GRM Mgmt., LLC v. Cincinnati Ins. Co.

Decision Date01 May 2017
Docket NumberCivil Action No. 3:16CV574–HEH
Citation259 F.Supp.3d 411
CourtU.S. District Court — Eastern District of Virginia
Parties GRM MANAGEMENT, LLC, and SN Holdings, LLC, Plaintiffs, v. The CINCINNATI INSURANCE COMPANY, Defendant.

C. Thomas Brown, Erik Broch Lawson, Caitlin Marie Brown, Silver & Brown PC, Fairfax, VA, for Plaintiffs.

Terry Lynn, Law Offices of Terry Lynn PLLC, Earlysville, VA, for Defendant.


(Granting Defendant's Motion for Summary Judgment)

Henry E. Hudson, United States District Judge

Plaintiffs GRM Management, LLC, and SN Holdings, LLC, (collectively "GRM") brought suit against The Cincinnati Insurance Company ("Cincinnati") for breach of a business insurance policy ("the Policy") issued by Cincinnati. GRM alleges that Cincinnati breached the terms of the Policy by failing to issue a timely coverage decision after GRM notified Cincinnati of a theft loss caused by Donald Moore ("Moore"), GRM's former maintenance worker.

This matter is before the Court on Cincinnati's Motion for Summary Judgment (ECF No. 22), filed on February 28, 2017. Both parties have submitted memoranda and exhibits in support of their respective positions. The Court heard oral arguments on April 4, 2017.

For the reasons discussed herein, the Court will grant Cincinnati's Motion. Consequently, this case will be dismissed with prejudice.


GRM owns and operates the Grand Magnuson Hotel and Conference Center, a seven-story hotel in Richmond, Virginia. (Pls.' Mem. Opp'n 1, ECF No. 29.)1 GRM acquired two insurance policies for the hotel, each from a different insurer and covering different risks. The first was an all-risk commercial property insurance policy from Great American Insurance Company ("Great American"). (Id. ) The Great American policy excluded coverage for theft by employees or any person to whom GRM entrusted the insured property. (Id. ) Additionally, GRM purchased the Policy in dispute from Cincinnati, which covers up to $100,000 in losses "resulting directly from ‘theft’ committed by an ‘employee’ ...." (Notice of Removal Ex. 1 at 84 [hereinafter "Policy"], ECF No. 1–1.)

The Policy defines the term "employee" as "[ (1) ] any natural person in [GRM's] service ...; [ (2) ] who [GRM] compensates directly ...; [ (3) ] and [w]ho [GRM] has the right to direct and control while performing services...." (Id. at 94.) The Policy also sets out the duties of the insureds in the event of loss, which state in pertinent part that GRM "must" notify Cincinnati of any loss "as soon as possible" and submit "a detailed, sworn proof of loss within 120 days." (Id. at 88.) Further, the Policy states that GRM may not bring an action against Cincinnati "unless [GRM] ha[s] complied with all the terms" of the Policy. (Id. at 89.)

GRM hired Moore pursuant to a "sub-contractor" agreement signed on July 31, 2013. (Def.'s Mem. Supp. Ex. 2, ECF No. 23–2.) The agreement specifies that GRM hired Moore to perform "casual labor and maintenance services ... to be delivered per project." (Id. ) GRM disclaimed any responsibility or liability "on behalf of the Sub–Contractor. Conversely, the Sub–Contractor assume[ed] all liabilities and [agreed to] indemnif[y] [GRM] without restrictions whatsoever from whomsoever." (Id. ) GRM agreed to pay Moore "no more than $1500" per project on a biweekly basis and provided Moore with a hotel room for a limited time at a rate of $60 per night. (Id. ) Moore was responsible "for meeting all regulatory obligations, taxes, [and] insurance" incurred while providing services to GRM. (Id. ) The agreement further states that "[i]n no way or form does this agreement form an employer-employee relationship." (Id. )

It is undisputed that GRM suffered a loss in September 2013, resulting directly from a theft committed by Moore while providing services to GRM. (Pls.' Mem. Opp'n 2; Compl. ¶¶ 15–19, ECF No. 1–1.) The loss involves personal property and various materials, including copper

and aluminum from rooftop HVAC units. (Comp. ¶ 19.) Moore pleaded guilty to criminal charges related to the property theft underlying GRM's insurance claim. (Id. ¶ 16.)

GRM notified both insurers of the loss in September 2013. On October 14, 2013, Anil "Neal" Patel ("Patel"), the hotel's general manager and GRM's sole member, spoke with David Crews ("Crews"), a field claims superintendent with Cincinnati. (Crews Aff. 1, ECF No. 23–1.) Patel informed Crews that Moore, "a subcontracted employee," committed the theft but that GRM would file a claim with Great American. (Id. ; Pls.' Mem. Opp'n 5.) Cincinnati closed GRM's file and took no further action at that time. (Crews Aff. 1.)

