Wobig v. Safeco Ins. Co. of Ill.

• Decision Date: 07 July 2021
• Docket Number: Civil No. 20-431 (JRT/KMM)
• Citation: 547 F.Supp.3d 852
• Parties: Joseph WOBIG and Carrie Wobig, Plaintiffs, v. SAFECO INSURANCE COMPANY OF ILLINOIS, Defendant.
• Court: U.S. District Court — District of Minnesota

547 F.Supp.3d 852

Joseph WOBIG and Carrie Wobig, Plaintiffs,

v.SAFECO INSURANCE COMPANY OF ILLINOIS, Defendant.

Civil No. 20-431 (JRT/KMM)

United States District Court, D. Minnesota.

Signed July 7, 2021

Robert A. Gust, Gust Law Firm PLLC, 3800 American Boulevard, Suite 1500, Minneapolis, MN, for plaintiffs.

Daniel W. Berglund and Meghan M. Rodda, Grotefeld Hoffmann LLP, 150 South Fifth Street, Suite 3650, Minneapolis, MN, for defendant.

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JOHN R. TUNHEIM, Chief Judge

Plaintiffs Joseph and Carrie Wobig filed an insurance claim for damage to a pole barn, used in part as a shop, on their residential property through their homeowners insurance policy with Defendant Safeco Insurance Company. Safeco denied the claim after an investigation, finding that the shop was used for the Wobigs’ business, Wobig Construction, and therefore excluded from coverage under the Wobigs’ policy. The Wobigs initiated this action, claiming that Safeco breached their contract and denied their insurance claim in bad faith. The parties have now filed motions for summary judgment. Because the business use exclusion in the Wobigs’ homeowners insurance policy applies broadly, and the record contains evidence such that no reasonable jury would conclude the shop was not used at least occasionally for business, the Court will deny the Wobigs’ Motion, grant Safeco's Motion, and enter judgment in favor of Safeco.

BACKGROUND

I. FACTUAL BACKGROUND

Plaintiffs Joseph and Carrie Wobig own residential property in Zumbrota, Minnesota, on which there are currently two structures: a pole barn and a main house. (See 1^st Wobig Decl. ¶¶ 2–3, 5, Jan. 14, 2021, Docket No. 43.) The pole barn comprises a shop area and cold storage/garage area (collectively, "the shop") and an apartment. (Id. ¶ 2.) The shop features an entertainment area with bar, TVs, and pool and air hockey tables, as well as a vintage car collection, and equipment for working on cars and other vehicles. (Id. ¶ 3.) Tools and equipment are kept in the cold storage/garage area. (Id. ¶ 4.)

On February 6, 2019, the Wobigs returned home from a snowmobiling vacation and discovered that heating coils in the floor of the shop froze and cracked during a severe cold snap. (1^st Wobig Decl. ¶ 9; see also 1^st Decl. Daniel W. Berglund ("1^st Berglund Decl.") ¶ 24, Ex. 23 at 2, Jan. 15, 2021, Docket No. 49-11.) Mr. Wobig concluded that the entire floor would need to be replaced based on the damage. (1^st Wobig Decl. ¶ 9.) The Wobigs promptly reported the loss to Defendant Safeco Insurance Company, (id. ¶ 10), which provided the Wobigs’ homeowners insurance, (see 1^st Berglund Decl. ¶ 13, Ex. 12 ("Safeco Policy"), Jan. 15, 2021, Docket No. 49-6.) Safeco denied the claim on December 17, 2019 on the basis the Wobigs used the shop for their business, Wobig Construction, and the policy contains a business use exclusion for other structures on residential property. (1^st Berglund Decl. ¶ 31, Ex. 30 ("Claim Denial") at 41–42, Jan. 15, 2021, Docket No. 49-12.)

A. Wobig Construction

Joseph Wobig is sole owner of Wobig Construction. (1^st Wobig Decl. ¶ 1.) After the shop was built, Wobig Construction changed its registered business address to the Wobigs’ residential property and includes the residential address on the company website.¹ (1^st Berglund Decl. ¶ 5, Ex. 4, Jan. 15, 2021, Docket No. 49-3; id. ¶ 6, Ex. 5, Jan. 15, 2021, Docket No. 49-4.) Mr. Wobig does not differentiate between personal and business property. (See, e.g. , 1^st Berglund Decl. ¶ 14, Ex. 13 ("Wobig Dep.") at 47:20–48:10, Jan. 15, 2021, Docket No. 49-7.) Loan payments for the Wobigs’ property are made through a Wobig Construction bank account, and Wobig Construction takes deductions for those payments. (1^st Berglund Decl. ¶ 4, Ex. 3 ("Hemann Dep.") at 13:14–24, 27:15–19, 41:11–17, Jan. 15, 2021, Docket No. 49-3.)

In 2014, when the pole barn was built, Mr. Wobig told the Wobigs’ accountant, Glen Hemann, that he might use the shop area for business purposes. (Hemann Dep. at 22:1–13.) Because the Wobigs did not have another shop, Hemann advised that they could take a business use depreciation and deduction on it.² (Id. at 22:7–17.) Hemann carried forward the depreciation and deduction into subsequent years, apparently without any further discussion about the nature of the use of the shop. (1^st Decl. Robert Gust ("1^st Gust Decl.") ¶ 2, Ex. 2 at 87:6–88:5, Jan. 14, 2021, Docket No. 45-2.) The Wobigs did not take depreciation in 2019, and Hemann wrote to Safeco's forensic accounts to inform them that the 2018 return would be amended to withdraw the depreciation because Hemann was mistaken about the use of the shop. (1^st Gust Decl. ¶ 3, Ex. 3 at 1, Docket No. 45-3.) No tax depreciation or deductions were ever taken for the apartment portion of the pole barn.

