Hallmark Specialty Ins. Co. v. Phx. C&D Recycling, Inc.
| Citation | 527 F.Supp.3d 1032 |
| Decision Date | 22 January 2020 |
| Docket Number | No. 4:18-cv-00443-JAJ-SBJ,4:18-cv-00443-JAJ-SBJ |
| Parties | HALLMARK SPECIALTY INSURANCE COMPANY, Plaintiff/Counterclaim Defendant, v. PHOENIX C&D RECYCLING, INC., and R&A Properties, Inc., Defendants/Counterclaimant. |
| Court | U.S. District Court — Southern District of Iowa |
Michael W. Thrall, Matthew A. McGuire, Nyemaster Goode PC, Des Moines, IA, Angela Aggie Zanin, Pro Hac Vice, Rebecca R. Weinreich, Pro Hac Vice, Stephen V. Kovarik, Pro Hac Vice, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, CA, Seth Ian Weinstein, Pro Hac Vice, Lewis, Brisbois, Bisgaard & Smith, New York, NY, for Plaintiff/Counterclaim Defendant.
Michael S. Jones, Jordan Ryan Hutchinson, Patterson Law Firm LLP, Des Moines, IA, for Defendants/Counterclaimant.
This action arises from a fire at a trash recycling plant that damaged buildings and equipment. The insurer brought an action for declaratory judgment alleging that it did not breach the pertinent insurance policy or act in bad faith in connection with its adjustment of the claims of the property owner and the recycling company arising from the fire. The recycling company brought a counterclaim for damages against the insurer for breach of contract, breach of fiduciary duty, and bad faith. The property owner stipulated to entry of declaratory judgment against it, and the court entered the requested consent judgment.
This action is now before the court on the remaining parties’ cross-motions for summary judgment. Specifically, on November 1, 2019, the insurer filed its Motion For Summary Judgment [Dkt. No. 38]. The recycling company filed its Resistance [Dkt. No. 46] on November 22, 2019, and the insurer filed its Reply [Dkt. No. 53] on December 5, 2019. On November 12, 2019, the recycling company filed its Motion For Summary Judgment [Dkt. No. 42]. The insurer filed its Resistance [Dkt. No. 47] on December 3, 2019, and the recycling company filed its Reply [Dkt. No. 54] on December 10, 2019.
This action is also before the court on two other motions by the insurer. Specifically, on December 3, 2019, the insurer filed its Motion To Strike Portions Of Affidavits ... Submitted In Support Of [Defendant's] Motion For Summary Judgment [Dkt. No. 48]. That same day, the insurer also filed its Motion To Strike Portions Of The Affidavits ... Submitted In Resistance To [Plaintiff's] Motion For Summary Judgment [Dkt. No. 50]. The recycling company filed its Resistances [Dkt. Nos. 56 and 57] on December 17, 2019. The insurer filed its combined Reply [Dkt. No. 58] in support of both of its Motions To Strike on December 23, 2019.
For the reasons stated below, the insurer's November 1, 2019, Motion For Summary Judgment [Dkt. No. 38] is GRANTED in its entirety ; the recycling company's November 12, 2019, Motion For Summary Judgment [Dkt. No. 42] is GRANTED in part and DENIED in part ; and the insurer's December 3, 2019, Motion To Strike Portions Of Affidavits ... Submitted In Support Of [Defendant's] Motion For Summary Judgment [Dkt. No. 48] and its December 3, 2019, Motion To Strike Portions Of The Affidavits ... Submitted In Resistance To Hallmark's Motion For Summary Judgment [Dkt. No. 50] are both DENIED as moot .
The parties have filed comprehensive statements of facts, additional facts, and responses to statements of facts. These statements go far beyond the scope of the specific allegations of bad faith and breach of contract on which the parties’ cross-motions for summary judgment turn. Furthermore, the court finds that it would be most beneficial to focus on specific factual matters in relation to specific allegations of bad faith and breach of contract. Therefore, what is presented, here, is a factual synopsis that is intended to provide context for the parties’ motions. More specific factual matters will be addressed in the court's analysis of the cross-motions for summary judgment.
Defendant and counterclaimant Phoenix C&D Recycling, Inc., (Phoenix) and defendant R&A Properties, Inc., (R&A) are owned and managed by Anthony (Tony) Colosimo and his brother Robert (Bobby) Colosimo. Bobby is the president of Phoenix and Treasurer of R&A. Tony is the Treasurer of Phoenix and President of R&A. Plaintiff Hallmark Specialty Insurance Company (Hallmark) provided insurance to Phoenix and R&A pursuant to a Hallmark Commercial Property Policy effective April 16, 2017, to April 16, 2018. The Policy provided for a maximum of approximately $6.5 million in coverage. Hallmark had cancelled the Policy for non-payment on June 6, 2017, but later reinstated the Policy when the premium was paid.
