Am. Safety Indem. Co. v. Fairfield Shopping Ctr., LLC

• Decision Date: 18 July 2016
• Docket Number: Case No.: 2:12-cv-02415-SGC
• Court: U.S. District Court — Northern District of Alabama
• Parties: AMERICAN SAFETY INDEMNITY COMPANY, Plaintiff, v. FAIRFIELD SHOPPING CENTER, LLC, et al., Defendants.

AMERICAN SAFETY INDEMNITY COMPANY, Plaintiff, v. FAIRFIELD SHOPPING CENTER, LLC, et al., Defendants.

Case No.: 2:12-cv-02415-SGC

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

July 18, 2016

MEMORANDUM OPINION AND ORDER¹

This action involves a dispute over insurance coverage for damage to a vacant commercial building in Fairfield, Alabama. Plaintiff American Safety Indemnity Company ("ASI") issued an insurance policy for the property at issue, and Defendant GE Commercial Finance Business Property Corporation ("GE"), the mortgagee of the property, filed an insurance claim with ASI for approximately $3.5 million in alleged losses caused by theft and vandalism at the property.

ASI asks this court to declare there is no coverage under the insurance policy for GE's claim or for a claim brought by Defendant Fairfield Shopping Center, LLC ("FSC"), the owner of the property. (Doc. 1). GE asserts counterclaimsagainst ASI for breach of the insurance contract and bad faith based on ASI's failure to pay its claim. (Doc. 54). ASI moved for summary judgment pursuant to Federal Rule of Civil Procedure 56 on its claims for declaratory judgment against FSC and GE and also on GE's counterclaims. (Doc. 67). ASI also moved to exclude certain testimony from GE's designated experts, and GE moved to strike ASI's reply brief. (Docs. 68 & 79). The motions are fully briefed and ripe for review. (See Docs. 67, 68, 72, 73, 74, 75, 77, 79 & 81). This Court has jurisdiction under 28 U.S.C. §§ 636(c), 1331, and 1367. For the reasons stated below, ASI's motion to exclude is GRANTED IN PART and DENIED IN PART, and its motion for summary judgment is will be granted in part and denied in part. GE's motion to strike is DENIED.

I. SUMMARY JUDGMENT STANDARD

Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is appropriate "if the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." "Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party moving for summary judgment always bears the initialburden of proving the absence of a genuine issue of material fact. Id. at 323. If the moving party does not meet its initial burden, then the Court must deny the motion for summary judgment. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1116 (11th Cir. 1993) (citing Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991)).

Once the moving party has met its burden, then the non-moving party must "go beyond the pleadings" and point to specific facts in the record to show there is a genuine issue for trial. Celotex, 477 U.S. at 324 (citation omitted). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

"[A] 'judge's function' at summary judgment is not 'to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.'" Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014) (per curium) (quoting Anderson, 477 U.S. at 249). The court must "examine the evidence in the light most favorable to the non-moving party," drawing all inferences in favor of such party. Earl v. Mervyns, Inc., 207 F.3d 1361, 1365 (11th Cir. 2000). Any factual disputes will be resolved in the non-moving party's favor when sufficient competent evidence supports that party's version of the disputed facts. See Pace v. Capobianco, 283 F.3d 1275, 1276-78 (11th Cir. 2002) (a court is not required to resolve disputes in the non-moving party's favor when that party's version of the events is supported by insufficient evidence). However, "mere conclusions andunsupported factual allegations are legally insufficient to defeat a summary judgment motion." Ellis v. England, 432 F.3d 1321, 1326 (11th Cir. 2005) (per curiam) (citation omitted). Finally, "[t]he court need consider only the cited materials, but it may consider other materials in the record." Fed. R. Civ. P. 56(c)(3).

II. FACTUAL BACKGROUND²

A. The Property, Note, and Mortgage

This action arises from a dispute over an insurance policy issued to FSC for commercial property located at 6501 EJ Oliver Boulevard in Fairfield, Alabama ("the Property"). (See Doc. 67-4, p. 3). To purchase the Property, FSC borrowed $3.52 million from GE and executed a note and mortgage on September 15, 2006, which granted GE a security interest in the Property. (Id.). FSC defaulted on the note, and GE issued a notice of default to FSC in April 2009. (Id.; Doc. 73-1, pp. 10, 12). GE planned to foreclose on the mortgage, but FSC filed a Chapter 11 bankruptcy petition on May 26, 2009, to stop the pending foreclosure. (Doc. 73-1, p. 13).

