Southeast Mental Health Center v. Pacific Ins. Co., 04-2513 Ml/V.

• Decision Date: 20 July 2006
• Docket Number: No. 04-2513 Ml/V.,04-2513 Ml/V.
• Citation: 439 F.Supp.2d 831
• Parties: SOUTHEAST MENTAL HEALTH CENTER, INC., Plaintiff, v. PACIFIC INSURANCE COMPANY, LTD., Defendant.
• Court: U.S. District Court — Western District of Tennessee

439 F.Supp.2d 831

SOUTHEAST MENTAL HEALTH CENTER, INC., Plaintiff, v. PACIFIC INSURANCE COMPANY, LTD., Defendant.

No. 04-2513 Ml/V.

United States District Court, W.D. Tennessee, Western Division.

July 20, 2006.

COPYRIGHT MATERIAL OMITTED

Louis J. Miller, Apperson Crump & Maxwell, PLC, Memphis, TN, for Plaintiff.

Timothy R. Johnson, Colleen D. Hitch, Bass Berry & Sims PLC, Memphis, TN, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO LIABILITY

McCALLA, District Judge.

Before the Court is the Motion of Pacific Insurance Company Limited for Summary Judgment, filed December 9, 2005. Plaintiff responded in opposition and filed a cross-motion for partial summary judgment as to liability on January 12, 2006.¹ The parties filed further responses, replies, and sur-replies on February 13, 2006, February 16, 2006, April 3, 2006, and April 5, 2006. For the following reasons, the Court GRANTS in part and DENIES in part Defendant's motion for summary judgment, and GRANTS in part and DENIES in part Plaintiff's cross-motion for partial summary judgment.

I. BACKGROUND & UNDISPUTED FACTS

Plaintiff Southeast Mental Health Center, Inc. is a Tennessee not-for-profit corporation that provides outpatient mental health services and substance abuse treatment to Tennessee residents. Defendant issued an insurance policy, Policy No. ZG 0023267 ("Policy"), to Plaintiff for coverage from February 25, 2003, through February 25, 2004. The Policy included both an "All Risks" property insurance policy as well as a business interruption policy, entitled "Business Income (Without Extra Expense) Coverage". The Policy covered Plaintiff's clinics at multiple locations.

On July 22, 2003, a heavy rain and windstorm, commonly referred to as Hurricane Elvis, caused significant damage to Plaintiff's clinic and operations center located at 2579 Douglas Avenue, Memphis, Tennessee ("Douglas Avenue location"). Approximately twenty power and utility poles adjacent to the Douglas Avenue location were blown down or destroyed, which resulted in the loss of electrical and telephone service at that location until August 5, 2003. Plaintiff asserts that the loss of electricity also damaged its pharmacy computer (located at the Douglas Avenue location), which resulted in the loss of data from the computer.

As a result of this loss of electricity and telephone service, Plaintiff's operations were suspended and it lost significant business income. The Douglas Avenue location served as a communications hub for Plaintiffs Summer Avenue and Winchester locations, and also served as the central dispensing pharmacy for all of its 23 locations. Plaintiff contends that it suffered a loss of income because it was unable to (1) use the Douglas Avenue location or equipment to conduct patient appointments, (2) schedule and confirm appointments, and (3) fill its patients' prescriptions. Plaintiff admits that its real property did not suffer any physical damage as a result of the storm. (Dep. Owen Lawrence 43-44.)

Plaintiff submitted an insurance claim to Defendant sometime in late July or early August, 2003, based on its loss of business income. Defendant notified Plaintiff by letter dated September 16, 2003, that it would not pay the claim. (Letter from Douglas White, Appendix to Pl.'s Resp., 43-44.) On November 5, 2003, Plaintiff gave notice to Defendant of its intent to seek relief in court.

Plaintiff seeks payment of its insurance claim by Defendant and also brings claims against Defendant under Tenn.Code Arm. § 56-7-105 for Defendant's bad faith failure to pay the insurance claim and under the Tennessee Consumer Protection Act, Tenn.Code Ann. § 47-18-101, et seq. ("TCPA"). Defendant contends that Plaintiff's claim is not covered under the Policy. It moves for summary judgment under two theories: first, that Plaintiff's losses were not caused by direct physical loss of or damage to the insured property and thus are not covered under the Policy; and second, that even if Plaintiffs losses do fall under the Policy, they are precluded by specific exclusions delineated in the policy. In response, Plaintiff moves for partial summary judgment as to liability, contending that its losses are covered under the All—Risk Policy and that any ambiguities in the Policy must be construed in its favor.²

II. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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." Fed. R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). So long as the movant has met its initial burden of "demonstrat[ing] the absence of a genuine issue of material fact," Celotex, 477 U.S. at 323, 106 S.Ct. 2548, and the nonmoving party is unable to make such a showing, summary judgment is appropriate. Emmons v. McLaughlin, 874 F.2d 351, 353 (6th Cir.1989). In considering a motion for summary judgment, "the evidence as well as all inferences drawn therefrom must be read in a light most favorable to the party opposing the motion." Kochins v. Linden-Alimak, Inc., 799 F.2d 1128, 1133 (6th Cir.1986); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

When confronted with a properly-supported motion for summary judgment, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see also Abeita v. TransAmerica Mailings, Inc., 159 F.3d 246, 250 (6th Cir.1998). A genuine issue of material fact exists for trial "if the evidence [presented by the nonmoving party] is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In essence, the inquiry is "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." Id. at 251-52, 106 S.Ct. 2505.

III. ANALYSIS

A. Law Governing Insurance Contracts

The parties agree that the insurance policy at issue is governed by Tennessee law. Under Tennessee law, the interpretation of an insurance contract is a matter of law to be determined by the court. Black v. State Farm Mut. Auto. Ins. Co., 101 S.W.3d 427, 428 (Tenn.Ct. App.2002). An insurance policy is generally to be interpreted as any other contract. Am. Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 814 (Tenn.2000). Insurance contracts should be construed "so as to give effect to the intention and express language of the parties." Blaylock & Brown Construction, Inc. v. AIU Ins. Co., 796 S.W.2d 146, 149 (Tenn.Ct.App.1990). In construing an insurance contract, "the language of the parties should be given its plain and ordinary meaning," Burdett Oxygen Co. of Cleveland, Inc. v. Employers Surplus Lines Ins. Co., 419 F.2d 247, 248 (6th Cir.1969), and the court must read the insurance contract as a layperson would read it, Paul v. Ins. Co. of N. Am., 675 S.W.2d 481, 484 (Tenn.Ct.App.1984). Further, "the contract should be read as a whole and each word given its appropriate meaning, if possible." Burdett Oxygen Co. of Cleveland, Inc., 419 F.2d at 248; Mid-South Title Ins. Corp. v. Resolution Trust Corp., 840 F.Supp. 522, 526 (W.D.Tenn. 1993).

An all-risk insurance policy "automatically covers any loss unless the policy contains a provision expressly excluding the loss from coverage" and generally covers against all fortuitous losses. HCA, Inc. v. Am. Protection Ins. Co., 174 S.W.3d 184, 187 (Tenn.Ct.App.2005). Under an all-risk policy, the claimant has the initial burden of proving that a loss comes within the terms of the policy, Blaine Constr. Corp. v. Ins. Co. of N. Am., 171 F.3d 343, 349 (6th Cir.1999)(quoting Farmers Bank & Trust Co. of Winchester v. Transamerica Ins. Co., 674 F.2d 548, 550 (6th Cir.1982)), but the burden is upon the insurer to show that an exclusion applies which precludes recovery, id. Exclusionary clauses are to be strictly construed against the insurer. Mid-South Title Ins. Corp., 840 F.Supp. at 526. Where contract language is ambiguous, "the ambiguity must be resolved in favor of the insured." Farmers Chem. Ass'n v. Maryland Cas. Co., 421 F.2d 319, 321 (6th Cir.1970). However, the court must be careful not to create ambiguity where none exists. Blaylock & Brown Construction, Inc., 796 S.W.2d at 149.

B. Coverage under Business Interruption Provision

Plaintiff brings two claims for coverage, both under the Policy's business interruption provision. First, Plaintiff claims that it is entitled to coverage for its loss of income due to the power outage, which caused Plaintiff to close its facilities at the Douglas Avenue location and impeded service at the Winchester and Summer Avenue locations for two weeks. Plaintiff also seeks to recover for lost business income due to the damage to its pharmacy computer and its inability to fill patients' prescriptions.

1. The Policy

The Policy provides coverage for both property loss and losses due to business interruption. The first page of the Policy is the "All Risk Form Declarations Page." That page lists "INTEREST & PROPERTY COVERED" as follows:

Real Property as described in Item 1(a), Page 1 Personal Property as described in Item 1(b), Page 1 Business Interruption as described in form specifically endorsed hereon.

(All Risk Form Declarations Page, C-70-3 (3/03).) The "All Risk Form" sets forth the terms of its coverage as follows:

This Policy insures against All Risk of direct physical loss or damage from any external cause...