Advance Cable Co. v. Cincinnati Ins. Co., s. 14–2620

• Decision Date: 11 June 2015
• Docket Number: 14–2748.,Nos. 14–2620,s. 14–2620
• Citation: 788 F.3d 743
• Parties: ADVANCE CABLE COMPANY, LLC, and Pinehurst Commercial Investments, LLC, Plaintiffs–Appellees, Cross–Appellants, v. CINCINNATI INSURANCE COMPANY, Defendant–Appellant, Cross–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

788 F.3d 743

ADVANCE CABLE COMPANY, LLC, and Pinehurst Commercial Investments, LLC, Plaintiffs–Appellees, Cross–Appellants

v.CINCINNATI INSURANCE COMPANY, Defendant–Appellant, Cross–Appellee.

Nos. 14–2620

14–2748.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 11, 2014.

Decided June 11, 2015.

Charles David Schmidt, Anthony K. Murdock, Attorney, Halloin & Murdock, S.C., Milwaukee, WI, for Plaintiffs–Appellees, Cross–Appellants.

Stephanie L. Dykeman, Mark W. Rattan, Attorney, Litchfield Cavo, Brookfield, WI, for Defendant–Appellant, Cross–Appellee.

Before WOOD, Chief Judge and FLAUM and MANION, Circuit Judges.

Opinion

WOOD, Chief Judge.

On April 3, 2011, Middleton, Wisconsin, was pelted with hail. Predictably, some structures were damaged, including the metal roof of a building located at 2113 Eagle Drive. The owners, Advance Cable Company and Pinehurst Commercial Investments (to which we refer collectively as Advance), submitted a claim to their insurance company, Cincinnati Insurance, but they were not satisfied with its response. Cincinnati took the position that the damage was cosmetic and thus excluded from the policy, while Advance thought the damage was more extensive and covered by the policy; indeed, Advance believed it was entitled to reimbursement for a new roof. It brought this diversity action in federal court to resolve the matter. The district court granted summary judgment for Advance on the coverage question, but it rejected Advance's argument that Cincinnati acted in bad faith when it refused to pay for the new roof. We affirm.

I

In 2010, Advance obtained an insurance policy from Cincinnati on two properties in Middleton, one of them at 2113 Eagle Drive. (Pinehurst entered the picture because it owned the building and was added to the policy as a named insured in 2011. Its presence has no effect on our analysis.) Only a few of the policy's provisions concern us. Under the heading “Coverage,” the policy says, “We will pay for direct physical ‘loss' to Covered Property at the ‘premises' caused by or resulting from any Covered Cause of Loss.” The policy defines “Covered Causes of Loss” as “risks of direct physical loss,” and then defines “loss” as “accidental loss or damage.” It does not define “direct” or “physical.” The parties do not dispute that the “Covered Property” includes the building at 2113 Eagle Drive; that building is specifically listed in the “Schedule of Locations” in the policy.

After the hailstorm rolled through Middleton in April 2011, Mike Larson, Advance's president, filled out a form reporting damage to the Eagle Drive property and another building. That same month, Larson inspected the roof at 2113 Eagle Drive with Curt Jorgenson, a senior claims representative for Cincinnati. Jorgenson spotted some dents, but he saw little other evidence of damage. In June 2011, Jorgenson sent Larson an “estimate for hail damage to your building,” in which he “note[d] some dents to soft metal roof vents and AC fins” but stated that he “did not observe any damage to roofing.” Jorgenson estimated that the building required $1,894.74 in repairs. The next month, Jorgenson sent Larson a check representing the estimated damages to both of Advance's buildings, minus a $1,000 deductible, for a total of $1,512.70.

The story did not end there. Approximately six months later, in January 2012, Advance was considering selling the Eagle Drive building. The potential buyer, Welton Enterprises, decided to have the roof inspected. Unlike Jorgenson, Welton's inspector reported that there was “definitely hail damage.” (Cincinnati disputed at summary judgment that the Welton inspector was referring to the Eagle Drive property, but the district court properly found no genuine dispute of fact on this question given the cover email's reference to “the Eagle Drive roof.”) This opinion prompted Advance to ask Jorgenson to reopen Advance's claim. He did so and arranged for a new inspection of the roof. The resulting report covered both of Advance's buildings in Middleton. It noted that “[m]etal roof panel denting characteristic of hail impact was found on several buildings. Dents related to hail impact varied in size from barely discernable to approximately 1” in 1 [sic ] diameter.” Under the heading “Discussion,” the report opined that the denting “will not affect the performance of the panels (roofs) or detract from the panels['] (roofs ['] ) life expectancy.... The denting that occurred as a result of hail impact was relatively minor and cannot be view [sic ] from ground level.”

