Richelson v. Liberty Ins. Corp.
| Decision Date | 06 January 2020 |
| Docket Number | Case No. 19-3035 |
| Parties | MURRAY RICHELSON, Plaintiff-Appellant, v. LIBERTY INSURANCE CORPORATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
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CHAD A. READLER, Circuit Judge. When interpreting policy language in an insurance contract, Ohio courts will construe ambiguous language against the insurer and in favor of the insured. See Andersen v. Highland House Co., 757 N.E.2d 329, 332 (Ohio 2001). That interpretive practice seeks to encourage the drafter—typically the insurer, often the more experienced party—to be as clear as possible in the contractual language it utilizes. By the same token, where an insurer has utilized contract language that is clear and unambiguous, Ohio courts will construe that language by giving it its ordinary and plain meaning. See Ohio N. Univ. v. Charles Constr. Servs., Inc., 120 N.E.3d 762, 766 (Ohio 2018). This latter principle resolves today's case. Murray Richelson entered into an insurance contract with Liberty Insurance. Richelson purports not to have read, at the time of signing, language in that contract that is now in dispute and today reads that language differently than does Liberty. But that language is subject to only one interpretation—the one given it by Liberty. Accordingly, we AFFIRM the district court's grant of Liberty's motion to dismiss Richelson's breach-of-contract and fraud claims.
A windstorm caused damage to the roof of Murray Richelson's home. Citing that storm damage, Richelson filed a claim with Liberty Insurance, from whom Richelson had purchased a homeowner's insurance policy. An adjustor determined that the cost to replace the roof was $8,960. But Liberty declined to pay Richelson the replacement cost. Liberty instead paid Richelson the amount of the roof's actual cash value, or "ACV." Liberty determined the ACV amount by applying the policy's $1,000 deductible and deducting depreciation from the replacement cost amount. All told, Liberty reimbursed Richelson $4,350.58, less than half of the cost to replace the roof. This led to a dispute regarding the terms of Richelson's policy.
Section 1 of Richelson's policy addresses There, the policy states that "[l]osses covered under Section 1 are subject to a deductible of: $1,000."
Insurance policies also sometimes include "endorsements." Generally speaking, an endorsement is an amendment to an insurance contract which impacts the scope of coverage of the policy in some way. See Endorsement, Black's Law Dictionary (9th ed. 2009). Relevant here is an endorsement to Richelson's homeowner's policy numbered FMHO 3325 03 12. In large upper-case font, the endorsement reads: Below that, in equally large upper-case font, this time also in bold, the endorsement addresses: "ACTUAL CASH VALUE LOSS SETTLEMENT WINDSTORM OR HAIL LOSSES TO ROOF SURFACING." The endorsement provides that losses to "[b]uildings under Coverage A or B, except for their roof surfacing, roof vents androof flashing materials if the loss to the roof surfacing, roof vents and roof flashing materials is caused by the peril of Windstorm or Hail, [is] at replacement cost without deduction for depreciation . . . ." The endorsement also sets forth the coverage that applies in such situations. Claims for losses to "[r]oof surfacing, roof vents and roof flashing materials if the loss is caused by the peril of Windstorm or Hail" are settled "at actual cash value at the time of the loss but not more than the amount required to repair or replace."
Challenging Liberty's reading and application of the endorsement, Richelson filed in state court a class action complaint against Liberty. Because Richelson was an Ohio resident, and Liberty a Massachusetts corporation with its principal place of business in Massachusetts, there was diversity between them. That, and the fact that the total damages sought in the case exceeded $5 million, allowed Liberty to remove the case to federal court under the Class Action Fairness Act. See 28 U.S.C § 1332 (d)(2).
In the class action, Richelson sought to represent two distinct classes of Liberty policyholders: (1) Homeowners in Ohio with an ACV roof endorsement who filed claims with Liberty after their homes suffered damage and who, as a result of the endorsement, were paid ACV rather than replacement costs; and (2) Owners of Ohio homes who filed claims with Liberty on a home insurance policy with the same LibertyGuard Endorsement, or an endorsement with the same loss settlement provisions as the LibertyGuard Endorsement, who suffered a loss under Buildings Coverage A or B for which they were paid ACV, after application of a $1,000 deductible. In addition to pursuing those claims, Richelson also alleged that the language in the policy declarations led him justifiably to believe that the ACF/roof endorsement expanded, as opposed to diminished, the extent of his coverage, that Liberty included such misleading terms with an intentto mislead Richelson, and that Richelson was thus fraudulently induced by Liberty to enter into the insurance contract.
