Mercedes Zee Corp. v. Seneca Ins. Co.

• Court: U.S. District Court — District of Connecticut
• Writing for the Court: Jeffrey Alker Meyer, United States District Judge
• Citation: Mercedes Zee Corp. v. Seneca Ins. Co., 151 F.Supp.3d 255 (D. Conn. 2015)
• Decision Date: 22 December 2015
• Docket Number: No. 3:14–cv–00119 (JAM),3:14–cv–00119 (JAM)
• Parties: Mercedes Zee Corp., LLC, Plaintiff, v. Seneca Ins. Co., Inc., Defendant.

151 F.Supp.3d 255

Mercedes Zee Corp., LLC, Plaintiff,

v.Seneca Ins. Co., Inc., Defendant.

No. 3:14–cv–00119 (JAM)

United States District Court, D. Connecticut.

Signed December 22, 2015

Jon David Biller, Michael J. Lemoult, Biller, Sachs, Raio & Zito, Hamden, CT, for Plaintiff.

Cristin E. Sheehan, John O'Neil Sheehy, Morrison, Mahoney LLP, Hartford, CT, William A. Schneider, Morrison Mahoney LLP, Boston, MA, for Defendant.

RULING DENYING CROSS–MOTIONS FOR SUMMARY JUDGMENT

Jeffrey Alker Meyer, United States District Judge

Was it vandalism or was it theft? That is a $2 million question that gives rise to this case about whether damages inflicted by intruders inside a vacant building are subject to coverage under the terms of a commercial insurance policy.

One day in March 2013, the owner of an empty commercial building in East Hampton, Connecticut found an unwelcome surprise: intruders had broken into the building, extensively damaged the building's interior and fixtures, and stolen copper pipe from inside the building. The building's owner—plaintiff Mercedes Zee Corp., LLC—seeks payment for most of its losses under the terms of an insurance policy issued by defendant Seneca Insurance Company, Inc.

The insurance policy covers damages from “vandalism” but excludes damages from “theft.” This lawsuit has resulted because the parties have very differing interpretations of what these terms mean as used in the policy and how they should apply to the facts of this case. Indeed, the same policy provision is widely used in insurance policies nationwide, and courts across the country have frequently grappled with how to understand and apply the distinction between losses that should be covered as “vandalism” and losses that should be excluded as “theft.” See, e.g., Morley Witus, The Paradox of Insurance Coverage for Vandalism But Not Theft, 56 Wayne L.Rev. 1747 (2010).

The parties have now cross-moved for summary judgment. Because I believe that both parties have overlooked in some respects the guiding principles that should govern interpretation of the policy, I will deny both motions for summary judgment.

Background

The parties have stipulated to certain facts for purposes of their cross-motions for summary judgment. Doc. # 45 at 9–13. Plaintiff owns a commercial building in East Hampton, Connecticut that was vacant while it was undergoing renovation. Id. at 9. In March 2013, two men broke into the premises and intentionally damaged the building and stole copper piping. Id. at 11. Plaintiff claims damages to walls, ceilings, floors, electrical boxes, electric panels, electrical distribution, plumbing fixtures, an alarm system, heating units, and the heating and cooling systems. Id. at 11–12.

The insurance policy at issue in this case includes the following coverage clause that broadly includes losses due to vandalism but that is subject to exception for losses due to theft:

A. Covered Causes of Loss

* * * *

8. Vandalism, meaning willful and malicious damage to, or destruction of, the described property.

We will not pay for loss or damage caused by or resulting from theft, except for building damage caused by the breaking in or exiting of burglars.

Id. at 11.

Plaintiff does not claim that this so-called “vandalism/theft” clause of the insurance policy covers the value of the copper piping or any other items inside the building that were stolen by the intruders. Instead, plaintiff limits its claim to damages sustained to the interior of the building.

It is not clear from the parties' submissions whether or the extent to which any interior building damages occurred as a necessary part of any act of theft (e.g., whether any damages to walls or electrical boxes was done to remove copper piping or other property from inside the walls or electric boxes).

The parties offer sharply contrasting views of the scope of the vandalism/theft clause. For its part, plaintiff contends that the vandalism/theft clause extends not only to graffiti that the intruders did within the building but also to the rest of the intruders' wide-ranging damages to building components. Id. at 12. According to plaintiff, “[i]t was reasonable for [plaintiff] to believe it would be paid for vandalism damage to its building but not for any items stolen from the building, whether the vandalism damage was done gratuitously, just for the sake of causing damages, or whether it was done as part of a successful or failed effort to steal something or both.” Doc. # 46–1 at 6. Applying these criteria, plaintiff claims coverage for nearly $2 million of interior damages to the building.