A few months after receiving this report, Advance sold the 2113 Eagle Drive building to Welton, without any further developments relating to its claim with Cincinnati for hail damage to the roof. Believing that Cincinnati had breached its contract with Advance to cover damage to the Eagle Drive building and that its denial of coverage was in bad faith, Advance sued Cincinnati in April 2013. Both Advance and Cincinnati moved for summary judgment. Advance asked the district court to rule that the insurance policy covered the hail damage; Cincinnati asked the court to find that coverage was excluded and also to grant summary judgment against Advance on its bad faith claim. As we mentioned above, the district court held that the policy did cover the hail damage, but that Cincinnati's refusal to acknowledge this was not done in bad faith. Following the court's summary judgment decision, the parties stipulated that the sole issue remaining for trial was the amount of money necessary to replace the damaged roof. They then stipulated that this amount was $175,500, and the court entered a final judgment in that amount in favor of Advance.

II

We review de novo a district court's decision to grant summary judgment. Doe v. Archdiocese of Milwaukee, 772 F.3d 437, 440 (7th Cir.2014). In reviewing cross-motions for summary judgment, we take the motions one at a time and then, as usual, construe all facts and draw all reasonable inferences in favor of the non-moving party. See United States v. P.H. Glatfelter Co., 768 F.3d 662, 668 (7th Cir.2014). Summary judgment is appropriate only “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.” Fed. R. Civ. P. 56(a).

We turn first to Advance's claim that its policy with Cincinnati covered hail damage to the roof. The law of Wisconsin furnishes the applicable rule of decision. 28 U.S.C. § 1652. Wisconsin courts construe insurance policies in the same manner as they would any contract. Strauss v. Chubb Indem. Ins. Co., 771 F.3d 1026, 1030 (7th Cir.2014). We must ascertain what a reasonable person in the position of the insured—here, Advance—would understand the policy to mean. Blum v. 1st Auto & Cas. Ins. Co., 326 Wis.2d 729, 786 N.W.2d 78, 83 (2010). Ambiguous language (that is, language that is “susceptible to more than one reasonable interpretation”) is to be construed against the insurer and in favor of the insured. State Farm Mut. Auto. Ins. Co. v. Langridge, 275 Wis.2d 35, 683 N.W.2d 75, 81 (2004) (internal quotation marks omitted).

The heart of the dispute between the parties concerns the meaning of the term “direct physical loss” in the policy. In the end, however, we find the coverage question to be fairly straightforward. Neither Advance nor Cincinnati disputes the meaning of the term “direct” in the policy. Although the policy does not elaborate on that word, common sense suggests that it is meant to exclude situations in which an intervening force plays some role in the damage. No such force was present here: to the extent the roof was damaged at all, everyone agrees that the hailstorm was the culprit.

The parties devote more discussion to the word “physical,” which like “direct” is not defined in the policy. Cincinnati contends that “physical” for purposes of the policy means “material,” although it unhelpfully does not suggest a definition of “material.” We can think of several possibilities: it might be a synonym for “physical,” as in “formed or consisting of matter”; or it might connote “pertinent,” or “central,” or “essential.” Cincinnati advocates the latter meaning and supports its position with a single district court decision, Crestview Country Club, Inc. v. St. Paul Guardian Ins. Co., 321 F.Supp.2d 260 (D.Mass.2004). We do not find Crestview to be especially helpful. It concerned whether an insurance policy covered damage from a severe wind storm to a golf course. The storm destroyed a notable ash known as the “Poltergeist Tree,” which loomed above the thirteenth hole. No one disputed that the policy covered replacement of the tree. But the plaintiff wanted more: it argued that the insurance company also had to pay for the redesign of the thirteenth hole, because the loss of the Poltergeist Tree had ineffably altered the hole's character, even though the hole itself was not damaged. The district court held that intangible changes to the hole's character did not count as “direct physical loss or damage to the golf course grounds” and thus did not trigger coverage of changes to the hole. Id. at 264. We fail to see the resemblance between Crestview and this case. Advance is not asking for coverage of intangible damage. Rather, it is claiming that hail caused visible indentations to the surface of its roof. This denting changes the physical characteristics of the roof and thus satisfies that language of the policy.

The next question is what the term “loss” means here. The policy (at last) offers an answer: it defines “loss” as “accidental loss or damage.” The district court, in deciding that this concept encompasses all hail denting—both dents that diminish the functionality of the roof and dents that may be only cosmetic—emphasized the disjunctive nature of the definition. The policy covers loss or damage. This indicated to the district court that even without a measurable “loss” in value or in function, “the...