HTI Holdings, Inc. v. Hartford Cas. Ins. Co.
| Decision Date | 08 December 2011 |
| Docket Number | Civ. No. 10-6021-AA |
| Parties | HTI HOLDINGS, INC., an Oregon corporation, Plaintiff, v. HARTFORD CASUALTY INSURANCE COMPANY, a Delaware corporation, Defendant, |
| Court | U.S. District Court — District of Oregon |
Plaintiff HTI Holdings, Inc. (HTI) was insured by defendant Hartford Casualty Insurance Company (Hartford). During the period of coverage, HTI suffered a loss due to a fire and made a claim on its policy. The parties disputed both the amount to be paid under the policy and the extent of coverage. HTI then brought suit alleging breach of contract, negligence, breach of the implied covenant of good faith and fair dealing, and tortious interference with prospective economic advantage. In turn, Hartford alleges counterclaims for declaratory judgment and breach of contract.
HTI now moves for partial summary judgment on its breach of contract claims and the application of law to its tort claims, and for summary judgment on Hartford's affirmative defenses and counterclaims. In turn, Hartford moves for partial summary judgment on HTI's tort claims and on the interpretation of certain provisions of the insurance policy involving business income and extra expense.
On August 24, 2011, Magistrate Judge Coffin issued his Amended Order and Findings and Recommendation, finding that Oregon law applies to HTI's tort claims and recommending that summary judgment be granted in favor of Hartford on HTI's claims for negligence, tortious breach of the implied covenant of good faith, and tortious interference with prospective economic advantage. Magistrate Judge Coffin also recommends that HTI's motion for summary judgment on its business interruption claims be denied, that Hartford's interpretation regarding business income be adopted, and that both parties' motions for judgment on the extra expense claim be denied. Finally, Magistrate Judge Coffin recommends that Hartford's First, Second, Sixth, Seventh, Eighth, Ninth, Tenth, and Twelfth affirmative defenses be dismissed, and that Hartford's Third, Fourth, Fifth, Eleventh, and Thirteenth affirmative defenses be allowed.
When either party objects to a magistrate judge's Findings and Recommendation, the district court must make a de novo determination of that portion of the magistrate judge's report. See 28 U.S.C. § 636(b)(1); McDonnell Douglas Corp. v. Commodore Business Machines, Inc., 656 F.2d 1309,1313 (9th Cir. 1981). Both parties filed timely objections, and I give de novo review of the parties' objections to the Findings and Recommendation.
HTI operated a manufacturing facility in Linn County, Oregon and produced waterpurification products using specialized technology and equipment. HTI was insured, as it hail been since 1999, by a "Spectrum" property insurance policy issued by Hartford (the Policy). Hirsch Decl. Ex. 1 (doc. 121). The Policy generally provided coverage for HTI's property and equipment, and in the event of a loss, coverage for business income and extra expense.
In 2006 and early 2007, HTI found itself struggling financially because expected sales to the United States military did not occur. HTI consequently decided to redirect its sales and marketing to commercial and retail markets. On March 20, 2007, a fire caused significant damage to HTI's manufacturing facility, and HTI timely submitted an insurance claim to Hartford.
Hartford accepted the property damage claim and eventually paid for HTI's manufacturing facility to be rebuilt under the terms of the Policy. On June 5, 2007, HTI's adjuster provided Hartford with a preliminary report estimating $8.8 million in business interruption losses through December 31, 2007, and HTI requested a $2 million advance from Hartford. Hartford initially advanced $150,000 in September 2007, and then another payment of $279,000 In November 2008.
According to HTI, Hartford's failure to make adequate business interruption payments resulted in HTI's inability to cover operating expenses while the manufacturing facility was being rebuilt. After construction of the facility was complete, HTI sold its key assets at less than market prices due to its financial situation, though HTI retained rights and benefits associated with the insurance coverage proceeds. HTI claims that Hartford's failure to compensate the loss of HTI's business income and extra expenses caused the demise of HTI's business and loss to its shareholders.
Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that themoving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The materiality of a fact is determined by the substantive law on the issue. T.W. Elec. Serv. Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626,630 (9th Cir. 1987). The authenticity of a dispute is determined by whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324. The court must resolve all reasonable doubts as to the existence of genuine issues of material fact against the moving party and construe all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. T.W. Elec. 809 F.2d at 630.
HTI contends that Magistrate Judge Coffin erroneously applied Oregon law to its tort claims. HTI contends that because the injurious conduct occurred in California or Connecticut, the law of one of those states should govern. However, Magistrate Judge Coffin found, and I agree, that the applies and Oregon law is the proper choice of law under the statute.
Id. Thus, the law of the state of injury applies if both requisites under §31.875(3)(c)(A) and (B) are met. Given that HTI's facility was located in Oregon, it was foreseeable that the injury would occur in Oregon. However, HTI argues that both requirements are not met, because it did not formally request the application of Oregon law. I disagree. HTI's tort claims are all pled under Oregon law. Compl. at ¶¶ 73-74, 78, 90. As both requisites of § 31.875(3)(c) are met, the law of the state of injury - Oregon - governs.
Even if § 31.875(3)(c) was not applicable, § 31.875(4) dictates that Oregon law nevertheless applies:
If a party demonstrates that application to a disputed issue of law of a state other than the state designated by subsection (2) or (3) of this section is substantially more appropriate under the principles of ORS 31.878, that issue is governed by the law of the other state.
Or. Rev. Stat. § 31.875(4). "The most appropriate law" is governed by:
Or, Rev. Stat. § 31.878. Here, the place of the resulting injury was Oregon, the domicile and pertinent place of business of HTI was Oregon, and the place in which the relationship was centered was Oregon. Further, Oregon has a substantial interest in regulating the insurance industry withinthe state, as evidenced by the state's legislative framework. See, e.g., Or. Rev. Stat. Chap, 742. Thus, the law of Oregon is most appropriate in this case.
Therefore, for all the foregoing reasons, I agree with Magistrate Judge Coffin that Oregon law governs HTI's tort claims.
HTI argues that even if Oregon law applies, Magistrate Judge Coffin erred by dismissing HTI's tort claims for negligence and breach of the implied covenant of good faith and fair dealing. Magistrate Judge Coffin found that Hartford was not obligated to employ a standard of care independent of the terms of the Policy and HTI was therefore limited to contract remedies. I agree.
In Oregon, it is possible to pursue a cause of action in tort as well as in contract in limited circumstances:
When the relationship involved is between contracting parties, and the gravamen of the complaint is that one party caused damage to the other by negligently performing its obligations under the contract, then, and even though the relationship between the parties arises out of the contract, the injured party may bring a claim for negligence if the other party is subject to a standard of care independent of the terms of the contract.
Georgetown Reality v. The Home Ins. Co., 313 Or. 97, 106,831 P.2d 7 (1992). As Magistrate Judge Coffin pointed out, the relevant question is whether Hartford was "subject to a standard of care independent of the contract." Findings and Recommendation at 15. If so, HTI may sue in both tort and in contract; if not, HTI is limited to contract remedies.
Oregon courts have found a standard of care independent of the...
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