Lead GHR Enters., Inc. v. Am. States Ins. Co.

• Decision Date: 25 February 2019
• Docket Number: CIV. 16-5026-JLV
• Parties: LEAD GHR ENTERPRISES, INC. Formerly d/b/a Golden Hills Resort, Plaintiff, v. AMERICAN STATES INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of South Dakota

369 F.Supp.3d 909

LEAD GHR ENTERPRISES, INC. Formerly d/b/a Golden Hills Resort, Plaintiff,

v.AMERICAN STATES INSURANCE COMPANY, Defendant.

CIV. 16-5026-JLV

United States District Court, D. South Dakota, Western Division.

Signed February 25, 2019

G. Verne Goodsell, Nathan R. Oviatt, Goodsell Quinn, LLP, Rapid City, SD, for Plaintiff.

Jack H. Hieb, Richardson, Wyly, Wise, Sauck, Hieb LLP, Aberdeen, SD, Daniel W. Berglund, Pro Hac Vice, Patrick Paul Jarosch, Pro Hac Vice, Grotefeld, Hoffmann, Schleiter, Gordon & Ochoa LLP, Minneapolis, MN, Gary D. Jensen, Beardsley, Jensen & Lee, Prof. L.L.C., Rapid City, SD, for Defendant.

ORDER

JEFFREY L. VIKEN, CHIEF JUDGE

INTRODUCTION

This case stems from an insurance claim denial. Defendant American States Insurance Company ("American States") denied an insurance claim related to the collapse of a retaining wall owned by plaintiff Lead GHR Enterprises ("Lead GHR"). (Docket 1 at ¶¶ 6-12). In its complaint, plaintiff alleges the denial constituted breach of contract, bad faith, and conversion. Id. at ¶¶ 14-25. Plaintiff also seeks punitive damages. Id. at ¶¶ 26 & 27.

Now pending before the court are the parties' motions for summary judgment. Defendant moved for summary judgment on all counts. (Docket 43). Plaintiff resists defendant's motion and defendant filed a reply. (Dockets 60 & 65). Defendant filed a statement of undisputed material facts in support of its motion. (Docket 45). Plaintiff filed its own statement of undisputed material facts in response to defendant's motion. (Docket 61). Plaintiff cross-moved for partial summary judgment on three questions of contract interpretation. (Docket 51). Defendant resists plaintiff's motion and plaintiff filed a reply. (Dockets 57 & 70). Plaintiff filed a statement of undisputed material facts in support of its motion and defendant responded. (Dockets 53 & 58).

For the reasons stated below, defendant's motion for summary judgment is denied as to Counts I and IV of the complaint, denied in part and granted in part as to Count II, and granted in full as to Count III. See infra Section III. Plaintiff's cross-motion for partial summary judgment is also granted in part and denied in part, as described below. See infra Section IV.

ANALYSIS

I. Factual Findings

The following recitation consists of the material facts developed from the complaint (Docket 1), defendant's answer (Docket 6), the parties' statements of undisputed material facts (Dockets 45 & 53), the parties' responses to opposing parties' statements of undisputed material facts (Dockets 61 & 58) and other evidence where indicated. Where a statement of fact is admitted by the opposing party, the court will only reference the initiating document. These facts are "viewed in the light most favorable to the [party] opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The facts material to the parties' motions for summary judgment are as follows.

Lead GHR was a South Dakota corporation that owned and operated a hotel in Lead, South Dakota.¹ (Docket 45 at ¶ 4). In 2014, Lead GHR sold the hotel to another entity, Roundhouse Properties, LLC. (Docket 50-2). On May 2, 2018—approximately two years after plaintiff filed its complaint—plaintiff signed a memorandum of understanding with Roundhouse agreeing plaintiff retained ownership of the insurance claim at issue here. (Dockets 54-1 & 1). Plaintiff and Roundhouse also agreed any proceeds from the case will be assigned to Roundhouse. Id. The South Dakota Secretary of State administratively dissolved Lead GHR on May 4, 2018, for failure to file three consecutive annual reports. (Docket 50-3).

A. Wall collapse and investigation

One of the hotel's parking lots, located between the hotel and a neighboring recreational center, was supported by a retaining wall approximately 10 feet tall. (Docket 45 at ¶ 5). The physical layout of this wall, or wall system, is disputed between the parties. Plaintiff characterizes it as a single wall attached to the main hotel building, extending outward to support the parking lot. (Docket 53 at ¶ 2). Defendant argues there were three separate walls, one attached to the hotel, another extending outward to support the parking lot, and a third attached to the recreational center. (Docket 45 at ¶ 5).

