Kalamazoo Acquisitions v. Westfield Ins.

• Decision Date: 19 January 2005
• Docket Number: No. 03-2323.,03-2323.
• Citation: 395 F.3d 338
• Parties: KALAMAZOO ACQUISITIONS, L.L.C., Plaintiff-Appellee, v. WESTFIELD INSURANCE CO., INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

395 F.3d 338

KALAMAZOO ACQUISITIONS, L.L.C., Plaintiff-Appellee, v. WESTFIELD INSURANCE CO., INC., Defendant-Appellant.

No. 03-2323.

United States Court of Appeals, Sixth Circuit.

Argued: October 27, 2004.

Decided and Filed: January 19, 2005.

Deborah A. Hebert, Cardelli, Hebert & Lanfear, Royal Oak, Michigan, for Appellant.

Floyd E. Gates, Jr., Kreis, Enderle, Callander & Hudgins, Battle Creek, Michigan, for Appellee.

Floyd E. Gates, Jr., Mark E. Kreter, Kreis, Enderle, Callander & Hudgins, Battle Creek, Michigan, for Appellee.

Before: KEITH, CLAY, and BRIGHT, Circuit Judges.^*

CLAY, Circuit Judge.

In this action for breach of a contract for commercial property insurance, Defendant Westfield Insurance Co., Inc., ("Westfield") appeals the district court's grant of summary judgment in favor of Plaintiff Kalamazoo Acquisitions, L.L.C. ("Kalamazoo") and seeks entry of judgment in its favor. Westfield asserts that Kalamazoo is barred from bringing this action because it entered into a general release with the party who damaged the property insured by Westfield and hence impaired Westfield's right of subrogation, in breach of the parties' policy for property insurance. The district court held that Westfield waived this argument. Because Westfield did not waive this argument and because the argument disposes of the case, we REVERSE the judgment of the district court and REMAND with instructions that the district court enter judgment in Westfield's favor.

I. FACTS

Kalamazoo owns a commercial multi-tenant building in Kalamazoo, Michigan, which it began to renovate during late 2000. In order to accomplish the renovations, Kalamazoo hired Continental Construction ("Continental") to raise the ceiling of the building's top floor. To facilitate construction of a new roof, Continental drilled holes in the existing roof, situating a steel beam in each hole; ultimately, a total of 12 such beams would support the beginnings of the new roof.

Around February 25, 2001, the city suffered a heavy rainstorm, which caused water to enter the building by way of the space in between the beams and the edges of the holes in the existing roof. In an effort to divert the streaming water into the building's drainage system, Continental covered the holes with visqueen (a dense plastic material). The visqueen did not succeed in its mission and the interior of the top three floors of the building sustained serious water damage as a consequence. Kalamazoo alleges that the total cost of repairing the damage, or the replacement cost value ("RCV") of the loss, was $357,968.¹

In the aftermath of the storm, Kalamazoo settled its claim against Continental for $208,188, which it claims was the actual cash value ("ACV") of the loss.² In exchange for this sum, Kalamazoo agreed to release Continental and its insurer, Amerisure, from any and all claims arising from the water damage. The date of the general release between Kalamazoo and Continental was September 6, 2001. Kalamazoo first notified Westfield of the release by letter dated November 1, 2001, in which letter Kalamazoo also made a claim for the $149,780 now in dispute. According to Kalamazoo, this amount represents the difference between the RCV and the ACV. On February 28, 2002, Westfield denied the claim on the grounds that Kalamazoo had breached express conditions in the parties' insurance policy (the "policy") by releasing Continental and Amerisure from further claims and thereby waiving Westfield's right of subrogation against Continental and Amerisure without its consent.³ On June 7, 2002, Westfield made what it calls "a professional concession to the independent insurance agent handling [Kalamazoo's] business," Brief of Appellant at 10, in the form of a payment to Kalamazoo for $19,788.07 after investigating a June 27, 2001 claim Kalamazoo had submitted to Westfield in the amount of $24,537.63.⁴

II. PROCEDURAL HISTORY

In response to the denial of its claim for $149,780, Kalamazoo brought suit against Westfield for breach of contract in Kalamazoo County Circuit Court on July 1, 2002. Invoking diversity jurisdiction⁵, Westfield timely removed the case to the district court for the Western District of Michigan. At the close of discovery, both parties moved for summary judgment. On June 10, 2003, the court granted summary judgment in favor of Kalamazoo, and entered a $149,780 judgment in its favor.⁶ The court's decision was in part based on its conclusion that Westfield had conceded, or waived, its defense that Kalamazoo's release of claims against Continental constituted breach of contract. Westfield timely filed a motion for reconsideration of the judgment, asserting that the district court improperly deemed its breach of contract defense waived and, moreover, that Kalamazoo's destruction of its subrogation rights warranted a reversal and entry of summary judgment in its favor. The court denied the motion to reconsider on August 1, 2003.

