2315 St. Paul St., LLC v. Hartford Fire Ins. Co.
| Decision Date | 25 June 2012 |
| Docket Number | Civil Action No. GLR-10-3641 |
| Parties | 2315 ST. PAUL STREET, LLC, Plaintiff, v. HARTFORD FIRE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Maryland |
This matter is before the Court on Defendant Hartford Fire Insurance Company's ("Hartford") Motion for Summary Judgment. (ECF No. 34). This case involves Hartford's denial of coverage, under a builder's risk policy, for Plaintiff 2315 St. Paul Street, LLC's ("St. Paul") loss of building fixtures, construction equipment, and other items stolen by a subcontractor during building renovations. The issue before the Court is whether Hartford's denial of St. Paul's insurance claim constitutes a breach of contract (Count I) and failure to act in good faith (Count II). The issues have been fully briefed and no hearing is necessary. See Local Rule 105.6 (D.Md. 2011). The Court concludes Hartford's denial of St. Paul's claim does not constitute breach of contract, and therefore Hartford did not fail to act in good faith, because the Entrustment Exclusion inthe insurance policy is applicable. Accordingly, the Court GRANTS Hartford's Motion for Summary Judgment.
The record reflects the following undisputed facts. On May 24, 2007, Mohammed Farooq, sole owner of St. Paul, entered into a financing contract with Tremont New Funding I, LLC for the purpose of converting the Land Bank Building, located at 2315 St. Paul Street, Baltimore, Maryland, into a 63-unit multi-family apartment complex. At the time of contract creation, Mr. Farooq identified the borrower entity as "to be formed," and the sponsor and guarantor of the loan as "Mohammed Farooq, Principal, Red Canyon Properties." On or about August 1, 2007, St. Paul acquired a Commercial Inland Marine Insurance Policy from Hartford to cover the period of August 1, 2007, to August 10, 2008.1 The named insured and mailing address on the policy reads "2315 St. Paul Street LLC, C/O Red Canyon Properties, 211 E. Lombard St., STE 280, Baltimore, MD 21202."
St. Paul contracted with Red Canyon Properties, LLC ("Red Canyon") to serve as general contractor of the renovation project. Ibrahim Sheikh is the Red Canyon employee responsible for oversight of the day-to-day operations of the project. Mr.Sheikh testified under oath that Mr. Farooq is a member of both St. Paul and Red Canyon. Mr. Sheikh also testified that he and Mr. Farooq have an ongoing business relationship that involves the acquisition and renovation of properties, whose addresses are converted into LLC names, and subsequent procurement of all contracts under Red Canyon. Mr. Sheikh's sworn testimony regarding his business relationship with Mr. Farooq is supported by various documents in the record.2
Upon the referral of a colleague, Mr. Sheikh contracted with Basil Bradford ("Bradford") on October 15, 2007, to complete demolition work to the property within thirty (30) days of the contract's execution. The contract required Bradford to "[r]emove and cut all excess plumbing pipes, steam pipes, cooling tower on the roof, boilers in sub-basement and other items as instructed by the architect and owner" and to "take reasonable steps to secure the Property against casualty, loss and vandalism including, but not limited to, locking all external doors and closing and locking all windows when notphysically present at the Property." (Def.'s Mot. Summ. J. Ex. N, at P-00037, ECF No. 34-15)(emphasis added). Prior to the start of the demolition work, Mr. Sheikh and Bradford walked throughout the building, marking items that required removal. Bradford received a key to the property, was granted unfettered access, and often worked unsupervised with his employees. No other contractors were assigned to the property during the October 2007 to November 2007 time period.
During this period, Mr. Sheikh left the country on or about October 28, 2007, and returned the day after Thanksgiving. Mr. Sheikh delegated his managerial duties to Juan Osario, draftsman for the renovation project, in his absence. Upon his return, Mr. Sheikh found that Bradford failed to complete the demolition work and that valuable fixtures, construction equipment, and other items were taken from the property without the owner's permission. Mr. Sheikh thereafter met with Bradford who assumed responsibility for the taken items.
