Properties v. Seneca Ins. Co. Inc.

• Decision Date: 17 February 2011
• Docket Number: Case No. 1:09 CV 0501.
• Citation: 771 F.Supp.2d 877
• Parties: CORBO PROPERTIES, LTD, Plaintiff,v.SENECA INSURANCE COMPANY, INC., Defendant.
• Court: U.S. District Court — Northern District of Ohio

771 F.Supp.2d 877

CORBO PROPERTIES, LTD, Plaintiff,

v.SENECA INSURANCE COMPANY, INC., Defendant.

Case No. 1:09 CV 0501.

United States District Court, N.D. Ohio, Eastern Division.

Feb. 17, 2011.

Joseph E. Rutigliano, Mayfield Heights, OH, Robert P. Rutter, Independence, OH, for Plaintiff.Kate E. Ryan, Robert E. Chudakoff, Ulmer & Berne, Cleveland, OH, for Defendant.

OPINION AND ORDER

CHRISTOPHER A. BOYKO, District Judge:

This matter is before the Court on the Report and Recommendation of the Magistrate Judge regarding Defendant Seneca Insurance Company, Inc.'s Motion (ECF DKT. # 63) for Partial Summary Judgment, to dismiss Plaintiff Corbo Properties, Ltd's Second Cause of Action, i.e., Lack of Good Faith in denying Plaintiff's insurance claim. After conducting a de novo review of the issues raised, the Court ADOPTS IN FULL the Report and Recommendation. Therefore, the Court dismisses Plaintiff's Second Claim for failure to show a genuine issue as to any material fact.

I. Factual Background

Plaintiff owns a commercial building located at 12312 Mayfield Road, Cleveland, Ohio (“the Building”). On June 30, 2008, while the Plaintiffs were in Florida, a fire occurred at the Building. The Plaintiff reported the fire to its insurer, Defendant, and Defendant commenced an investigation. Subsequently, Defendant denied the insurance claim, believing Plaintiff caused the fire.

The Cleveland Fire Investigation Unit's (“CFIU”) initial investigation indicated that the cause of the fire was unknown. Later, the report was amended, listing the cause of the fire as a lightning strike that caused an extremely high voltage surge that heated the Building's wiring and ignited the combustible wood at the origin of combustion. Defendant hired a private fire investigating company that concluded the cause of the fire was incendiary in nature, having been deliberately set with the manual application and subsequent ignition of gasoline. Additionally, the private fire investigating company considered CFIU's reported cause; and after researching lightning strikes in the area around the time of the fire and considering their own findings of burn patterns consistent with the application and ignition of fire accelerants, concluded that a lightning strike was not a viable cause.

At the time of the fire the Building was vacant, including unoccupied apartments. In the months leading up to the fire, Plaintiff had incurred significant expenses by opening a new business in a different building. Plaintiff had secured two loans amounting to nearly two-million dollars in order to fund the new business, for which the Corbos were personally liable. Additionally, the Corbos had spent several thousand dollars in personal money to fund the new business, most of which was via credit card debt.

Prior to the fire, Plaintiff had been in negotiations to sell the Building, but the deal fell through. The Corbos were going to use the proceeds of that sale to pay for one of their loans, an approximately one-million dollar, one-year promissory note that was coming due in March 2009. Defendant had a forensic accountant investigate the Corbos' financial situation. From the investigation, the accountant concluded that due to the sale of the Building falling through and the decline in cash flow, the Corbos did not have the liquid assets to pay-off the one-million dollar note. Although various developers wanted to tear the Building down to build a hotel, at the time of the fire there were no other serious offers to purchase the Building. However, Plaintiff stood to be paid $1,426,000 from the insurance claim.

The Corbos did hope to refinance the one-million dollar, one-year loan if they were unable to pay it off in time. The loan officer who originated the loan assured them that he did not believe it would be a problem to refinance. Additionally, the Corbos were not late on any loan, credit card, or utility payment; and the business, as well as the Corbos, had good credit ratings. There was no evidence of threats to burn down the Building, and the Corbos stated that they did not know of anyone who would want to burn it down. Furthermore, there were no prior break-ins or fires at the Building, and no recent fires in the area.

