American Safety Indemnity Company v. Fairfield Shopping Center, LLC et al

Filing 82

MEMORANDUM OPINION and ORDER- GE's motion to strike (Doc 79 ) is DENIED; ASI's motion to exclude (Doc 88 ) is DENIED as to the allegedly undisclosed opinion the roof deteriorated beyond repair over the court of two months following November 20, 2010; The balance of ASI's motion to exclude is GRANTED; Varnado and Jerkins cannot offer the opinions stated within at trial. Signed by Magistrate Judge Staci G Cornelius on 7/18/16. (MRR, )

FILED
2016 Jul-18 PM 02:14
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
AMERICAN SAFETY
INDEMNITY COMPANY,
Plaintiff,
v.
FAIRFIELD SHOPPING
CENTER, LLC, et al.,
Defendants.

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) Case No.: 2:12-cv-02415-SGC
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MEMORANDUM OPINION AND ORDER1
This action involves a dispute over insurance coverage for damage to a
vacant commercial building in Fairfield, Alabama.

Plaintiff American Safety

Indemnity Company (“ASI”) issued an insurance policy for the property at issue,
and Defendant GE Commercial Finance Business Property Corporation (“GE”),
the mortgagee of the property, filed an insurance claim with ASI for approximately
$3.5 million in alleged losses caused by theft and vandalism at the property.
ASI asks this court to declare there is no coverage under the insurance policy
for GE’s claim or for a claim brought by Defendant Fairfield Shopping Center,
LLC (“FSC”), the owner of the property. (Doc. 1). GE asserts counterclaims

1

In accordance with the provisions of 28 U.S.C. § 636(c) and Federal Rule of Civil Procedure
73, the parties have voluntarily consented to have a United States Magistrate Judge conduct any
and all proceedings, including trial and the entry of final judgment. (Doc. 49).

against ASI for breach of the insurance contract and bad faith based on ASI’s
failure to pay its claim. (Doc. 54). ASI moved for summary judgment pursuant to
Federal Rule of Civil Procedure 56 on its claims for declaratory judgment against
FSC and GE and also on GE’s counterclaims. (Doc. 67). ASI also moved to
exclude certain testimony from GE’s designated experts, and GE moved to strike
ASI’s reply brief. (Docs. 68 & 79). The motions are fully briefed and ripe for
review.

(See Docs. 67, 68, 72, 73, 74, 75, 77, 79 & 81).

This Court has

jurisdiction under 28 U.S.C. §§ 636(c), 1331, and 1367. For the reasons stated
below, ASI’s motion to exclude is GRANTED IN PART and DENIED IN
PART, and its motion for summary judgment is will be granted in part and denied
in part. GE’s motion to strike is DENIED.
I. SUMMARY JUDGMENT STANDARD
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary
judgment is appropriate “if the movant shows there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” “Rule
56(c) mandates the entry of summary judgment, after adequate time for discovery
and upon motion, against a party who fails to make a showing sufficient to
establish the existence of an element essential to that party’s case, and on which
that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986). The party moving for summary judgment always bears the initial
2

burden of proving the absence of a genuine issue of material fact. Id. at 323. If the
moving party does not meet its initial burden, then the Court must deny the motion
for summary judgment. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1116 (11th Cir.
1993) (citing Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991)).
Once the moving party has met its burden, then the non-moving party must
“go beyond the pleadings” and point to specific facts in the record to show there is
a genuine issue for trial. Celotex, 477 U.S. at 324 (citation omitted). A dispute is
genuine “if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
“[A] ‘judge’s function’ at summary judgment is not ‘to weigh the evidence
and determine the truth of the matter but to determine whether there is a genuine
issue for trial.’” Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014) (per curium)
(quoting Anderson, 477 U.S. at 249). The court must “examine the evidence in the
light most favorable to the non-moving party,” drawing all inferences in favor of
such party. Earl v. Mervyns, Inc., 207 F.3d 1361, 1365 (11th Cir. 2000). Any
factual disputes will be resolved in the non-moving party’s favor when sufficient
competent evidence supports that party’s version of the disputed facts. See Pace v.
Capobianco, 283 F.3d 1275, 1276-78 (11th Cir. 2002) (a court is not required to
resolve disputes in the non-moving party’s favor when that party’s version of the
events is supported by insufficient evidence). However, “mere conclusions and
3

unsupported factual allegations are legally insufficient to defeat a summary
judgment motion.” Ellis v. England, 432 F.3d 1321, 1326 (11th Cir. 2005) (per
curiam) (citation omitted).

Finally, “[t]he court need consider only the cited

materials, but it may consider other materials in the record.” Fed. R. Civ. P.
56(c)(3).
II. FACTUAL BACKGROUND2
A. The Property, Note, and Mortgage
This action arises from a dispute over an insurance policy issued to FSC for
commercial property located at 6501 EJ Oliver Boulevard in Fairfield, Alabama
(“the Property”). (See Doc. 67-4, p. 3). To purchase the Property, FSC borrowed
$3.52 million from GE and executed a note and mortgage on September 15, 2006,
which granted GE a security interest in the Property. (Id.). FSC defaulted on the
note, and GE issued a notice of default to FSC in April 2009. (Id.; Doc. 73-1, pp.
10, 12). GE planned to foreclose on the mortgage, but FSC filed a Chapter 11
bankruptcy petition on May 26, 2009, to stop the pending foreclosure. (Doc. 73-1,
p. 13).
While FSC’s bankruptcy was pending, it leased the Property to Bamaco,
Inc., who used the Property for electronic bingo operations. (Doc. 67-25, p. 2;
Doc. 73-2, pp. 2-3). Bamaco stopped paying rent and vacated the Property in May

2

To the extent any factual inferences are drawn, they are drawn in favor of GE, the non-movant.

4

2010, when its bingo operations at the Property closed. (See Doc. 73-2, pp. 3-4).
Bamaco was the last tenant of the Property, and the Property remained vacant at all
relevant times. (See Doc. 67-4, p. 4; Doc. 73-2, p. 4).
After Bamaco vacated the Property, Yair Ben Moshe, a manager of FSC,
filed a declaration dated August 17, 2010, in FSC’s bankruptcy proceedings in
which he stated in relevant part:
I [] instructed a local friend in Alabama to inspect the site periodically
so that I would be informed of the condition of the Property. I have
recently received photos as well as the regular report as to the
condition of the Property. The Property is clean and the parking lot is
empty. The Property is secure with no apparent vandalism. [FSC]
has received no reports of any vandalism at the site. In addition, in
the last couple of months, the insurance company which insures the
Property conducted an inspection of the Property and found it to be in
good condition. [. . .] [FSC] is preparing a minimal budget to keep
basic security services and water service in place and will present it to
[GE], [FSC’s] only secured lender, for its authority to use cash
collateral . . . to pay these certain expenses.
(Doc. 73-2, pp. 3-4). Ben Moshe filed a second declaration dated October 5, 2010,
in which he again stated “[t]he Property is secure with no apparent vandalism” and
further stated “[FSC] has continued to make adequate protection payments to GE
. . . , [and FSC] has sufficient funds . . . to continue to make said payments for
many months.” (Id., pp. 13-14).3

3

GE relied upon Ben Moshe’s declarations regarding the condition of the Property. (See Doc.
73-1, p. 88).

5

B. FSC’s Application for Insurance and the Policy Issued to FSC
On August 13, 2010—while FSC’s bankruptcy petition was pending—FSC
submitted an application for insurance to ASI through the Shomer Insurance
Agency in Los Angeles, California.

(Doc. 67-5, p. 2). In its application, FSC

represented that no bankruptcies or tax or credit liens had been filed against it in
the past five years, and it described the Property as having offsite power and water
service.4 (Id., pp. 2, 4). Additionally, in email messages between ASI and an
insurance broker representing FSC’s interests, the broker confirmed that FSC was
current on all mortgage and property tax payments with respect to the Property and
that the Property had a central station sprinkler system and burglar alarm. (Doc.
67-6, pp. 3-4, 8). The communications between ASI and the insurance broker
indicate ASI would not issue an insurance policy with theft coverage unless there
was active security protection at the Property. (Id., pp. 8-9).
Based in part on the representations made in the application and the
information received in the email communications, ASI issued commercial
insurance policy number 201CMP1000482-10 to FSC on September 15, 2010 (the
“Policy”). (Doc. 67-2, p. 3; Doc. 67-7, p. 4). The Policy insured the Property as a
vacant building with a limit of insurance of approximately $7.75 million, subject to
a $25,000 deductible per occurrence, and it provided coverage for physical loss or

4

GE was unaware of what FSC represented in its insurance application. (Doc. 73-1, p. 29).

6

damage to the Property, including damage caused by theft or vandalism. (Doc. 672, pp. 4, 13, 21 &27; Doc. 67-26, pp. 17-19, 21). The Policy’s commercial
property declarations indicate the Policy provided replacement cost coverage for
the building.5 (Doc. 67-2, p. 4).
The Policy identified GE as the mortgagee and contained a mortgage clause,
providing in pertinent part:
[ASI] will pay for covered loss of or damage to buildings or structures
to each mortgageholder shown in the Declarations in their order of
precedence, as their interests may appear.
[] The mortgage holder has the right to receive loss payment even if
the mortgageholder has started foreclosure or similar action on the
building or structure.
[] If we deny [FSC’s] claim because of [FSC’s] acts or because [FSC
has] failed to comply with the terms of this Coverage Part, the
mortgageholder will still have the right to receive loss payment if the
mortgageholder: (1) Pays any premium due under this Coverage Part
at [ASI’s] request if [FSC has] failed to do so; (2) Submits a signed,
sworn proof of loss within 60 days after receiving notice from [ASI]
of [FSC’s] failure to do so; and (3) Has notified us of any change in
ownership, occupancy or substantial change in risk known to the
mortgageholder. All of the terms of this Coverage Part will then
apply directly to the mortgageholder.
(Id., pp. 4, 24-25). Additionally, the Policy contained a Protective Safeguard
Promissory Warranty endorsement, which provided in part as follows:
In consideration of the premium charged, it is understood and agreed
by the insured that it is a condition precedent to the acceptance of this
5

The Policy defines building to include “[f]ixtures, including outdoor fixtures; [p]ermanently
installed [] [m]achinery and [e]quipment; [and] [p]ersonal property owned by [FSC] that is used
to maintain or service the building or structure or its premises, including . . . [a]ppliances used
for refrigerating, ventilating, cooking, dishwashing or laundering . . . .” (Id., pp. 4, 13).

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insurance and payment of any claim under the policy that the insured
warrants that at all times during the currency of the policy, (1) the
premises described herein is protected by the [applicable] protective
safeguard . . . and, (2) the insured shall maintain in complete working
order all equipment and services pertaining to the operation of the
described protective safeguard.
[Applicable Safeguards: . . .]
Premises is Locked and Secured against unauthorized entry. [. . .]
Automatic Sprinkler System including Central Station supervisory
service therefore.
Burglar Alarm including Central Station supervisory service therefore.
...
BREACH OF ANY WARRANTY(S) SHALL RENDER
COVERAGE PROVIDED BY THIS POLICY NULL AND VOID
(Doc. 67-2, p. 8) (emphasis in original). Finally, the Policy set forth certain duties
in the event of a loss, including “[n]otify[ing] the police if a law may have been
broken[,] [g]iv[ing ASI] prompt notice of the loss or damage[,] . . . [t]ak[ing] all
reasonable steps to protect the Covered Property from further damage, . . . [and] if
feasible, set[ting] the damaged property aside and in the best possible order for
examination.” (Id., p. 21).
C. Cancellation of the Policy
After the Policy issued, FSC failed to respond to repeated requests to
schedule an inspection of the Property; therefore, ASI cancelled the Policy and
issued a Notice of Cancellation of Insurance on December 28, 2010, which was
sent to both FSC and GE. (Doc. 67-8; Doc. 67-9, pp. 2-3). As stated in the notice,
8

the Policy was cancelled on February 2, 2011, due to FSC’s lack of cooperation
with the inspection. (Id., p. 2; Doc. 67-7, p. 5). Thus, the Policy was only in effect
from September 15, 2010 to February 2, 2011 (the “Policy Period”).
ASI learned of FSC’s pending bankruptcy after it cancelled the Policy, and it
also learned the electrical and water services were turned off at the Property in
June 2010.6 (Doc. 67-7, p. 5). ASI would not have issued the Policy if it knew
FSC was in bankruptcy at the time it submitted its application or if it knew there
was no power and, thus, no active alarm system with central station monitoring or
fire suppression system at the Property. (Id., pp. 5-6).
D. November 2010 Inspection of the Property
GE prepared again to foreclose on the mortgage in late 2010, and it retained
IVI Assessment Services (“IVI”) to conduct an environmental assessment of the
Property.

