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Desired Temp Services Contractors Inc. v. Nationwide Property And Casualty Insurance Co.

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

June 27, 2019




         When it comes to contracts, language matters. A party's rights and obligations under a contract are largely determined by the language of the contract. It is axiomatic that courts must pay close attention to each phrase of a contract when interpreting and determining the parties' rights under that instrument. The same is true of the parties to a contract, particularly before they sign it. Just as courts must scrutinize contractual language in resolving disputes between contractual partners, contracting parties generally have a duty to read their contracts before signing on the dotted line.

         This case involves unmet expectations regarding how an insurer performed under an insurance contract. The question though is whether Plaintiffs' unmet expectations are grounded in the contract's language. After careful review, the court finds they are not.

         The court has before it Defendant's motion for summary judgment. (Doc. # 28). The parties have fully briefed the motion (Docs. # 29, 30, 32), and it is under submission. After careful review, and for the reasons explained below, the court concludes that Defendant's motion for summary judgment is due to be granted.

         I. Factual Background[1]

         Pursuant to the court's summary judgment requirements, “[a]ll material facts set forth in the statement required of the moving party will be deemed to be admitted for summary judgment purposes unless controverted by the response of the party opposing summary judgment.” (Doc. # 21 at 7) (emphasis omitted). Here, Plaintiffs (who oppose summary judgment) have not controverted Defendant's statement of undisputed material facts (Doc. # 29 at 4-11), and the court therefore deems them admitted for summary judgment purposes.

         Plaintiffs Timothy Yeager and Desired Temp Services Contractors, Inc. (collectively, “DTSC”) purchased a commercial general liability insurance policy from Defendant Nationwide Property and Casualty Insurance Company (“Nationwide”). Yeager testified that he did not review the insurance policy he purchased from Nationwide because he is not an insurance expert and trusted his Nationwide Agent to provide a policy that would meet DTSC's needs. (Doc. # 29-15 at 133-36).[2] The policy's insuring agreement provides, in relevant part:

We [Nationwide] will pay those sums that the insured [DTSC] becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.
. . . .
No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments - Coverages A and B.

(Doc. # 29-2 at 18).

         Edgar's Bakery, famous for its delicious pastries, retained DTSC to expand its production facility in Shelby County, Alabama. (Doc. # 29-3 at 2-3). While expanding the production facility, DTSC negligently applied a chemical sealant without proper ventilation, and the sealant's fumes contaminated finished inventory and raw ingredients stored in a nearby freezer. (Doc. # 29-4 at 13-14).

         The parties agree that DTSC was negligent in its application of the chemical sealant and liable to Edgar's Bakery for damages caused by that negligence. (Docs. # 29 at 2; 30 at 5). On February 20, 2017, DTSC notified Nationwide of the incident, thereby initiating the claims review process. (Doc. # 29-4 at 13-14). Nationwide then contacted Edgar's Bakery to request documentation to support its losses. (Id. at 13). Edgar's responded by providing Nationwide its first computation of losses: $74, 083. (Id.). In the days immediately after being notified of the claim, Nationwide contacted Yeager (DTSC's principal) to obtain more information about the incident and requested additional information from Edgar's in support of its losses. (Id. at 12-13).

         On March 1, 2017, just over a week after initially receiving the claim, Nationwide determined that its insurance policy with DTSC covered the economic losses sustained by Edgar's Bakery as a result of DTSC's negligence. (Id. at 14) (“Coverage is clear”); (Id. at 11-12) (concluding that coverage was not precluded by the policy's pollution exclusion and stating “appears coverage will apply”). At that time, a Nationwide employee noted that it remained to be seen if the $74, 083 loss figure could “all be supported with documentation” and stated that he was “working with associate as to documentation to request from [claimant].” (Id. at 11).

         On March 20, 2017, in response to Nationwide's prior request, Edgar's Bakery provided some documentation in support of its losses. (Id. at 11). But Nationwide determined the documentation was inadequate because it largely consisted of handwritten notes and did not provide sufficient information to verify Edgar's Bakery's losses. (Id.; Doc. # 29-5 at 96, 111-13). Nationwide therefore sent Edgar's Bakery an email detailing the deficiencies and providing specific examples of the information it was seeking. (Doc. # 29-4 at 11) (discussing additional documentation Nationwide would need to substantiate the loss, including tax documents, invoices, and sales sheets); see also (Doc. # 29-5 at 111-13). On March 21, 2017, Nationwide called Edgar's Bakery to further explain the deficiencies in its documentation and to provide “some ideas to substantiate the loss.” (Doc. # 29-4 at 11).

         On May 8, 2017, Edgar's Bakery provided Nationwide with supplemental documentation. (Id. at 10). Nationwide then sent the supplemental documentation to an in-house forensic accountant for review. (Id.). Nationwide also notified Edgar's Bakery that this forensic accountant would be reaching out directly to Edgar's “to get the correct information to resolve the claim.” (Id.).

         On June 2, 2017, Nationwide's in-house forensic accountant informed the claims adjuster that the documentation provided by Edgar's Bakery supported “just over” $35, 000 in losses. (Id. at 9). Nationwide's accountant advised that he was confident in his analysis and that with the information provided thus far he would “have difficulty ever supporting damages north of” $40, 000. (Id.). After the claims adjuster learned that Edgar's Bakery was considering filing suit against DTSC, and recognizing that there was some “grey area” in the damages estimation, Nationwide authorized a settlement offer of $40, 000 to Edgar's Bakery. (Id.). This settlement offer was made on or before June 14, 2017-within four months of Nationwide first being notified of the incident. (Id.).

         Following Nationwide's $40, 000 settlement offer, settlement negotiations ensued between Edgar's Bakery and Nationwide but ultimately broke down on July 12, 2017. (Id.). Edgar's Bakery retained counsel shortly thereafter. (Id.).

         On August 23, 2017, counsel for Edgar's Bakery sent a formal demand letter to Nationwide, insisting that Nationwide tender a check to Edgar's Bakery for $83, 497 within 45 days. (Doc. # 29-6 at 99). The letter was accompanied by Edgar's Bakery first forensic accounting report, which calculated Edgar's Bakery's losses as being between $84, 006 and $86, 243. (Id. at 100-06). Nationwide referred the report to its in-house forensic accountant for review. (Doc. # 29-4 at 8). The in-house accountant advised that “all [the report] did was take [Nationwide's] spreadsheets and change the numbers to reflect the amount that [Edgar's Bakery is] looking for.” (Id.). After consulting with his manager, Nationwide's in-house accountant recommended having a third-party vendor provide a “second opinion” “just to further our case.” (Id.).

         By September 6, 2017, Nationwide had retained a third-party forensic accountant to evaluate Edgar's Bakery's losses. (Id.). Nationwide received the third-party accountant's report on October 2, 2017. (Id. at 7). The report concluded that the documentation submitted by Edgar's Bakery supported losses totaling $37, 423. (Id.; Doc. # 29-6 at 86). The third-party accountant disagreed with Edgar's Bakery's forensic accounting report on two main points: (1) the inclusion of fixed overhead costs in the replacement cost of the damaged product and (2) Edgar's Bakery's view ...

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