CM Vantage Specialty Ins. Co. v. Nephrite Fund 1, LLC

Decision Date18 February 2020
Docket NumberCase No. 4:18 CV 1749 JMB
PartiesCM VANTAGE SPECIALTY INSURANCE COMPANY, Plaintiff, v. NEPHRITE FUND 1, LLC, d/b/a Amber Glen Apartments, Defendant.
CourtU.S. District Court — Eastern District of Missouri
MEMORANDUM AND ORDER

This matter is before the Court on plaintiff's motion for summary judgment. Defendant has filed a response in opposition and the issues are fully briefed. The parties have consented to the jurisdiction of the undersigned United States Magistrate Judge pursuant to 28 U.S.C. § 636(c).

Defendant Nephrite Fund I, LLC, (Nephrite) owns the Amber Glen Apartments complex in Raytown, Missouri.1 Plaintiff CM Vantage Specialty Insurance Company (CM Vantage)2 issued a policy of insurance to defendant Nephrite for the period August 2, 2017, to August 2, 2018. On March 1, 2018, a fire caused extensive damage to one of the Amber Glen apartment buildings and Nephrite submitted a claim for coverage. CM Vantage alleges that its investigation of the claim disclosed material misrepresentations in both Nephrite's application for insurance andits claim for coverage. CM Vantage also alleges that Nephrite failed to comply with the insurance policy's cooperation requirements. Plaintiff brings this declaratory judgment action, pursuant to 28 U.S.C. §§ 2201-2202, seeking declarations that the policy is void ab initio and that defendant is barred from recovery under the policy. Defendant asserts counterclaims for breach of contract, vexatious refusal to pay, and for declarations that the policy is not void and that plaintiff is obligated to provide coverage for the March 1, 2018 claim.

I. Background

As an initial matter, the Court notes that the parties have submitted more than 300 paragraphs of "undisputed" material facts (the majority of which are disputed) and more than 2,000 pages of exhibits. Despite the vigor with which the parties present and defend their positions in this case, the issues are relatively straightforward: (1) whether the policy is void because defendant made material misrepresentations in its application for insurance; (2) whether the policy is void because defendant made material misrepresentations in its claim for coverage; and (3) whether coverage is precluded because defendant failed to cooperate with plaintiff's investigation as required by the policy.

A. Nephrite's Application for Insurance

In July 2017, Alan Sheehy met with Lonnie Kitchen, an independent insurance broker. Sheehy Dep. 1 at 60-61. Based on information received from Sheehy, Kitchen completed an application for insurance, which Sheehy then signed. Id. at 63 (testifying that Kitchen or his assistant typed the information and Sheehy reviewed and signed).

On July 24, 2017, Kitchen forwarded two applications3 to Kevin Ware at RT Specialty on behalf of Nephrite.4 One was the Commercial Insurance Application, referred to as the ACORD 125 (unsigned ACORD 125) [Doc. # 35-3]. A section regarding loss history required the applicant to list "all claims or losses (regardless of fault and whether or not insured) or occurrences that may give rise to claims for the prior 5 years." This section was left blank. Unsigned ACORD 125 at 3. The other application provided by Kitchen was the AmRisc Application/Schedule of Values (AmRisc Application)5 [Doc. # 35-1]. The AmRisc Application sought information regarding three topics relevant to the present dispute: (1) Any "unrepaired damage from a recent loss," and the extent of any such damage; (2) any property losses within the last three to five years;6 and (3) the percentage of "subsidized" rental units. The areas regarding the first two items were left blank while the form indicated that "0%" of Amber Glen's tenants received subsidies. AmRisc Application at 2. The application includes the following statement:

By submission of this application the insured and the agent represent that all information is true and correct to the best of their knowledge and that they have not deleted or altered the questions herein.

AmRisc Application at 1; Sheehy Dep. 1 at 98-99; see also id. at 144 (testifying that he understood that application information was material to insurer in deciding whether to issue policy and setting premium).