(Doc. 67-28, p. 4; Doc. 67-29, p. 6).

Richard Crooks visited the

Property on November 18, 2010, to complete the assessment. (Doc. 67-28, p. 4).
The building on the Property was locked, so Crooks could not access the interior of
the building during his visit.7 (Id., pp. 4-5). Instead, Crooks inspected just the

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Alabama Power disconnected electric service at the Property on June 30, 2010. (Doc. 74-11, p.
39).
7

Crooks attempted to gain access to the interior of the building by calling a locksmith, but before
he could get in, a maintenance person stopped him from trying to enter the building. (Doc. 6711, p. 2; Doc. 67-28, p. 5). The maintenance person then called the police who came to the
Property. (Id.). At least one of the police officers went up on the roof with Crooks and saw that

9

exterior and roof of the building, which he accessed by a ladder, and he took
pictures of the exterior and roof. (Id., p. 4; Doc. 32-7, p. 5).
Crooks observed that some of the HVAC8 units on the roof had been
vandalized and parts had been taken out of some of the units, and the damage he
observed on November 18, 2010, appeared recent to him. (Doc. 67-28, pp. 5-6).
Crooks also observed that some of the HVAC units had been moved from the
curbs on which the units were mounted on the roof. (Id., p. 6). As a result, Crooks
saw holes down into the building where the HVAC units had been moved off their
curbs. (Id., pp. 6, 9). Crooks did not attempt to assess the damage to the HVAC
units or note how many holes were in the roof of the building because doing so
was beyond the scope of the environmental assessment.

(See id., pp. 6, 9).

Additionally, some of the HVAC units on the roof were not damaged, and Crooks
did not attempt to count how many of the units had been vandalized and how many
had not. (Id., p. 8).
Crooks did not report the damage to the HVAC units he observed to anyone
at GE. (Id., p. 6). The information Crooks gathered from his inspection went to
Greg Doyle, his supervisor at IVI, though Doyle does not remember Crooks telling
him about damage to the HVAC units. (Id.; Doc. 67-34, p. 13). On November 29,
some of the HVAC units on the roof were damaged and other HVAC units were not. (See Doc.
67-11, p. 9; Doc. 67-28, p. 5).
8

HVAC stands for heating, ventilation, and air conditioning.

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2010, Doyle sent an email to GE regarding Crooks’s visit to the Property. (Doc.
67-10, p. 2). Doyle reported that Crooks could not access the interior of the
building during his visit because the building was locked, but he did not report
anything else to GE about the condition of the Property. (Id.).
E. November 20, 2010 Attempted Copper Theft
On November 20, 2010, two days after Crooks’s visit, Fairfield Police
arrested two people at the Property for attempting to steal copper coils from three
HVAC units. (Doc. 67-11, pp. 3-4). The police officer who made the arrest found
the thieves attempting to load the copper coils into a vehicle parked near the back
wall of the building on the Property. (Id., pp. 6-9). The police impounded the
copper coils and vehicle, and the thieves were later released because the police
could not locate the owner of the Property. (Id.). The police report regarding the
November 20, 2010 attempted theft does not indicate the thieves accessed the
interior of the building on November 20.9 (See id.).
F. Appointment of a Receiver for the Property
In early 2011, GE petitioned to have GlassRatner, Inc. appointed as a
receiver to take possession of the Property. (Doc. 67-3). Prior to the filing of the
petition for a receiver, Pascal Zachary, a former employee of GlassRatner, visited
the Property on January 20, 2011. (Doc. 67-31, p. 27). The building was locked

9

GE did not learn about the attempted theft when it occurred. (See Doc. 67-27, p. 16)

11

on January 20, and Zachary did not find any way to get inside. (Id.). Accordingly,
he only inspected the exterior and roof of the building, which he accessed by a
ladder. (Id., pp. 27, 32). While on the roof, Zachary saw that every HVAC unit
appeared damaged. (See id., p. 28). However, Zachary testified he is not sure if
every unit he observed on the roof was actually an HVAC unit, and he does not
know when they were damaged. (Id., pp. 29-30).
Zachary took photographs during his visit, which he included in a report to
GE regarding his observations at the Property. (Doc. 67-13; Doc. 67-31, pp. 2728). In the report, Zachary noted there was trash and debris at the Property,
boarded-up windows, a broken window, and vandalized HVAC units on the roof of
the building. (Doc. 67-13, pp. 3-4, 8). The report also noted the electrical power
to the building was off, so the fire safety system was not powered. (Id., p. 7).
Zachary also included a description of the roof in his report, stating as follows:
The roof itself appears to be in good shape. This is a very high grade
roof. There are some bubbled/soft spots but probably very little
leaking. There are several 3-4 inch square patches.
(Id., p. 4). Zachary sent the report of his January 20 visit to the Property to GE on
January 21, and Zachary’s report was the first notice GE received regarding theft
or vandalism at the Property. (Doc. 67-27, p. 16; Doc. 67-31, p. 30; Doc. 73-1, p.
24).

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On February 9, 2011, one week after the end of the Policy Period, GE filed a
petition for the appointment of a receiver in the Circuit Court of Jefferson County.
(Doc. 67-3). GE requested GlassRatner be appointed as receiver on an expedited
basis to allow the receiver to immediately begin securing the Property. (Doc. 673). In its petition, GE noted:
(1) the [] Property appears vacant and abandoned in an area where
numerous abandoned buildings are located; (2) the exterior gates were
and are unlocked and open; (2) [sic] numerous windows are broken;
(3) evidence of missing, vandalized and stolen HVAC and other
equipment was visible; (4) there is a large accumulation of trash and
other debris on the [] Property; and (5) the electricity and fire safety
system is shut off.
(Id., p. 5). The Circuit Court of Jefferson County entered an order appointing
GlassRatner as receiver of the Property on February 11, 2011.10 (Doc. 67-14).
G. The Receiver’s February 2011 Inspection of the Property
On February 14, 2011, twelve days after the Policy Period ended, Zachary
visited the Property again and went inside the building for the first time. (See Doc.
67-15, p. 4; Doc. 67-31, pp. 34, 37). During his February 14 visit, the exterior
doors to the building were secure, though Zachary saw evidence the exterior doors
had been pried open previously. (Doc. 67-31, p. 35). Inside the building, Zachary
saw evidence of water damage, though he does not recall seeing any active leaks
on February 14. (Id., pp. 37-38, 85). Zachary also saw damage to the circuit

10

The receivership continued until December 2013. (Doc. 67-35, p. 42).

13

breakers and electrical wiring inside the building, and he assumed electrical
equipment was stolen from the building sometime before February 14.11 (Id., pp.
36-37, 40-41). Zachary did not inventory the condition of the Property or the
contents of the building during his February 14 visit.

(Id., pp. 23, 41).

Additionally, Zachary does not know how many different incidents of vandalism
or theft occurred at the Property, or when they occurred. (Id., p. 58).
After he visited the Property, Zachary prepared a short report regarding what
had to be done to secure the Property, and he sent his report to GE on February 15,
2011. (Doc. 67-15). In the report, Zachary noted the following:
(A) No electrical power is on. The meter is set but all of the breakers
have been vandalized. (B) Water is off and should remain off.
(C) The exterior HVAC Systems are gone. The interior systems
located in the ceiling appear to be intact. (D) There appear to be roof
leaks. Those will be repaired as needed.
(Id., pp. 4-5). Zachary also contacted the Fairfield Police on February 15 to report
the theft of the HVAC components, though he did not report the theft of any
electrical equipment.12 (Id., p. 1; Doc. 67-31, pp. 40-41; See also Doc. 67-11, p.
9).
After receiving Zachary’s report, Pam Eggett, a GE employee managing the
Property, sent Zachary a copy of the certificates of insurance for the Property so he

11

Zachary admitted he cannot say when electrical equipment was stolen from the Property, or if
electrical equipment was stolen after February 2, 2011. (Doc. 67-31, p. 41).
12

The theft of electrical equipment from the building was never reported to the police.

14

could prepare an insurance claim with respect to the stolen HVAC equipment.
(Doc. 67-31, p. 44). Seth Brown, an employee of GlassRatner, then called the
Shomer Insurance Agency, FSC’s insurance agent, in late February or early March
2011 to get a copy of the Policy and “find out what needed to be done to file a
claim.” (Doc. 67-35, p. 50).
H. March 2011 Inspections of the Property
Zachary visited the Property again on March 4, 2011, about one month after
the Policy Period ended, with Chris Miller, an employee of IVI, the company GE
hired to conduct the environmental assessment.13, 14 (Doc. 67-31, p. 50). After the
visit, Zachary sent an email to Eggett informing her the padlock and chains used to
secure the ladder and prevent access to the roof of the building had been cut and
the “building entered from the roof, [but] [t]here was no[] vandalism to the
interior.” (Doc. 67-16, p. 2; See also Doc. 67-31, p. 51).
Miller inspected both the interior and exterior of the building, including the
roof, on March 4. (Doc. 67-29, pp. 11, 14). Inside the building, Miller saw signs
of water damage and an open hole in the roof, but he did not see any active water
leaks. (Id., pp. 11-13, 37). Additionally, he saw evidence that electrical wires had

13

GE sent IVI back to the Property to finish the environmental assessment because IVI had not
been able to go inside the building during its November 18, 2010 visit. (See Doc. 67-29, p. 6).
14

The record indicates Zachary visited the Property at other times between February 14 and
March 4, 2011, but there is no information regarding what he may have observed on those visits.

15

been ripped out and stolen from the building.15 (Id., p. 14). On the roof of the
building, Miller saw HVAC units had been opened and metal stolen from inside
the units, and he saw pieces of metal lying on the roof. (Id., p. 14-15). Miller did
not look at each HVAC unit or document which units were damaged because doing
so was beyond the scope of the environmental assessment, but he testified “just
about every unit there” was damaged. (Id., p. 15). After his visit, Miller informed
Greg Doyle, his supervisor at IVI about the damage he saw to the building and
HVAC units. (Id., p. 16). Miller also prepared a report of his visit, which Doyle
sent to GE on March 14, 2011. (Doc. 67-34, p. 18; See also Doc. 73-3).
Zachary returned to the Property again on March 9, 2011, and saw active
water leaks inside the building, and he then went on the roof to determine the
source of the leaks. (Doc. 67-31, pp. 52-54). Zachary reported the leaks to GE
that day, stating as follows:
Last night the area was subject to torrential down pours. I toured the
interior. The rain has stopped but the cascade of water continues in
the interior. My initial assessment of the interior found it dry with
evidence of previous leaks (carpet squares curled at edges). Now this
area is flooded. So I went to the roof. Two issues here. First the
destroyed rooftop HVAC units would allow water to leak inside.
Second I discovered 3 gouges in the roofing material that I believe
occurred during the theft of the HVAC copper. I will try to include
that in the insurance claim.

15

Miller does not know what electrical equipment was in the building prior to his visit or what, if
anything, Bamaco may have done to alter the electrical wiring when they vacated the building.
(Doc. 67-29, pp. 20, 26).

