Blis Day Spa, LLC v. Hartford Ins. Group

• Decision Date: 11 April 2006
• Docket Number: No. 3:04CV231.,3:04CV231.
• Citation: 427 F.Supp.2d 621
• Court: U.S. District Court — Western District of North Carolina
• Parties: BLIS DAY SPA, LLC, a North Carolina Limited Liability Company & Tami M. Curtin, Plaintiffs, v. THE HARTFORD INSURANCE GROUP, Defendant.

427 F.Supp.2d 621

BLIS DAY SPA, LLC, a North Carolina Limited Liability Company & Tami M. Curtin, Plaintiffs, v. THE HARTFORD INSURANCE GROUP, Defendant.

No. 3:04CV231.

United States District Court, W.D. North Carolina, Charlotte Division.

April 11, 2006.

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Kenneth Peter Andresen, Andresen & Vann, Charlotte, NC, for Plaintiffs.

Susan K. Burkhart, Cranfill, Sumner & Hartzog, LLP, Raleigh, NC, for Defendant.

MEMORANDUM AND ORDER

CONRAD, District Judge.

In this civil action for monetary relief, Plaintiffs Blis Day Spa and Tami M. Curtin assert claims under North Carolina law for breach of contract; insurance bad faith, violation of the Unfair and Deceptive Trade Practices Act; and punitive and consequential damages against Defendant The Hartford Insurance Group for its failure to pay the claimed amount allegedly due Plaintiffs under its business insurance policy. Plaintiffs filed their action in the Superior Court of Mecklenberg County, North Carolina on April 8, 2004. The Defendant removed the action to this Court on May 12, 2004. Jurisdiction is present under 28 U.S.C. § 1332.

Presently before the Court is Defendant's motion for summary judgment. Because the Court concludes that Plaintiffs have offered evidence of damages with reasonable certainty, it will deny Defendant's motion as to the breach of contract claims. However, because the Court finds that Plaintiffs have not offered evidence Hartford ever recognized as valid Blis's claims under the business insurance policy, but nevertheless refused to pay, and that such refusal was in bad faith with intent to cause further damage to Plaintiffs; or that Plaintiffs suffered damage as a result of the alleged conduct, the Court will grant Defendant's motion as to Plaintiffs' insurance bad faith, UDTPA, and punitive damage claims. And, as the record reflects no evidence that at the time they contracted the parties contemplated, or reasonably could be supposed to have contemplated, consequential damages of the kind and character sought here in the event of a breach of the Business Policy, the Court will grant summary judgment as to those claims. Finally, the Court finds the parties intended that Tami Curtin would be a beneficiary of the Business Policy, and therefore it will deny Defendant's motion for summary judgment on that claim.

From the parties' proposed findings of fact and the record, the Court finds the following facts to be material and undisputed.

FACTS

Tami Curtin owns Blis Day Spa, L.L.C., which began operating in May 2002, at its premises located on 136 Main Street, Pineville, North Carolina. Curtin also is the sole owner of TMC Holdings, L.L.C., which owns the premises where Blis operates. In May, 2002, Hartford issued Blis Spectrum Insurance Policy 22SBABA7711, covering damage to business personal property, business income loss, and extra expenses (the "Business Policy"), and issued TMC and Curtin Spectrum Insurance Policy 22 SBA BA 7728, covering rent loss and physical damage to Blis's premises (the "Building Policy").

On January 1, 2003, a fire destroyed much of Blis Day Spa, rendering the premise untenable. In order to resume operations, Blis moved into a temporary facility located two blocks away from the original site, and spent $64,000 on an advertising campaign in order to maintain its customer base.

The day following the fire, Hartford's claims representative Michael Zondroy made the first of several advances in anticipation of business interruption and/or extra expense costs. And within three weeks Hartford had advanced $100,000 in anticipated losses under the Business Policy, without reports or a proof of claim. In late January, 2005 Hartford retained independent forensic accountant Gary Johnson, who began requesting financial information to calculate Blis's interim business loss, and asked Blis and Curtin to prepare a claim presentation for his review. In response, Plaintiffs' adjuster, Jim Twadell, submitted a claim approximating losses of $50,000-75,000 for the agreed upon six-month period of business interruption.

