N.H. Ins. Co. v. Blackjack Cove, LLC
| Decision Date | 26 March 2014 |
| Docket Number | No. 3:10-cv-607,3:10-cv-607 |
| Court | U.S. District Court — Middle District of Tennessee |
| Parties | NEW HAMPSHIRE INSURANCE CO., Plaintiff/Counter-Defendant, v. BLACKJACK COVE, LLC Defendant/Counter-Plaintiff. |
MEMORANDUM
This insurance dispute arises from a tornado that hammered parts of the Nashville metropolitan area in April 2009. The case started when New Hampshire Insurance Company filed a declaratory-judgment action to clarify its obligations under a policy it sold to Blackjack Cove, LLC, which operates a marina at Old Hickory Lake northeast of Nashville. Blackjack then counterclaimed against New Hampshire. Pending before the Court are four motions, all of which are fully briefed. For the following reasons, the Court will deny New Hampshire's first motion for partial summary judgment, (Docket No. 86); grant in part and deny in part Blackjack's motion for partial summary judgment, (Docket No. 88); grant in part and deny in part New Hampshire's second motion for partial summary judgment, (Docket No. 133); and deny New Hampshire's motion to strike, (Docket No. 139).
In early 2009, Bart Bagsby began investigating the possibility of purchasing a marina on Old Hickory Lake. Bagsby formed Blackjack Cove, LLC and through it purchased the marina on March 26, 2009, for $2,500,000. Prior to the closing, Bagsby contacted Joe De Pasquale, an agent who handled insurance needs for the marina's prior owners, to obtain insurance coveragefor the marina. De Pasquale connected Blackjack with New Hampshire, which issued a Marina Operators insurance policy to Blackjack with an effective date of March 26, 2009. The policy included a schedule of covered property—mainly docks and related structures—and provided that New Hampshire would "determine the value of Covered Property in the event of loss or damage at replacement cost (without deduction for depreciation) as of the time of loss or damage." A week after Blackjack closed on the marina, a storm swept through the area on April 2, 2009, damaging the marina.
Blackjack sought coverage for the storm damage from New Hampshire. After viewing the damage onsite, De Pasquale submitted a Notice of Loss describing the occurrence as a "tornadic wind" that "shifted docks." New Hampshire assigned the damage claim to adjuster Susan Smith at AI Marine Adjusters. Smith's role was to review information related to the claim and determine the cause and extent of the damage. Smith retained Ron Silvera, a marine surveyor, to go to the marina to determine what damage the storm caused and what damage predated it, as well as to provide a reasonable estimate of the repair costs.
Silvera inspected the marina two times before New Hampshire paid on the storm-damage claim. On April 4, 2009, two days after the storm, Silvera toured the marina with Bagsby and Bobby Reed, one of the marina's former owners whom Blackjack employed as a consultant. Reed operated several marine-service companies, including Bobby Reed Marine Works. Silvera understood that Bobby Reed Marine Works was Blackjack's designated repair contractor and so asked Reed to put together an estimate of storm-related repair costs.
By the time he returned to the marina for a second inspection on April 18, 2009, Silvera had received a "Storm Damage Bid" on the letterhead of Bobby Reed Marine Works. Silveradiscussed the estimate with Reed and Bagsby and asked that certain revisions be made. After Silvera confirmed that everything on the estimate was damage he identified, New Hampshire paid Blackjack $2,595,558, the full amount of the bid less a $25,000 deductible. New Hampshire did not request any other bids or otherwise seek to corroborate the estimate.
In July 2009, Blackjack submitted a supplemental claim for lost business income and other expenses for over $1 million. Smith was dismayed because she understood that the nearly $2.6 million paid to Blackjack addressed all of the storm damage, so New Hampshire retained coverage counsel. The parties dispute the reason for doing so: New Hampshire says it was to ensure it met its policy obligations under Tennessee law; Blackjack insists it was to dig up dirt to support a decision New Hampshire already made to deny the supplemental claim. Whatever the reason, at roughly the same time as the supplemental claim came in, Smith learned from a coworker that De Pasquale suspected "funny business" in Blackjack's claim, which was possibly inflated and fraudulent, and advised that New Hampshire should look into it. New Hampshire then instructed its coverage counsel to review both the initial and supplemental claims.