16

(Doc. 67-17, p. 2). Zachary does not know when the gouges he observed in the
roof were made. (Doc. 67-31, pp. 55, 73).
I. Removal of the HVAC Units
Based on Zachary’s observations at the Property on March 9, the damaged
HVAC units were covered with tarps in an effort to stop the water leaks into the
building. (Id., p. 57). However, storms in the area “rendered [the] tarp solution
useless,” so Zachary determined a more permanent solution was required. (See id.,
p. 60). Accordingly, in April or May 2011, Zachary hired Commercial Renovators
to remove the damaged HVAC units from the roof and to cover the curbs where
the units had been mounted on the roof. (See Doc. 67-18, p. 2; Doc. 67-31, pp. 6061). Commercial Renovators removed every HVAC unit from the roof of the
building, and none of the units were retained for inspection. (Doc. 67-18, p. 2;
Doc. 67-30, p. 32; Doc. 67-33, pp. 9, 38). There is no indication in the Rule 56
record that Commercial Renovators, or any other entity, inventoried the HVAC
units that were removed from the roof. (See Doc. 67-33, p. 38).
Zachary sent Eggert a report regarding the repairs on May 13, 2011,
informing her “[t]he destroyed HVAC units have been removed, and all the debris
carted off,” and the repairs would be completed by May 18. (Doc. 67-19, p. 2). In
his report, Zachary also described the condition of the roof as follows:
Now that so much trash has been removed the remaining issues with
the roof can be seen. The initial assessment from Jan 20 of this year
17

was the roof was in fair shape. In fact the roof is in very poor shape in
some areas. The roof is a rubberized roofing system. On the surface
is a waterproof membrane covering foam insulation. Evident now are
the tears, nicks and weakened surface.
(Id.). Zachary’s report also indicated the tears in the roof would be patched and
the ladder to the roof would be removed to try to prevent unauthorized access to
the roof, which he described as “[o]ne of the unresolved security issues.” (Id., pp.
3, 6). Although the roof was repaired, the record indicates it continued to leak
until at least July 7, 2011, and Zachary concluded the leaks would not stop
“without a very expensive new roof.” (Doc. 67-31, p. 73).
J. Preparing and Filing the Insurance Claim
In April 2011, GlassRatner hired Darrell Varnado to evaluate the damages at
the Property, estimate the cost of repair, and file an insurance claim. (Doc. 67-30,
p. 6; Doc. 67-31, p. 46). Varnado visited the Property in mid-April—more than
two months after the end of the Policy Period. (Doc. 67-30, pp. 8-9). During his
visit, he accessed the roof, but did not enter the building. (Id.). He also did not
walk across the roof because he saw “pieces of metal scattered about it, and
walking across it could have caused damage.” (Id., p. 9). Varnado did not see any
holes or tears in the roof during his visit, but he assumed there must be punctures
in the roof because of the debris and metal panels he saw. (Id., pp. 10, 56).
After his first visit to the Property, Varnado enlisted Roddy Jerkins to help
him prepare the insurance claim. (Doc. 67-30, pp. 7, 11; Doc. 67-31, pp. 46-47,
18

57).

Jerkins and Varnado visited the Property together in early May 2011,

approximately three months after the Policy Period ended, and inspected the
interior of the building, but not the roof. (Doc. 67-30, p. 12). During that visit,
Varnado observed the carpet was wet, the flooring in a computer room was
damaged, and electrical panels were damaged, and he also saw a ladder in the
electrical service room that went up to a hole near the ceiling. (Doc. 67-30, pp. 1213).

Varnado does not know when the damage to the electrical equipment

occurred. (Id., pp. 13-14).
Following the May 2011 visit to the Property, Varnado contacted Shomer
Insurance Agency on June 8, 2011, and reported a claim over the phone. (Doc. 6721, p. 2; Doc. 67-30, p. 59). The agency then prepared an Acord Property Loss
Notice dated June 8, 2011, which was sent to ASI. (See Doc. 67-26, p. 43; Doc.
67-21, p. 2). The Loss Notice erroneously identifies the date of loss as February
17, 2011, and stated, the “Property was severely vandalized and suffered water
damage; vandals took copper pipes, wiring, AC, anything of value.”16 (Doc. 6721, p. 2).
Jerkins returned to inspect the Property on June 27, 2011—almost five
months after the Policy Period ended. (Doc. 67-32, p. 10). During his inspection,

16

ASI received the June 8, 2011 Loss Notice and hired Engle Martin on June 10 as an
independent adjuster to evaluate the claim and damage to the Property. (Doc. 67-26, pp. 15, 43).

19

he saw holes in the roof with light shining through and active leaks in the building.
(Id.). Jerkins did not go on the roof because all the HVAC units had already been
removed and the temporary repairs on the roof had been completed before June 27,
so there would have been “nothing for [him] to see on the roof.”17 (See id., p. 12).
Almost five months after Jerkins’s inspection, he and Varnado prepared and
submitted to ASI a Sworn Statement in Proof of Loss, claiming a net loss of
$3,464,724.88.18 (Doc. 67-23, p. 2; Doc. 67-33, p. 53). The Proof of Loss was
signed by Pascal Zachary as the insured and dated November 18, 2011.19 (Doc.
67-23, p. 2). Additionally, it identifies the date of loss as November 20, 2010 and
the cause of loss as theft of property. (Id.).
In response to the Proof of Loss, ASI sent a letter dated December 20, 2011,
to counsel for GE and Zachary. (Doc. 67-12). The letter stated ASI “will reject
this Proof of Loss on the basis the proof of loss was not supplied by nor agreed to
by ASI[].” (Id., p. 2). However, the letter goes on to state “[ASI] acknowledges
the receipt of the Sworn Statement in Proof of Loss on behalf of the insured,
[FSC], . . . [but] ASI does not consider nor acknowledge this document as a Sworn
17

Jerkins never went on the roof at the Property. (Doc. 67-32, p. 12).

18

The net loss was calculated by deducting $25,000, the amount of the deductible per
occurrence, from $3,489,724.88, the claimed actual cash value of the loss. (Doc. 67-23, p. 2).
The Proof of Loss also claimed the actual cash value of the building was $7,753,000, an amount
equal to the full amount of the Policy. (Id.).
19

Although Zachary signed the Proof of Loss, he does not have any independent knowledge of
whether the statements in it were accurate. (Doc. 67-31, p. 78).

20

Statement in Proof of Loss by the mortgage holder, GE . . . .” (Id., p. 3). Finally,
the letter also states “[b]y acknowledging receipt of the Proof of Loss submitted by
the insured/receiver, ASI[] does not accept nor deny the claim of the
insured/receiver as there are a number of critical facts that need to be clarified
through further investigation.” (Id.).
On May 2, 2012, counsel for ASI sent a blank Sworn Statement in Proof of
Loss form to counsel for GE, and GE returned the completed and signed form to
ASI on May 18, 2012.

(Doc. 73-14; Doc. 73-15).

The completed Sworn

Statement in Proof of Loss was executed May 15, 2012, and again claimed a net
loss of $3,464,724.88, which was calculated by deducting the $25,000 deductible
per occurrence from the claimed actual loss. (Doc. 73-15, p. 3). It also identified
the date of loss as November 20, 2010, and referred to the police report regarding
the theft of the HVAC coils. (Id.). The May 15, 2012 proof of loss form also
referred to an estimate by Commercial Renovators dated August 12, 2011, which
provides a detailed description of the loss. (Id.). The estimate includes a quote for
$1,427,204 to replace damaged electrical components in the building and a quote
for $426,000 to repair the HVAC system. (Id., p. 67).
After receiving the May 15, 2012 Proof of Loss, ASI filed this action
seeking a declaration there is no coverage under the Policy for either FSC or GE
for the losses at the Property. (Doc. 1). For its part, GE seeks coverage under the
21

Policy as the mortgagee of the Property, and it filed counterclaims against ASI for
breach of contract and bad faith based on ASI’s failure to pay its claim. (Doc. 54,
pp. 10-14). ASI now seeks summary judgment on its declaratory judgment claims
and on GE’s counterclaims.
III. ANALYSIS
Currently pending before the court are ASI’s motion to exclude testimony
from GE’s experts, ASI’s motion for summary judgment, and GE’s motion to
strike ASI’s reply brief. (Docs. 67, 68 & 79). The court will address ASI’s
motions separately after first dispensing with GE’s motion to strike.
A. GE’S Motion to Strike
GE argues ASI’s reply brief in support of its motion for summary judgment
must be struck from the record because it was filed too late. (Doc. 79, pp. 1-2).
This argument is without merit. The court’s Initial Order required ASI’s reply
brief to be filed within fourteen days of GE’s response brief, which was filed on
September 23, 2015. (Docs. 13 & 72). Although fourteen days after September 23
is October 7, and ASI did not file its reply brief until October 13, the reply was
timely under Rule 6. (See Doc. 77).
Rule 6(d) provides:
[w]hen a party may or must act within a specified time after service
and service is made under Rule 5(b)(2)(C), (D), (E), or (F), 3 days are
added after the period would otherwise expire under Rule 6(a).
22

Fed. R. Civ. P. 6(d). GE’s response brief was filed electronically, which means it
was served under Rule 5(b)(2)(E) and three days are added to the fourteen-day
period set out in the initial order. See Vestavia Plaza, LLC v. City of Vestavia
Hills, Ala., 2013 WL 4804196, n.1 (N.D. Ala. Sept. 9, 2013). As a result, ASI’s
deadline to file its reply brief was extended to October 10, 2015, which was a
Saturday, so the time period for filing the reply “continue[d] to run until the next
day that is not a Saturday, Sunday, or legal holiday.” Fed. R. Civ. P. 6(a)(1)(C).
Since Monday, October 12, 2015 was a legal holiday, the time period for ASI to
file its reply brief ran until Tuesday, October 13, and ASI’s brief was timely filed.
GE next argues ASI’s reply brief must be struck from the record because it
raises an argument not raised in ASI’s initial brief. Specifically, GE asserts the
court should refuse to consider ASI’s arguments regarding the applicability of
California law to the interpretation of the Policy because ASI did not argue for the
application of California law in its initial brief. (Doc. 79, p. 3). Although ASI
cited to both California and Alabama law in one section of its initial brief, it did
not directly address which state’s law applies to the interpretation of the Policy.
(See Doc. 67-1). In spite of ASI’s omission, the court will consider its arguments
regarding the application of California law because, based on long-settled law and
as discussed below, the court is obligated to apply Alabama’s choice of law rules
in this diversity action.

Therefore, the parties cannot waive application of
23

Alabama’s choice of law rules by failing to address conflict of laws in their briefs.
As a result, GE’s motion to strike is DENIED.
B. ASI’S Motion to Exclude20
ASI asks this court to exclude opinions offered by GE’s experts, Darrell
Varnado and Roddy Jerkins, who prepared an estimate of the losses at the
Property. As discussed below, ASI’s motion to exclude will be denied as to its
request to exclude allegedly undisclosed opinions, and the balance of its motion to
exclude will be granted.
1. ASI has not shown the allegedly undisclosed opinion regarding
the roof system deteriorating beyond repair must be excluded
under Federal Rule of Civil Procedure 37(c)(1)
ASI asserts certain opinions must be excluded because they were not
disclosed in Varnado and Jerkins’s expert report as required by Rule 26(a). (Doc.
68, pp. 3-5). Under the Federal Rules of Civil Procedure, “[i]f a party fails to
provide information . . . as required by Rule 26(a) [], the party is not allowed to use
that information [] to supply evidence on a motion, at a hearing, or at a trial, unless
the failure was substantially justified or is harmless.” FED. R. CIV. P. 37(c)(1).
ASI contends Varnado and Jerkins testified in their depositions that “the roof
system [at the Property] deteriorated beyond repair over the course of the two
20

Neither party requested a Daubert hearing, and GE specifically indicated it does not request
oral argument on ASI’s motion to exclude. (See Doc. 74, p. 1). Because the court is not required
to hold a Daubert hearing before ruling on the motion, Cook v. Sheriff of Monroe Cty., Fla., 402
F.3d 1092, 1113 (11th Cir. 2005), and the issues presented by ASI’s motion to exclude are
straightforward, the court will rule on the motion without holding a Daubert hearing.

