Ghoman v. New Hampshire Ins. Co.

• Decision Date: 06 September 2001
• Docket Number: No. 3-01-CV-0092-BD.,3-01-CV-0092-BD.
• Citation: 159 F.Supp.2d 928
• Parties: Sarjit GHOMAN d/b/a Arlington Howard Johnson Hotel, on behalf of himself and others similarly situated, Plaintiff, v. NEW HAMPSHIRE INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

159 F.Supp.2d 928

Sarjit GHOMAN d/b/a Arlington Howard Johnson Hotel, on behalf of himself and others similarly situated, Plaintiff, v. NEW HAMPSHIRE INSURANCE COMPANY, et al., Defendants.

No. 3-01-CV-0092-BD.

United States District Court, N.D. Texas, Dallas Division.

September 6, 2001.

COPYRIGHT MATERIAL OMITTED

John L. Hubble, Hubble & Pistorius, Dallas, TX, for Plaintiff.

Harrison H. Yoss, Jo Allison Stasney, Thompson, Coe, Cousins & Irons, L.L.P., Dallas, TX, Gary Crapster, Strasburger & Price, L.L.P., Dallas, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

KAPLAN, United States Magistrate Judge.

Plaintiff Sarjit Ghoman and Defendants New Hampshire Insurance Company ("NHIC") and AIG Claims Services, Inc. ("AIG") have filed cross-motions for summary judgment. For the reasons stated herein, plaintiff's motion is granted and defendant's motion is denied.

I.

Plaintiff owns and operates a Howard Johnson Hotel in Arlington, Texas.¹ (Plf. First Am. Class Action Compl. ¶ 1). On December 9, 1996, plaintiff purchased a $6 million commercial property insurance policy from NHIC. (Id.). The policy insures the hotel "against all risks of physical loss." (Id.). While this policy was in effect, plaintiff's hotel was badly damaged by wind and hail. (Id. ¶ 2). AIG, acting on behalf of NHIC, offered $15,000 to settle the claim. (Id. ¶ 4). Plaintiff rejected this offer and demanded an appraisal as provided by the policy. The appraisal award valued the replacement cost at $299,907 and the actual cash value of the loss at $262,353. (Id.). In response to this appraisal, NHIC tendered payment to plaintiff in the amount of $190,414. This sum represents the cost of replacement as determined by the umpire, less depreciation, contractor's overhead and profit, sales tax on building materials, and a $1,000 deductible. (Id. ¶¶ 5-6). Plaintiff contends that, with the exception of depreciation and his deductible, the items sums withheld by NHIC are recoverable under the policy. (Id. ¶¶ 9-11).

Plaintiff now brings a class action suit against NHIC for breach of contract, breach of the duty of good faith and fair dealing, and violations of Article 21.55 of the Texas Insurance Code.² The complaint also contains non-class claims against NHIC and AIG for violations of Article 21.21 of the Texas Insurance Code. The case is before the court on cross-motions for summary judgment. The parties have briefed the issues and the motions are ripe for determination.

II.

Summary judgment is proper when there is no genuine issue as to any material fact and the movant 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, 2552, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Thurman v. Sears, Roebuck & Co., 952 F.2d 128, 131 (5th Cir.), cert. denied, 506 U.S. 845, 113 S.Ct. 136, 121 L.Ed.2d 89 (1992). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Matter of Gleasman, 933 F.2d 1277, 1281 (5th Cir.1991). Cases involving the interpretation of an insurance policy are particularly appropriate for summary disposition. See Principal Health Care of Louisiana v. Lewer Agency, Inc., 38 F.3d 240, 242 (5th Cir.1994); SnyderGeneral Corp. v. Great American Insurance Co., 928 F.Supp. 674, 677 (N.D.Tex.1996) (Kaplan, M.J.), aff'd, 133 F.3d 373 (5th Cir. 1998).

When a case is presented to the court by way of cross-motions for summary judgment, each party has the burden of producing evidence to support its motion. Dutmer v. City of San Antonio, 937 F.Supp. 587, 589-90 (W.D.Tex.1996). The movant has the initial burden of showing the absence of a genuine fact issue. Duffy v. Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir.1995); Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). The burden then shifts to the non-movant to show that summary judgment is not proper. Duckett v. City of Cedar Park, 950 F.2d 272, 276 (5th Cir.1992). The parties may satisfy their respective burdens by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992). All the evidence must be viewed in the light most favorable to the party opposing the motion. Rosado v. Deters, 5 F.3d 119, 122 (5th Cir.1993). However, conclusory statements, hearsay, and testimony based merely on conjecture or subjective belief are not competent summary judgment evidence. Topalian, 954 F.2d at 1131.

III.