New Hampshire's investigation uncovered several facts—all of them disputed. First, New Hampshire learned that Bagsby, not Reed, had typed the bid and drafted the letterhead. (In fact, Reed told New Hampshire's investigator that he had never seen it, but then submitted a sworn affidavit saying that he simply did not type the bid.) Second, New Hampshire discovered that construction at the marina—which took several months in 2009 and included the repair of docks damaged in the storm as well as other planned renovations and new construction—was not undertaken by Bobby Reed Marine Works; instead, a construction company Bagsby controlled set about doing the job. Third, New Hampshire contends that when the storm occurredBlackjack did not own the so-called Drakes Creek docks, an asset for which Blackjack had sought coverage in both the initial and supplemental claims.
In January 2010, with the supplemental claim still pending, New Hampshire sent a notice of non-renewal to Blackjack. On June 21, 2010, New Hampshire sent a lengthy letter to Blackjack describing for the first time the insurer's concerns. That same day, it filed this declaratory-judgment action to determine its obligations under the policy. Blackjack filed counterclaims two months later alleging breach of contract, bad faith, fraud and misrepresentation, and violations of the Tennessee Consumer Protection Act.
A party may obtain summary judgment if the evidence establishes that there are no genuine issues of material fact for trial and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Covington v. Knox Cnty. Sch. Sys., 205 F.3d 912, 914 (6th Cir. 2000). The moving party bears the initial burden of satisfying the Court that the standards of Rule 56 have been met. See Martin v. Kelley, 803 F.2d 236, 239 n.4 (6th Cir. 1986). The ultimate question is whether any genuine issue of material fact is in dispute. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Covington, 205 F.3d at 914 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). If so, summary judgment is inappropriate.
To defeat a properly supported summary-judgment motion, the nonmoving party must set forth specific facts that show a genuine issue of material fact for trial. If the party does not do so, summary judgment may be entered. Fed. R. Civ. P. 56(e). The nonmoving party's burden to point to evidence demonstrating a genuine issue of material fact for trial is triggered once the moving party shows an absence of evidence to support the nonmoving party's case. Celotex, 477U.S. at 325. A genuine issue exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. When ruling on cross motions for summary judgment, the Court "must evaluate each motion on its own merits and view all facts and inferences in the light most favorable to the nonmoving party." Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir. 2003).
New Hampshire seeks summary judgment on Blackjack's bad-faith and Tennessee Consumer Protection Act claims.
New Hampshire asks the Court to find that no reasonable jury could conclude that it handled Blackjack's initial and supplemental claims in bad faith. Section 56-7-105 of the Tennessee Code penalizes an insurer's bad-faith refusal to pay claims under a policy "when a loss occurs and the[] [insurer] refuse[s] to pay the loss within sixty (60) days after a demand has been made." Tenn. Code Ann. § 56-7-105(a). "A penalty is not appropriate when the insurer's refusal to pay rests on legitimate and substantial legal grounds." Williamson v. Aetna Life Ins. Co., 481 F.3d 369, 378 (6th Cir. 2007) (internal quotation marks omitted). "The language of this statute expressly applies to insurance companies and provides that a jury decide whether the evidence demonstrates bad faith on the part of the insurer." Gaston v. Tenn. Farmers Mut. Ins. Co.,120 S.W.3d 815, 822 (Tenn. 2003). The insured has the burden to prove the insurer's bad faith. Palmer v. Nationwide Mut. Fire Ins. Co., 723 S.W.2d 124, 126 (Tenn. Ct. App. 1986). To recover, "an insured must establish that (1) the policy was due and payable; (2) a formal demandfor payment was made; (3) the insured waited 60 days after making his demand before filing suit, unless the insurer refused to pay prior to the expiration of the 60 days; and (4) the refusal to pay was not in good faith." Heil Co. v. Evanston Ins. Co., 690 F.3d 722, 730 (6th Cir. 2012). The parties quarrel over only the fourth element.
Disputed issues of material fact preclude resolving this question as a matter of law. The Court highlights the following non-exhaustive set of examples. With respect to the initial storm-damage claim, a jury could find that New Hampshire acted in bad faith because its payments totaling $2,595,558 did not comport with the terms of the policy and the extent of the claim submitted. For example, Silvera, the surveyor New Hampshire retained, testified in a deposition that New Hampshire may not have adjusted the initial claim according to the policy's terms, as the $2.6 million it paid did not reflect a loss valuation based on replacement cost with no downward adjustment...
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