24

months following November 20, 2010” and that opinion was not disclosed in their
written report.21 (Doc. 68, p. 4). However, Opinion No. 7 from Varnado and
Jerkins’s expert report states as follows:
We know the trapped water was [in the roof system] during the
January 2011 site visit by Pac Zachary of Glass Ratner because he
states in his report the following: ‘There are some bubbled/soft spots
but probably very little leaking.’ The trapped water cannot be sucked
out nor does it disappear. Therefore, the roof system will fail. . . .
There is no remedy of repair for the trapped water except a roof
replacement.
(Doc. 74-1, p. 6).

This opinion in the written report suggests the roof had

deteriorated beyond repair by January 20, 2011, the date of Zachary’s visit to the
Property and two months after the attempted theft on November 20, 2010. In other
words, it is very similar to the allegedly undisclosed opinion ASI seeks to exclude.
(See Doc. 67-30, p. 58; Doc. 68, p. 4). As a result, even if the opinion the roof
deteriorated beyond repair over the course of two months following November 20,
2010 was not disclosed as required by Rule 26(a), ASI cannot show it was harmed
by the alleged failure to disclose the information. Thus, the alleged failure to
disclose the opinion was harmless, and the opinion is not due to be excluded under
Rule 37(c)(1).

21

ASI also contends Varnado and Jerkins testified regarding two other opinions not disclosed in
their expert report. (Doc. 68, p. 4). Those two opinions relate to unauthorized people accessing
and causing damage to the interior of the Property. (Id.). Because those opinions are due to be
excluded for other reasons, as discussed below, the court does not address ASI’s argument they
should be excluded because they were not disclosed in the written expert report.

25

2. Certain opinions do not meet the standards of Rule 702 and
must be excluded
ASI also argues certain opinions from Varnado and Jerkins do not meet the
requirements of Federal Rule of Evidence 702, which governs the admissibility of
expert testimony and provides as follows:
If scientific, technical, or other specialized knowledge will assist the
trier of fact to understand the evidence or to determine a fact in issue,
a witness qualified as an expert by knowledge, skill, experience,
training, or education, may testify thereto in the form of an opinion or
otherwise, if (1) the testimony is based upon sufficient facts or data,
(2) the testimony is the product of reliable principles and methods,
and (3) the witness has applied the principles and methods reliably to
the facts of the case.
Fed. R. Evid. 702. “As the Supreme Court made abundantly clear in Daubert,
Rule 702 compels the district courts to perform the critical gatekeeping function
concerning the admissibility of expert scientific [and technical] evidence. [. . .]
This function inherently requires the trial court to conduct an exacting analysis of
the foundations of expert opinions to ensure they meet the standards for
admissibility under Rule 702.” United States v. Frazier, 387 F.3d 1244, 1260
(11th Cir. 2004) (citing Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.
579, 589 n.7 (1993); Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147
(1999); and McCorvey v. Baxter Healthcare Corp, 298 F.3d 1253, 1257 (11th Cir.
2002)) (internal quotations and alterations omitted).

See also McClain v.

Metabolife Int’l, Inc., 401 F.3d 1233, 1237 (11th Cir. 2005) (“Daubert requires the

26

trial court to act as a gatekeeper to ensure that speculative and unreliable opinions
do not reach the jury.”) (citation omitted).
As a gatekeeper for expert testimony, the court “must conduct ‘a rigorous
three-part inquiry,’ considering whether:
(1) the expert is qualified to testify competently regarding the matters
he intends to address; (2) the methodology by which the expert
reaches his conclusions is sufficiently reliable as determined by the
sort of inquiry mandated in Daubert; and (3) the testimony assists the
trier of fact, through the application of scientific, technical, or
specialized expertise, to understand the evidence or to determine a
fact in issue.”
Cook v. Sheriff of Monroe Cty., Fla., 402 F.3d 1092, 1107 (11th Cir. 2005)
(quoting Frazier, 387 F.3d at 1260 (11th Cir. 2004)). Additionally, “[t]he court
must consider the [expert’s] testimony with the understanding that ‘the burden of
establishing qualification, reliability, and helpfulness rests on the proponent of the
expert opinion. . . .’” Metabolife Int’l, Inc., 401 F.3d at 1238 (quoting Frazier, 387
F.3d at 1260); see also Cook, 402 F.3d at 1107 (“The proponent of the expert
testimony carries a substantial burden under Rule 702.”). However, “[a] district
court's gatekeeper role under Daubert ‘is not intended to supplant the adversary
system or the role of the jury.’” Maiz v. Virani, 253 F.3d 641, 666 (11th Cir.2001)
(quoting Allison v. McGhan Med. Corp., 184 F.3d 1300, 1311 (11th Cir. 1999)).
“Vigorous cross-examination, presentation of contrary evidence, and careful

27

instruction on the burden of proof are the traditional and appropriate means of
attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596.
ASI argues certain opinions offered by Varnado and Jerkins must be
excluded because they are not based on sufficient facts and are speculative and,
therefore, they do not meet the requirements of Rule 702. ASI asks the court for
an order prohibiting Varnado and Jerkins from opining: (1) any unauthorized
access to the interior of the Property occurred during the Policy Period; (2) any
theft or vandalism occurred inside the Property during the Policy Period; (3) the
roof membrane at the Property was damaged when thieves or vandals drug sharp
metal pieces across it during the Policy Period; and (4) the HVAC units subject to
the attempted theft on November 29, 2010 had any value, or any other HVAC units
were stolen or vandalized during the Policy Period. (Doc. 68, pp. 26-27; Doc. 75,
pp. 9-10). Additionally, ASI argues Varnado and Jerkins cannot opine regarding
the nature, condition, or value of the electrical equipment stolen from the interior
of the building on the Property.22 (Doc. 68, pp. 19-22). As discussed below, the

22

GE contends ASI only challenges Varnado and Jerkins’s opinions about the timing of the
interior damage at the Property and does not challenge their opinions regarding the value of the
loss attributable to theft and vandalism in the interior of the building. (See Doc. 74, p. 5 n.3).
However, in its motion to exclude ASI plainly states, “Jerkins and Varnado cannot reliably opine
as to what was taken, whether it was functioning, when it was taken, or how much it cost.”
(Doc. 68, p. 19) (emphasis in original omitted). ASI also argues “[n]either Jerkins nor Varnado
can reliably establish whether operational electrical equipment was stolen from the Property
during the Policy [P]eriod, nor can they establish the nature, condition, or value of such
property.” (Id., p. 21). Thus, ASI clearly challenges Varnado and Jerkins’s opinion regarding

28

court grants ASI’s motion to exclude these opinions on the grounds they do not
meet the requirements of Rule 702.23
i.

Varnado and Jerkins cannot opine thieves or vandals
accessed the interior of the building on the Property and
damaged the interior of the building during the Policy Period

GE contends ASI’s motion is moot as to its challenge to Varnado and
Jerkins’s opinions regarding whether thieves or vandals accessed and caused
damage to the interior of the building during the Policy Period because Varnado
and Jerkins will not offer such opinions at trial. (Doc. 74, pp. 2-5). However, the
court agrees with ASI that it is more appropriate to rule on ASI’s motion as to
those opinions rather than finding the motion moot.24
As GE admits, the question whether thieves entered the building during the
Policy Period is not a topic that requires expert testimony, “as [it is] well within the
jury’s ability and prerogative to decide.” (Doc. 74, p. 4). Likewise, the question
both the timing of the interior damages at the Property and the value of the loss attributable to the
theft and vandalism in the interior of the building.
23

The court’s conclusion regarding the admissibility of these expert opinions does not prohibit
Varnado and Jerkins from testifying as lay witnesses as to the damage to the Property they
observed during inspections and the procedures they used to reach their loss estimates. See Preis
v. Lexington Ins. Co., 279 Fed. Appx. 940, 943 (11th Cir. 2008) (finding the district court did not
abuse its discretion by allowing insurance adjusters to testify as lay witnesses).
24

Varnado and Jerkins’s estimate of the loss includes amounts for damages related to the theft of
electrical components inside the building and damage to the computer flooring in the building
(see Doc. 74-15, pp. 63, 70), and in their expert report dated June 12, 2015, Varnado and Jerkins
conclude, among other things, “there is no dispute regarding . . . the electrical theft/damage[] and
damage to elevated computer flooring related to the theft.” (Doc. 74-1, p. 2). This conclusion
suggests Varnado and Jerkins opine thieves or vandals accessed the interior of the Property and
caused damage inside the building during the Policy Period even if GE did not retain them to
offer such an opinion.

29

whether any theft or vandalism occurred in the interior of the building during the
Policy Period is within the understanding of an average lay person and, therefore,
within the jury’s ability and prerogative to decide. Because expert testimony will
not help jurors decide if unauthorized people entered the building and caused
damage to the interior of the building during the Policy Period, such testimony is
not admissible under Rule 702. See Edwards v. Shanley, 580 Fed. Appx. 816, 823
(11th Cir. 2014) (“For [expert] testimony to satisfy the third requirement—
assisting the trier of fact—the testimony must ‘concern matters that are beyond the
understanding of the average lay person.’”) (quoting Frazier, 387 F.3d at 1262);
Cook v. Sheriff of Monroe County, Florida, 402 F.3d 1092, 1111 (11th Cir. 2005)
(quoting Frazier, 387 F.3d at 1262-63). Thus, Varnado and Jerkins cannot opine
that unauthorized people or thieves accessed the interior of the building or that any
theft or vandalism occurred in the interior of the building during the Policy Period.
ii.

Varnado and Jerkins cannot offer opinions regarding the
value of the electrical components stolen or vandalized in
the interior of the building

Varnado and Jerkins prepared an estimate of the loss, which includes
amounts related to stolen or vandalized electrical components inside the building,
and they refer to their estimate in their expert report. (See Doc. 74-1, p. 3; Doc.
74-15, p. 70).

They relied upon a quote from Elkins Electrical Services &

Construction, LLC to determine the amount of the loss attributable to the theft of

30

the electrical components in the building. (Doc. 67-30, pp. 23-24; Doc. 67-33, p.
64; Doc. 74-15, p. 70).

Neither Varnado nor Jerkins has any independent

knowledge regarding the electrical components at the Property, and neither has any
special training or expertise regarding electrical systems. (Doc. 67-30, pp. 24, 36;
Doc. 67-33, pp. 39, 64). Accordingly, both Varnado and Jerkins would defer to
Elkins for information regarding the estimate for electrical losses. (Doc. 67-30, pp.
24, 99; Doc. 67-33, p. 64).
Federal Rule of Evidence 703 allows Varnado and Jerkins to base their
opinions upon information and data provided by others if the information is the
type of information reasonably relied upon by experts in their field. See FED. R.
EVID. 703. However, Varnado and Jerkins cannot simply pass off the opinions of
an expert in a different field as their own. See Dura Automotive Systems of
Indiana, Inc. v. CTS Corp., 285 F.3d 609, 614 (7th Cir. 2002) (“A scientist,
however well credentialed he may be, is not permitted to be the mouthpiece of a
scientist in a different specialty.”); Abrams v. Ciba Specialty Chem. Corp., 2010
WL 779283, *4 (S.D. Ala. March 2, 1010) (excluding an expert’s opinion when
the expert merely “served as a conduit” for another undisclosed expert) (citations
omitted).
Jerkins testified that electrical estimates are “not something that we typically
take the autonomy of estimating ourselves” because that work is specialized.
31

(Doc. 67-33, p. 39). Based upon that statement, GE may be able to demonstrate
Elkins’s quote for the electrical damage to the property is the type of information
experts in the field of insurance adjusting would reasonably rely upon. However,
even if Varnado and Jerkins properly relied on Elkins’s quote for the electrical
damage at the Property, GE still must show their opinion regarding the loss
attributable to the building’s electrical components is supported by sufficient facts
or data. ASI argues “Varnado and Jerkins cannot reliably opine as to what was
taken [from inside the building], whether it was functioning, when it was taken, or
how much it cost.” (Doc. 68, p. 19). As ASI noted in its motion to exclude,
neither Varnado nor Jerkins knows what electrical components were inside the
building and the condition of those components at the beginning of the Policy
Period, or at any other time during the Policy Period, and neither knows when the
electrical components were stolen. (Doc. 67-30, pp. 14, 32; Doc. 67-33, p. 65; See
also Doc. 68, pp. 14, 21).
GE did not respond directly to ASI’s arguments regarding the lack of facts to
support Varnado and Jerkins’s opinion regarding the value of the electrical
components stolen or vandalized inside the building on the Property; rather, GE
simply asserts Elkins Electrical was disclosed in their expert report and in GE’s
document production. (See Doc. 74, p. 5 n.3). GE’s brief in response to ASI’s
motion for summary judgment also points to no specific facts to support Varnado
32

and Jerkins’s opinion regarding the value of the electrical equipment stolen or
vandalized. (See Doc. 72). Although Ben Moshe’s declarations state the Property
was clean and secure with no signs of apparent vandalism at the beginning of the
Policy Period, they provide no information regarding what electrical components
were inside the building or the condition of those components during the Policy
Period. (See Doc. 73-2, pp. 3-4, 13-14). Thus, GE has not met its substantial
burden of establishing Varnado and Jerkins’s opinion regarding the value of the
loss attributable to the theft or vandalism of the building’s electrical components
was based on sufficient evidence or data. See Cook, 402 F.3d at 1107 (“The
proponent of the expert testimony carries a substantial burden under Rule 702.”).
As a result, their opinion regarding the value of the loss attributable to the theft or
vandalism of the building’s electrical components is inadmissible under Rule 702.
iii.

