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Hand Cut Steaks, Inc. v. Southern Insurance Co.

United States District Court, E.D. Arkansas, Western Division

November 13, 2017

HAND CUT STEAKS, INC. et al. PLAINTIFFS
v.
SOUTHERN INSURANCE COMPANY DEFENDANT

          ORDER

         Defendant Southern Insurance Company's (“Southern”) motion for summary judgment [Doc. No. 29] is denied.

         I. BACKGROUND

         This case arises from a dispute over the proper sum owed under an insurance policy. Plaintiffs Hand Cut Steaks, Inc.; Hand Cut Steaks of Jonesboro, Inc.; and Property Ventures, LLC were the owners and operators of a Colton's Steakhouse in Jonesboro, Arkansas, which burned down on December 17, 2014. Resp. Pl.'s Statement Undisputed Facts (“Pl.'s Facts”) ¶ 1, Doc. No. 37; Resp. Def.'s Statement Undisputed Facts (“Def.'s Facts”) ¶ 2, Doc. No. 32. This property was one of multiple properties insured by Southern under blanket insurance policy CMP 5516015, effective April 1, 2014, through April 1, 2015. Def.'s Facts ¶¶ 2-4. The blanket policy covered real property at nine locations and personal property at twelve locations. Id. ¶ 4. The Colton's Steakhouse was designated “premises number 002” in the policy's “description of premises.” Doc. No. 26-2, at 13. The fire totally destroyed premises number 002. Pl.'s Facts ¶ 2. It is undisputed that premises number 002 was the only property that was destroyed of the multiple properties covered under the blanket policy. Def.'s Facts ¶¶ 4, 8.

         The insurance policy provided $8, 437, 025 in blanket building coverage and $4, 715, 000 in blanket personal property coverage. Id. ¶ 5. The parties agree that the blanket policy provided replacement cost coverage, Pl.'s Facts ¶ 6, and that the policy required the insured to maintain a coinsurance percentage of 100%. Def.'s Facts ¶ 9. The replacement cost of the building, to date, totals $1, 618, 142.79, and the replacement cost of the personal property contained in the building, to date, totals $503, 819.72. Pl.'s Facts ¶¶ 9, 12; Doc. No. 27, at 2. Southern has paid plaintiffs $909, 135.87 toward building replacement cost and $433, 199.20 towards personal property replacement cost. Def.'s Facts ¶¶ 13, 17. Southern asserts that a coinsurance percentage has been applied properly and it has paid the full amount properly owed under the policy for building and personal property replacement cost. Plaintiffs respond they are entitled to the full replacement cost for the building and personal property as long as those costs do not exceed the maximum limits identified in the policy for each category respectively.

         The policy also provided $3, 925, 000 in blanket lost income coverage. Pl.'s Facts ¶¶ 15, 16. Southern has paid $835, 785 towards lost income. Def.'s Facts ¶ 18. Southern claims it has paid plaintiffs the full amount to which they are entitled because they failed to rebuild premises 002 within a “reasonable” time as required by the policy's language. Doc. No. 30, at 9-10; Doc. No. 29-1, at 106 (policy language defining “Period of restoration”). Plaintiffs respond by arguing that the policy did not limit the time allowed to rebuild, that the time to rebuild was reasonable, and that they are entitled to recover all of their lost income totaling $1, 071, 742.40. Pl.'s Facts ¶ 17.

         Plaintiffs seek damages for breach of contract on their claims for the replacement cost of the building and personal property and for lost income; a statutory penalty equal to 12% of the judgment, pre- and post-judgment interest, and attorney's fees pursuant to Arkansas Code Annotated section 23-79-208; and punitive damages for bad faith conduct. Am. Compl. ¶¶ 14-18, Doc. No. 19. Southern moves for summary judgment as to all of plaintiffs' claims. Doc. No. 29, at 3.

