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Cole v. Auto-Owners Insurance Co.

United States District Court, N.D. Alabama, Northeastern Division

March 29, 2018




         The Coles' home caught fire and almost burned down on February 10, 2015. The Coles filed a claim with their homeowners' insurance provider, Defendant Owners Insurance. Although Owners paid part of the Coles' claim under its Policy, the Coles say that Owners owes them far more money. Furthermore, the Coles assert that Owners has steadfastly refused to work with them or use the Policy's “appraisal” provision to resolve the parties' disputes over the extent and value of the loss caused by the fire.

         The matter is now before the court on the parties' cross motions for summary judgment (doc. 31; doc. 33; doc. 35) and Owners's “Motion to Strike Trial and Deposition Testimony of Plaintiffs' Proffered Expert Chuck Howarth” (doc. 36).

         Briefly stated, the Coles allege breach of contract, bad faith, and fraud-all based on Owners's action and inaction after their house fire. As to breach of contract, the Coles ask for specific performance of the appraisal provision in the Policy to determine the ultimate value of their claim; payment of “additional living expenses”; and payment for debris-removal expenses. As to fraud, the Coles appear to plead three different kinds: suppression, misrepresentation, and deceit.

         Owners brings seven causes of action in its counterclaim. First, it charges that the Coles breached the contract by submitting a claim that violated the Policy's misrepresentation and fraud provisions. Second, Owners asserts that the Coles committed fraud. Third, Owners claims spoliation of evidence. Fourth, fifth, and sixth, Owners asks for declarative relief about its liability under the Policy regarding additional living expenses, debris removal, and any additional liability it has under the Policy, essentially contending that it owes the Coles nothing because the Coles failed to meet the conditions precedent under the Policy. Seventh, Owners appears to seek recovery of the amounts already paid to the Coles because of the alleged fraud.

         The court first addresses the parties' cross motions for summary judgment. The cross motions before the court involve the Coles' breach of contract cause of action on the Policy's appraisal provision and Owners's counterclaim for declarative relief on the Coles' requests for debris-removal expenses and additional living expenses. (Doc. 31; Doc. 33; Doc. 35). The court also addresses Owners's motion for summary judgment on the Coles' breach of contract causes of action relating to debris-removal expenses and additional living expenses alongside the parties' cross motions on Owners's similar counterclaim assertions.

         Second, the court addresses the Coles' motion for summary judgment on Owners's other counterclaim allegations: breach of contract as to the fraud and misrepresentation provision of the Policy, spoliation, fraud, and repayment of the sums already paid to the Coles because of the alleged fraud. (Doc. 31).

         Third, the court addresses Owners's motion for summary judgment on the Coles' remaining unaddressed causes of action: fraud and bad faith. (Doc. 35).

         For the reasons discussed below, the court will GRANT the Coles' “Motion for Summary Judgment Against Defendant As to the Liability Portion of the Breach of Contract Claim” (doc. 33); the court will GRANT IN PART and DENY IN PART the Coles' “Motion For Summary Judgment And/Or To Dismiss Defendant Owners Insurance Company's Counterclaims” (doc. 31); and the court will DENY Owners's motion for summary judgment (doc. 35).

         In addition, the court has before it Owners's “Motion to Strike Trial and Deposition Testimony of Plaintiffs' Proffered Expert Chuck Howarth.” (Doc. 36). The court will GRANT Owners's motion to strike that testimony to the extent Mr. Howarth testified as an “expert” about legal conclusions regarding Owners's bad faith. In making its findings in this Opinion, the court has not given weight to Mr. Howarth's opinions on those matters.


         Summary judgment is an integral part of the Federal Rules of Civil Procedure. Summary judgment allows a trial court to decide cases when no genuine issues of material fact are present and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56. When a district court reviews a motion for summary judgment, it must determine two things: (1) whether any genuine issues of material fact exist; and if not, (2) whether the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

         The moving party “always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, ' which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed.R.Civ.P. 56). The moving party can meet this burden by offering evidence showing no dispute of material fact or by showing that the non-moving party's evidence fails to prove an essential element of its case on which it bears the ultimate burden of proof. Id. at 322-23.