While FSC's bankruptcy was pending, it leased the Property to Bamaco, Inc., who used the Property for electronic bingo operations. (Doc. 67-25, p. 2; Doc. 73-2, pp. 2-3). Bamaco stopped paying rent and vacated the Property in May2010, when its bingo operations at the Property closed. (See Doc. 73-2, pp. 3-4). Bamaco was the last tenant of the Property, and the Property remained vacant at all relevant times. (See Doc. 67-4, p. 4; Doc. 73-2, p. 4).

After Bamaco vacated the Property, Yair Ben Moshe, a manager of FSC, filed a declaration dated August 17, 2010, in FSC's bankruptcy proceedings in which he stated in relevant part:

I [] instructed a local friend in Alabama to inspect the site periodically so that I would be informed of the condition of the Property. I have recently received photos as well as the regular report as to the condition of the Property. The Property is clean and the parking lot is empty. The Property is secure with no apparent vandalism. [FSC] has received no reports of any vandalism at the site. In addition, in the last couple of months, the insurance company which insures the Property conducted an inspection of the Property and found it to be in good condition. [. . .] [FSC] is preparing a minimal budget to keep basic security services and water service in place and will present it to [GE], [FSC's] only secured lender, for its authority to use cash collateral . . . to pay these certain expenses.

(Doc. 73-2, pp. 3-4). Ben Moshe filed a second declaration dated October 5, 2010, in which he again stated "[t]he Property is secure with no apparent vandalism" and further stated "[FSC] has continued to make adequate protection payments to GE . . . , [and FSC] has sufficient funds . . . to continue to make said payments for many months." (Id., pp. 13-14).³

B. FSC's Application for Insurance and the Policy Issued to FSC

On August 13, 2010—while FSC's bankruptcy petition was pending—FSC submitted an application for insurance to ASI through the Shomer Insurance Agency in Los Angeles, California. (Doc. 67-5, p. 2). In its application, FSC represented that no bankruptcies or tax or credit liens had been filed against it in the past five years, and it described the Property as having offsite power and water service.⁴ (Id., pp. 2, 4). Additionally, in email messages between ASI and an insurance broker representing FSC's interests, the broker confirmed that FSC was current on all mortgage and property tax payments with respect to the Property and that the Property had a central station sprinkler system and burglar alarm. (Doc. 67-6, pp. 3-4, 8). The communications between ASI and the insurance broker indicate ASI would not issue an insurance policy with theft coverage unless there was active security protection at the Property. (Id., pp. 8-9).

Based in part on the representations made in the application and the information received in the email communications, ASI issued commercial insurance policy number 201CMP1000482-10 to FSC on September 15, 2010 (the "Policy"). (Doc. 67-2, p. 3; Doc. 67-7, p. 4). The Policy insured the Property as a vacant building with a limit of insurance of approximately $7.75 million, subject to a $25,000 deductible per occurrence, and it provided coverage for physical loss ordamage to the Property, including damage caused by theft or vandalism. (Doc. 67-2, pp. 4, 13, 21 &27; Doc. 67-26, pp. 17-19, 21). The Policy's commercial property declarations indicate the Policy provided replacement cost coverage for the building.⁵ (Doc. 67-2, p. 4).

The Policy identified GE as the mortgagee and contained a mortgage clause, providing in pertinent part:

[ASI] will pay for covered loss of or damage to buildings or structures to each mortgageholder shown in the Declarations in their order of precedence, as their interests may appear.

[] The mortgage holder has the right to receive loss payment even if the mortgageholder has started foreclosure or similar action on the building or structure.

[] If we deny [FSC's] claim because of [FSC's] acts or because [FSC has] failed to comply with the terms of this Coverage Part, the mortgageholder will still have the right to receive loss payment if the mortgageholder: (1) Pays any premium due under this Coverage Part at [ASI's] request if [FSC has] failed to do so; (2) Submits a signed, sworn proof of loss within 60 days after receiving notice from [ASI] of [FSC's] failure to do so; and (3) Has notified us of any change in ownership, occupancy or substantial change in risk known to the mortgageholder. All of the terms of this Coverage Part will then apply directly to the mortgageholder.

(Id., pp. 4, 24-25). Additionally, the Policy contained a Protective Safeguard Promissory Warranty endorsement, which provided in part as follows:

In consideration of the premium charged, it is understood and agreed by the insured that it is a condition precedent to the acceptance of thisinsurance and payment of

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