Monroe Guar. Ins. Co. v. Magwerks Corp.

• Decision Date: 24 September 2003
• Docket Number: No. 49A02-0208-CV-622.,49A02-0208-CV-622.
• Citation: 796 N.E.2d 326
• Parties: MONROE GUARANTY INSURANCE COMPANY, Appellant-Defendant, v. MAGWERKS CORPORATION, Appellee-Plaintiff.
• Court: Indiana Appellate Court

796 N.E.2d 326

MONROE GUARANTY INSURANCE COMPANY, Appellant-Defendant, v. MAGWERKS CORPORATION, Appellee-Plaintiff.

No. 49A02-0208-CV-622.

Court of Appeals of Indiana.

September 24, 2003.

Todd J. Kaiser, Matthew S. Effland, Ogletree Deakins Law Firm, Indianapolis, IN, Attorneys for Appellant.

William E. Winingham, Wilson Kehoe & Winingham, FRank D. Otte, Indianapolis, IN, Attorneys for Appellee.

Steve Carter, Attorney General of Indiana, Scott A. Kreider, Deputy Attorney General, Indianapolis, IN, Attorneys for Intervenor the State of Indiana.

OPINION

BAKER, Judge.

Today we are called upon to resolve an issue of first impression in Indiana: Was it proper for the trial court to have determined, in its interpretation of an insurance policy as a matter of law, that a "collapse" of a building occurred? We think not in this case and reverse.

Appellant-defendant Monroe Guaranty Insurance Company (Monroe Guaranty) appeals the entry of summary judgment in favor of appellee-plaintiff, the Magwerks Corporation (Magwerks), claiming that the trial court erroneously determined, as a matter of law, that there was a "collapse" of Magwerks's commercial building, thereby subjecting Monroe Guaranty to pay the damage claim pursuant to the insurance policy issued to Magwerks. Monroe Guaranty also challenges the compensatory and punitive damage awards entered for Magwerks regarding the alleged bad faith handling of the claim. Concluding that a genuine issue of material fact existed as to whether Magwerks's building "collapsed" in accordance with the definition set forth in the policy, we reverse the entry of summary judgment, vacate the damage award, and remand this cause for further proceedings consistent with this opinion.

FACTS

Magwerks is an Indianapolis company that sells manufactured camshafts from its one-story, flat-roofed building. The roof was constructed of tar and asphalt, with 4' × 8' ceiling sections, and there was no separate ceiling suspended. Inasmuch as Magwerks's building housed stock and equipment valued at nearly $2 million, it contracted with Monroe Guaranty in June 1995 for insurance on the building and its personal property. The policy was effective through June 1997, and Magwerks had fully paid the premiums on the $1.25 million policy.

Sometime in February 1997, heavy rains and some snow had accumulated and resulted in damage to Magwerks's roof. At one point, a 4' × 8' section of the ceiling crashed to the floor. In response, Magwerks used plywood to cover the hole in the roof, and the company began using metal drums to catch the leaking water. Magwerks personnel also ran hoses to a floor drain and tarps were used to protect the company's equipment. Eventually, more roof panels collapsed under their own weight. As a consequence, water seeped through the holes, causing adjacent 4' × 8' roof panels to soak up water. These panels eventually broke and fell through to the floor. As a consequence, some of Magwerks's equipment was damaged and the humidity eventually rusted the grinders and steel camshafts.

Patrick Jenkins, the president of Magwerks, reported the damages to its insurance agent. Jenkins indicated, however, that he was going to attempt to conduct his own repairs and informed the agent that he did not require any assistance from Monroe Guaranty at that point. However, in May 1997, Jenkins again contacted the agent, whereupon a property loss notice was submitted to Monroe Guaranty describing the loss as follows: "Continuous rain has caused damage to roof, actuall [sic] has collapsed in several areas." Appellant's App. p. 85. The claim was then submitted to Paul Kelter, an adjuster with Monroe Guaranty.

Kelter visited Magwerks and conducted his own inspection of the premises. He walked on the roof and observed that it had not lost its support. Kelter further observed that the structural framing remained intact and did not give way. Kelter did not believe that he was in any danger and considered the roof "firm and secure." Appellant's App. p. 183. Also, while there were some patches with minor repairs on the north end of the roof, Kelter did not notice any damage on the south side.

