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Abbey Ridge LLC v. Addison Insurance Co.

United States District Court, S.D. Illinois

September 18, 2019

ABBEY RIDGE LLC, Plaintiff,
v.
ADDISON INSURANCE COMPANY, Defendant.

          MEMORANDUM AND ORDER

          MARK A. BEATTY UNITED STATES MAGISTRATE JUDGE.

         Pending before the Court are the following motions: Plaintiff Abbey Ridge LLC’s (“Plaintiff”) motion for summary judgment (Doc. 26), Defendant Addison Insurance Company’s (“Defendant”) motion for summary judgment (Doc. 27), Defendant’s motion to strike (Doc. 31), and Plaintiff’s motion in limine (Doc. 39). Both parties filed a response in opposition to the motions for summary judgment (Docs. 30 and 33). Defendant filed a reply brief to Plaintiff’s response in opposition (Doc. 51). Plaintiff filed a response to the motion to strike (Doc. 36). After the pending motions were fully briefed by the parties, the Court heard oral arguments on the motions on April 4, 2019, and each of the motions were taken under advisement.

         For the reasons set forth below, Plaintiff’s motion for summary judgment is GRANTED in part, DENIED in part; Defendant’s motion for summary judgment is DENIED; Defendant’s motion to strike is DENIED; and, Plaintiff’s motion in limine is DENIED as moot.

         I. Factual Background

         Plaintiff is a brewery and restaurant located in the Shawnee National Forest. Defendant insured Plaintiff’s establishment through a commercial property policy of insurance (Policy number: 6041008) (“the Policy”) that insured against direct physical loss to both real and personal property (Doc. 27-1). Sometime prior to May 2016, Plaintiff, acting through its managers, decided to expand its commercial footprint (Doc. 28). Terri Addison, Plaintiff’s principal, elected to expand by constructing a new reception hall/event center that would serve as overflow for its bar and restaurant (Doc. 26-3, p. 5-6). On May 13, 2016, Jon Jackman of Consolidated Insurance Agency, Inc. emailed Michael Meisheid, Defendant’s representative, by stating, in part, “[Plaintiff] is building on to their existing structure. I will get limits needed to you.” (Doc. 28. p. 2). Mr. Jackman then emailed his colleague, Betty Wilson, on June 27 informing her, in part, that “[w]e need to initiate the builder’s risk for [Plaintiff’s] addition.” (Id.). The new building/addition abutted Plaintiff’s existing building with roof purlins physically attached to the existing building for aesthetics (Doc. 26-4, p. 16). The new building/addition had separate and stand-alone load bearing walls, truss system, electric, plumbing, and HVAC systems, along with its own restrooms, bar, kitchen, and exterior doorways (Doc. 26-5, p. 2-3). It also was constructed with the same height, shape, and materials as the original building (Doc. 26-5). The surface area of the new building/addition was 2,570.48 sq. ft; the surface area of the existing building was 3,221.10 sq. ft. (Id.).

         Prior to October 2016, contractors began site preparation and concrete work necessary to erect the new building/addition (Id.). Erection and framing of it commenced in October 2016 and, as of November 2, 2016, contractors had framed and sheathed walls, set the trusses, installed walk-in coolers, and began installing sheet metal roofing (Id.). Construction on many other parts of the new building/addition had not begun including, interior doors, the bar, countertops, cabinets, shelving, plumbing system, electric system, and HVAC system (Id. at p. 54-73).

         On December 9, 2016, Defendant commenced insuring Plaintiff under a second policy of insurance, being an inland marine policy, that provided in part, Builder’s Risk coverage for the new building/addition during construction (Doc. 26-2). As of February 1, 2017, construction of Plaintiff’s new building/addition was not done, as the interior finish work had not been completed (Doc 26-3, p. 8). That night, the fire loss occurred which resulted in a total loss of the existing building, the new building/addition, and the contents within both areas.