In the meantime, GRM filed a claim with Great American for the loss. (See Pls.' Mem. Opp. 2.) Great American disputed coverage and filed suit for declaratory judgment. (Id. ; see Great Am. Ins. Co. v. GRM Mgmt. , No. 3:14–cv–295 (E.D. Va. filed Apr. 24, 2014).) Great American argued that Moore was an employee of GRM or, alternatively, that GRM entrusted the insured property to Moore, thus excluding the loss from coverage under the Great American policy. (Complaint ¶¶ 83, 87, Great Am. Ins. Co. v. GRM Mgmt. , No. 3:14–cv–295 (ECF No.1).) GRM filed a counterclaim for breach of contract, based predominantly on the assertion that Moore was an independent contractor, rather than an employee. (Counterclaim, Great Am. Ins. Co. v. GRM Mgmt. , No. 3:14–cv–295 (ECF No. 10).)

During the Great American litigation Patel provided ample testimony regarding GRM's operations. Initially, Mike Bohlen, a claims adjuster for Great American, conducted a videotaped interview with Patel. (Pls.' Mem. Opp'n Ex. B [hereinafter "Patel Interview Video"], ECF No. 29–2.) In the interview, Patel discussed GRM's general personnel practices and the conditions surrounding the September 2013 loss. (See generally id. at mins. 11–15, 49–55.) Patel stated that after GRM purchased and began operating the hotel, GRM kept two maintenance employees who were hired by the previous owners. (Id. at mins. 11–12.) Subsequently, GRM fired those two maintenance employees and hired additional maintenance workers "as subcontractors because it was hard to ... manage these maintenance folks. Unless you gave them an explicit list of what needs to be done on a daily basis, they would sit around twiddling their thumbs." (Id. at mins. 13–14.)

Patel also submitted to an Examination Under Oath ("EUO"), taken on November 20, 2013. (Patel EUO; ECF No. 23–4 to 23–7.) Patel discussed Moore's employment relationship with GRM at length. (Id. ) Patel expressed his preference for hiring maintenance personnel as independent contractors, rather than payroll employees, "to limit [his] liability from a compensation perspective." (Patel EUO 3, ECF No. 23–6.) Patel repeatedly characterized Moore as an independent contractor who was "responsible for [his] own taxes, insurance, [and] liability." (Id. ) Patel stated that nobody at the hotel supervised Moore, and that Patel required only that Moore complete his assigned tasks. (Id. at 6.) Patel stated that Moore did not have a weekly hour-requirement but worked on a job-by-job basis to prevent the relationship from looking like "employment." (Id. at 5.) When given a task, Moore had to "use [his own] resources" to complete it, he could conduct his work remotely when possible, and he was allowed to complete the assignment on his own schedule. (Id. ) Moreover, Patel allowed Moore to maintain other employment provided that he completed any projects assigned by GRM. (Id. )

Great American deposed Moore as well. (Moore Dep., ECF No. 29–1.) Moore stated that GRM expected him to work "a 50–hour work week" and that Patel constantly assigned him new tasks. (Moore Dep. 28, 33–34.) Further, Moore stated that GRM "held [him] as an employee" and that he was the only person in charge of maintenance for the hotel. (Id. at 7, 34.) While working for GRM, Moore was only reachable via his personal cell phone, had to use his own tools, had to use his personal contacts to procure parts and supplies, and would receive assignments from Patel and various other hotel employees. (Id. at 38.)

Subsequently, GRM and Great American settled their case for an undisclosed amount. (Pls.' Mem. Opp'n 3.) Shortly thereafter, on January 5, 2015, GRM contacted Cincinnati once again regarding the September 2013, theft loss and requested a blank proof of loss form. (Def.'s Mem. Supp. Ex. 5, ECF No. 23–8.) Cincinnati provided the requested proof of loss form, directed GRM to the coverage conditions in the Policy, and reserved any coverage decision until a claim was properly before it. (Def.'s Mem. Supp. Ex. 6, ECF No. 23–9.) On May 19, 2015, GRM submitted a proof of loss form and supporting documentation to Cincinnati. (Def.'s Mem. Supp. Ex. 7, ECF No. 23–10.) In response, Cincinnati requested documentation regarding Moore's employment, including his W–2, and directed GRM to submit a new proof of loss completed on Cincinnati's standard form, rather than a third-party form as previously submitted by GRM. (Def.'s Mem. Supp. Ex. 8, ECF No. 23–11.) On July 9, 2015, GRM submitted a second proof of loss form in accordance with Cincinnati's request and stated that no W–2 form was available for Moore because none was prepared "before his employment was terminated."2 (Def.'s Mem. Supp. Ex. 9, ECF No. 23–12.)

GRM filed this suit against Cincinnati in the Circuit Court for the City of Richmond on July 24, 2015. (Notice of Removal at 1, ECF No. 1.) Cincinnati removed the suit to this Court on July 8, 2016. (Id. )

GRM argues that Cincinnati breached the policy by failing to promptly make a coverage determination after GRM notified Cincinnati of the theft loss and provided a sworn proof of loss form on May 19, 2015.3 (Pls.' Mem. Opp'n 9–10.) At the time of filing, Cincinnati had not issued a coverage decision regarding GRM's claim. However, Cincinnati denied GRM's claim on January 12, 2017. (Def.'s Mem. Supp. Ex. 15, ECF No. 24–5.)


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