         II. LEGAL STANDARD

         Summary judgment is appropriate when there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby Inc., 477 U.S. 242, 249-50 (1986). Once the moving party demonstrates that there is no genuine dispute of material fact, the non-moving party may not rest upon the mere allegations or denials in his pleadings. Holden v. Hirner, 663 F.3d 336, 340 (8th Cir. 2011). Instead, the non-moving party must produce admissible evidence demonstrating a genuine factual dispute requiring trial. Id. Importantly, when considering a motion for summary judgment, all reasonable inferences must be drawn in a light most favorable to the non-moving party. Holland v. Sam's Club, 487 F.3d 641, 643 (8th Cir. 2007). The evidence is not weighed, and no credibility determinations are made. Jenkins v. Winter, 540 F.3d 742, 750 (8th Cir. 2008).

         III. DISCUSSION

         A. Coinsurance

         The parties dispute whether a coinsurance percentage applies to reduce the amount the insured can recover under the policy. Coinsurance is a method used to divide the risk of loss between the insurer and the insured. State Auto Prop. & Cas. Ins. Co. v. Boardwalk Apartments, L.C., 572 F.3d 511, 516 (8th Cir. 2009). Generally, coinsurance provisions require the insured to maintain insurance on covered property in an amount at least equal to a specified percentage, and failure to do so results in the insured assuming the status of a coinsurer who will bear a proportionate amount of the loss. Wetmore v. Unigard Ins. Co., 107 P.3d 123, 125 (Wash. App. 2005). The purpose of coinsurance is to reward those who insure at close to full value and to penalize those who insure at less than full value. Id.

         Southern asserts that a coinsurance penalty was properly applied to reduce plaintiffs' claim for building and personal property replacement cost pursuant to the policy's plain and unambiguous language. If an insurance policy's language is unambiguous, the plain language controls. Buddy Bean Lumber Co. v. Axis Surplus Ins. Co., 715 F.3d 695, 697-98 (8th Cir. 2013). The plain language of blanket policy CMP 5516015 states, “If a coinsurance percentage is shown in the Declarations, the following condition applies.” Doc. 29-1, at 94 (Building and Personal Property Coverage Form, Section F: Additional Conditions). The declarations page demonstrates that a 100% coinsurance percentage is shown for the building and personal property at premises 002, thus satisfying this condition. Doc. No. 29-2, at 1-4.

         Next, condition “a” provides, “We will not pay the full amount of any loss if the value of Covered Property at the time of the loss times the Coinsurance percentage shown for it in the Declarations is greater than the Limit of Insurance for the property.” Doc. No. 29-1, at 94. The parties agree that the coinsurance percentage shown in the declarations is 100%. Doc. No. 34, at 6; Doc. No. 30, at 5. The parties agree that the value of the covered property is equal to its replacement cost. Doc. No. 30, at 8 (citing to the policy's language, which states, “Replacement Cost . . . replaces Actual Cash Value in the Valuation Loss Condition of this Coverage Form.”); Doc. No. 34, at 6 (“In light of the optional ‘replacement cost' coverage, the value of the covered property is equal to the actual replacement cost . . . .”). And, the parties agree that the limit of insurance set out in the policy was $8, 437, 025 for the building and $4, 715, 000 for the personal property respectively. Pl.'s Facts ¶¶ 5, 7; Def.'s Facts ¶ 5. Multiplying “the value of Covered Property at the time of the loss [$1, 618, 142.79 for the building or $503, 819.72 for personal property] times the Coinsurance percentage shown for it in the Declarations [100% or 1.00], ” does not yield an amount “greater than the Limit of Insurance for the property, ” which is $8, 437, 025 or $4, 715, 000 respectively. Therefore, condition “a” does not apply under the policy's plain language, despite Southern's assertions to the contrary.

         Condition “b, ” however, does apply under the policy's plain language. It states, “If one Limit of Insurance applies to two or more separate items, this condition will apply to the total of all property to which the limit applies.” Doc. No. 29-1, at 95. This condition is satisfied because the policy provided one limit of insurance for the buildings insured under the policy and one limit for the personal property insured under the policy respectively. Doc. No. 29-2 at 4 (listing $8, 437, 025 as the “Limit of Insurance” for blanket building coverage and $4, 715, 000 as the “Limit of Insurance” for blanket personal property coverage); Pl.'s Facts ¶¶ 4, 5, 7; Def.'s Facts ¶ 5. Condition “b” then provides an example of the four steps used to calculate “the minimum amount of insurance to meet your Coinsurance requirements ...


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