Throughout the period of interruption Hartford made a series of payments under both policies totaling $632,878.50 even though Blis had submitted financial information for only $150,939.55 of its total claim, including an interim extra expense claim for $100,709.55, and interim business interruption loss calculations of $50,230.00. Hartford's payments under the Business Policy included $100,000 for extra expenses/business income advances; $150,000, the policy's limit, for Business Personal Property advances; and $40,185.26 for payments pursuant to Blis's Stretch Coverage. And its payments under the Building policy included $284,585.52 related to damages to Blis's premises; $26,000 for rent losses; and $38,107.72 related to trade fixtures. The trade fixtures usually would have been covered under the Business Personal Property policy; however coverage under Blis's business personal property policy previously had been exhausted.

In July, Blis replaced its previous adjuster with its CPA, Jack Heil, who originally had been retained to correct Blis's accounting system. On August 4, 2003, Heil provided Hartford a summary of Blis's claimed expenses. He calculated a claim of $315,060.00, including a business interruption loss analysis totaling $206,375.99, and $108,684.00 in "necessary" extra expenses including $64,000 advertising costs. Hartford found this amount excessive for two main reasons. First, the claim for business interruption loss was three times the amount previously calculated by Blis's adjuster. Second, Blis had spent only $22,279.92 on advertising during its ten-month start-up period.

On August 8, 2003, after the parties met to attempt to resolve the claim, Hartford issued a check in the amount of $36,738 for business interruption losses associated with spa services, nail services, and gift certificates. The parties did not agree as to a valuation for losses associated with hair services and hair products, as well as other extra expenses.

On September 18, 2003, after another meeting, Hartford issued a $59,710.0 check for Blis's remaining business interruption loss relating to hair services and hair products. Approximately a month later, Hartford issued a $26,048.47 check for extra expenses incurred by Blis as a result of the fire, and a $30,000 check for the uncontested amounts of advertising expenses incurred by Blis.

As of December 2003, payments from Hartford to Blis totaled $785,374.97, including $442,681.72 under the Business Policy. According to Blis's accountant Jack Heil, Hartford still owed $162,504, including $109,928 in business interruption losses, $34,000 in advertising expenses, and $18,576 in undefined extra expenses. On February 10, 2004 Hartford informed Plaintiffs that it was invoking the appraisal provision in the Business Policy. Plaintiffs opted not to proceed to appraisal, however, and filed the instant suit.

STANDARD OF REVIEW

To prevail on a motion for summary judgment, the moving party must show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); accord Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979). When the moving party succeeds in showing the absence of a genuine issue as to any material fact, the opposing party must set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The "obligation of the nonmoving party is `particularly strong when the nonmoving party bears the burden of proof.'" Hughes v. Bedsole, 48 F.3d 1376, 1381 (4th Cir. 1995) (quoting Pachaly v. City of Lynchburg, 897 F.2d 723, 725 (4th Cir. 1990)). The opposing party cannot rest on the pleadings alone, but must designate specific facts in affidavits, depositions, answers to interrogatories or admissions that establish that there is a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548 Mere disagreement with the movant's asserted facts is inadequate if not supported by the record.

A. Breach of Contract

Plaintiffs Curtin and Blis assert that Hartford violated the terms of the Business Policy when it failed to pay $162,504 in damages, including $109,928 for business interruption loss; and $52,576 in extra expenses, $34,000 of which relates to advertising costs and $18,576 of which relates to other, undefined, extra expenses.

1. Damages for Business Interruption Loss

While the proper amount of damages is generally a question of fact, the proper standard with which to measure those damages is a question of law. Olivetti Corp. v. Ames Bus. Sys., Inc., 319 N.C. 534, 548, 356 S.E.2d 578, 586 (1987). In order to recover damages for lost profits, a complainant must prove that, absent the breach of contract, profits would have been realized in an amount provable with "reasonable certainty." Damages for "lost profit damages" cannot be based upon "hypothetical or speculative forecasts of losses." Iron Steamer, Ltd. v. Trinity Restaurant, Inc., 110 N.C.App. 843, 847-48, 431 S.E.2d 767, 770 (1993) (citation omitted); see also Catoe v. Helms Constr., & Concrete Co., 91 N.C.App. 492, 496, 372 S.E.2d 331, 335 (1988) (testimony providing an estimate of anticipated profits is not enough of a factual basis for the issue to reach a jury). However, while evidence of damages must be sufficiently specific and complete to permit the jury to arrive at a reasonable conclusion, "absolute certainty is not required." Perfecting Service Co. v. Product Development & Sales Co., 259 N.C. 400, 417, 131 S.E.2d 9, 22 (1963); see also Keith v. Day, 81 N.C.App. 185, 196 343 S.E.2d 562, 569 (...