         Plaintiff submitted a fire claim to Defendant, which it accepted, in part, but rejected coverage under the NACP provisions of the Policy. Specifically, Plaintiff presented a claim for damages sustained to the new building/addition in the amount of $360,948.07. Defendant paid Plaintiff $150,000 under the Builder’s Risk coverage part of the inland marine policy, which left $210,948.07 in unpaid damages to the new building/addition. Plaintiff also submitted a claim for what it believed to be its newly-acquired personal property lost in the fire, which totaled $307,064.79. In a June 14, 2017 letter, Defendant denied coverage for the newly acquired business personal property in its entirety because “the renovation being added to the existing building would not apply to that coverage. The ‘Newly Acquired or Constructed Property’ only applies to the construction not previously in existence.” (Doc. 26-6, p. 1). The Ultra Property Plus endorsement, CP 7088, and more specifically the newly acquired or constructed property coverage extension increases the building coverage and business personal property limits to $500,000 and $250,000 respectively (Id.).

         In a June 16 letter, Southern Illinois Public Adjusters (“SIPA”), on behalf of Plaintiff, challenged Defendant’s coverage position by stating, in part, “the structure being built at the time of a fire was an entirely new building which was to be adjoined an existing building. The insured was not ‘renovating’ any structure. The building being constructed was at all times new construction . . ..” (Doc. 26-7, p. 1-3). Additionally, the letter stated that “your company has already concluded that the insured was constructing a new building as it paid the coverage limit under the insured’s Builders’ Risk policy. As you are certainly aware, the Builders’ Risk and Installation Coverage For, CM 70 50 02 16, only provides coverage for new construction and does not provide coverage for renovations outside of a (sic) pre-existing buildings.” (Id. at p. 3). SIPA further contends in the letter that “in order for your company to have determined that the work being performed was new construction and not a ‘renovation being added to the existing building’, as it now contends.” (Id.). Defendant argues Plaintiff’s new building/addition is not covered under the building and personal property coverage form because coverage exists under the builders’ risk policy (Id. at p. 4). The relevant policy provision provides, in part, “Covered Property does not include: k. [p]roperty that is covered under another coverage form of this or any other policy in which it is more specifically described, except for the excess of the amount due (whether you can collect on it or not) from that other insurance.” (Id.).

         In a July 11, 2017 letter, Defendant reasserted its denial for coverage under the NACP provisions for the new building/addition because it contends, in part, that “[t]he addition to the main building, despite containing ‘all the components of a stand-alone structure,’ was in fact not a stand-alone structure. It was connected to, and depended on, the exterior wall of the existing main building; it was an addition to the main structure.” (Doc. 26-8, p. 1). Additionally, in the letter, Defendant denied Plaintiff’s newly acquired business personal property claim because “[the new building/addition] was not a (i) ‘newly acquired location; nor was it a (ii) ‘newly construction or acquired building’ as addressed above. Therefore, the Newly Acquired Business Personal Property coverage extension will not apply to this loss.” (Id. at p. 2). The relevant policy provides, in part:

(2) Your Business Personal Property
(a) if this policy covers Your Business Personal Property, you may extend That insurance to apply to:
(ii) Business personal property, including such property that you newly acquire, located at your newly constructed or acquired buildings at your newly constructed or acquired buildings at the location described in the Declarations.

(Id.).

         Because both parties dispute what the Policy at issue provides, Plaintiff filed this lawsuit seeking declaratory relief (Count I), money damages (Count II), and statutory damages under Section 155 of the Illinois Insurance Code (Count III).

         At the motion hearing regarding Defendant’s motion to strike Plaintiff’s experts and Plaintiff and Defendant’s cross motions for summary judgment, both parties presented oral arguments, and then the Court took all pending motions under advisement.

