155 F.3d 488 (4th Cir. 1998), 97-2253, United Capitol Ins. Co. v. Kapiloff

Docket Nº:97-2253.
Citation:155 F.3d 488
Party Name:UNITED CAPITOL INSURANCE COMPANY, Plaintiff-Appellee, v. Bernard KAPILOFF; Lynn Kapiloff, Defendants-Appellants, v. UNITED CAPITOL INSURANCE COMPANY; J.L. Hickman & Company, Incorporated, t/a IFA Insurance Services, Incorporated; Horan Goldman & Company of Maryland, Incorporated; Ray Miller, Defendants-Appellees.
Case Date:September 08, 1998
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

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155 F.3d 488 (4th Cir. 1998)



Bernard KAPILOFF; Lynn Kapiloff, Defendants-Appellants,



Incorporated, t/a IFA Insurance Services, Incorporated;

Horan Goldman & Company of Maryland, Incorporated; Ray

Miller, Defendants-Appellees.

No. 97-2253.

United States Court of Appeals, Fourth Circuit

September 8, 1998

Argued May 7, 1998.

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[Copyrighted Material Omitted]

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ARGUED: Andre R. Weitzman, Andre R. Weitzman & Associates, Baltimore, MD, for Appellants. Matthew L. Litsky, Butler, Burnette & Pappas, Tampa, FL; David J. McManus, Jr., Baxter, Baker, Sidle & Conn, P.A., Baltimore, MD; Lewis Herbert Gold, Adelman, Lavine, Gold & Levin, Philadelphia, PA, for Appellees. ON BRIEF: Steven J. Potter, Andre R. Weitzman & Associates, Baltimore, MD, for Appellants. John J. Pappas, Scott D. Clay, Butler, Burnette & Pappas, Tampa, FL, for Appellees.

Before WIDENER, NIEMEYER, and LUTTIG, Circuit Judges.

Affirmed in part, reversed in part, and remanded for further proceedings by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WIDENER and Judge LUTTIG joined.


NIEMEYER, Circuit Judge:

Bernard and Lynn Kapiloff own six commercial properties in Baltimore City, which are located in high risk areas and have been partially vacant over the years. Portions of one property were vandalized in December 1994 and again in March 1995, and a fire broke out in another property in February 1995. The Kapiloffs submitted claims totaling $668,421 to United Capitol Insurance Company, their insurer, for those losses. United Capitol denied the claims because of "misrepresentations, omissions, and concealments" about the properties and, alternatively, because the properties violated the"vacancy" and "protective safeguards" conditions in its policy. Thereafter, United Capitol sued the Kapiloffs for a declaratory judgment, and the Kapiloffs filed a counterclaim for breach of contract. They also joined their insurance brokers as parties, alleging negligence.

Ruling that the properties were either vacant or lacked protective safeguards and that the "vacancy" and "protective safeguards" conditions in the insurance policy operated to exclude coverage for the losses, the district court entered summary judgment in favor of United Capitol. It also ruled in favor of the insurance brokers who procured the United Capitol policy on behalf of the Kapiloffs on the grounds that suitable insurance was not available in the market and that one broker was not an agent of the Kapiloffs.

For the reasons that follow, we affirm in part, reverse in part, and remand for further proceedings.


Among the six commercial properties that the Kapiloffs own in Baltimore City, two are involved in the insurance coverage disputes in this action. The first property, located at 2120 West Lafayette Avenue, is an industrial complex known as the Acme Business Center. It consists of two structures, both of which use the 2120 West Lafayette address. One structure is subdivided into five sections, referred to as buildings A, B, C, D, and F. The other structure is free-standing and is referred to as Building E. Although the sections of the subdivided building were originally connected by a basement passageway, today sections A, B, and C are connected with each other, but are separated by an internal brick wall from sections D and F. All five sections of this building share the same electrical and wiring system and are powered by an electrical plant that is located in the

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basement of sections A and B. During the losses involved in this case, sections A, B, and C were vacant, and sections D and F were occupied by a tenant, as was Building E.

The second property, located at 5101 Andard Avenue, is known as the Empire Industrial Park, and consists of eight separate buildings, some of which share the 5101 address, while others have their own addresses. At the time of the loss to this property, tenants occupied 80% of the industrial park, but Building 292, where the fire damage was sustained, was apparently vacant, although the evidence is not totally clear on this.