         Once the moving party meets its burden of showing the district court that no genuine issues of material fact exist, the burden then shifts to the non-moving party “to demonstrate that there is indeed a material issue of fact that precludes summary judgment.” Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). In reviewing the evidence submitted, the court must “view the evidence presented through the prism of the substantive evidentiary burden, ” to determine whether the nonmoving party presented sufficient evidence on which a jury could reasonably find for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986); Cottle v. Storer Commc'n, Inc., 849 F.2d 570, 575 (11th Cir. 1988). Furthermore, all evidence and inferences drawn from the underlying facts must be viewed in the light most favorable to the non-moving party. Graham v. State Farm Mut. Ins. Co., 193 F.3d 1274, 1282 (11th Cir. 1999).

         The filing of cross motions for summary judgment does not affect the applicable Rule 56 standard. See, e.g., United States v. Oakley, 744 F.2d 1553, at 1555-56 (11th Cir. 1984). The Eleventh Circuit has noted that “[c]ross motions for summary judgment will not, in themselves, warrant the court in granting summary judgment unless one of the parties is entitled to judgment as a matter of law on facts that are not genuinely disputed.” Id. at 1555.


         A. The Fire & The Claim Investigation

         Willard and Tammy Coles's two-bedroom, three-bath home caught fire on February 10, 2015. Photographs taken in the aftermath of the fire reveal charred walls, melted curtains, and smoke stains throughout the home. The fire originated in the Coles' laundry and utility room; that room, the kitchen, and attic all suffered direct fire damage. The house filled with smoke as the fire grew. Two rooms in the house suffered water damage when the fire department extinguished the fire.

         The Coles filed a claim with Owners, their homeowners' insurance company. The Coles ultimately sought four different types of payments under the Policy coverage: “dwelling” payments for structural damages to the home; “contents” payments for their lost personal property; debris-removal expenses; and additional living expenses for the time they could not live in their home.

         The Coles contacted Owners the day of the fire. The same day, Owners mailed to the Coles' address a letter including details on the Coles' obligations in making a claim. The letter included a “proof of loss” form, “blank personal property inventory forms, ” and noted that the Coles needed to fill out the forms and return them to Owners within 60 days of the loss. The letter also included a copy of the “What To Do In The Case of Loss” section of the Policy, which the court discusses in further detail below.

         The “proof of loss” is a one-page form that requests basic information about the claim, such as the insured's policy number and the type and time of loss. The form also includes a short section breaking down the overall damage value or cost for each type of claimed loss.

         Owners also sent Stanly Bonhomme, its insurance adjustor, to the Coles' home on the day of the fire. Mr. Bonhomme met with the Coles and began Owners's investigation into the loss. Mr. Bonhomme asked Mr. Cole about where he believed the fire started, walked through the home, and took pictures. Mr. Bonhomme also issued to the Coles a $3, 000 payment, which Mr. Bonhomme stated was to be used for immediate necessities that the Coles may have required after the fire, including a place to stay. (Bonhomme Depo. at 45-46). Mr. Bonhomme suggested to the Coles that the extent of the damage was severe, observing that the Coles could throw everything from the living room into a dumpster. Mr. Bonhomme had full access to the home and the Coles did not impede him in any way.

         Before assessing the value of the Coles' claim, Owners hired a third-party firm to investigate the cause of the fire. That firm determined that the cause of the fire was lint from the dryer.

         Owners also hired ServiceMaster, a third-party property salvaging and restoration service, to inspect the contents of the Coles' home. Mr. Bonhomme told the Coles that he would contact ServiceMaster and that ServiceMaster would determine what was salvageable and what was not. In particular, at issue in this claim were losses related to smoke damage, which Mr. Bonhomme noted could not be reliably determined until ServiceMaster examined the property. ServiceMaster's inspectors arrived two days after the fire. The inspectors examined the home and found 13 salvageable items, which they removed on March 18. Owners did not tell the Coles how long they should keep the remaining unsalvageable items in their house.

