Marketfare Canal, LLC v. United Fire & Cas. Co.

• Decision Date: 14 January 2009
• Docket Number: No. 07-3557.,07-3557.
• Parties: MARKETFARE CANAL, LLC, et al. v. UNITED FIRE & CASUALTY COMPANY.
• Court: U.S. District Court — Eastern District of Louisiana

594 F.Supp.2d 724

MARKETFARE CANAL, LLC, et al. v. UNITED FIRE & CASUALTY COMPANY.

Civil Action No. 07-3557.

United States District Court, E.D. Louisiana.

January 14, 2009.

Philip Anthony Franco, Gregory Fortier Rouchell, Leslie A. Lanusse, Adams & Reese, LLP, New Orleans, LA, for Marketfare Canal, LLC, et al.

Stephen R. Barry, Barry & Piccione, Kathryn Montez Caraway, Caraway Le-Blanc, LLC, New Orleans, LA, for United Fire & Casualty Company.

ORDER AND REASONS

IVAN L.R. LEMELLE, District Judge.

Before the Court are Plaintiffs' and Defendant's respective Motions for Summary Judgment (Rec. Docs. 18, 36). Defendant's motion for Summary Judgment (Rec. Doc. 36) incorporates the arguments Defendant presented in its Opposition to Plaintiffs' Motion for Summary Judgment (Rec. Doc. 22); similarly, Plaintiffs' Opposition to Defendant's Motion (Rec. Doc. 39) essentially restates the arguments in Plaintiffs' reply memo to Defendant's Opposition to Plaintiffs' Motion (Rec. Doc. 41). After review of the pleadings and applicable law, and for the reasons that follow,

IT IS ORDERED that Defendant United Fire's Motion for Summary Judgment (Rec. Doc. 36) is DENIED and Plaintiffs' Motion for Summary Judgment (Rec. Doc. 18) is GRANTED in part and DENIED in part. The portion of Plaintiffs' Motion for Summary Judgment on the issue of waiver is GRANTED. The remainder of Plaintiffs' Motion for Summary Judgment is DENIED as genuine issues of material fact remain regarding the amount of recovery and the assessment of penalties.

BACKGROUND

The issue in this case is whether losses caused by theft are covered under Plaintiffs' commercial property insurance policy issued by Defendant United Fire. Plaintiffs owned and operated Robert Fresh Market located at 4001 Canal Street, which was completely shut down after Hurricane Katrina due to extensive damage caused by the hurricane. In effect at the time of the hurricane were Plaintiffs' commercial property insurance policy issued by Defendant United Fire and a flood policy issued through a separate company. The flood carrier paid Plaintiffs $1.956 million dollars. The property was gutted in October 2005, following an initial inspection by Defendant's adjuster, and was subsequently inspected at least four additional times by Defendant's adjuster or claims representative. One of United Fire's inspectors, Tommy Lundberg, commented in a June 29, 2006 report that the store was completely gutted of "interior finishes, electrical fixtures, mechanical systems and all equipment and shelving."

Plaintiffs and Defendant disputed the amount of covered damages to the property. Plaintiffs alleged that Defendant's failure to adequately compensate Plaintiffs for losses resulted in Plaintiffs' inability to repair the property. Subsequently, Plaintiffs filed multiple suits in state court regarding damages to the Canal property and other store locations. Five of the suits were removed to federal court and were consolidated for trial. (See Civ. Action No. 06-7232, Marketfare Annunciation, LLC v. United Fire and Casualty Co.). The jury found that Defendant United Fire arbitrarily, capriciously, and without probable cause failed to adequately compensate Plaintiffs for Katrina related losses at all five stores, including the Canal location. The jury award to Plaintiffs relating to the Canal St. store included $6,252,429.00 for covered losses and $2,016,000.00 in bad faith penalties. United Fire has appealed that case.

In accordance with Emergency Rule 23 issued by the Louisiana Commissioner of Insurance, Plaintiffs' commercial insurance policy with Defendant was renewed for the policy period commencing July 1, 2006 and ending on July 1, 2007. The renewed policy contained the same coverage as the previous policy, including an exclusion for vandalism or theft if the property has been vacant for more than 60 consecutive days. Both Plaintiffs and Defendant were aware that the Canal St. store had been vacant for more than 60 days at the time of renewal. Plaintiffs paid Defendant United Fire a $16,776.00 premium to maintain insurance coverage on the Canal St. store.