To arrange commercial property insurance for the six commercial properties, the Kapiloffs contacted their insurance agent, Ray Miller of J.L. Hickman & Co., Inc., t/a IFA Insurance Services, Inc. (hereafter "IFA"). In September 1994, IFA submitted an application on behalf of the Kapiloffs to Horan Goldman & Company of Maryland, Inc. (hereafter "Horan Goldman"), a wholesale surplus lines broker, who obtained an insurance policy for the Kapiloffs from United Capitol Insurance Company, a surplus lines insurance company. Surplus lines are substandard risks that standard markets generally do not handle.

During the application process, Lynn Kapiloff gave Miller and IFA a list of the occupants at the six properties, the square footage of the buildings situated on them, and previous insurance information. Miller and IFA conveyed the information to Horan Goldman, who placed the insurance with United Capitol. United Capitol issued its policy to the Kapiloffs on December 6, 1994, insuring their properties against theft, vandalism, fire, and other risks, subject to the terms and conditions of the policy. The premium was $40,196. The United Capitol policy scheduled the two properties in question, each as a "building" described as "2120 Lafayette" and as "5101 Andard Ave." The policy imposed "Commercial Property Conditions," including (1) that the Kapiloffs maintain protective safeguards on their properties including an automatic sprinkler system, an automatic fire alarm, and a "central station" burglar alarm, and that if the Kapiloffs failed to satisfy this requirement, the policy would not cover any loss caused by fire, and (2) that if "the building where loss or damage occurs has been vacant for more than 60 consecutive days" before the loss, the policy will not cover the loss if caused by vandalism.

On December 30, 1994, vandals broke into sections A and B of the West Lafayette subdivided building and tore up and removed the power plant, causing extensive damage and a blackout of the entire building. While sections A, B, and C were vacant at the time, sections D and F were occupied by the Emmanuel Tire Company. Building E also was occupied. The Kapiloffs submitted a proof of claim for this loss in the amount of $549,725 for property damage and $14,065 for lost rent caused by the power outage. Two weeks after the incident, a claims adjustor examined the properties on behalf of United Capitol and found that the properties failed to meet the conditions of the insurance policy. The adjustor, however, did not advise the Kapiloffs of his findings until December 1995 when coverage was denied.

On February 15, 1995, a fire broke out in Building 292 on the Andard Avenue property. The Kapiloffs submitted a claim in the amount of $18,294 for this damage. While there is a factual dispute as to whether that property was occupied at the time, the Kapiloffs agree that Building 292 did not contain the protective safeguards required by the policy.

Finally, on March 14, 1995, the building at West Lafayette was again vandalized. Copper flashing and window frames were removed from the roofs of sections A, B, and C, for which the Kapiloffs submitted a claim in the amount of $86,337.

In December 1995, after a long review process, United Capitol denied all three claims. It stated that "based upon misrepresentations, omissions, and concealments" by the Kapiloffs and their representatives in the application process, it would regard the policy as rescinded ab initio and would return the premium paid. Alternatively, it noted that the Kapiloffs violated the policy conditions

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that the properties have protective safeguards and not be vacant.

Shortly thereafter, United Capitol filed this action against the Kapiloffs seeking a declaratory judgment that it has no liability for the three claims. The Kapiloffs responded with a suit in state court against United Capitol and the insurance brokers, Miller, IFA, and Horan Goldman, alleging that United Capitol breached the insurance policy and that the brokers were negligent in procuring insurance coverage for the Kapiloffs. Based on the state action which they filed, the Kapiloffs then moved to dismiss this action, alleging that the district court should abstain because the more complete case was readily decidable by the state court. When the district court denied the Kapiloffs' motion to abstain, the Kapiloffs filed an answer and counterclaim in this action, joining Miller, IFA, and Horan Goldman as counterclaim defendants.

On the motion of United Capitol and the insurance brokers, the district court entered summary judgment in their favor, holding that because the properties were vacant and lacked protective safeguards, the "vacancy" and "protective safeguards" conditions in the insurance policy operated to exclude coverage. The court also rejected the Kapiloffs' contention that United Capitol waived its right to enforce these conditions by delaying its denial of coverage. Finally, the court entered judgment in favor of the brokers. With respect to Miller and IFA, the court concluded that any loss to the Kapiloffs for deficient insurance coverage was not proximately caused by any negligence of Miller and IFA. It dismissed Horan Goldman on the grounds that Horan Goldman was not an agent of the Kapiloffs and therefore owed them no duty.

On appeal, the Kapiloffs allege that the district court abused its discretion in refusing to abstain. On the substantive points, they argue not only that the court erred, but also that factual issues remained, precluding resolution of the issues by summary judgment.


We first must address the issue, raised during oral argument,...

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