         In his deposition, Mr. Bonhomme stated that, for this kind of claim, ServiceMaster would report to Owners about what property could or could not be restored. ServiceMaster would then tell Owners's adjustor what steps it planned to take; i.e., either restoring the property or throwing it out. The report from ServiceMaster discussed by Mr. Bonhomme does not appear in the materials before the court, although a report from “National Vendor, ” another third party apparently hired by Owners, indicates that the value of the lost contents was $91, 095.54 replacement cost value or $65, 065.46 actual cash value. (Doc. 34-9). Owners did not share that report with the Coles during the claim investigation. (Doc. 33 ¶ 7).

         Owners also found that the value of the Coles' dwelling claim was $46, 551.71 replacement cost and $34, 006.20 actual cash value. Owners initially paid the Coles $33, 006.20 for the dwelling claim (having subtracted the Coles' $1, 000 deductible), but did not include payment for personal property. The Coles accepted the check as a partial payment on their dwelling claim.

         In mid-March, the Coles hired their own third-party consultant, The Howarth Group, to help them evaluate the dwelling damage, prepare a contents inventory of their home for Owners's review, and assess the value of their claims.

         Sarah Grandanetti, a contents inspector for The Howarth Group, went to the Coles' home after the fire in March or April 2015. Ms. Cole gave Ms. Grandanetti a three-ring binder with notes about the lost contents of her home, although Ms. Cole had already disposed of most of the home's damaged contents by the time Ms. Grandanetti began her inspection. Ms. Grandanetti remarked in her deposition that “the house was gutted” when she got there and the only contents remaining had been placed on the home's back porch. Nonetheless, Ms. Grandanetti drew up a report on the contents of the Coles' home based on Ms. Coles's notes and on what she observed.

         In developing her report, Ms. Grandanetti asked the Coles not just about whether the property existed, but about the property's specific characteristics. For example, Ms. Grandanetti asked the Coles about the materials used in the construction of their furniture. She also asked the Coles where they bought their property and “most of the time they knew.” Using that information, Ms. Grandanetti found a replacement price for every item, and she included that information on the inventory she prepared and that the Coles ultimately submitted to Owners. Ms. Grandanetti emphasized that she researched replacement values for every item that the Coles said they lost, down to the price of a box of Honey-Nut Cheerios from Wal-Mart. (Grandanetti Depo. at 22-23).

         The Howarth Group also evaluated the Coles' home for the value of dwelling damages, which included damages to the structure such as the Coles' roof.

         At the end of March, the Coles, through a letter mailed by The Howarth Group, told Owners that they disagreed with Owners's conclusion about the value of their dwelling claim. In that letter, The Howarth Group told Owners that it calculated the dwelling damages to be $164, 458.19 actual cash value, well above Owners's valuation and payment for that part of the Coles' claims. However, The Howarth Group did not present to Owners a value for the Coles' contents claim at that time. The Coles asked Owners to begin the requested appraisal process to resolve the dispute about the claims' values. The Coles and The Howarth Group, who the Coles had designated as their appraiser, also offered to meet an Owners adjustor and go through the house and discuss specifically the losses that the Coles disputed.

         Owners did not respond to the Coles' request for nearly a month. On April 20, when Owners finally responded, Owners stated that the requested appraisal process was premature. Owners contended that, despite the Coles' stated disagreement about Owners's belief on the value of the claim, they had no dispute because the Coles had not “formally” presented their claim amount. Owners also included in its letter another “proof of loss” form and reminded the Coles of their obligations under the Policy, such as submitting the “proof of loss” form. Owners, which noted that the 60-day period for sending in a proof of loss had expired, offered the Coles an additional 30 days to submit their proof of loss, until May 20, 2015.

         The Coles mailed the proof of loss form to Owners on June 3, 2015, and Owners received it the next day. The proof of loss form noted that the claimed amounts for additional living expenses and personal property were “open, ” but included a requested amount for dwelling damages.

         A month later, on July 2, 2015, Owners told the Coles that it believed that they had claimed losses for undamaged items. Nevertheless, Owners again refused appraisal because the “coverage, scope, [and] amount of loss” were in dispute, making appraisal of the value of the loss premature. Owners's letter also asked the Coles, for the first time, to retain any damaged property.