Mr. Sheikh and Bradford entered into a second contract on December 20, 2007 ("Second Contract"), requiring Bradford to "fulfill the terms of his original contract" and also "correct and repair any damage and to replace any stolen or destroyed items at his own expense," by January 4, 2008. (Def.'s Mot. Summ. J. Ex. N, at P-00039-40)(emphasis added). The Second Contract specifically states "Mr. Basil Bradford accepts [soleresponsibility] for damage done to the property." (Id. at P-00039).
When Bradford failed to honor the Second Contract, Mr. Sheikh contacted law enforcement and filed an insurance claim with Hartford. Hartford's investigation of the claim commenced March 7, 2008, and ended on or about August 22, 2008. Hartford's investigation involved, inter alia, visits to the property, interviews with Bradford and his former employees, and examinations under oath. In a letter dated August 20, 2008, Hartford ultimately denied the claim, contending the policy's Entrustment Exclusion precluded coverage because "the loss in question was caused exclusively by dishonest and criminal acts of a contractor to whom you entrust[ed] the property." (Id. at P-00031). St. Paul subsequently filed this action alleging breach of contract (Count I) and failure to act in good faith (Count II). Discovery is complete and Hartford now seeks summary judgment on both counts.
Summary judgment is only appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). In reviewing a motion for summary judgment, theCourt views the facts in a light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48. A "material fact" is a fact that might affect the outcome of a party's case. Id. at 248; JKC Holding Co. v. Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001). Whether a fact is considered to be "material" is determined by the substantive law, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248; Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001).
Rule 56(e) requires the nonmoving party to go beyond the pleadings and by its own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). Thenonmoving party may not, however, withstand summary judgment by offering a conclusory, self-serving affidavit that is without corroboration. See, e.g., National Enters. v. Barnes, 201 F.3d 331, 335 (4th Cir. 2000)("[Plaintiff's] self-serving affidavit describing the content of the repurchase agreements is not enough to defeat [defendant's] motion for summary judgment."); Evans v. Techs. App. & Serv. Co., 80 F.3d 954, 962 (4th Cir. 1996)(internal citation omitted)("[S]ummary judgment affidavits cannot be conclusory.").
Maryland substantive law governs this diversity action. See 28 U.S.C. § 1652; Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
Hartford moves for summary judgment on St. Paul's claims of Breach of Contract (Count I) and Failure to Act in Good Faith (Count II), citing the application of the policy's Entrustment Exclusion and proper denial of coverage as justifications.3 (Def.'s Mot. Summ. J. Ex. A, at HFIC000438-39). The Court finds no genuine issue of material fact exists as to either count.
Under Maryland law, "[a]n insurance policy is interpreted in the same manner as any other contract." French v. Assurance Co. of Am., 448 F.3d 693, 700 (4th Cir. 2006) (citing Nationwide Ins. Co. v. Rhodes, 732 A.2d 388, 390 (Md.Ct.Spec.App. 1999)). Contract law, therefore, requires "that a contract be interpreted as a whole, in accordance with the objective law of contracts, to determine its character and purpose." Anderson v. General Cas. Ins. Co., 935 A.2d 746, 752 (Md. 2007)(quoting United Servs. Auto Ass'n v. Riley, 899 A.2d 819, 833 (2006)). The court analyzes the "plain language of the contract according words and phrases their ordinary and accepted meanings as defined by what a reasonably prudent lay person would understand them to mean." Kendall v. Nationwide Ins. Co., 702 A.2d 767, 772 (Md. 1997). If contract terms are unambiguous, the court "may construe the insurance contract as a matter of law." MAMSI Life & Health Ins. Co. v. Callaway, 825 A.2d 995, 1005 (Md. 2003). Conversely, ambiguities are to be construed against the insurer. Id. at 1006.
Hartford's Commercial Inland Marine Insurance Policy provides coverage for "direct physical 'loss' to Covered Property caused by any of the Covered Causes of Loss" except "those causes of 'loss' listed in the Exclusions." (Def.'s Mot. Summ. J. Ex. A, at HFIC000438-39). The policy's EntrustmentExclusion removes coverage for ...
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