On October 31, 2006, the New Orleans Police Department apprehended persons that had broken into the Canal St. store and were in the process of stealing the building's copper wiring. On or about November 6, 2006, Plaintiffs made a claim under their commercial property policy with United Fire for the theft and damage to the copper wiring. United Fire denied the claim on January 15, 2007, relying on the policy's provision excluding vandalism/theft coverage where, the loss occurs in a building that has been vacant for more than 60 consecutive days. Plaintiffs initiated the present action on July 2, 2007. During the 2008 trial on the Hurricane Katrina damages claims against United Fire, Marc Robert, the principle owner of Plaintiffs' stores, testified that he had not renewed his option to lease the Canal St. building and would not be re-opening the Canal St. store. Plaintiffs assert that they were unable to re-open the store due to the financial strain that arose because of United Fire's alleged failure to pay adequate insurance proceeds. Plaintiff further supports this assertion by stating that their original intent was to re-open the Canal St. store, as evidenced by the $880,000.00 Mr. Robert paid to rent the location from the time Katrina made landfall through April 2008.

Plaintiffs argue first that Defendant waived the right to rely on the 60 day vacancy exclusion and is estopped from denying coverage on that basis because it accepted Plaintiffs' premium payment with full knowledge that the property was vacant and before the theft occurred. In support of this argument, Plaintiffs rely upon various cases that held that the insurer waived such exclusion clauses when the insurer knew or should have known of the existence of the clause trigger and still accepted payment of the premium and issued the policy ("the waiver cases")¹. Plaintiffs further argue that Emergency Rule 23 must be construed for the maximum protection and benefit of the insured.

Plaintiffs' second argument is that Defendant was responsible for triggering the vacancy because of its refusal to fully pay insurance proceeds to repair the property. Plaintiffs argue that despite Defendant's appeal to the Fifth Circuit in Case No. 06-7232, res judicata applies² and this Court should rely upon the jury finding in that case that United Fire failed to adequately compensate Plaintiffs and was in bad faith. Plaintiffs suggest that had United Fire originally paid the full amounts allegedly due, repairs would have commenced and the Canal St. store would not have been vacant at the time of the theft. Plaintiffs argue that allowing Defendant to deny coverage on the basis of the vacancy clause in this instance would essentially reward Defendant United Fire for its arbitrary and capricious refusal to pay and "would be tantamount to sanctioning United Fire's willful violation of LSAR.S. 22:658 and LSA-R.S. 22:1220, as well as the public policy of the State of Louisiana." (Rec. Doc. 18-2 at 2). Plaintiffs cites Magnon v. Collins, 98-2822 (La. 7/7/99), 739 So.2d 191, 196-97, for the principle that "insurance companies may only limit coverage by way of a policy exclusion if the exclusion does not conflict with statutory provisions or the public policy of this state." (Rec. Doc. 18-2 at 12).

Finally, Plaintiffs argue that they were not compensated for the theft and vandalism of the copper wire in Case No. 06-7232 and further assert that the report of the flood insurance adjuster upon which Defendant relies in its argument that Plaintiffs have already been compensated for the copper wiring, constitutes inadmissible hearsay evidence that is not properly considered in a motion for summary judgment.

Defendant first argues the clear and unambiguous text of the policy, which does not make an exception depending on the reason for the vacancy of the building. Defendant points out that Plaintiffs were aware the property was vacant when they renewed the policy and paid the premium.

Defendant's primary argument is that it did not waive the exclusion clause because, unlike the insurers in the insurance waiver cases, who could discontinue or refuse to provide coverage, Defendant was forced to offer the same coverage in the renewal policy in order to comply with Rule 23. Defendant asserts that the crux of the insurance waiver cases is that "it would be unjust to allow the insurance company to accept premiums in exchange for coverage that it knew did not exist and it would later deny" and that "the waiver doctrine essentially penalizes the insurer for not refusing to provide or discontinue coverage in the first place." (Rec. Doc. 22 at 7). Defendant asserts that this power to avoid or forfeit coverage is the threshold requirement for waiver under Louisiana law. Defendant relies upon Gaunt v. La. Citizens Property Insurance Corporation, 512 F.Supp.2d 493 (E.D.La.2007), and argues that Plaintiffs could have negotiated different terms and "presumably different premiums." (Rec. Doc. 22 at 8).

Defendant also disputes the res judicata argument and argues that the previous jury findings against United Fire should not be allowed. Defendant cites res judicata criteria from United States v. Shanbaum, 10 F.3d 305, 310 (5th Cir.1994): 1) identity of parties or their privies in the two actions; 2) the judgment in the prior action must have been rendered by a court of competent jurisdiction; 3) the prior action must have concluded with a final judgment on the merits; and 4) the same claim or cause of action must be involved in both suits. Defendant argues that the same claim or cause of action is not involved in the present case as in the previous jury trial. Defendant notes that the claims arose under different policies and involved different policy provisions and exclusions and that the cases will involve different...