When asked about the AmRisc Application at deposition, Mr. Sheehy could not recall whether he ever saw the completed form.7 Sheehy Dep. 1 at 98 (stating "I do not remember seeing this document before. I'm not saying I didn't, I just don't remember."). With respect to the information contained in the application, however, he testified that he was not aware of any unrepaired damage from a recent loss or any losses within the last three to five years. Id. at 110-11. Elsewhere in his testimony, he acknowledged that there was a prior "mold incident" in 2016, but he did not consider this to be a "loss" for insurance purposes because the damage was remediated in the ordinary course of business and no insurance claim was submitted for this incident. Id. at 49-52. On the topic of subsidized housing, Sheehy acknowledged at deposition that at least some tenants received rental assistance from a local charitable organization known as SAVE, Inc., but he did not regard that assistance as a form of subsidy. Id. at 69.

Mr. Ware emailed the AmRisc Application and ACORD 125 — without modifications — to Tom Dassow, a senior underwriter at CM Vantage. See Kevin Ware Affidavit [Doc. # 49-2]. Mr. Ware informed Dassow that "there is no subsidized housing" and "[t]here have been no losses." Email Ware to Dassow dated 7/25/17 [Doc. # 35-2 at 4]. After further exchanges, Dassowbound the policy, effective August 2, 2017. Dassow Dep. at 22-24; Email Ware to Dassow 7/27/17 [Doc. # 35-2 at 1-2].

On August 8, 2017, Sheehy signed an ACORD 125 application completed by Mr. Kitchen.8 Sheehy Dep. 1 at 63, 76-77; Signed ACORD 125 [Doc. # 35-6]. On the signed document, the check box indicating that there was no loss history was marked. The following statement appears just above Sheehy's signature:

THE UNDERSIGNED IS AN AUTHORIZED REPRESENTATIVE OF THE APPLICANT AND REPRESENTS THAT REASONABLE INQUIRY HAS BEEN MADE TO OBTAIN THE ANSWERS TO QUESTIONS ON THIS APPLICATION. HE/SHE REPRESENTS THAT THE ANSWERS ARE TRUE, CORRECT AND COMPLETE TO THE BEST OF HIS/HER KNOWLEDGE.

Id. at 4. The form was forwarded to Tom Dassow at CM Vantage who determined that the information "confirmed the information that was presented to [him] earlier." Dassow Dep. at 44.

Sheehy also signed a form entitled the Partners General Insurance Agency Habitational Supplemental Questionnaire. [Doc. # 35-4]. Questions regarding the number of HUD or other subsidized units were left blank. Sheehy testified that he told Kitchen there were no HUD or subsidized units at Amber Glen and that was what he intended to convey by leaving the questions blank. Sheehy Dep. 1 at 96. Because there is no evidence that the Habitational Questionnaire was forwarded to CM Vantage, the Court has not relied on the information contained in the document. The same does not apply to Sheehy's testimony regarding the information in the form.

B. Relevant Policy Provisions
3. Duties In The Event Of Loss Or Damage
a. You must see that the following are done in the event of loss or damage to Covered Property:
* * *
(2) Give us prompt notice of the loss or damage. Include a description of the property involved.
(3) As soon as possible, give us a description of how, when, and where the loss or damage occurred.
(4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limit of Insurance. However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also, if feasible, set the damaged property aside and in the best possible order for examination.
(5) At our request, give us complete inventories of the damaged and undamaged property. Include quantities, costs, values, and amount of loss claimed.
(6) As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records.
Also, permit us to take samples of damaged and undamaged property for inspection, testing, and analysis, and permit us to make copies from your books and records.
(7) Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.
(8) Cooperate with us in the investigation or settlement of the claim.b. We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. In the event of an examination, an insured's answers must be signed.
Policy [Doc. # 35-5 at 13-14].

The "Business and Institution Property Conditions" portion of the policy provides:

A. CONCEALMENT, MISREPRESENTATION OR FRAUD
This Coverage Part is void in any case of fraud by you as it relates to this Coverage Part at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning:
1. This Coverage Part;
2. The Covered Property;
3. Your interest in the Covered Property; or
4. A claim under this Coverage Part.
Id. at 65.

An endorsement entitled "Amendment — Common Policy Conditions" provides:

C. Examination Of Your Books And Records
We may examine and audit your books and records as they relate to this policy at any time during the policy period and up to three years afterward.
Id. at 66.
C. The Insured Property and the March 1, 2018 Fire

The Amber Glen Apartment complex has five separate structures, each of which consists of two buildings separated by a firewall. Each building has three...

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