Varnado and Jerkins cannot opine the building’s roof
membrane was damaged when thieves drug sharp metal
pieces across it during the Policy Period

Expert testimony must assist the trier of fact; accordingly, expert testimony
is only admissible “if it concerns matters that are beyond the understanding of the
average lay person. [. . .] Proffered expert testimony generally will not help the
trier of fact when it offers nothing more than what lawyers for the parties can argue
in closing arguments.” Frazier, 387 F.3d at 1262 (internal citation omitted). In
this matter, Varnado and Jerkins’s opinion that thieves or vandals damaged the
33

Property’s roof membrane by dragging sharp metal components across it will not
help the jury because a lay person could conclude the building’s rubber roof
membrane may be damaged in that manner. Indeed, Pac Zachary, the receiver for
the Property and a fact witness in this case, stated in an email to GE that he
“discovered [three] gouges in the roofing material that [he] believe[s] occurred
during the theft of the HVAC copper.” (Doc. 67-17, p. 2). Because a lay person
can understand the building’s rubber roof membrane could be damaged if sharp
metal is drug across it and GE’s attorneys could argue the roof was damaged in
that way, Varnado and Jerkins’s opinion will not help the trier of fact. Thus,
Varnado and Jerkins’s opinion the roof membrane was damaged when thieves or
vandals drug sharp metal pieces across it is inadmissible under Rule 702.
iv.

Varnado and Jerkins cannot offer an opinion regarding the
value of the HVAC units damaged

As with their estimate for the loss attributable to damage to the Property’s
electrical system, Varnado and Jerkins relied upon information from a contractor to
estimate the loss attributable to damage to the Property’s HVAC units. (See Doc.
74-15, p. 70). ASI contends Varnado and Jerkins’s opinion regarding the loss
attributable to the damaged HVAC units at the Property is inadmissible because it
has no factual basis and Varnado and Jerkins are not qualified to offer the opinion.
(Doc. 68, pp. 16-17, 25-26). In response, GE asserts they properly relied upon
information from an HVAC contractor to arrive at their estimate of damages in this
34

case because it is the type of information reasonably relied upon by experts in the
field of insurance adjusting. (See Doc. 74, pp. 7-8). However, even if Varnado
and Jerkins could reasonably rely on a quote from an HVAC contractor to arrive at
their opinion, doing so does not shield their opinion from the requirements of Rule
702. Their opinion regarding the amount of the loss caused by theft or vandalism
to the Property’s HVAC units must be based on sufficient facts or data to be
admissible. See FED. R. EVID. 702.
ASI argues there is no factual basis for Varnado and Jerkins’s opinion
regarding the value of the damaged HVAC equipment because there is no evidence
in the record of the type, model, or cost of any of the HVAC units at the Property.
(See Doc. 68, pp. 16-17). Although GE quibbles with ASI’s assertion Varnado and
Jerkins lost the quote from the HVAC contractor, it does not acknowledge, much
less address, ASI’s argument there is no factual basis to support Varnado and
Jerkins’s opinion regarding the HVAC loss. (See Doc. 68, pp. 16-17; Doc. 74, p.
7-9). Indeed, the record establishes the damaged HVAC units were removed prior
to the HVAC contractor’s visit to the Property. (Doc. 67-33, p. 38). Moreover, the
damaged HVAC units were not inventoried or retained for inspection when they
were removed from the Property. (Id., pp. 38-39). Thus, GE did not and cannot
establish Varnado and Jerkins’s opinion regarding the amount of the loss

35

attributable to the damaged HVAC units is based on sufficient facts or data to
satisfy Rule 702, and the opinion is inadmissible.
v.

Varnado and Jerkins cannot opine that any HVAC units
were subject to theft or vandalism during the Policy Period

ASI also asks the court for an order prohibiting Varnado and Jerkins from
opining that any HVAC units were subject to theft or vandalism during the Policy
Period. (Doc. 68, p. 27; Doc. 75, p. 10). Just like the question of whether thieves
entered the building during the Policy Period, the question of whether thieves or
vandals damaged HVAC units at the Property during the Policy Period is well
within the understanding of an average lay person, and, therefore, within the jury’s
ability to decide. Thus, any opinion that HVAC units were subject to theft or
vandalism during the Policy Period will not assist the trier of fact and is
inadmissible under Rule 702. See Edwards, 580 Fed. Appx. at 823.
ASI’s motion to exclude the allegedly undisclosed opinion the roof
deteriorated beyond repair over the course of two months following November 20,
2010 is DENIED. The balance of ASI’s motion to exclude is GRANTED.
C.

ASI’S Motion for Summary Judgment

ASI seeks summary judgment on its claims for declaratory judgment and
also on GE’s counterclaims against it. (Doc. 67). ASI specifically asks the court
to find: (1) FSC’s procurement misrepresentations void coverage under the Policy
for both FSC and GE; (2) GE’s claim is not covered by the Policy because the
36

Policy’s protective safeguard promissory warranty was breached; (3) GE’s claim is
not covered by the Policy because GE failed to comply with the requirements of
the Policy’s mortgage clause; (4) GE’s claim is not covered by the Policy because
notice was untimely as a matter of law; and (5) GE’s counterclaims fail as a matter
of law. (See Doc. 67-1, pp. 21-32). Alternatively, ASI asks the court to declare
GE’s claim is limited to damages incurred on November 20, 2010, and GE cannot
recover for any damages to the Property’s interior or roof. (See id., pp. 32-38).
For the reasons discussed below, ASI’s motion will be granted with respect to its
claims against FSC and the bad faith counterclaim, and the balance of the motion
will be denied.
1. Choice of law and interpretation of the Policy
This court exercises diversity-of-citizenship jurisdiction over this matter;
therefore, the court must apply Alabama’s conflict of laws rules to determine
which state’s laws govern the claims in this actions and interpretation of the
Policy. See, e.g., Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496
(1941) (“The conflict of laws rules to be applied by the federal court [in a diversity
action] must conform to those prevailing in [the forum state’s] courts.”) (emphasis
added); New Hampshire Ins. Co. v. Hill, 516 Fed. Appx. 803, 805 (11th Cir. 2013)
(“Because the district court sat in Alabama, it was obliged to follow Alabama’s lex
loci contractus doctrine. . . .”) (citing O’Neal v. Kennamer, 958 F.2d 1044, 1046
37

(11th Cir. 1992) (emphasis added)); Fioretti v. Massachusetts Gen. Life Ins. Co.,
53 F.3d 1228, 1235 (11th Cir. 1995) (“Since this is a diversity action, we are
required to apply the substantive law of the forum state, . . . including its conflictof-laws rules.”) (citations omitted) (emphasis added). Based on the mandatory
language used by the Supreme Court and the Eleventh Circuit regarding a district
court’s obligation to follow the forum state’s conflict of laws rules in diversity
actions, the parties cannot waive application of Alabama’s conflict of laws rules by
failing to address the issue.25
Alabama adheres to the traditional conflict of laws doctrine of lex loci
contractus, which means Alabama courts generally interpret contracts, including
insurance policies, according to the law of the state in which the contract was
made. New Hampshire Ins. Co., 516 Fed. Appx. at 805; Smith v. State Farm Mut.
Automobile Ins. Co., 952 So.2d 342, 347 (Ala. 2006) (citations omitted). Thus,
Alabama courts generally interpret insurance policies according to the law of the
state in which the policy was issued. See New Hampshire Ins. Co., 516 Fed. Appx.
at 805 (relying upon Alabama conflict of laws rules and applying Florida law to
interpret an insurance policy issued in Florida). However, the Supreme Court of
Alabama recognizes exceptions to the doctrine of lex loci contractus when “the
25

ASI did not directly address which state’s laws govern interpretation of the Policy in its initial
brief, but instead cited to both California and Alabama law in one section of the brief; GE did not
address the issue at all in its opposition brief, but instead relied solely on Alabama law. (See
Doc. 67-1; Doc. 72).

38

parties intend the law of some other place to govern [the contract], or [when the
contract] is to be wholly performed in some other place.” Ex parte Owen, 437 So.
2d 476, 481 (Ala. 1983).
Here, the Policy was issued to FSC in California, so the Policy should be
interpreted according to California law, unless the parties intended the law of
another state to govern the Policy or the Policy was to be wholly performed in
another state. (See Doc. 67-2, p. 3). As noted above, the parties did not address
which state’s law should apply to the interpretation of the Policy, but relied
primarily upon Alabama law in their briefing. The court need not determine
whether Alabama or California law should apply to the interpretation of the Policy
if there is no actual conflict between the law of the two states. Lemuel v. Admiral
Ins. Co., 414 F.Supp. 2d 1037, 1049-50 (M.D. Ala. 2006) (“The first step in a
choice of law analysis is to determine whether an actual conflict exists between the
substantive laws of the interested jurisdictions. . . . If there is no conflict between
the competing bodies of law, . . . the court need not decide which state’s law
governs.”) (citation omitted).
With these conflict of law principles in mind, the court turns to the
substantive issues raised by ASI’s motion for summary judgment. The court first
addresses ASI's arguments as to coverage under the Policy for a claim by FSC
before considering its arguments regarding coverage for GE’s claim. The court
39

will then address ASI’s arguments regarding GE’s counterclaims and finish by
considering ASI’s alternative request for declaratory relief.
2. Coverage under the Policy for a claim by FSC
ASI first contends there is no coverage under the Policy for a claim by FSC
because FSC’s procurement misrepresentations void the Policy ab initio.26 (Doc.
67-1, pp. 21-24). Under California law, “[a] misrepresentation or concealment of a
material fact in connection with an application for insurance is grounds for
rescission of the policy.” Superior Dispatch, Inc. v. Insurance Corp. of New York,
181 Cal. App. 4th 175, 191 (Cal. App. 2010) (citations omitted).

“[A]

misrepresentation or concealment is material if a truthful statement would have
affected the insurer’s underwriting decision.” Id. (citations omitted). Likewise,
under Alabama law, a misrepresentation in an application for insurance “that was
material to the acceptance of the risk assumed by the insurer or that would have
caused the insurer in good faith not to issue the policy provides a basis for the
insurer to avoid the policy.” Nationwide Mut. Fire Ins. Co. v. Pabon, 903 So. 2d
759, 766 (Ala. 2004) (citing Taylor v. Golden Rule Ins. Co., 544 So. 2d 932 (Ala.
1989); Ala Code § 27-14-7). Additionally, “‘some misrepresentations, whether
made intentionally or innocently, increase the risk of loss as a matter of law and
are therefore material to the issuance of the policy.’” Scottsdale Indem. Co. v.
26

“‘Ab initio’ means the contract is considered null from the beginning and treated as if it does
not exist for any purpose." COUCH ON INSURANCE 3D § 65:50, n.1.

