(a), which provides in relevant part:
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.
Once a party has made a properly-supported motion for summary judgment, the opposing party may not simply rest upon the pleadings but must instead submit evidentiary materials showing that a fact either is or cannot be genuinely disputed. Fed.R.Civ.P. 56(c)(1). A genuine issue of material fact exists whenever “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The nonmoving party bears the burden of demonstrating that such a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Oliver v. Oshkosh Truck Corp., 96 F.3d 992, 997 (7th Cir.1996). It is not the duty of the Court to scour the record in search of evidence to defeat a motion for summary judgment; rather, the nonmoving party bears the responsibility of identifying applicable evidence. See Bombard v. Ft. Wayne Newspapers, Inc., 92 F.3d 560, 562 (7th Cir.1996).
In evaluating a motion for summary judgment, the Court should draw all reasonable inferences from undisputed facts in favor of the nonmoving party and should view the disputed evidence in the light most favorable to the nonmoving party. See Estate of Cole v. Fromm, 94 F.3d 254, 257 (7th Cir.1996). The mere existence of a factual dispute, by itself, is not sufficient to bar summary judgment. Only factual disputes that might affect the outcome of the suit in light of the substantive law will preclude summary judgment. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505; JPM Inc. v. John Deere Indus. Equip. Co., 94 F.3d 270, 273 (7th Cir.1996). Irrelevant or unnecessary facts do not deter summary judgment, even when in dispute. See Clifton v. Schafer, 969 F.2d 278, 281 (7th Cir.1992). If the moving party does not have the ultimate burden of proof on a claim, it is sufficient for the moving party to direct the court to the lack of evidence as to an element of that claim. See Green v. Whiteco Indus., Inc., 17 F.3d 199, 201 & n. 3 (7th Cir.1994). “If the nonmoving party fails to establish the existence of an element essential to his case, one on which he would bear the burden of proof at trial, summary judgment must be granted to the moving party.” Ortiz v. John O. Butler Co., 94 F.3d 1121, 1124 (7th Cir.1996).
III. DISCUSSION
A. MS. TOD’S MOTION FOR SUMMARY JUDGMENT
The Court will address Ms. Tod’s Motion for Summary Judgment before turn
Although Union Savings does raise a question of fact in its response to Ms. Tod’s Motion, it is not material. It is undisputed that Union Savings has not asserted any cause of action against Ms. Tod in the present action and, further, that the time for amending the pleadings is well past. See Dkt. No. 22 (case management plan). The only pending legal question concerning Ms. Tod in this action is whether Allstate owes her any obligation under the Landlords Policy. Because Ms. Tod has disclaimed any interest in the Landlords Policy, the Court DECLARES as a matter of law that she is not entitled to any indemnification or defense under the Landlords Policy. Accordingly, the Court GRANTS Ms. Tod’s Motion for Summary Judgment, and she is DISMISSED WITH PREJUDICE as a party from this case.
B. UNION SAVINGS’AND ALLSTATE’S CROSS MOTIONS FOR SUMMARY JUDGMENT
The Court now turns its attention to Union Savings’ and Allstate’s cross-motions for summary judgment on the issue of whether the Landlords Policy provides coverage for the loss Union Savings claimed on March 6, 2009. The parties agree that Indiana law is the appropriate law for the Court apply to this action.
1. Declaratory Judgment as to the Scope of Coverage Provided to Union Savings
In Indiana, “[insurance contracts are governed by the same rules of construction as other contracts.” Earl v. Am. States Preferred Ins. Co., 744 N.E.2d 1025, 1027 (Ind.Ct.App.2001). Therefore, the interpretation of an insurance policy generally presents a question of law that is appropriate for summary judgment. Id. “When interpreting an insurance policy, [the Court’s] goal is to ascertain and enforce the parties’ intent as manifested in the insurance contract.” Burkett v. Am. Family Ins. Grp., 737 N.E.2d 447, 452 (Ind.Ct.App.2000) (internal quotation omitted). The Court will give the language of the policy its plain and ordinary meaning if it is clear and unambiguous. Id. A provision is ambiguous if it “is susceptible to more than one interpretation and reasonable persons would differ as to its meaning.” Am. Family Ins. v. Globe Am. Cas. Co., 774 N.E.2d 932, 935 (Ind.Ct.App. 2002). The mere fact that the parties offer different interpretations of the policy language is not enough to create an ambi
Allstate argues that by its clear terms, the Landlords Policy does not cover loss to property “consisting of or caused by ... water or any other substance that overflows from a sump pump.” Asserting that the loss in the instant case was caused by water that overflowed from a sump pump, Allstate concludes that the Court should declare that there is no coverage under the Landlords Policy for Union Savings’ claimed loss. Union Savings, however, invokes the “efficient proximate cause” theory to argue that the Landlords Policy does provide coverage for Union Savings’ loss because the loss resulted from an increase in hazard caused by the insured. Accordingly, the Court will first address the causation of the claimed loss.