Defendant interprets the vandalism/theft clause far more restrictively. Defendant concedes that the clause covers graffiti damage and damage to the building by the intruders in the process of breaking into the premises. See Doc. # 44–1 at 12; Doc. # 45 at 13. But for the vast majority of plaintiff's claim, defendant maintains that the damages were theft-related and that the vandalism/theft clause “does not provide coverage to [plaintiff] for damage to the premises caused by or resulting from theft, even if that damage resulted from the malicious or willful destruction of property.” Doc. # 44–1 at 17. Applying these criteria, defendant contends that the covered losses are less than $10,000 and below the policy's deductible. Doc. # 49 at 22.

After defendant denied plaintiff's claim for coverage, plaintiff initiated this suit. The parties have now filed cross-motions for summary judgment.

Discussion

The principles governing a motion for summary judgment are well established. Summary judgment may be granted only if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(a) ; see also Tolan v. Cotton, ––– U.S. ––––, 134 S.Ct. 1861, 1866, 188 L.Ed.2d 895 (2014) (per curiam ). Here, I need not determine whether genuine fact issues remain, because the parties have agreed for present purposes and on the basis of stipulated facts that the sole basis for dispute involves purely legal issues of how to interpret the parties' insurance contract.

A. Connecticut Law Governing Interpretation of Insurance Policies

The parties agree that Connecticut law governs this diversity action. It appears that there are no Connecticut cases interpreting the specific policy language at issue here. Accordingly, I must predict how the Connecticut Supreme Court would rule if confronted with the question posed in this case, and I may also consider decisions from other jurisdictions involving the same or similar policy provision. See, e.g., In re Thelen LLP, 736 F.3d 213, 219 (2d Cir.2013).¹

Under Connecticut law, the terms of an insurance policy are construed in accordance with the general rules of contract interpretation. See Connecticut Ins. Guar. Ass'n v. Drown, 314 Conn. 161, 187, 101 A.3d 200 (2014). The “determinative question is the intent of the parties” as “disclosed by the provisions of the policy.” Lexington Ins. Co. v. Lexington Healthcare Grp., Inc ., 311 Conn. 29, 37–38, 84 A.3d 1167 (2014).

If the terms of the policy are ambiguous, then the policy must be construed in favor of the insured. See Drown, 314 Conn. at 188, 101 A.3d 200. Similarly, an exclusion from coverage must be strictly construed in favor of the insured—that is, an exclusion “should be construed in favor of the insured unless [the court] has a high degree of certainty that the policy language clearly and unambiguously excludes the claim.” Ibid.

B. Interpretation of the Vandalism/Theft Clause

I have considered but do not agree with either party's interpretation of the scope of coverage under the vandalism/theft clause. To explain the basis for my disagreement, I will discuss at some length three principles that—in my view—should properly guide interpretation of this clause.

The first principle is that the policy makes both its coverage for vandalism and its exclusion for theft depend on an assessment of the wrongdoer's purpose or intent. The policy self-defines “vandalism” to “mean [ ] willful and malicious damage to, or destruction of, the described property.” Although the policy does not define theft, I understand theft to mean an “act of stealing” or “an unlawful taking (as by embezzlement or burglary) of property.” See Merriam–Webster Online Dictionary, http://www.merriam-webster.com/dictionary/theft. Under the common law, an act of “theft” connotes more than just an act of deprivation of a third party's property interest but an improper intent or purpose to deprive another of property. See, e.g., Gonzales v. Duenas–Alvarez, 549 U.S. 183, 189, 127 S.Ct. 815, 166 L.Ed.2d 683 (2007).

In short, whether by reference to “vandalism” or by reference to “theft,” the policy inherently requires consideration of the intent and purpose of the wrongdoer to determine the scope of coverage. See Certain Underwriters at Lloyds, London v. Law, 570 F.3d 574, 578 (5th Cir.2009) (interpreting the same policy provision and noting that “[t]he policy provisions at issue, viz., the vandalism coverage, the theft exclusion, and the ingress/egress exception, indisputedly turn on the purpose for which the damage at issue is done”). Here the parties do not dispute that all of the damage to the building was the product of someone's intentional acts of either vandalism or theft, as distinct from accidental or negligent damage.

Although the wrongdoer's purpose or intent must be considered, this evaluation does not depend solely upon the wrongdoer's initial purpose or intent upon entering a building. An insurance company may not defeat a claim for coverage under the vandalism/theft clause simply by establishing that the intruder who caused all the damage entered the building initially intending to steal. That is because an intruder may have more than one purpose at the time of intrusion—one purpose to vandalize and another purpose to steal. And an intruder's evil motives may opportunistically...