B. The Wobigs’ Homeowners Insurance Policy from Safeco

The Wobigs applied for homeowners insurance with Defendant Safeco Insurance Company in 2017. (1^st Berglund Decl. ¶ 12, Ex. 11 at 3, Jan. 15, 2021, Docket No. 49-6.) To obtain insurance, the Wobigs worked with Freedom Insurance Agency, Inc., which represents numerous insurers. (Id. ; 2^nd Decl. Daniel W. Berglund ("2^nd Berglund Decl.") ¶ 4, Ex. 41 at 2, Feb. 5, 2021, Docket No. 54-3.) In their electronic application—purportedly completed by Freedom Insurance agent Jacob Simmons, (1^st Wobig Decl. ¶ 7)—the Wobigs answered "no" to the underwriting questionnaire prompt, "Is there a business on the premises?" (1^st Berglund Decl. ¶ 12, Ex. 11 at 9–10.) Accordingly, Safeco issued a homeowners policy without an endorsement for a home business. (See Safeco Policy at 27.) Several provisions of the Policy are relevant to the current Motions:

COVERAGE B – OTHER STRUCTURES

We cover:

1. Fences, driveways and walkways; and

2. Other structures on the residence premises , separated from the premises by clear space....

BUILDING PROPERTY WE DO NOT COVER

...

2. Other structures:

a. used in whole or in part for business ; or

b. rented or held for rental to any person not a tenant of the dwelling, unless used solely as a private residence or garage.

COVERAGE C – PERSONAL PROPERTY

...

3. SPECIAL LIMITS FOR PERSONAL PROPERTY

...

h. Business property, not excluded elsewhere, while located on the residence premises. Up to $1,000 of the limit on your Policy Declarations may be used for business property, not excluded elsewhere, while located off the residence premises.

PERSONAL PROPERTY WE DO NOT COVER

...

10. Business property or merchandise:

a. in storage;

b. held as a sample; or

c. held for sale or delivery after sale.

POLICY DEFINITIONS

...

c. "Business " means a trade, profession or occupation engaged in on a full-time, part-time or occasional basis, or any other activity, including civic or public, engaged in for money or other compensation, except for the following:

(1) One or more activities, not described in (2) below, for which no insured receives more than $3,000 in total compensation for the 12 months before the beginning of the policy period; and

(2) volunteer activities for which no money or other compensation is received other than for expenses incurred to perform the activity.

(See Policy at 27–52.) Safeco applies no specific criteria to determine whether something is a "business use" within the meaning of the homeowner's policy, although there are guidelines for determining risk if a customer seeks a home-business policy, including the type of business conducted at the property; the number of employees at the property; number of customers visiting; whether the customer has a commercial policy; and whether there is any signage on the property advertising the business. (1^st Gust Decl. ¶ 7, Ex. 7 at 2, Docket No. 45-7.)

The Wobigs carry additional insurance on vacation homes and vehicles. (1^st Wobig Decl. ¶ 6.) Wobig Construction also has general liability insurance, insurance for its vehicles, workers’ compensation insurance, and insurance on other property where the company stores equipment. (Id. ) As of the date of the present Motions, Safeco continues to provide homeowner's coverage to the Wobigs under the same policy. (2^nd Wobig Decl. ¶ 1, Ex. 1, Feb. 5, 2021, Docket No. 55-1.)

C. Safeco's Investigation & Denial of the Wobigs’ Claim

When the Wobigs submitted their claim for the shop floor heat coils freezing in February 2019 through their Safeco homeowners policy, Safeco initially assigned the claim to the Fast Path Unit because Safeco thought it was a small claim. (1^st Berglund Decl. ¶ 24, Ex. 24 ("Mitchell Dep.") at 11:17–13:8, Jan. 15, 2021, Docket No. 49-12.) When Safeco determined that the claim may involve concrete removal, the claim was reassigned to an individual adjuster.

(1^st Berglund Decl. ¶ 26, Ex. 25 ("Safeco Claim Records") at 27, Jan. 15, 2021, Docket No. 49-12.) The adjuster did an initial inspection on February 13, 2019.³ (Id. ) The adjuster reported that the shop—an "other structure" under the Policy—was large and would be a substantial claim, (id. at 26–28), and that the Wobigs told him they have a construction company and build race cars in the structure,⁴ which suggested the shop was used in whole or in part for business purposes, (1^st Berglund Decl. ¶ 27, Ex. 26, Jan. 15, 2021, Docket No. 49-12.) Safeco issued a reservation of rights letter, informing the Wobigs that Safeco was investigating the claim. (1^st Berglund Decl. ¶ 28, Ex. 27, Jan. 15, 2021, Docket No. 49-12.)

Safeco then transferred the claim to its Special Investigation Unit, but after additional meetings with Mr. Wobig, the Special Investigation Unit determined that there were no fraud concerns and referred the claim back to the adjustment team on May 1, 2019; the claim was then transferred to the Large Loss Unit and assigned to claims investigator Geoffrey Johnson. (Safeco Claim Records, at 13–14, 18–19.)

Johnson visited the Wobigs’ property on July 9, 2019. (Id. at 13.) While onsite,...