The “efficient proximate cause” theory is set out in Associated Aviation Underwriters v. George Koch Sons, Inc. 712 N.E.2d 1071 (Ind.Ct.App.1999). In that case, plaintiff brought a declaratory judgment against defendant insurer for a determination that defendant’s “all risks” insurance policy covered engine damage to plaintiffs aircraft. Id. at 1074. Defendant argued that the damage was caused by wear and tear, deterioration, or mechanical breakdown, all excluded perils under the insurance policy at issue. Id. at 1073. After a bench trial, the court determined that the damage to the engine was caused by the negligent installation of a seal ring in the engine during maintenance work on the aircraft and concluded that this peril was not excluded from coverage. Id. The appellate court agreed, stating that “[t]he exclusion provision at issue, viewed in the context of the entire policy, is not meant to apply regardless of any possible negligent antecedent occurrence which in turn causes the engine to sustain mechanical breakdown or abnormal wear and tear.” Id. at 1076. Accordingly, the appellate court concluded that “[ajlthough excessive wear and tear or ‘mechanical breakdown’ may have occurred as a result of the negligence of [a third party], it was the negligence (a covered peril) which was the cause of the loss for the purposes of exclusion.” Id. In reaching its conclusion, the appellate court quoted a case from Washington that summarizes the efficient proximate cause theory: “where an insured risk itself sets into operation a chain of causation in which the last step may have been an excepted risk, the excepted risk will not defeat recovery.” Id. at 1075 (quoting Villella v. Pub. Emps. Mut. Ins. Co., 106 Wash.2d 806, 725 P.2d 957, 962 (1986)).
Union Savings argues that like the plaintiff in Associated Aviation Underwriters, its loss was caused by a covered hazard. Specifically, Union Savings asserts that the loss was caused not by one of the water based exclusions in the Landlords Policy, but instead by the Tods’ failure to maintain electric services to the Property. Allstate counters, citing Ramirez v. American Family Mutual Insurance Co., 652 N.E.2d 511, 515-16 (Ind.Ct. App.1995). In Ramirez, the court concluded that there was no genuine issue of material fact regarding the proximate cause of the property loss where the insureds claimed that the loss was caused by a power outage resulting from an ice storm rather than failure of their sump pump, a peril specifically excluded by the policy. Id. However, the Ramirez policy exclusion excluded loss resulting from sump pump failure “regardless of any other cause or event contributing concurrently or in any
Allstate argues that its exclusion is even clearer than the Ramirez exclusion because although the Landlords Policy does not contain language similar to the language in Ramirez, it does state that Allstate clearly excludes loss “consisting of or caused by” water “regardless of its source.” Landlords Policy at 7. The “regardless of its source” language is meant to capture any water damage, regardless of the place the water originates, but it does not contemplate excluding water loss caused by an insured risk. Id. The Ramirez policy, on the other hand, excluded water loss regardless of the cause of the loss. 652 N.E.2d at 515-16. The “regardless of any other cause or event” language contained within the Ramirez policy directly contradicts the principle of efficient proximate cause, but nothing in the instant Landlords Policy similarly contradicts the theory of efficient proximate cause. Accordingly, the Court concludes that because nothing in the language of the Landlords Policy precludes it, the theory of efficient proximate cause does apply to the instant case. See Assoc. Aviation Underwriters, 712 N.E.2d at 1075.