The Corbos had not changed the locks on the Building since it was purchased in 1998. The Corbos, their family members, and their past and present employees had keys to the Building. Past employees returned their keys; but the Corbos could not say whether those employees had made and kept copies. The Corbos were the last identified persons in the Building and they had allowed the ADT security system to deactivate a few months prior to the fire.

There are conflicting reports as to whether the doors to the Building were locked or unlocked when the firefighters arrived to put out the fire. The report by the fire department indicated that the back doors to the Building were unlocked; but upon a subsequent interview of the participating firefighters by the Defendant, no one indicated that any door was unlocked upon their arrival to put out the fire. The Building had no signs of forced entry, except the damage caused by the firefighters, and there were no signs of intruders.

II. Law and AnalysisA. Civil Rule 72(b) Standard

Pursuant to Fed.R.Civ.P. 72(b) and 28 U.S.C. § 636(b)(1)(C), the District Court shall review de novo any finding or recommendation of the Magistrate's Report and Recommendation that has been specifically objected to. The District Court need only review the Magistrate Judge's factual or legal conclusions that are specifically objected to by either party. Thomas v. Arn, 474 U.S. 140, 150, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985).

Local Rule 72.3(b) reads in pertinent part:

The District Judge to whom the case was assigned shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the Magistrate Judge.

B. Summary Judgment Standard Pursuant to Civil Rule 56(c) 1

A summary judgment should be granted only if “the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” See, Fed.R.Civ.P. 56(c). The burden is on the moving party to conclusively show no genuine issue of material fact exists, Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Lansing Dairy, Inc. v. Espy, 39 F.3d 1339, 1347 (6th Cir.1994); and the court must view the facts and all inferences in the light most favorable to the nonmoving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Once the movant presents evidence to meet its burden, the nonmoving party may not rest on its pleadings, but must come forward with some significant probative evidence to support its claim. Celotex, 477 U.S. at 324, 106 S.Ct. 2548; Lansing Dairy, 39 F.3d at 1347. This Court does not have the responsibility to search the record sua sponte for genuine issues of material fact. Betkerur v. Aultman Hospital Ass'n., 78 F.3d 1079, 1087 (6th Cir.1996); Guarino v. Brookfield Township Trustees, 980 F.2d 399, 404–06 (6th Cir.1992). The burden falls upon the nonmoving party to “designate specific facts or evidence in dispute,” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); and if the nonmoving party fails to make the necessary showing on an element upon which it has the burden of proof, the moving party is entitled to summary judgment. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. Whether summary judgment is appropriate depends upon “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Amway Distributors Benefits Ass'n v. Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir.2003) (quoting Anderson, 477 U.S. at 251–52, 106 S.Ct. 2505).

III. The Recommendation of the Magistrate JudgeA. Standard for Determining Lack of Good Faith

The Magistrate Judge correctly states the standard for determining lack of good faith, i.e., “reasonable justification.” Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552, 644 N.E.2d 397 (1994). The Magistrate Judge correctly explains that an “arbitrary and capricious” denial is not reasonably justified; but a claim that is “fairly debatable” would be reasonably justified. “An insurer may be reasonably justified in denying an insured's claim for fire damage when there is sufficient evidence that the insured committed arson to obtain the claim proceeds.” Zoppo at 555, 644 N.E.2d 397. Therefore, if the question of the cause of the fire is “fairly debatable,” the defendant, relying on sufficient evidence of arson, is reasonably justified in denying the insurance claim. So long as the evidence is sufficient, the denial is not “arbitrary and capricious.”

The use of “fairly debatable” or “arbitrary and capricious” are merely different ways of explaining and expressing the standard of “reasonable justification.” In Marsteller v. Security of Am. Life Ins. Co., 2002 WL 31086111, *4–5, 2002 U.S. Dist. Lexis 17560, *13–14 (N.D.Ohio Sept. 12, 2002), Judge Carr explains that the “fairly debatable” test is intended to provide guidance when applying the “reasonable justification” standard:

Under Ohio law, “where a claim is fairly debatable the insurer is entitled to refuse the claim as long as such refusal is premised on a genuine dispute over either the status of the law at the time of the denial or the facts giving rise to the claim.” Motorists Mut. Ins. Co. v. Said, 63 Ohio St.3d 690, 590 N.E.2d 1228 (1992). To grant a ...