NHIC tendered $190,414 to plaintiff in full satisfaction of his property damage claim. This sum represents the replacement cost of $299,907 as found by the umpire, less: (1) $37,554 in depreciation; (2) $48,083 in contractor's overhead and profit; (3) $22,856 in sales tax; and (4) a $1,000 deductible. (Def.App. at 88). Plaintiff seeks the actual cash value of the loss, or $262,353, which he calculates to be the replacement cost less depreciation. NHIC argues that plaintiff is entitled to no further payments under the policy because he made a replacement cost claim and spent only $139,608.78 to repair his property.

A.

The NHIC policy provides that the insurance company "will determine the value of Covered Property in the event of loss or damage ... [a]t actual cash value as of the time of loss or damage ..." (Id. at 68, ¶ C(7)(a)). However, a different policy provision applies where the insured has also purchased optional replacement cost coverage.³ In such cases:

Replacement Cost (without deduction for depreciation) replaces Actual Cash Value in the Loss Condition, Valuation of this Coverage Form.

* * * * * *

You may make a claim for loss or damage covered by this insurance on an actual cash value basis instead of on a replacement cost basis. In the event you elect to have loss or damage settled on an actual cash value basis, you may still make a claim for the additional coverage this Optional Coverage provides if you notify us of your intent to do so within 180 days after the loss or damage.

(Id. at 70, ¶ G(3)(a) & (c)).

This language is clear and unambiguous. It allows the insured to either make a claim for replacement costs, up to the policy limits, or actual cash value supplemented by additional replacement cost coverage. By this lawsuit, plaintiff seeks $48,083 in contractor's overhead and profit and $22,856 in sales tax which he contends was wrongfully deducted from his actual cash value claim. NHIC counters with two arguments: (1) plaintiff has already been paid more than he spent to repair his property; and (2) plaintiff made a replacement cost claim, not an actual cash value claim. The Court will address each argument in turn.

1.

By using excess and surplus materials and having some of the repairs done by on-site maintenance personnel, plaintiff spent only $139,608.78 to repair his property. (Plf.App.Exh.A, ¶ 2). NHIC has already paid plaintiff $190,414, or $50,805.22 more than the actual cost of repairs. As a result, the insurance company maintains that plaintiff is entitled to no further payments under the following policy provision:

We will not pay more for loss or damage on a replacement cost basis than the least of:

(1) The Limit of Insurance applicable to the lost or damaged property;

(2) The cost to replace, on the same premises, the lost or damaged property with other property:

(a) Of comparable material and quality; and

(b) Used for the same purpose; or

(3) The amount you actually spend that is necessary to repair or replace the lost or damaged property.

(Def.App. at 70, ¶ G(3)(e)) (emphases added).

Obviously, an insured cannot recover repair or replacement costs unless and until he actually repairs or replaces the insured structure. See, e.g. Kolls v. Aetna Casualty and Surety Co., 378 F.Supp. 392, 395 (S.D.Iowa), aff'd, 503 F.2d 569 (8th Cir.1974); Huggins v. Hanover Insurance Co., 423 So.2d 147, 150 (Ala. 1982); Higgins v. Insurance Co. of North America, 256 Or. 151, 469 P.2d 766, 772 (1970). Nor can an insured recover repair or replacement costs in excess of what he actually spends on repairs or replacement. Kolls, 378 F.Supp. at 397; Huggins, 423 So.2d at 150; Higgins, 469 P.2d at 774. However, these well-settled principles of insurance law are only applicable where the insured seeks replacement costs. The court must therefore determine whether plaintiff made a replacement cost claim or an actual cash value claim.

2.

As noted above, the policy allows plaintiff to either make a claim for replacement costs or the actual cash value of the loss supplemented by additional replacement cost coverage. (Def.App. at 70, ¶ G(3)(a) & (c)). Robert Long, the adjuster who handled this claim, states that "[p]laintiff sought the cost to repair or replace the damage as provided under the terms of the policy." (Id. at 11, ¶ 3). Relying exclusively on this evidence, NHIC argues plaintiff made a replacement cost claim.

This conclusion is neither justified by Long's affidavit nor supported by the summary judgment record. The mere fact that plaintiff may have requested funds to repair or replace the damage to his property is not inconsistent with making an actual cash value claim. Where an insured purchases optional replacement cost coverage, the policy provides:

You may make a claim for loss or damage covered by this insurance on an actual cash value basis instead of on a replacement cost basis. In the event you elect to have loss or damage settled on an actual cash value basis, you may still make a claim for the additional coverage this Optional Coverage provides if you notify us of your intent to do so within 180 days after the loss or damage.

(Id. at 70, ¶ G(3)(a) & (c)) (emphasis...