During the early morning hours of October 10, 2010, the retaining wall supporting the parking lot collapsed.² (Docket 53 at ¶ 3). A substantial rainstorm—approximately four to six inches of rain—occurred in Lead during the evening of October 10, 2010, and into the morning hours of October 11. (Docket 45 at ¶ 24). Defendant alleges the rainstorm caused the collapse. (Docket 44 at p. 1). Plaintiff instead posits the wall may have decayed, leading to its collapse. (Docket 60 at pp. 13-14). Each party supports its theory of causation with expert reports. (Dockets 50-4 & 50-32).

Lead GHR insured the hotel with a commercial property policy purchased from American States, effective from April 14, 2010, until April 14, 2011. (Docket 61 at ¶¶ 6 & 9). Plaintiff filed a claim with defendant on October 11, 2010. (Docket 50-17 at pp. 7-8). Defendant retained two insurance adjusters and an engineering firm to investigate plaintiff's claim. (Docket 45 at ¶¶ 30, 33-34). The first adjuster, Chris Shopshear of Eagle Adjusting Services, inspected the collapsed wall on October 18. (Docket 50-15 at p. 2). Mr. Shopshear stated in his post-inspection report, under a heading labeled "Origin of Loss," that the retaining wall collapsed during the October 10 rainstorm, but did not explicitly conclude the rainstorm caused the collapse. Id. at p. 3; see also Docket 61 at ¶ 30. The second adjuster, Jonathan Lawlee, was an American States employee. (Docket 45 at ¶ 33). Mr. Lawlee inspected the wall on November 4 and concluded, in internal notes, "there is not much of a question on what caused the wall to collapse." Id. at ¶ 34. He blamed groundwater for the loss and informed the hotel's general manager the policy did not cover groundwater or retaining walls, but agreed to wait for the engineering report before deciding the claim. (Docket 50-17 at p. 2).

Defendant retained Haag Engineering, a Texas firm, to "determine the cause of retaining wall failure." (Docket 50-4 at p. 2). Haag engineers inspected the exterior of the wall on October 29 and determined the wall had "toppled outward (south), essentially hinging at the base." Id. at p. 4. The engineers noted the weep holes in the wall—openings designed to allow soil and water to drain—were clogged with soil at the time of inspection. Id. at p. 3. Based on their inspection and analysis, the engineers concluded

1. The retaining wall failure at the Golden Hills Resort resulted from earth pressure on the wall. The lateral earth pressure was likely increased by accumulated water behind the wall.

2. The wall was originally built with weep holes to help drain soil behind the wall. The wall and weeps were 20 years old. The weeps appeared clogged.

3. The wall failed due to bending stresses at the base of the wall that exceeded the capacity of the concrete and reinforcement.

Id. at pp. 6-7.

Plaintiff hired at least three experts to examine the wall.³ At the time of the collapse, plaintiff retained a South Dakota engineer, Allan Schreier of Schreier Engineering. Mr. Schreier visited the site on October 29, and possibly on other dates. (Docket 50-25 at p. 4). The record does not contain a report detailing his conclusions from the site visit. In a deposition, however, Mr. Schreier stated "I'm not disputing the Haag report. I agree that these are the most likely scenarios that happened and their statements are true." Id. at p. 3.

After plaintiff commenced this litigation, it hired Robson Forensic, a Florida firm, to "look into the causation of the structural failure of the retaining wall[.]" (Docket 50-27 at p. 3). Engineer Mark Duckett visited the hotel on November 17, 2015. Id. at p. 4. At the time of Mr. Duckett's visit, the remnants of the retaining wall had been cleared away. Id. at p. 5. Mr. Duckett did not see the collapsed wall in person, only in photographs. Id. Nevertheless, he opined in his January 26, 2017, report that:

The structural collapse of the ... retaining wall was caused by one or both of the following: latent decay/deterioration of the steel reinforcing of the concrete retaining wall system and/or latent decay deterioration of the weep hole/drainage system for the retaining wall.

(Docket 50-32 at p. 7). In Mr. Duckett's opinion, the resilience of the retaining wall through previous rainstorms indicated the wall's failure was more likely caused by latent decay. Id. at p. 6.

B. Insurance policy and claim denial

In section A.2 of the policy, which is titled "Property Not Covered," the policy excludes coverage for "[r]etaining walls that are not part of a building." (Docket 50-5 at pp. 40-41). The parties vigorously dispute whether the retaining wall at issue here is part of the hotel building. (Dockets 44 at pp. 18-20 & 53 at pp. 5-8).

The policy also excludes coverage for certain causes of loss. (Docket 50-5 at pp. 71-75). Section B.1 of the exclusions portion of the policy includes the following anti-concurrent causation provision.

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

Id. at p. 71. "Earth sinking ... rising or shifting" as well as "the action of water under the ground surface" are excluded from coverage under this provision. Id. The policy also excludes water-related causes of loss under the anti-concurrent causation provision. Id. at p. 72. A separate endorsement modifies the policy's exclusion of water-related causes of loss.

Id. at p. 39. As modified, the policy excludes losses caused by:

Water under the ground surface pressing on, or flowing or seeping

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