         II. Discussion

         In short, Plaintiff argues the new building/addition at issue qualifies as a new building as it relates to the Policy, therefore, the NACP provisions provide up to $500,000 in coverage for newly constructed property. Plaintiff further argues the NACP provisions also provide up to $250,000 in coverage for newly-acquired business personal property that was located within the new building/addition at the time of the loss. Conversely, Defendant argues it is entitled to summary judgment because the new building/addition was not a “new building” but rather an addition to Plaintiff’s existing building at the described premises, therefore, the NACP does not provide coverage. Defendant further argues that even if the new building/addition qualified as a “new building,” the specific policy provisions providing up to $500,000 in coverage for newly constructed property and up to $250,000 for newly acquired business personal property were not in force and effect at the time of the loss, having expired 90 days after commencement of construction of the new building/addition which was prior to the date of the loss. Plaintiff contends the policy provisions were in force and effect at the time of the loss as it relates to parts of the new building/addition constructed within 90 days prior to the loss because the provision at issue provides that coverage terminates “90 days after you acquire the property or begin construction of that part of the building that would qualify as covered property.” (Doc. 33)(emphasis in original).

         Before addressing the cross motions for summary judgment and the merits of Plaintiff’s underlying claims, the Court must first address Defendant’s motion to strike Plaintiff’s experts (Doc. 31).

         A. Motion to Strike

         On December 21, 2018, Defendant filed a motion to strike “Opinions of Plaintiff’s Purported ‘Experts’, Kirk Freels and Dustin Freels” (Id.). Plaintiff then filed a response in opposition to the motion (Doc. 36). In its response, Plaintiff argues Defendant waived this argument regarding the 90-day exclusion because it failed to timely notify Plaintiff of its reliance on the exclusion (Doc. 26, p. 12-13). However, Plaintiff’s waiver argument fails pursuant to the doctrine of unclean hands.

         Under Illinois law, “the doctrine of unclean hands applies if a party seeking equitable relief is guilty of misconduct, fraud, or bad faith toward the party against whom relief is sought and if that misconduct is connected with the transaction at issue in the litigation.” Zahl v. Krupa, 365 Ill.App.3d 653, 658, 850 N.E.2d 304, 309 (2006). The unclean hands doctrine bars “only equitable remedies and does not affect legal rights.” Id.

         Specifically, Plaintiff contends Defendant should be estopped from asserting the 90-day exclusion defense for failing to timely notify Plaintiff of its reliance on it. At first glance, Plaintiff’s waiver argument appears tenable. However, a review of the record indicates Plaintiff has unclean hands connected to when Defendant believed it necessary to assert the 90-day exclusion defense. Specifically, Plaintiff alleged in its complaint that “[a]fter Thanksgiving in late November 2016, the plaintiff commenced construction of the new building.” (Doc. 1, p. 3). Additionally, Philip Royster, a manager for Plaintiff, testified that work on the new/building addition started “some time after Thanksgiving.” (Doc. 26-4). In contrast, Defendant contends photographs depicting a crane erecting the new building/addition initially provided by Plaintiff did not contain a date stamp. It was only after Defendant subpoenaed the crane company’s records that it determined the erection of the new building/addition likely occurred well before late-November 2016 making the 90-day exclusion defense more apparent to Defendant. These facts demonstrate misconduct as contemplated by the doctrine of unclean hands and Plaintiff cannot now argue that Defendant waived the 90-day exclusion defense.

         Because Defendant has not waived its motion to strike, the Court must now address the merits of it. Defendant argues the Court should strike Plaintiff’s experts for two reasons: (1) the experts’ valuations are not ripe for determination; and, (2) the valuations are not admissible under Federal Rule of Evidence 702 and Daubert.

         i. Ripeness of Valuations

         Defendant contends Plaintiff’s experts’ valuations are not ripe for two reasons: (1) Defendant did not have time to evaluate the experts’ valuation calculation and (2) Plaintiff did not object to Defendant’s contention that the experts’ deposition be limited in scope to only include the issue of valuation if overall coverage was found to exist.

         On November 1, two weeks before Plaintiff’s valuation experts, Dustin and Kirk Freels (“the Freels”) scheduled deposition and pursuant to the parties’ stipulation, Plaintiff filed its expert disclosures, either on the subject of damages or liability. The Freels’ disclosure indicated they would render an opinion that the value of that part of the addition was constructed after November 3, 2016, i.e. within 90 days of the date of loss, was $189,598 which should be adjusted for inflation to $191,000. Defendant first argues the valuation is not ripe because it did not have time to evaluate the calculation. However, the Court does not find Defendant’s first argument convincing as indicated below.

         a. Time ...


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