Allstate’s investigator, William Mers Kelly (“Mers Kelly”), inspected the property and provided a cause and origin report with respect to the damages in the basement. Mers Kelly concluded:
1. The high water levels and subsequent water damage were the result of a lack of power to both sump pumps for extended periods.
2. These extended power losses were due to the electric service being shut off first at the request of the tenant June 4, 2008, and then by bankruptcy on October 7, 2008.
3. The extent of the problem was greatly influenced by the lack of proper drainage particularly on the west side (rear) of the structure.
4. The amount of damage was greatly increased by the lack of power to the utility room sump and the lack of clean up over an extended period.
Stewart Aff., Ex. 2, at 5. Union Savings asserts that the sole cause of the damage was the Tods’ negligence in paying their electricity bills, resulting in an electrical shut down which caused the sump pump failure and, ultimately, water damage. Allstate argues that the water event which led to the sump pump overflowing was an intervening event that broke the causal chain started by the Tods’ failure to maintain electric service to the house. However, under the efficient proximate cause theory, the water event that occurred after the causal chain was set in motion is simply an effect of the insured risk. See Associated Aviation Underwriters, 712 N.E.2d at 1075 (stating that “where an insured risk itself sets in operation a chain of causation in which the last step may have been an excepted risk, the excepted risk will not defeat recovery”). Accordingly, if the Tods’ failure to maintain electric service to the Property is an insured risk, then the claimed loss is covered to the extent that it was caused by such failure.
Union Savings asserts that the loss is covered under the mortgagee clause, which, according to Union Savings, protects the mortgagee in the case that the insured takes action to increase the hazard. Union Savings further asserts that this coverage is ambiguous. Allstate argues that the mortgagee clause is not ambiguous.
The mortgagee clause initially states: “a covered loss will be payable to the mortgagees.” Landlords Policy at 19. The next sentence states “[a]ll provisions of Section I of the this policy apply to these mortgagees.” Id. Allstate argues when these two phrases are read in conjunction, they require an initial “covered loss.” Allstate’s suggested reading effectively reads out coverage provided by the mortgagee clause, rendering the whole section surplusage. Specifically, Section I states that the Landlords Policy does not cover “[t]he failure by any insured person to take all reasonable steps to save the preserve the property when the property is endangered by a cause of loss [Allstate] cover[s]” or “[a]ny substantial change or increase in hazard, if changed or increased by any means within the control or knowledge of an insured person.” Id. at 8. However, the mortgagee clause specifically provides the mortgagee with coverage “in the event of an increase in hazard, intentional or criminal acts of, or directed by an insured person, failure by any insured person to take all reasonable steps to save and preserve the property after a loss.” Id. at 19.
Reasonable people could disagree as to whether the mortgagee clause removes the three Section I exclusions that contradict the coverage the mortgagee clause purports to provide for the purposes of the mortgagee clause but retains the other Section I exclusions, or whether there must be an initial covered loss that conforms to all of the terms of Section I before the mortgagee clause attaches. See Am. Family Ins., 774 N.E.2d at 935 (stating that if a provision is susceptible to more than one interpretation and reasonable people could disagree to its meaning, the provision is ambiguous). The mortgagee clause does not, by its terms, resolve the conflict. Consequently, the mortgagee clause, when read in conjunction with Section I of the Landlords Policy contains a patent ambiguity, that is, the mortgagee clause purports to both exclude and cover certain causes of loss at the same time. See Simon Prop. Group, L.P. v. Mich. Sporting Goods Distribs., 837 N.E.2d 1058, 1070 (Ind.Ct.App.2005) (describing a patent ambiguity as “apparent on the face of the instrument and arising] from an inconsistency or inherent uncertainty of language used so that it either conveys no definite meaning or a confused meaning”). Accordingly, the Court concludes that the Landlords Policy does protect the mortgagee’s interest in the event of “an increase in hazard, intentional or criminal acts of, or directed by, an insured person, failure by any insured person to take all reasonable steps to save and preserve property after a loss ... if the mortgagee has no knowledge of the these conditions.” Landlords Policy at 19; see
2. Declaratory Judgment As to the Scope of Coverage Provided to Mr. Tod
Allstate joins its arguments against Union Savings and Mr. Tod with respect to the scope of coverage the Landlords Policy provides. Mr. Tod failed to respond to Allstate’s motion. The Court notes that as to the property owner, the Landlords Policy excludes both loss caused by or consisting of water and loss caused by an increase in the hazard by the insured. See Landlords Policy, Section I at 7-8. Accordingly, the Court concludes and DECLARES that the Landlords Policy does not extend coverage to Mr. Tod for any of the damage claimed by Union Savings.