40

Martinez Inc., 615 Fed. Appx. 549, 554 (11th Cir. 2015) (quoting Pabon, 903 So.
2d at 767).
The record establishes FSC made several misrepresentations in its
application for insurance ASI considers material. FSC represented it had not filed
bankruptcy and was not in default on its mortgage on the property even though it
filed a Chapter 11 bankruptcy petition on May 26, 2009. (Doc. 73-1, p. 13).
Additionally, FSC represented the Property had power and an active alarm and fire
system when it did not. (See Doc. 67-6, pp. 3-4, 8).
Representatives of ASI testified the company would not have issued the
Policy if FSC provided truthful information in its application, and the Rule 56
record indicates ASI would not have issued the Policy with theft protection if it
knew there was no active security protection at the Property. (Doc. 67-6, pp. 8-9;
Doc. 67-7, pp. 5-6). Moreover, the Supreme Court of Alabama found an insured’s
misrepresentation regarding whether the insured or a family member recently had
filed bankruptcy was material as a matter of law. Pabon, 903 So. 2d at 767-68.
Thus, FSC’s procurement misrepresentation regarding its bankruptcy petition was
material as a matter of law. Id.; Superior Dispatch, 181 Cal. App. at 191.
Because FSC made material misrepresentations in its application for
insurance, the Policy is void as to FSC. As a result, there is no coverage under the
Policy as a matter of law for any claim brought by or on behalf of FSC. ASI’s
41

motion for summary judgment is due to be granted with respect to FSC, and ASI is
entitled to a declaration there is no coverage under the Policy for any claim
brought by or on behalf of FSC. Because FSC’s procurement misrepresentations
void the Policy as to FSC, the court need not and does not address ASI’s other
arguments regarding coverage under the Policy for FSC.
3.

Coverage under the policy for GE’s claim

The Policy contains a mortgage clause providing in pertinent part as follows:
“[ASI] will pay for covered loss of or damage to buildings or structures to each
mortgageholder shown in the Declarations . . . . If [ASI] den[ies] [FSC’s] claim
because of [FSC’s] acts or because [FSC] ha[s] failed to comply with the terms of
this Coverage Part, the mortgageholder will still have the right to receive loss
payment . . . .” (Doc. 67-2, p. 24). As a result, even though the Policy is void as to
FSC, it is not necessarily void as to GE, the mortgageholder. Instead, to prevail on
its summary judgment motion as GE, ASI must show GE’s claim is not covered by
the Policy as a matter of law in spite of the Policy’s mortgage clause.
i. FSC’s procurement misrepresentations
ASI did not dispute the Policy’s mortgage clause is a standard clause, which
means it operates as an independent contract between the mortgagee and the
insurer. See Int’l Surplus Lines Ins. Co. v. Assoc. Comm. Corp., 514 So. 2d 1326,
(Ala. 1987) (“Under a standard mortgage clause ‘an independent or separate
42

contract or undertaking exists between the mortgagee and the insurer, which
contract is measured by the terms of the mortgage clause itself.”) (citations
omitted); Home Savings of America, F.S.B. v. Continental Ins. Co., 87 Cal. App.
4th 835, (Cal. App. 2001) (“[I]f the policy contains a standard loss payable clause,
the mortgagee has an independent contract with the insurer which cannot be
defeated by improper or negligent acts of the mortgagor.”). (See also Doc. 72, pp.
14-16; Doc. 77, pp. 3-7).

Instead, ASI argues FSC’s procurement

misrepresentations render the Policy void ab initio, such that there is no contract
with FSC and no separate contract with GE. (Doc. 67-1, p. 24).
ASI’s argument is similar to the argument raised by the insurer in Norwest
Mortgage Inc. v. Nationwide Mutual Fire Insurance Company, 718 So. 2d 15 (Ala.
1998), an Alabama case GE relies heavily upon in its opposition. In Norwest,
Nationwide Mutual Fire Insurance Company issued a homeowner’s insurance
policy, which included a mortgage clause providing that “[i]f [Nationwide] denies
[the homeowner’s] claim, that denial will not apply to a valid claim of the
mortgagee . . . .” Id. at 16. While investigating a loss after the home was damaged
by fire, Nationwide discovered the homeowner made several material
misrepresentations in her application for insurance and denied coverage to both the
homeowner and Norwest Mortgage, Inc., the mortgagee, based on Alabama Code
§ 27-14-7, which provides in pertinent part as follows:
43

All statements and descriptions in any application for an insurance
policy . . . shall be deemed to be representations and not warranties.
Misrepresentations . . . shall not prevent a recovery under the policy []
unless either (1) Fraudulent; (2) Material either to the risk or to the
hazard assumed by the insurer; or (3) The insurer in good faith would
either not have issued the policy [], or would not have issued a policy
[] at the premium rate as applied for . . . if the true facts had been
made known to the insurer . . . .
Id. (quoting Ala. Code § 27-14-7). Nationwide also filed a declaratory judgment
action, “seeking a determination that the entire policy was void ab initio as a result
of the [insured’s] misrepresentations in the application.” Id. The trial court agreed
the policy was void ab initio and granted summary judgment in favor of
Nationwide, and Norwest appealed. Id.
The issue presented on appeal in Norwest was if the insurance policy’s
mortgage clause was a standard clause creating a separate contract between the
insurer, Nationwide, and the mortgagee, Norwest, or if it was simply a loss payable
clause. Id. at 17. Nationwide argued the mortgage clause was a loss payable
clause and not a standard clause because “the mortgage clause does not specifically
state that the ‘mortgagee’s interests shall not be invalidated by any act or neglect of
the mortgagor . . . .” Id. The Supreme Court of Alabama rejected that argument
and, based on the language in the mortgage clause, found it created a separate
contract between Norwest and Nationwide “that was not subject to the nullifying
effects of § 27-14-7.” Id. In other words, the Supreme Court of Alabama found
the insured’s procurement misrepresentations did not necessarily void the contract
44

between the insurer and mortgagee even though the misrepresentations did void the
policy as to the insured.27 Thus, under Alabama law, because the mortgage clause
creates a separate contract between ASI and GE, FSC’s procurement
misrepresentations do not necessarily void the Policy as to GE’s claim.
Although ASI relied upon Alabama law, including Alabama Code § 27-147, in its initial brief, it argues in its reply brief that Norwest does not apply in this
case because the Supreme Court of Alabama’s decision in Norwest relied in part
upon § 27-14-7, which does not apply to an insurance policy issued in California.
(See Doc. 67-1, pp. 21-24; Doc. 77, pp. 3-4); see also Ala. Code § 27-14-2(2)
(“This chapter applies as to all insurance contracts [] other than: . . . Policies or
contracts not issued for delivery in this state nor delivered in this state . . . .”). In
its reply brief, ASI contends California law must apply to determine the effect of
FSC’s misrepresentations on GE’s claim because the Policy was issued in
California. (Doc. 77, pp. 3-4). ASI further contends GE’s reliance on Norwest
reveals a conflict between Alabama and California law because, unlike Alabama,
California law “would find the insured’s procurement misrepresentations void the

27

The holding in Norwest is consistent with the law in other jurisdictions. Great Am. Ins. Co. of
N.Y. v. Southwestern Finance Co., 297 P. 2d 403, 404-05 (Okla. 1956) (holding a mortgagee’s
claim under an insurance policy “cannot be defeated by any act or neglect of the owner or
mortgagor of the property insured, and said policy is valid as to the mortgagee, even though void
ab initio as to the mortgagor”). See also Reed v. Firemen’s Ins. Co. of Newark, 80 A. 462, 464
(N.J. 1911); VT, Inc. v. GEICO Ins. Co., 2004 WL 1373132, *6 (N.D. Tex. June 16, 2004)
(finding a lessor may recover under an insurance policy even if the policy was void ab initio as
to the lessee).

45

policy as to GE and/or GE cannot rely on terms within a void policy.” (Doc. 81, p.
6).
ASI did not cite any California case law addressing the particular issue
raised in GE’s opposition: whether the insured’s procurement misrepresentations
render an insurance policy void as to a mortgagee when the policy contains a
standard mortgage clause. Indeed, none of the California cases cited by ASI in its
initial brief or reply brief include any discussion of how a mortgagee’s rights under
a mortgage clause may be affected by an insured’s misrepresentations in an
insurance application. (See Doc. 67-1; Doc. 77). As a result, ASI has not shown
that California law necessarily conflicts with Alabama law regarding whether an
insured’s procurement misrepresentations void a mortgagee’s rights under a
mortgage clause.

Additionally, ASI has not established that California law

mandates a finding of no coverage for GE’s claim under the Policy.
ASI also argues the holding in Norwest cannot apply to this matter because
of differences between the mortgage clause in the Policy and the mortgage clause
at issue in Norwest. (Doc. 77, p. 5). This argument is not persuasive. The
Supreme Court of Alabama’s holding in Norwest was based on the Court’s
conclusion the mortgage clause at issue created a separate contract with the insurer
and mortgagee. See 718 So. 2d at 17. Here, just as with the mortgage clause at
issue in Norwest, the language in the Policy makes clear the mortgage clause
46

creates a separate contract between ASI and the mortgagee. (See Doc. 67-2, pp.
24-25). Indeed, ASI did not even try to dispute that the mortgage clause created a
separate contract with GE.
Finally, ASI blithely asserts “‘acts’ [as used in the mortgage clause] cannot
mean misrepresentations during procurement,” but makes no attempt to explain
why that is so or how the cases and California code sections cited lead to that
conclusion. (See Doc. 77, pp. 5-6). Acts is not a defined term in the Policy, so it is
construed “according to the meaning a person of ordinary intelligence would
reasonably give it.” HR Acquisition Corp. v. Twin City Fire Ins. Co., 547 F.3d
1309, 1314 (11th Cir. 2008) (quoting Lambert v. Coregis Ins. Co., Inc., 950 So. 2d
1156, 1161-62 (Ala. 2006)); see also TIG Ins. Co. of Michigan v. Homestore, Inc.,
137 Cal. Capp. 4th 749, 754 (Cal. App. 2006). A jury could reasonably conclude
providing false or misleading information on an insurance application is an act for
purposes of the mortgage clause. Thus, the term “acts” is ambiguous as it relates
to the insured’s provision of information in an insurance application, and this
ambiguity must be construed in favor of coverage. St. Paul Fire & Marine Ins.
Co., 572 F.3d at 898 (11th Cir. 2009) (“[I]t is well established ‘that when doubt
exists as to whether coverage is provided under an insurance policy, the language
used by the insurer must be construed for the benefit of the insured.’”) (quoting St.
Paul Mercury Insurance Co. v. Chilton–Shelby Mental Health Center, 595 So.2d
47

1375, 1377 (Ala.1992)); Home Savings of America, F.S.B. v. Continental Ins. Co.,
87 Cal. App. 4th 835, 841 (Cal. App. 2001) (“If an ambiguity may be reasonably
resolved by either of two constructions, we must select that which is most
favorable to the named insured or mortgagee.”) (citation omitted).
When the Policy, including its mortgage clause, is construed in favor of
coverage and the record is viewed in the light most favorable to the GE, ASI did
not establish there is no coverage under the Policy for GE’s claim as a matter of
law based on FSC’s procurement misrepresentations.
ii. Breach of the protective safeguard promissory warranty
The Policy contains a protective safeguard promissory warranty, by which
the insured guaranteed the premises would be locked and secured against
unauthorized entry and would have a working sprinkler system and burglar alarm
during the Policy Period. (Doc. 67-2, p. 8). Breach of the warranty “shall render
coverage provided by [the] [P]olicy null and void.” (Id.) (emphasis omitted). ASI
argues the protective safeguard promissory warranty applies to GE because the
mortgage clause states “[a]ll of the terms of this Coverage Part [] apply directly to
the mortgageholder,” and it further argues there is no coverage under the Policy for
GE’s claim due to the breach of the protective safeguard promissory warranty.
(Doc. 67-1, pp. 25-26; Doc. 67-2, p. 25).