Liberty moved under Federal Rule of Civil Procedure 12 (b)(6) to dismiss the case. With respect to Richelson's "ACV" breach-of-contract claim, the district court rejected as unreasonable Richelson's interpretation that the policy endorsement provided an extra layer of coverage rather than explaining an exception to the replacement-cost general rule. Rather, Richelson's coverage (as relevant here) was limited to ACV only. Accordingly, the district court concluded, Richelson's claim failed as a matter of law.
The district court held the same with respect to Richelson's "deductible" breach-of-contract claim. Richelson conceded that his roof claim was a Section 1 claim. The district court in turn concluded that the language in Richelson's policy plainly declared that a $1,000 deductible is applicable to Section 1 claims. The district court rejected Richelson's argument that the deductible was not part of any calculation except the replacement-cost calculation. That interpretation was unreasonable, the district court concluded, first because it misunderstood the meaning of the term "deductible," and also because it made the deductible language superfluous for three of the four Section 1 coverages.
The district court likewise dismissed Richelson's fraud claim. The heading "additional coverages," which Liberty placed above the ACV/roof endorsement section of the policy, was not misleading, the district court reasoned, when read in the context of the contract as a whole. Nor, the district court added, would the endorsement have gone unnoticed by a reasonable person, given the size of the bolded text used to highlight its importance.
We begin with the framework guiding our review. As an initial matter, the district court correctly considered the terms of the insurance contract because it was attached to, and thus became part of, the pleadings. See Comm. Money Ctr., Inc. v. Ill. Union Ins. Co., 508 F.3d 327, 335 (6th Cir. 2007) (citing Fed. R. Civ. P. 10(c)). In evaluating a district court's grant of a motion to dismiss, we assume the plaintiff's version of the facts to be true, Taylor v. City of Saginaw, 922 F.3d 328, 331 (6th Cir. 2019), and we review de novo the district court's decision to dismiss the complaint. United States ex rel. Ibanez v. Bristol-Myers Squibb Co., 874 F.3d 905, 914 (6th Cir. 2017). With respect to the district court's legal conclusions, because the parties have invoked diversity jurisdiction as the basis for proceeding in federal court, we view the substantive legal issues before us through the lens of state law. State Auto Prop. & Cas. Ins. Co. v. Hargis, 785 F.3d 189, 195 (6th Cir. 2015). In this case, we apply the substantive state law of Ohio, as this case turns on an insurance contract governed by Ohio law. To measure the substantive aspects of Ohio law, we look to relevant decisions from the Ohio Supreme Court. See id. In their absence, decisions from Ohio's intermediate appellate courts can help set that legal framework. Id.
Richelson's complaint asserts two breach-of-contract theories against Liberty. Primarily, Richelson argues that Liberty breached the parties' insurance contract by utilizing ACV, rather than replacement cost, in assessing the payment amount owed to Richelson for the windstorm damage to his roof. Alternatively, if ACV was in fact the proper method for determining the payment amount, Richelson says that Liberty nonetheless breached the contract by factoring in a deductible in the calculation for ACV.
The basic elements of a breach of contract under Ohio law are "the existence of a contract, the failure without legal excuse of the other party to perform when performance is due, and damages or loss resulting from the breach." Lucarell v. Nationwide Mut. Ins. Co., 97 N.E.3d 458, 469 (Ohio 2018). In assessing whether a breach of an insurance contract has occurred, we must "examine the insurance contract as a whole and presume that the intent of the parties is reflected in the language used in the policy." Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256, 1261 (Ohio 2003) (citation omitted). And we interpret the words of the contract "according to their plain meaning." Boone Coleman Constr., Inc. v. Piketon, 50 N.E.3d 502, 515 (Ohio 2016). That said, as we find ourselves at the motion-to-dismiss stage, our task is not to decide which of the parties' competing views has more merit. Instead, we ask whether Richelson has put forward a reasonable interpretation of the insurance policy. If so, we must reverse the...
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