At the time of the insurance loss at issue, Phoenix operated a recycling plant located in Des Moines, Iowa, on property owned by R&A under a lease agreement with R&A. R&A owned the real property and certain buildings, identified here as Buildings 1 and 3, and Phoenix owned the "Hoop building," which is also identified here as Building 2. Phoenix's income came primarily from "tip scale" fees that contractors paid to dump construction and demolition debris at the site, but Phoenix also recycled construction debris and produced biofuel from wood materials. At the time of the July 2017, fire, approximately 18,000 tons of biofuel were stacked in two piles at the site. Phoenix had been involved in a series of administrative actions concerning the accumulation of biofuel on the site. On June 19, 2017, Phoenix, R&A, and Polk County entered into an agreement pursuant to which "R&A and Phoenix ... agree[d] not to transport or deliver any construction debris, demolition material or any other materials or ‘anything’ else onto the site until such time as they obtain consent from the County." R&A had filed for bankruptcy and was at risk of losing the property, while Phoenix had not paid monthly rent for several years, and its tax returns showed losses in four of the five tax years prior to July 2017.
On July 6, 2017, a fire began in a pile of biofuel material located at the southeast corner by Building 3. According to an August 16, 2017, report by Hallmark's fire cause and origin consultant, the cause of the fire was self-heating of processed biofuel, i.e. , spontaneous combustion. The fire damaged buildings, machinery, and various materials at the plant. Hallmark received notice of the fire loss on or about July 10, 2017.
Hallmark assigned Property Claims Supervisor Bryan C. Jones to the claimed loss. In the course of Hallmark's subsequent adjustment of the loss, Jones hired numerous consultants and experts. Among them was HSNO, an accounting firm, to address any claim for loss of business income, although at the time Hallmark contacted HSNO on October 12, 2017, Phoenix had not filed a specific claim of loss of business income. Jones also hired mechanical engineer Larry Baxter of Cherokee Machinery Consultants (CMC) as another consultant to assess damage to equipment.
Over the next several months, Hallmark made various payments to Phoenix on the loss from the July 6, 2017, fire. Hallmark contends that it ultimately paid $2,079,189.57 on the loss: $242,551.23 for buildings; $1,392,922.00 for equipment; $410,666.34 for lost business income; and $33,050 for extra expenses. This total included what Hallmark describes as a final "compromise" payment on July 6, 2018, in the amount of $1,254,968, which Hallmark contends consisted of $281,822 for business income and extra expenses and $973,076 for equipment. Phoenix does not dispute that it received these payments, but disputes the timeliness of payments, the amounts paid for various categories of coverage, and the correctness of Hallmark's determinations and calculations.
Hallmark filed its Complaint For Declaratory Relief, initiating this action, on November 13, 2018. Hallmark seeks judicial declarations that it did not breach the Policy and did not act in bad faith in connection with its adjustment of R&A's and Phoenix's claims arising out of the July 6, 2017, fire. In addition, Hallmark seeks attorney's fees and costs of suit incurred and such other relief as the court deems just and proper.
Phoenix initially moved to dismiss Hallmark's Complaint for lack of subject matter jurisdiction, but Phoenix later withdrew that motion. Phoenix filed its Answer on February 27, 2019, denying Hallmark's claims for declaratory relief. Phoenix also asserts counterclaims for breach of contract, breach of fiduciary duty, and bad faith. Phoenix seeks compensatory, punitive, and exemplary damages, as well as attorney's fees, expenses, and interest. Hallmark filed its Answer To Counterclaim on March 20, 2019, denying Phoenix's counterclaims. On June 3, 2019, R&A filed a Stipulation For Entry Of Declaratory Judgment Against Defendant R&A Properties, Inc., Only, and the court entered a Stipulated Consent Judgment against R&A on August 26, 2019.
The cross-motions for summary judgment by Hallmark and Phoenix and the motions to strike by Hallmark now before the court followed in November and December 2019.
The court will first consider Hallmark's Motions To Strike Affidavits, because those motions relate to what record the court can consider on the cross-motions for summary judgment. Hallmark asserts that numerous paragraphs of the affidavits that Phoenix has offered in support of Phoenix's Motion For Summary Judgment and resistance to Hallmark's Motion For Summary Judgment should be stricken, because they lack foundation, fail to demonstrate personal knowledge, are hearsay, are improper opinion testimony or improper expert opinion, are irrelevant, are speculative, or contradict prior testimony.
Hallmark is correct that Rule 56(c)(4) of the Federal Rules of Civil Procedure provides as follows:
(4) Affidavits or Declarations . An affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set...
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