48

Even if the protective safeguard promissory warranty applies to GE, ASI has
not cited any provision of the Policy or any authority showing FSC’s breach of the
warranty could void coverage for GE’s claim. Both Alabama and California law
make clear that a mortgagor’s actions do not negate a mortgagee’s right to recover
under an insurance policy containing a standard mortgage clause. Int’l Surplus
Lines Ins. Co., 514 So. 2d at 1328 (“[W]here, as here, the loss was at least arguably
within the coverage afforded by the insurance and the breach of the policy
provision came about as a result of the wrongful act of the insured . . . , the
mortgagee’s interest under a standard mortgage clause will not be defeated.”);
CALIFORNIA INS. LAW HANDBOOK, § 65:43 (“The standard mortgagee clause []
creates a separate contract with the mortgagee, so that the mortgagee’s interest
cannot be affected by any act of the mortgagor.”) (citation omitted). Additionally,
the treatise ASI relies upon to support its argument states “acts of the mortgagee
[not the mortgagor] that are in contravention of the conditions and limitations [of
the policy] will generally bar the mortgagee’s recovery.” COUCH

ON INSURANCE

3d § 65:46 (citation omitted) (emphasis added). Thus, to be entitled to summary
judgment ASI must establish an act or omission by GE, rather than an act or
omission by FSC, breached the Policy’s protective safeguard promissory warranty.
In its initial brief, ASI does not point to any specific action by GE that
breached the protective safeguard warranty. (See Doc. 67-1, pp. 25-26). Instead,
49

ASI generally argues the warranty was breached because “the Property was
repeatedly left unsecure from unauthorized entry [and] was lacking power and,
thus, a central fire or burglar alarm on the date of loss.” (Id., p. 25). However, the
evidence ASI relies on to support its argument does not show GE was responsible
for the breach of the warranty. (See Doc. 67-1, p. 25 n.100).
First, the November 29, 2010 email sent from Greg Doyle to a GE employee
shows an inspector was not able to gain interior access to the building on the
Property because it was locked, and it does not indicate the Property was left
unsecured. (See Doc. 67-10, p. 2). Second, the February 17, 2011 police report
provides no evidence regarding if GE was aware of potential unauthorized entry to
the Property, much less that GE could be held responsible for leaving the Property
unsecured from unauthorized entry. (See Doc. 67-11). Next, although the January
20, 2011 GlassRatner report shows the Property had no power, an open metal
fence, and a broken window, the record shows GE took steps to secure the
Property once it learned of those issues. (See Doc. 67-3; Doc. 67-13, pp. 7-8).
Indeed, after GE received the January 20, 2011 report, it filed a complaint for the
appointment of a receiver to take possession of the Property in an attempt to secure
the Property and prevent additional damage. (See Doc. 67-3, pp. 4-6; Doc. 67-4, p.
4-5).

50

Viewing the evidence in the light most favorable to GE, as required at this
stage in the litigation, there is a question of fact regarding whether any action or
omission by GE breached the protective safeguard promissory warranty. Thus,
ASI has not established that GE breached the warranty as a matter of law. As a
result, ASI did not carry its burden of showing there is no coverage under the
Policy for GE’s claim as a matter of law based on the breach of the Policy’s
protective safeguard promissory warranty.
iii. Failure to meet the requirements of the mortgage clause
The Policy’s mortgage clause includes certain requirements a mortgagee
must comply with to recover under the Policy.

(Doc. 67-2, pp. 24-25).

In

pertinent part, the mortgageholder has “the right to receive loss payment if the
mortgageholder: . . .
(2) Submits a signed, sworn proof of loss within 60 days after
receiving notice from [ASI] of [FSC’s] failure to do so; and
(3) Has notified [ASI] of any change in ownership, occupancy or
substantial change in risk known to the mortgageholder.
(Id). ASI argues GE has no right to recover under the Policy because it did not
meet these two requirements imposed by the mortgage clause. (Doc. 67-1, p. 27).
First, ASI asserts it received a first proof of loss dated November 18, 2011,
and it informed GE on December 20, 2011 “that it would ‘reject this Proof of Loss
. . . .” (Doc. 67-1, p. 28). According to ASI, GE then had 60 days to submit a

51

signed, sworn proof of loss but did not submit a second proof of loss until May 15,
2012. (Id.). What ASI fails to acknowledge, however, is the December 20 letter
did not clearly notify GE of FSC’s failure to submit a signed, sworn proof of loss.
The December 20 letter was sent by ASI to GE’s attorney and Pac Zachary
in reply to a sworn statement in proof of loss dated November 18, 2011. (Doc. 6712, p. 2). As GE points out, the letter states ASI “will reject this Proof of Loss on
the basis the proof of loss was not supplied by nor agreed to by ASI[].” (Id.). But,
the letter goes on to state:
[ASI] acknowledges the receipt of the Sworn Statement in Proof of
Loss on behalf of the insured, [FSC], through the actions of Pac
Zachary, of Glass Ratner Advisory and Capital Group, the appointed
Receiver of the property. ASI[] does not consider nor acknowledge
this document as a Sworn Statement in Proof of Loss by the mortgage
holder, GE []. By acknowledging receipt of the Proof of Loss
submitted by the insured/receiver, ASI[] does not accept nor deny the
claim of the insured/receiver as there are a number of critical facts that
need to be clarified through further investigation.
(Id., p. 3) (emphasis added). Thus, the letter acknowledges receipt of the proof of
loss submitted on behalf of FSC, and viewing the letter in the light most favorable
to GE, it did not provide notice to GE of FSC’s failure to submit a proof of loss
statement.

As a result, the December 20 letter did not trigger the mortgage

clause’s requirement for GE to submit a signed, sworn proof of loss statement
within 60 days.

52

Next, ASI argues GE failed to comply with the mortgage clause’s
requirement to notify ASI “of any change in ownership, occupancy or substantial
change in risk known to the mortgageholder.”

(Doc. 67-1, pp. 28-29).

Specifically, ASI asserts GE failed to notify it of a substantial change in risk by
failing to notify it of the following: (1) FSC had defaulted on the Note and was in
bankruptcy; (2) GE filed suit against ASI and a receiver was appointed who took
control of the Property; and (3) the Property was not secure and had no power or
alarm system. (Id.). None of ASI complaints are sufficient to establish GE failed
to comply with the requirement of the mortgage clause as a matter of law.
As an initial matter, the phrase “substantial change in risk” is not defined in
the Policy, so it is interpreted according to the meaning a person of ordinary
intelligence would reasonably give it. A jury could reasonably understand the
phrase to mean a substantial change to the actual risk at the time the Policy was
issued, and not a change compared to what ASI believed the risk to be when the
Policy was issued. Here, the record establishes FSC defaulted on the Note and
filed a petition for bankruptcy before the Policy was issued. (Doc. 73-1, p. 13).
Thus, when the Policy is construed in favor of coverage, the record does not
establish GE breached the requirement of the mortgage clause by failing to inform
ASI of FSC’s default or bankruptcy.

53

Next, GE did not file its complaint for the appointment of a receiver until
February 9, 2011, and a receiver was not appointed until February 11. (Doc. 67-3,
p. 2; Doc. 67-14).

Both of those events occurred after the Policy ended on

February 2, so they were not a change in the risk insured.
Finally, when the evidence is viewed in the light most favorable to GE, as it
must be at this stage in the litigation, GE did not learn the Property was not secure
and had no power until January 20, 2011, less than two weeks before the Policy
ended on February 2. (See Doc. 67-27, p. 16). At that time, ASI had already
informed GE of its intent to cancel the Policy on February 2. (Doc. 67-9). The
Policy does not contain a deadline for the mortgagee to inform ASI once it learns
of a substantial change in risk, much less indicate the mortgagee must provide
notice within two weeks. (See Doc. 67-2). Because ASI had already decided to
cancel the Policy by the time GE learned of the condition of the Property and
because there was no deadline for GE to inform ASI of a change in risk, a jury
could reasonably conclude GE did not breach the requirements of the mortgage
clause by failing to inform ASI the Property was unsecure and had no power or
alarm system. Thus, ASI has not established there is no coverage for GE’s claim
under the Policy as a matter of law because GE did not meet the requirements of
the Policy’s mortgage clause.

54

iv. Untimely notice
In the event of a loss, GE had several duties under the Policy, including:
“[g]ive [ASI] prompt notice of the loss or damage;” “[a]s soon as possible, give
[ASI] a description of how, when and where the loss or damage occurred;” and
“[s]end [ASI] a signed, sworn proof of loss containing the information [ASI]
request[s] to investigate the claim.” (Doc. 67-2, pp. 21-22). ASI argues there is no
coverage for GE’s claim because notice of the claim was untimely as a matter of
law. (Doc. 67-1, p. 29).
Under California law, “[a]n insured’s failure to comply with the notice or
claims provisions in an insurance policy will not excuse the insurer’s obligations
under the policy unless the insurer proves it was substantially prejudiced by the
late notice.” Safeco Ins. Co. of American v. Parks, 170 Cal. App. 4th. 992, 100304 (Cal. App. 2009). On the other hand, under Alabama law, “when a primary
insurance policy requires notice ‘as soon as practicable,’ ‘promptly,’ or
‘immediately,’ the insured is obligated to give notice ‘within a reasonable time
considering all relevant facts and circumstances of the case,’ and an insured’s
failure to do so releases the insurer from coverage.” Lemuel v. Admiral Ins. Co.,
414 F.Supp.2d 1037, 1050 (M.D. Ala. 2006) (citing Southern Guar. Ins. Co. v.
Thomas, 334 So.2d 879, 882-83 (Ala. 1976) & Pharr v. Cont’l Cas. Co., 429 So.
2d 1018, 1019 (Ala. 1983)).

Neither party addresses this conflict between
55

California and Alabama law, but instead both ASI and GE rely upon Alabama law
to support their arguments regarding notice.
Regardless of which state’s laws apply, ASI has not met its burden to show
notice was untimely as a matter of law because its argument ignores several
material facts in the record and misconstrues others. ASI relies upon the Acord
Property Loss Notice and the first sworn proof of loss statement to argue it was
first notified of the loss over six months after the date of loss. (Doc. 67-2, pp. 2930). However, ASI does not cite any provision of the Policy or any authority
equating notice with receipt of a written Acord Property Loss Notice or proof of
loss form, and ASI admitted notice to an insurance agent can be an accepted means
of providing notice of a loss. (Doc. 67-1; Doc. 67-26, p. 42). Here, GlassRatner
called Shomer Insurance Agency, the agent identified in the Policy, regarding the
loss in late February or early March 2011, a fact ASI does not address, or even
acknowledge. (Doc. 67-25, p. 50). Thus, viewing the evidence in the light most
favorable to GE, GE provided notice of the loss approximately three months after
the loss, rather than six.
Additionally, ASI does not point to any evidence that GE had notice of the
theft and damage to the Property in November 2010. (See Doc. 67-1, pp. 29-30).
For its part, GE’s representative testified GE did not receive any notice of damage
to the Property until January 21, 2011. (Doc. 67-27, p. 16). Thus, viewing the
56

evidence in the light most favorable to GE, GE notified the Shomer Insurance
Agency of the loss several weeks after GE first learned of it. As a result, ASI has
not shown notice was untimely as a matter of law, and it is not entitled to summary
judgment based on untimely notice of the loss.
As the party moving for summary judgment, ASI bears the burden of
establishing it is entitled to judgment as a matter of law. ASI did not meet its
burden as to its claims against GE, and it has not shown it is entitled, as a matter of
law, to a declaration there is no coverage under the Policy for GE’s claim. Thus,
its motion for summary judgment is due to be denied as to GE.
4. GE’s counterclaims
GE asserts counterclaims against ASI for breach of contract and bad faith
based on its allegations ASI wrongfully failed to pay covered losses under the
Policy. (Doc. 54, pp. 10-14). ASI moved for summary judgment on both of GE’s
counterclaims. (Doc. 67-1, p. 30). For the reasons discussed above, ASI has not
carried its burden to show there is no coverage under the Policy for GE’s claim as
a matter of law. Therefore, ASI is not entitled to summary judgment on GE’s
counterclaim for breach of contract, and its motion is denied as to that
counterclaim. GE’s counterclaim for bad faith presents different issues for the
court to consider.

