Employers Mut. Cas. Co. v. Skoutaris
| Decision Date | 13 July 2006 |
| Docket Number | No. 04-3288.,No. 04-3287.,04-3287.,04-3288. |
| Citation | 453 F.3d 915 |
| Parties | EMPLOYERS MUTUAL CASUALTY COMPANY and Hamilton Mutual Insurance Company, Plaintiffs-Appellees, v. John SKOUTARIS, d/b/a Open Flame Restaurant, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Jerry E. Huelat (argued), Michael A. Kreppein, Huelat & Mack, Michigan City, IN, for Plaintiff-Appellee.
Gordon A. Etzler (argued), Etzler & Associates, Valparaiso, IN, Kevin G.L. Kerr (argued), Schmidtke Hoeppner Consultants, Valparaiso, IN, for Defendant-Appellant.
Before MANION, ROVNER, and WILLIAMS, Circuit Judges.
On April 7, 2000, a fire ravaged the Open Flame Restaurant ("Open Flame"), a Valparaiso, Indiana establishment owned and operated by John Skoutaris. Hamilton Mutual Insurance Company ("Hamilton Mutual"), a subsidiary of Employers Mutual Casualty Company, insured the building, business personal property, and business lost income. Hamilton Mutual, an Ohio corporation with its principal place of business in Ohio, filed a declaratory judgment action in 2001 in the Northern District of Indiana, claiming that Skoutaris failed to abide by the insurance policy provisions governing Skoutaris's duty to cooperate and duty to submit to an examination under oath. Skoutaris, in turn, brought claims of breach of contract and bad faith against Hamilton Mutual. The district court eventually granted Hamilton Mutual's motion for summary judgment and denied Skoutaris's motion for partial summary judgment. Skoutaris appeals. We affirm.
John Skoutaris opened the Open Flame on February 26, 2000. He had purchased the Valparaiso building from Porter National Bank for $225,000 and had personally made a variety of improvements before opening for business. Skoutaris held insurance policies from both Hamilton Mutual and Ohio Casualty Group covering damage to the Open Flame, and the policies contemplated dividing any loss between the two insurance companies.
As this case involves the duties and procedures under the Hamilton Mutual policy once a claim is filed, we examine the relevant policy provisions in detail. The Hamilton Mutual policy covered three distinct areas of loss: (1) building; (2) business personal property; and (3) business income.1 When making a claim under the Hamilton Mutual policy, Skoutaris had certain obligations:
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.
....
(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.
....
(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.
In addition to these provisions relating to the insured's duties, the Hamilton Mutual policy also provided an appraisal process to determine the value of a particular loss. The policy did not call for the parties to automatically undergo the formal appraisal process upon the filing of a claim. Rather, the parties had the opportunity to conduct some preliminary investigation and attempt to resolve the claim in a mutually agreeable fashion. However, the policy stated:
If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim.
In addition, Skoutaris elected for replacement cost coverage, which entitled him to receive the full replacement cost of the destroyed property, but only after the property was repaired or replaced. To allow an insured to begin reconstruction after a loss, one aspect of this coverage was that an insured could elect to receive a payment of the actual cash value, a depreciated portion of the full replacement cost, in advance of the full replacement cost payment. Having received such an actual cash value payment, an insured could only recover the remainder of the replacement costs after all repairs or replacements were made.
Open Flame turned out to be an unfortunately apt name, as the restaurant suffered a massive fire on April 7, 2000. Hamilton Mutual and Skoutaris both retained the services of adjusters to investigate the fire and determine the loss. There was no suggestion of arson.
The two adjusters produced radically different damage assessments. Skoutaris's adjuster found that the building, including the basement, was a complete loss, with a replacement cost value of $642,700, and concluded that the business personal property loss was $346,767. Hamilton Mutual (through its own adjuster) responded with a substantially lower assessment and claimed that Skoutaris's submission lacked the necessary detail or documentation to support the figures. Hamilton Mutual also concluded that the basement was not a total loss. It found that the replacement value of the building was $310,231.21, while pegging the replacement cost value of the business personal property at $158,292.57. Hamilton Mutual's adjuster explained that he assigned values to the business personal property items claimed by attempting to match the item to an invoice, or, if an invoice could not be found, looking up the replacement cost in restaurant catalogs. Hamilton Mutual offered an actual cash value payment of approximately $128,000 on its portion of the claim.2 Eventually Skoutaris accepted the $128,000 as the actual cash value payment under the Hamilton Mutual policy.
Although Skoutaris accepted Hamilton Mutual's payment, the parties continued to disagree about the replacement value of the building and business personal property destroyed in the fire. For several months, the parties exchanged correspondence on this subject, culminating in a November 21, 2000, meeting. At the meeting, the parties made some progress towards a resolution (Hamilton Mutual agreed to consider the basement a complete loss and raise its valuation of the building loss commensurately), but ultimately the parties continued to have serious disagreements about the value of the business personal property. Specifically, Hamilton Mutual took issue with Skoutaris's valuations of the business personal property because of the little supporting documentation and the fact that Skoutaris's results conflicted with the values determined by Hamilton Mutual's adjuster using catalogs and industry standards. Hamilton Mutual repeatedly asked for more documentation, as well as any response by Skoutaris or his adjuster explaining how they determined value.
Thereafter, Hamilton Mutual received some additional documentation and raised the replacement cost value of the business personal property to approximately $196,000, based on the inclusion of certain items previously thought to be leased. Meanwhile, Skoutaris also submitted a revised business personal property replacement cost valuation of approximately $342,000. Although Skoutaris turned over further documents to Hamilton Mutual in January 2001, Hamilton Mutual believed most of these were bills for purchases of food rather than confirmation of prices for improvements made to the building or business personal property.
Given the lengthy period of investigation and the persistent gap between the parties' estimates of the replacement cost value, Hamilton Mutual decided to proceed with appraisal, formally initiating the process in a January 22, 2001 letter. Hamilton Mutual indicated in that letter that it would be represented by an attorney and that it needed Skoutaris's examination under oath (an "EUO"). Hamilton Mutual appointed James Stivers as its appraiser, while Skoutaris retained the services of Tim Zeak. Stivers received from Hamilton Mutual its full file of materials, which he believed were the same materials given to the initial appraiser. According to Stivers, any additional materials should have come from Zeak, though Stivers received little information from him.
While the appraisal process started out cordially, relations between the parties deteriorated. Hamilton Mutual, through its attorney, wrote Skoutaris's attorney in February 2001, requesting a date for the EUO, as well as a litany of documents, including any pre-purchase appraisals of the property by Porter National Bank (the previous owner) and the specific figures relied upon during the valuation process. Over the next three months, Hamilton Mutual's attorney sent three additional letters asking for the responsive documents so that he could take Skoutaris's EUO.
Beginning in May 2001, the correspondence exchanged between the representatives of the parties began to crystallize certain positions regarding the EUO and further production of documents. Over the...
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