Bowlers' Alley, Inc. v. Cincinnati Ins. Co.

• Decision Date: 31 May 2015
• Docket Number: Case No. 13–13804.
• Citation: 108 F.Supp.3d 543
• Parties: BOWLERS' ALLEY, INC., Plaintiff, v. The CINCINNATI INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Michigan

108 F.Supp.3d 543

BOWLERS' ALLEY, INC., Plaintiff,

v.The CINCINNATI INSURANCE COMPANY, Defendant.

Case No. 13–13804.

United States District Court, E.D. Michigan, Southern Division.

Signed May 31, 2015.

Brian E. McGinty, David J. Devine, Clifford J. Devine, Butzel Long, Detroit, MI, for Plaintiff.

Alan G. Gregory, Gregory and Meyer, Troy, MI, Sarah J. Brutman, McAlpine and Assoc., Auburn Hills, MI, for Defendant.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

DAVID M. LAWSON, District Judge.

The parties in this breach of insurance contract case cannot agree on certain items of loss that were claimed by the plaintiff after its bowling alley was damaged by water that flooded the premises when a water pipe burst, and the amount for each claim. Presently before the Court are motions for summary judgment filed by each party. The defendant contends that it is entitled to judgment as a matter of law on the plaintiff's complaint, and the plaintiff argues that it likewise is entitled to judgment on the remaining count of the defendant's counterclaim. The Court heard oral argument on April 9, 2015 and now concludes that both motions should be granted in part and denied in part. The Court will dismiss the counterclaim, and the claims that remain in the plaintiff's complaint will proceed to trial.

I.

The plaintiff contends that a flood at its bowling alley in May 2012 damaged a number of wooden bowling lane surfaces, and that high levels of humidity and condensation in the days after the flood also caused the failure of many light fixtures in the building. The flooding occurred on or below the floor of the facility; no water was sprayed on the ceiling. The parties agree that defendant Cincinnati Insurance Company issued a hazard insurance policy that covered the premises. After the plaintiff contacted its insurer, Cincinnati paid out more than $600,000 based on early estimates that called for resurfacing of the damaged alleys with synthetic overlays, but that amount did not include the claimed damage to light fixtures and certain other expenses for debris removal and general contracting.

On April 4, 2013, Cincinnati sent the plaintiff a request for a proof of loss. Bowler's Alley requested and Cincinnati granted an extension of time to complete the proof of loss. On June 18, 2013, the plaintiff submitted a sworn "interim" statement of proof of loss with a $2.6 million price tag, which Cincinnati rejected on July 17, 2013. The rejection letter set forth in detail nine categories of items and amounts included in the proof of loss that Cincinnati claimed were not covered, insufficiently documented, or contradictory to previous statements regarding the extent of the loss and damages. The specific disputed items are discussed in turn in the analysis section below.

On August 16, 2013, the plaintiff responded by letter and demanded that Cincinnati proceed to process its claim immediately. In that letter, the plaintiff addressed each of the items of asserted deficiency in turn, contending that the items were allowable and appropriate, and that it previously had supplied adequate documentation, or soon would provide documentation, to substantiate each item. On August 30, 2013, Cincinnati sent a letter setting forth its continued discontent with the items pointed out in its earlier rejection letter, asserting that the August 16, 2013 letter was nonresponsive to various requests, and stating that certain requested documents still had not been provided. On September 6, 2013, the plaintiff filed its complaint seeking a declaration of rights under the policy and a judgment compelling the defendant to pay its claim in full. The defendant filed a counterclaim asserting that the plaintiff breached the insurance contract in a number of respects, and also included counts based on fraud and unjust enrichment. In a previous opinion and order, the Court dismissed the latter counts and limited the breach of contract count.

