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Zaragon Holdings, Inc v. Indian Harbor Insurance Co

April 12, 2011


The opinion of the court was delivered by: Judge Joan H. Lefkow


Zaragon Holdings, Inc. ("Zaragon") filed a fourth amended two-count complaint against Indian Harbor Insurance Company ("Indian Harbor"), alleging that Indian Harbor wrongfully denied an insurance claim for storm damage to an apartment complex that occurred in September 2006. The court previously granted partial summary judgment to Indian Harbor on Zaragon's breach of contract claim in Count I regarding damage to ground floor units and the pool cover, and on Zaragon's claim under Kentucky statutory and common law for bad faith settlement practices in Count II. Now before the court is Indian Harbor's motion for summary judgment on Zaragon's claim for coverage of damage to the roofs as a result of the storm. For the reasons stated below, the motion [#120] is granted.


Indian Harbor is in the business of underwriting and issuing insurance policies covering losses due to property damage. Indian Harbor issued an insurance policy to Zaragon covering the Regent Park Apartment complex in Louisville, Kentucky owned by a Zaragon subsidiary.

The policy ran from August 15, 2006 to August 15, 2007. Under this policy, Indian Harbor agreed to cover the direct physical loss of or damage to buildings in the apartment complex, including, as relevant here, Buildings 9403, 9414, and 9419. Loss or damage caused by or resulting from wear and tear and deterioration was excluded from coverage. On or about September 22, 2006, a storm passed through Louisville that continued into the next day. The Regent Park Apartments suffered damage during the storm. Zaragon submitted a claim to Indian Harbor for damage it claims was directly caused by the storm, including damage to portions of the roofs of Buildings 9403, 9414, and 9419.

I. Condition of the Roofs Prior to the Storm

Zaragon purchased the Regent Park Apartments in 2002. Prior to completing the purchase, it commissioned an evaluation of the apartment complex. The resultant report advised Zaragon that several roofs were leaking and that the roofs had exceeded their usable life and should be replaced. The report specifically identified the roof of Building 9419 as being in need of immediate replacement. After purchasing the Regent Park Apartments, Zaragon sought bids to replace the majority of the roofs.

Zaragon received proposals and estimates to replace the roofs of Buildings 9403 and 9419 but did not replace either roof prior to September 2006. The roof on Building 9403 was repaired five times between November 2004 and September 2006. Building 9414's roof was repaired in March and September 2003 and February 2006. Building 9419's roof was repaired in both 2004 and April 2006. Several of these repairs were due to blown up shingles, which is a sign of age and deterioration. Between repairs of the roofs, tenants in each of the buildings complained of roof leaks.

II. Condition of the Roofs Following the Storm

Following the storm, Zaragon requested an estimate for the cost to replace the roofs from Chip Cunningham, a local roofer. Despite receiving these estimates, Zaragon did not act immediately to replace the roofs. Building 9414's roof was replaced on June 13, 2007, almost nine months after the storm. In the interim, one tenant complained of leaking in that building on May 16, 2007 after another rain storm had passed through Louisville.

Between September 2006 and April 2008, Zaragon received four complaints from residents about water leaking into apartments in Building 9403. The first of these complaints was received in September 2007 after another instance of heavy rain. Building 9403's roof underwent minor repairs on October 30, 2007, December 20, 2007, and April 9, 2008. On April 25, 2008, new shingles were put on Building 9403's roof.*fn2

Zaragon received three complaints about the roof leaking in Building 9419 after the storm, but the first did not occur until thirteen months later, on October 24, 2007. Louisville had received 6.84 inches of rain over the previous two days. Minor roof repairs were undertaken on October 30, 2007 and December 20, 2007. The roof of Building 9419 was finally replaced on April 25, 2008.

III. Indian Harbor's Claim Investigation

Following Zaragon's claim for coverage, Indian Harbor retained an independent adjuster, Benjamin Barnes, to investigate whether the damage was caused by the September 2006 storm. Barnes inspected the property and interviewed Zaragon's employees and Cunningham, its roofer. Cunningham has admitted that the roofs needed replacement because of age. Barnes did not observe any wind or hail damage to the roofs of Buildings 9403, 9414, or 9419. Barnes concluded that the damage to the roofs was ...

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