On appeal to this Court, Westfield raises two main arguments. Initially, Westfield asserts that it did not "concede" its breach of contract defense, as the district judge concluded. Westfield further maintains that Kalamazoo is not entitled to the amount it seeks because it breached its insurance contract with Westfield by settling with Continental and thus extinguishing Westfield's contractual subrogation rights. Westfield's second argument is that, in any event, the water damages to Kalamazoo's building are not a "covered loss" within the meaning of the policy. Finally, in connection with the second argument, Westfield asserts that assuming summary judgment for Kalamazoo was proper, the amount of damages awarded is not supported by evidence. Because we resolve the subrogation issue in Westfield's favor, we need not consider Westfield's alternative arguments.

III. STANDARD OF REVIEW

When a party seeks review of a summary judgment order by way of a motion to reconsider, we review the court's denial of the motion de novo.⁷ E.g., Perez v. Aetna Life Ins. Co., 150 F.3d 550, 554 (6th Cir.1998) (en banc). Similarly, we review a district court's decision to grant summary judgment de novo. E.g., Cockrel v. Shelby County Sch. Dist., 270 F.3d 1036 1048 (6th Cir.2001), cert. denied, 537 U.S. 813, 123 S.Ct. 73, 154 L.Ed.2d 15 (2002). Summary judgment shall be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). The district court, and this Court in its review of the district court, must view the facts and any inferences reasonably drawn from them in the light most favorable to the party against whom judgment was entered. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Accordingly, with respect to whether summary judgment in favor of Kalamazoo was proper, we view the facts in the light most favorable to Westfield. However, because Westfield also moved for summary judgment below — and now seeks both a reversal and entry of judgment in its favor — we consider de novo the question whether Westfield is entitled to summary judgment. Accordingly, as to Wesfield's argument that its motion for summary judgment was improperly denied, we review the facts in the light most favorable to Kalamazoo. See, e.g., Relford v. Lexington-Fayette Urban County Gov't, 390 F.3d 452, 456-57 (6th Cir.2004) (discussing the proper standard of review when reviewing parties' cross motions for summary judgment). As we make clear in our discussion infra, however, the resolution of this case does not depend on any factual disputes. We hold in favor of Westfield because, having impaired Westfield's right of subrogation without notice or consent, Kalamazoo is precluded from bringing this action as a matter of law.

IV. DISCUSSION

In a diversity action, a federal court must apply the law of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The policy at issue in this case, therefore, must be analyzed under Michigan law. In Michigan, "[t]erms in an insurance policy must be given their plain meaning and the court cannot `create an ambiguity where none exists.'" Heniser v. Frankenmuth Mut. Ins. Co., 449 Mich. 155, 534 N.W.2d 502, 505 (1995) (quoting Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 476 N.W.2d 392, 397 (1991)); see also Raska v. Farm Bureau Mut. Ins. Co., 412 Mich. 355, 314 N.W.2d 440, 441 (1982). Additionally, the insured bears the burden of proof as to whether the policy applies to the loss upon which the claim is based. E.g., Heniser, 534 N.W.2d at 505 n. 6; Fire Ins. Exch. v. Diehl, 450 Mich. 678, 545 N.W.2d 602, 609 (1996) (Riley, J., dissenting).

Westfield asserts that by virtue of its settlement and release agreement with Continental, Kalamazoo waived any rights it may have had under the policy to collect payment from Westfield. Westfield maintains that under the policy, Kalamazoo's right to recover from Westfield is subject to an express condition with which it failed to comply. We agree. First, Westfield does not dispute that under the policy, it is obligated to provide Kalamazoo with the cost of repairs to damaged property in the event of a covered loss, i.e., the total replacement cost value or RCV. However, under Westfield's standard commercial property insurance policy, an insured's right to recover from Westfield is subject to the condition that the insured in no way impair Westfield's right of subrogation against the party who caused the damage to the insured's property. The Commercial Property Conditions section of the policy provides, in relevant part:

D. LEGAL ACTION AGAINST US

No one may bring a legal action against us under this Coverage Part unless:

1. There has been full compliance with all of the...