By far, the greatest area of dispute is over the cost of addressing the damage to the wooden bowling lanes. The defendant contends that it can satisfy its obligation under the policy by covering the wooden lanes with synthetic overlays. The plaintiff insists that because it bought replacement cost coverage, the defendant must pay for replacing all the lanes with similar wooden lanes. Cincinnati Insurance replies that the plaintiff is barred from pursuing its claim for the full replacement cost of its damaged wood bowling lanes because it failed to begin or complete repairs of its lanes within the two-year time limit under the policy. The defendant also argues that it is entitled to a judgment as a matter of law on the following specific items in the plaintiff's proof of loss: (a) $141,000 for damage to light fixtures due to condensation; (b) $70,000 for debris removal; (c) $45,000 for rewiring electronic scoreboards; (d) $30,000 for removing and replacing the front main counter; (e) $365,988.52 as a "general contractor fee" payable to the insured; (f) $22,758.51 for business personal property; (g) $13,300 for miscellaneous labor expense; (h) $200,000 for lost business income during 2012 and 2013; (i) $2,760 for "lane inspections"; and (j) $10,000 for "accounting and legal services." And Cincinnati Insurance asserts that it should not have to pay any of the loss items because the plaintiff breached the "Legal Action Against Us" provision of the policy by failing timely to disclose documents and information to substantiate certain specific line items set forth in the interim sworn statement of loss.

For its part, the plaintiff argues that the defendant waived its right to object to the plaintiff's interim sworn proof of loss; it is entitled to judgment as a matter of law dismissing the defendant's claims for breach of contract premised upon violations of the "fraud or misrepresentation" provision of the policy and its related affirmative defenses; it should be entitled to seek consequential damages resulting from the defendant's allegedly unreasonable refusal to pay or delay in fully paying its claim; and the defendant has waived its right to submit the parties' dispute as to the amount of loss for an appraisal, if it is obligated to cover the plaintiff's loss.

It is undisputed that defendant Cincinnati Insurance Company issued a commercial insurance policy to the plaintiff that was in force when the May 2012 water event occurred at the bowling alley. That policy insured against "loss" to the insured's "building" and "business personal property." It also covered certain related items, such as the expense of "debris removal" and loss of "business income" due to an interruption of the insured's operations resulting from damage to its facilities.

The policy defines the term "covered property" to include "the building or structure described in the Declarations," "fixtures," affixed thereto, and "permanently installed [ ] machinery and equipment." The term "business personal property" is defined to include "furniture," "machinery and equipment," "stock," and "all other personal property owned by you and used in your business." Section G of the policy defines the term "loss" to "mean [ ] accidental loss or damage." The parties evidently do not dispute that the plaintiff's bowling lanes and equipment and furniture such as electronic scoreboards and the "front desk counter" were either "fixtures" or "business personal property" as defined under the policy, and that the bursting of the water pipe was an "accident" within the scope of coverage. They disagree, however, on the scope of damage that properly may be attributed to the burst pipe event or recovered by the insured under other terms of the policy.

As to coverage for lost "business income," the policy states that the insurer will pay for lost income during any period when the insured's operations are halted due to a covered loss:

We will pay for the actual loss of "Business Income" and "Rental Value" you sustain due to the necessary "suspension" of your "operations" during the "period of restoration." The "suspension" must be caused by direct physical "loss" to property at a "premises" caused by or resulting from any Covered Cause of Loss.

Policy at 16 (Pg ID 608). The policy defines the term "business income" to mean:

a. Net Income (net profit or loss before income taxes) that would have been earned or incurred; and

b. Continuing normal operating expenses, including payroll.

Policy ¶ G(2) (Pg ID 625).

The policy was issued with coverage limits of $6,300,000 for the plaintiff's "building" and $210,000 for "business personal property." Coverage for items such as "debris removal" was subject to a "blanket coverage" limit of $150,000 per occurrence, and coverage for "business income" was limited to $100,000.

As to the valuation of losses claimed by an insured, the policy provides as follows in Section D(4)(a) ("Loss Payment"):

In the event of "loss" insured by this Coverage Part, at our option, we will either:

(1) Pay the value of lost or damaged property;

(2) Pay the cost of repairing or replacing the lost or damaged property;

(3) Take all or any part of the property at an agreed or appraised value; or

(4) Repair, rebuild or replace the property with other property of like kind and quality.

We will determine the value of lost or damaged property, or the cost of its repair or replacement, in accordance with the applicable terms of SECTION D. LOSS CONDITIONS, 7. Valuation or any applicable provision that amends or supercedes this valuation condition.

Policy at 28 (Pg ID 620). Section D(7)(a) states that the insurer "will determine the value of Covered Property in the event of ‘loss' as ... ‘Actual Cash Value’ as of the time of ‘loss,’ " subject to certain minor exceptions that are not at issue here. The term "Actual Cash Value" is defined in Section G ("Definitions") to mean "replacement cost less a deduction...