Kelter then contacted Tim Moehl of McComas Engineering to perform an inspection of the roof and determine the cause of the damage. Moehl ultimately determined that a number of roof leaks had occurred over a long period of time. Based upon his review and inspection, it was his opinion:

That the cause of the damage to the roof is long-term infiltration of rain water through the roof covering, into the underlying structure. The building was constructed with inadequate roof slope to properly relieve rain water from the structure. Although the roof was maintained annually, the lack of slope has caused rain water to pond on the roof covering. The long-term ponding conditions eventually affected the structural integrity of the roof deck. Rain water infiltrates the underlying structure when it is allowed to pond.

Appellant's App. p. 88.

By June 26, 1997, Jenkins reported to his insurance agent that the building had lost more roof panels and that there was continued deterioration of non-structural materials, inventory and machinery. Jenkins also informed his agent that he was "looking at temporary facilities to keep production going." Appellant's App. p. 147.

Monroe Guaranty received Moehl's engineering report on July 15, 1997. Kelter wrote in his log notes that Moehl believed that the defective design of the building prevented proper drainage and standing water was causing the damage to the roof and inside leakage. Three days later, Kelter reviewed these findings with his supervisor and determined there were policy provisions that excluded coverage for Magwerks's claim.

Monroe Guaranty initially did not respond to Jenkins's telephone calls regarding the roof. Thus, Magwerks retained several contractors to supply estimates for the necessary repairs. Wuelfing Construction Company referred to the damage as "broken and collapsed roof panels." Appellee's Supp.App. at 167.

On July 17, 1997, Jenkins sent his insurance agent two quotes regarding the roof repair and requested Monroe Guaranty's position on the matter. Monroe Guaranty ultimately denied the claim. In so doing, Magwerks's local insurance agent referred to Moehl's report indicating that the roof's inadequate slope had permitted the ponding of water that caused the sections of the roof to collapse along with Moehl's recommendation that a new metal deck should be installed. In essence, it was Monroe Guaranty's position that the loss was excluded because of wear and tear to the roof, decay, deterioration and defective design. Moreover, Monroe Guaranty determined that the damage did not satisfy the definition of a "collapse" because the structural framing of the roof remained intact and was still functioning. Appellant's App. p. 181. Kelter believed that the long-term process of the water standing on the roof caused the roof deck to deteriorate and he did not believe that the weight of the rain caused the damage. Therefore, Monroe Guaranty determined that Magwerks's losses were excluded under the policy.

In August 1997, Magwerks filed a complaint for breach of contract, claiming that Monroe Guaranty "breached its duties and obligations ... by refusing to provide coverage for the repair of Magwerks's principal place of business and the repair and/or replacement of Magwerks' business personal property." Appellant's App. p. 18. Magwerks also included a count charging Monroe Guaranty with lack of good faith and fair dealing because it unreasonably relied upon ambiguous language in the insurance policy regarding the definition of "collapse" as well as the alleged defective condition of the roof of the building in denying the claim. Thus, Magwerks requested an award of punitive damages.

Both parties eventually moved for summary judgment. Magwerks argued in its motion that the sudden falling in of the internal ceiling tiles, coupled with the continued deterioration of the roof, constituted a "collapse" under the terms of the policy and, therefore, that it was entitled to judgment as a matter of law. In contrast, Monroe Guaranty argued that under the traditional definition of the term "collapse," more was required, such as a complete falling in of the roof and an inability to conduct business. Monroe Guaranty also claimed that even if the damage constituted "collapse" it was simply not covered under the policy. In the end, the trial court determined as a matter of law that Monroe Guaranty had breached its contract because the damage constituted a "collapse" under the policy. Thus, Magwerks's motion for summary judgment was granted and the cause proceeded to trial on the issues of damages and bad faith.

In the end, the jury found for Magwerks and determined that Monroe Guaranty acted in bad faith by failing to explain to Magwerks why coverage was denied. The jury ultimately returned a verdict for Magwerks and awarded it $5.1 million—$4 million of which constituted punitive damages for Monroe Guaranty's bad faith handling of the claim.

DISCUSSION AND DECISION

I. Standard of Review

Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C). In reviewing a decision upon a summary judgment motion, we apply the same standard as the trial court. Myers v. Irving Materials, Inc., 780 N.E.2d 1226, 1228 (Ind.App.2003). We do not reweigh the evidence designated by the parties. Turley v. Hyten, 751 N.E.2d 249, 251 (Ind. Ct.App.2001). Instead, we liberally construe the evidence in the light most favorable to the non-moving party. Schoknecht v. Hasemeier, 735 N.E.2d 299, 301 (Ind.Ct. App.2000).

The moving party bears the burden of showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. Id. Once this burden has...