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GE’s counterclaim for bad faith is a tort claim. See Hillery v. Allstate
Indem. Co., 705 F.Supp. 2d 1343, 1365 (S.D. Ala. 2010). For tort claims, Alabama
courts follow the doctrine of lex loci delicti and apply the law of the state in which
the injury or loss occurred. Colonial Life & Acc. Ins. Co. v. Hartford Fire Ins. Co.,
358 F.3d 1306, 1309 (11th Cir. 2004) (quoting Fitts v. Minnesota Mining & Mfg.
Co., 581 So. 2d 819, 820 (Ala. 1991)).
The Property insured under the Policy is located in Alabama, and the
damage to the Property occurred in Alabama. Accordingly, the loss was arguably
incurred in Alabama, and Alabama law could apply to GE’s counterclaim for bad
faith. Additionally, ASI relied upon Alabama law in their briefs regarding GE’s
bad faith counterclaim.28 (Doc. 67-1, pp. 30-31). Therefore, the court will apply
Alabama law to evaluate ASI’s motion for summary judgment on the
counterclaim.
To establish its claim for bad faith, GE must do more than show ASI failed
to pay insurance benefits; instead, it must show the failure to pay was done in bad
faith, meaning there was no reasonable ground for ASI to deny coverage under the
Policy. Adams v. Auto-Owners Ins. Co., 655 So.2d 969, 971 (Ala. 1995) (“[The
insured] must go beyond a mere showing of nonpayment and prove a bad faith
nonpayment, a nonpayment without any reasonable ground for dispute. If any one
28

GE, on the other hand, relied upon no legal authority at all in its argument in opposition to
ASI’s motion for summary judgment on its bad faith counterclaim. (See Doc. 72, p. 30).

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of the insurer’s reasons for denying benefits is at least arguable, this Court need
look no further; a claim for bad faith will not lie.”) (citations omitted). “Under
Alabama law, the [party asserting the bad faith claim] has the burden of proving
the absence of any ‘reasonably legitimate or arguable reason’ for the insurer to
deny paying the insured’s claim.” Kruger Commodities, Inc. v. United States
Fidelity and Guaranty, 923 F. Supp. 1474, 1481 (M.D. Ala. 1996) (quoting Fuller
v. State Farm Fire and Casualty Co., 721 F. Supp. 1219, 1226 (M.D. Ala. 1989)
(quoting in turn McLaughlin v. Alabama Farm Bureau Mut. Cas. Ins. Co., 437
So.2d 86, 90 (Ala. 1983)).
ASI asserts it has various legitimate reasons to deny coverage for GE’s
claim based on the issues and disputes raised in its motion, including that the
Policy was void ab initio by FSC’s procurement misrepresentations, GE did not
meet the requirements of the mortgage clause, and the Policy’s promissory
protective warranty was breached. (See 67-1, pp. 21-30, 32). Thus, ASI has
shown it had at least an arguable reason to deny coverage for GE’s claim.
To defeat ASI’s motion for summary judgment on its counterclaim for bad
faith, GE must show a genuine issue of material fact regarding if ASI had an
arguable reason to deny coverage for its claim. GE has not done so. Rather, GE
simply argues ASI is not entitled to a judgment in its favor on GE’s bad faith claim
because ASI breached the policy by not paying its claim. (Doc. 72, p. 30). This is
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not enough to show a bad faith denial of the claim or to show a genuine issue of
material fact regarding the issue. As a result, ASI is entitled to summary judgment
on GE’s counterclaim for bad faith.
5. ASI’s alternative request for partial summary judgment or
declaratory relief
Along with moving for summary judgment, ASI asks the court to declare
GE’s claim is limited to damages incurred on November 20, 2010, and grant it
partial summary judgment as to GE’s claim for damages to the roof and interior of
the Property. (Doc. 67-1, pp. 32-38). For the reasons discussed below, ASI’s
request for alternative relief is denied.
i. The claim is not limited to damages that occurred on
November 20, 2010
ASI argues the claim must be limited to damages that were incurred on
November 20, 2010 because that is the date of loss identified in the signed, sworn
proof of loss statement. (Doc. 67-1, pp. 32-33). The court is not persuaded.
The Policy requires the insured to send ASI a signed, sworn proof of loss in
the event of a loss or damage. (Doc. 67-2, p. 22). A proof of loss is a legitimate
condition precedent to an insurer’s duty to pay a loss. See Lee v. Prudential Ins.
Co., 812 F.2d 1344, 1346 (11th Cir. 1987) (citing Equitable Life Assurance Soc. v.
Dorriety, 157 So. 59 (Ala. 1934)). However, it does not necessarily follow that
each individual date of loss must be specifically identified in the proof of loss if

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damages from a covered occurrence accrued over a period of time. In other words,
when the evidence is viewed in the light most favorable to GE, if the theft on
November 20, 2010, resulted in damages that accrued over a period of time, GE is
not necessarily required to identify each day after November 20 when damages
accrued.
ASI has not cited to any authority or provision of the Policy requiring each
specific date of loss be listed in a proof of loss, and the court finds nothing in the
Policy that requires such specificity in the proof of loss form. (See Doc. 67-1, pp.
32-33). Moreover, the proof of loss form requests the “time and origin” of the
loss, which suggests the form requires the insured to identify the date on which the
loss began rather than each individual date of loss. (Docs. 67-23, p. 2; 67-24, p. 2)
(emphasis added).
ASI has not carried its burden of showing it is entitled, as a matter of law, to
a declaration that GE’s claim is limited to damages that were incurred on
November 20, 2010. As a result, ASI is also not entitled to summary judgment on
the grounds that GE cannot prove any recoverable damages occurred on November
20, 2010.
ii. ASI is not entitled to partial summary judgment on GE’s
claims for damages to the Property’s roof and interior
ASI asserts it is entitled to summary judgment as to GE’s claim for damages
to the Property’s roof and interior because there is no evidence to create an issue of
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fact regarding if damage to the Property’s roof and interior occurred during the
Policy Period.29 (Doc. 67-1, pp. 34-38). Once again, the court is not persuaded.
Indeed, GE points to several pieces of evidence to create a question of fact
regarding if damage occurred to the roof and interior of the Property during the
Policy Period.
First, in FSC’s bankruptcy proceedings, Yair Ben Moshe, a manager of FSC,
submitted a declaration dated August 17, 2010, in which he stated the following:
I also instructed a local friend in Alabama to inspect the site
periodically so that I would be informed of the condition of the
Property. I have recently received photos as well as the regular report
as to the condition of the Property. The Property is clean and the
parking lot is empty. The Property is secure with no apparent
vandalism. The Debtor has received no reports of any vandalism at
the site.
(Doc. 73-2, p. 3). He submitted a second declaration dated October 5, 2010 in
which he again stated:
Since the last status conference, the Property is clean and the parking
lot is empty. The Property is secure with no apparent vandalism. The
Debtor has received no reports of any vandalism at the site.
(Id., p. 3). ASI offered no evidence to rebut Ben Moshe’s statements, but instead
objected to them as hearsay and because there is no evidence Ben Moshe went
onto the roof or visited the Property. (Doc. 77, p. 14). However, “‘a district court

29

Varnado and Jerkins’s opinions regarding the value of the loss attributable to the Property’s
electrical components and HVAC units, which are inadmissible because they do not meet the
requirements of Rule 702, are not the only evidence of damage to the Property’s roof and
interior.

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may consider a hearsay statement in passing on a motion for summary judgment if
the statement could be reduced to admissible evidence at trial or reduced to
admissible form.’” Jones v. UPS Ground Freight, 683 F.3d 1283, 1293-94 (11th
Cir. 2012) (quoting Macuba v. Deboer, 193 F.3d 1316, 1323 (11th Cir. 1999)).
Accordingly, the court may consider Ben Moshe’s declarations.
Next, Richard Crooks testified that during a visit to the Property on
November 18, 2010, he observed damage to HVAC units on the roof and observed
holes in the roof where HVAC units had been moved off their curbs. (Doc. 67-28,
pp. 4-6). Additionally, Crooks testified the damage he observed appeared to be
recent. (Id., p. 8). Pac Zachary observed damage to the Property during the Policy
Period when he visited the Property on January 20, 2011, and observed debris
around the Property, a broken window, and damage to every HVAC unit on the
roof.

(Doc. 67-13; Doc. 67-31, pp. 27-28).

Zachary also observed “some

bubbled/soft spots” on the roof during his visit to the Property, which Varnado
testified indicate water trapped beneath the roof membrane. (Doc. 67-13, p. 4;
Doc. 67-30, p. 56; See also Doc. 74-1, p. 6). Additionally, during Zachary’s
February 14, 2011 visit to the Property, which was only twelve days after the end
of the Policy Period, he saw evidence of water damage inside the building. (Doc.
67-13, p. 37-38).

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Taken together, the evidence cited by GE is sufficient to support a
reasonable inference that the roof and interior of the Property were damaged
during the Policy Period. Indeed, the evidence regarding damage to the Property in
this matter is very different than the evidence presented in General Star Indemnity
Co. v. Sherry Brooke Revocable Trust, 2001 WL 34063890 (W.D. Tex. March 16,
2001), the case ASI relies upon to support its argument that GE cannot prove a
covered loss occurred during the Policy Period. (See Doc. 67-1, pp. 35-26). In
General Star, the insurer sought a declaration that losses claimed by the defendants
for damage caused in part by plumbing leaks at apartment complexes were not
covered by an insurance policy. Id. at *1. The insurer moved for summary
judgment, and the defendants argued there were issues of fact regarding if the
plumbing leaks commenced during the policy period.

Id. at *12. The court

rejected the defendants’ argument and granted summary judgment in favor of the
insurer in part because there was ample evidence the plumbing leaks commenced
prior to the policy period. Id. at *13-15.
Unlike in General Star, in this matter, ASI has not pointed to any evidence
the losses claimed by GE were incurred prior to the Policy Period. Instead, as
discussed above, there is evidence in the record to support a finding the Property
was not damaged prior to the Policy Period. Thus, there is a question of material
fact regarding if losses to the roof and interior of the building occurred during the
64

Policy Period, and ASI is not entitled to summary judgment as to GE’s claim for
damages to the roof and interior of the building.
IV. CONCLUSION
Based on the foregoing, GE’s motion to strike (Doc. 79) is DENIED. ASI’s
motion to exclude (Doc. 68) is DENIED as to the allegedly undisclosed opinion
the roof deteriorated beyond repair over the course of two months following
November 20, 2010. The balance of ASI’s motion to exclude is GRANTED.
Accordingly, Varnado and Jerkins cannot offer the following opinions at trial:
(1) thieves or vandals accessed and caused damage to the interior of the
building at the Property during the Policy Period;
(2) the value of the loss attributable to the electrical components stolen or
vandalized in the interior of the building at the Property;
(3) the Property’s roof membrane was damaged when thieves drug sharp
metal pieces across it;
(4) the value of the loss attributable to the HVAC units damaged at the
Property; and
(5) HVAC units at the Property were subject to theft or vandalism during the
Policy Period.
ASI’s motion for summary judgment (Doc. 67) will be granted with respect
to FSC and GE’s counterclaim for bad faith. ASI is entitled to a declaration there
65

is no coverage under the Policy for a claim by FSC, and GE’s counterclaim for bad
faith is due to be dismissed with prejudice. A separate order will issue. ASI’s
motion for summary judgment will be denied with respect to its claims against GE
and GE’s counterclaim for breach of contract, and these claims will proceed.
DONE this 18th day of July, 2016.

______________________________
STACI G. CORNELIUS
U.S. MAGISTRATE JUDGE

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