3. Breach of Contract
Allstate also seeks summary judgment on Union Savings’ breach of contract claim, asserting that because there was no covered loss, Allstate did not breach its contract with Union Savings. Union Savings did not request summary judgment on its breach of contract claim. However, as explained above, the Court concludes that Union Savings’s claimed loss was at least partially covered and, accordingly, the Court DENIES Allstate’s Motion for Summary Judgment with respect to Union Savings’ breach of contract claim. The only issue remaining is to what extent the claimed damages were caused by Mr. Tod’s increase in the hazard.
4. Bad Faith
Finally, the Court turns its attention to Allstate’s arguments for summary judgment with respect to Union Savings’ bad faith claim. In Indiana, insurers have an implied contractual duty to act in good faith by acknowledging coverage for a claim where it exists under the policy. Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 519 (Ind.1993).
The obligation of good faith an fair dealing with respect to the discharge of the insurer’s contractual obligation includes the obligation to refrain from (1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into settlement of his claim.
Id. “[A] good faith dispute over whether an insured has a valid claim will not support the grounds for recovery in tort for the breach of the obligation to exercise good faith.” Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 975 (Ind. 2005) (citing Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind.2002)). “As a general proposition, a finding of bad faith requires evidence of a state of mind reflecting dishonest purpose, moral obliquity furtive design, or ill will.” Id. at 977 (internal quotations omitted).
Allstate asserts that it investigated and denied Union Savings’s claim in good faith. Union Savings contends that although Allstate did thoroughly investigate the claim, it ignored the conclusions
Based upon the information ... obtained during your ... investigation of the claim, it is our opinion ... [that] reasonable justification exists to deny Union Savings Bank’s claim under the Mortgagee provisions contained in the policy. The terms of this provision limit the mortgagee’s coverage to the provisions of Section I. Section I provides there is no coverage for losses due to surface or subsurface water through any means.
Dkt. No. 49-52. Counsel explains that his earlier perception of an ambiguity in the Landlord’s Policy was incorrect because the language of the mortgagee clause “does not expand the mortgagee’s protection beyond that afforded by the terms of the policy, [but instead] merely provides that conduct by the insured will not jeopardize the mortgagee’s rights within the scope of coverage provided by the policy.” Id. Concluding that losses due to surface or subsurface water “through any means” are not covered, Allstate’s counsel assured them that it was his opinion that Allstate had “reasonable justification” to deny Union Savings’ insurance claim. Id. In the face of the second letter, Union Savings has not put forth sufficient evidence to create a question as to whether Allstate possessed the requisite state of mind to commit the tort of bad faith. Therefore, the Court GRANTS Allstate’s motion for summary judgment with respect to Union Savings’ bad faith claim.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS third party defendant’s, Kristin Tod, Motion for Summary Judgment, and DECLARES that the Landlords Policy does not entitle her to indemnity from Allstate. Further, the Court DISMISSES Ms. Tod WITH PREJUDICE from this cause.
The Court further GRANTS plaintiffs, Union Savings Bank, Motion for Summary Judgment and DECLARES that to the extent that the claimed damage to the Property was caused by Mr. Tod’s failure to maintain electric service to the Property, defendant, Allstate Indemnity Company, is required by the Landlords Policy to indemnify Union Savings Bank. Finally, the Court GRANTS in PART and DENIES in PART, defendant’s, Allstate Indemnity Company, Motion for Summary Judgment. Specifically, the Court DENIES Allstate’s request for a declaration that the Landlords Policy does not provide coverage for Union Savings’ claimed loss, but the Court DECLARES that the Landlords Policy does not provide Mr. Tod with coverage for the damage claimed by Union Savings. The Court also DENIES Allstate’s Motion for Summary Judgment as to Union Savings’ breach of contract claim, but the Court GRANTS Allstate’s Motion for Summary Judgment as to Union Savings’ bad faith claim.