         On July 16, David Eshenour, an Owners adjustor who had earlier taken over the claim from Mr. Bonhomme, inspected the Coles' home. He observed additional, previously-uncompensated damage to the home, and increased Owners's estimate of the dwelling loss to $57, 458.10 replacement cost value and $43, 227.15 actual cash value-still substantially less than the Coles' valuation for the dwelling loss of $164, 458.19 actual cash value. Owners issued a check for $9, 220.95 to the Coles, supplementing Owners's initial dwelling-loss payments. At this point, neither Owners nor the Coles had presented to the other party a proposed value for the contents claim.

         On August 5, the Coles informed Owners, once again by letter, that they would accept the supplemental check, but that they still disputed Owners's valuation of their dwelling claim. The Coles again demanded appraisal. At the end of that month, Owners responded, reiterating its earlier response that appraisal was inappropriate because it disputed coverage and scope of loss.

         Also at the end of August, ServiceMaster returned the 13 items that it had taken in March to restore. However, Ms. Cole concluded that 12 of the 13 items had not been satisfactorily restored.

         Two weeks later, the Coles submitted their contents inventory and claim valuation to Owners. The Coles' inventory of personal property was 43 pages long and enumerated in excess of 1, 000 items. For many, but not all items, the inventory included hyperlinks to the same or similar items on various retailers' websites, such as Sears and Dillard's. The inventory included items as small as a box of Honey-Nut Cheerios from the Coles' kitchen and as big-ticket as a living-room recliner. The inventory included estimated ages of the items and noted the items for which the Coles could not remember the purchase date. The Coles and The Howarth Group stated that the contents loss was $102, 660.86 replacement value or $88, 563.44 actual cost value.[1]

         On October 22, 2015, the Coles sent Owners another demand for the appraisal process based on the valuation disputes. Owners responded on November 5, asking for examinations under oath from the Coles and observing that the Coles had already offered dates for those examinations. Owners requested that the Coles preserve all items on their inventory and stated that they needed to determine whether the items had fire, smoke, or water damage, because only some of the items were in rooms that had suffered direct fire damage.

         On November 24, Owners once again told the Coles that it would not agree to appraisal until the disputes over coverage had been resolved. Owners stated-without further elaboration-that these coverage disputes included possible, but unidentified, misrepresentations by the Coles, “a question as to whether a covered loss as defined by the policy occurred, ” and the Coles' failure to timely submit an inventory. Owners reiterated the necessity of the Coles' examinations under oath and emphasized that, although it had singled out some of the Coles' duties under the Policy, it did not waive any of the Coles' other possible failures to comply.

         On December 22, Owners took the Coles' examinations under oath pursuant to the Policy. The Coles sent another letter through counsel again demanding appraisal.

         During all this time, the Coles' house was uninhabitable. Although they attempted some cleanup by renting a dumpster and hiring people to assist in cleaning out the house, they had to live somewhere else. The Coles and Owners appeared to agree that placing them in a hotel as a long-term accommodation would not be the most cost-effective way to provide an alternative living situation while the home was repaired. Ultimately, the Coles moved into another property they owned but typically rented. The Coles accordingly added a claim for lost rents on that property under the Policy's additional living expenses coverage and also made a claim for debris removal. At their examinations under oath, the Coles submitted amended proofs of loss for their contents, additional living expenses, and debris removal claims.

         On January 12, 2016, Owners sent the Coles the transcripts of their examinations. The Coles signed and returned those transcripts with corrections on March 14, 2016.

         On April 18, 2016, -more than a year after the fire-Owners mailed to the Coles' attorney a letter stating that it had received the Coles' signed examinations under oath, but that it had “come to [Owners's] attention that the amounts claimed on each Proof of Loss (Debris Removal, Contents, and Additional Living Expenses) may be incorrect.” (Doc. 34-13). In addition, Owners said it was “unable to accept the amounts presented as accurate with the information we know at this time.” But Owners added that it was “not able to accept or reject your proof of loss as submitted.” (Id.).

         Owners did not explain what, specifically, caused it to doubt the accuracy of the Coles' claims. Nor did Owners note what further steps it would be taking to investigate the Coles' claims and to determine whether it would deny the claims. Nor did Owners request that the Coles submit any further information or documentation to support their claim.

         The Coles filed the instant lawsuit soon thereafter.

         B. The Policy

         The Coles' homeowners' insurance policy with Owners contains the following relevant provisions.

         a. Coverag ...

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