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

Filing 87

MEMORANDUM OPINION and ORDER- For the reasons discussed within, ASIC's motion for reconsideration (Doc 84 ) is DENIED. Signed by Magistrate Judge Staci G Cornelius on 9/12/16. (MRR, )

FILED
2016 Sep-12 PM 04:41
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

MEMORANDUM OPINION and ORDER
This matter is before the court on Plaintiff American Safety Indemnity
Company’s (“ASIC”) Motion for Reconsideration of its Motion for Summary
Judgment. (Doc. 84). Defendant GE Commercial Finance Business Property
Corporation (“GE”) opposes the motion. (Doc. 86). For the reasons stated below,
ASIC’s motion is DENIED.
A district court has broad discretion to reconsider, revise, or amend its
interlocutory orders. See Toole v. Baxter Healthcare Corp., 235 F.3d 1307, 1315
(11th Cir. 2000). “The only grounds for granting a motion for reconsideration are
newly-discovered evidence or manifest errors of law or fact. [] A motion for
reconsideration cannot be used to relitigate old matters, raise arguments, or present
evidence that could have been raised prior to the entry of judgment.” Smith v.

Ocwen Fin., 488 Fed. Appx. 426, 428 (11th Cir. 2012) (citing Arthur v. King, 500
F.3d 1335, 1343 (11th Cir. 2007)).
I. Analysis
ASIC asserts reconsideration is warranted due to legal and factual errors in
the court’s July 18, 2016 Memorandum Opinion and Order denying in part its
motion for summary judgment (the “July 18 Order”). (Doc. 84 at 1). Specifically,
ASIC contends the court erred by (1) relying on notice to Shomer Insurance
Agency (“Shomer”) as notice to ASIC, (2) applying the Policy’s 1 mortgage clause
to protect GE, and (3) failing to find the Policy void as to GE based on California
law. (Id. at 2). The court addresses each of these contentions in turn.
A. Notice to Shomer Insurance Agency
ASIC argues “[t]he court misapplied the facts and law” by relying on a
phone call to Shomer in late February or early March 2011 as notice to ASIC and
asserts this error warrants reconsideration of the court’s July 18 Order.2 (Doc. 84
at 2-4). As an initial matter, the court acknowledges it erred by referring to
Shomer as the insurance agent identified in the Policy. (See Doc. 82 at 56).
Shomer is not identified in the Policy but instead is identified in FSC’s application
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Terms capitalized in this Memorandum Opinion are consistent with the capitalized terms in the
July 18 Order.
2

The court’s statement in the July 18 Order about GlassRatner’s phone call to Shomer referred
to a call GlassRatner made to Shomer in late February or early March 2011 regarding a loss at
the Property, rather than a call regarding a loss that occurred in late February or early March.
(See Doc. 82, p. 56; Doc. 67-25, p. 50).

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for insurance. (Doc. 67-2; Doc. 67-5 at 2). Despite this factual error, the court
finds reconsideration is not warranted.
First, ASIC could have raised its arguments regarding the notice to Shomer
before the court entered its July 18 Order. In GE’s opposition to ASIC’s motion
for summary judgment, GE relied on GlassRatner’s call to Shomer in late February
or early March to argue ASIC received notice of a loss at the Property weeks after
GE learned of the loss. (See Doc. 72, p. 24-25). ASIC did not directly respond to
that argument in its reply brief but instead stated “ASIC was first notified in May
2011 of the loss involving an attempted theft on November 20, 2010” and argued it
is entitled to summary judgment based on the six-month delay in receiving notice
of the loss. (Doc. 77, p. 11). In its reply brief, ASIC did not assert Shomer was
not its agent or argue notice to Shomer could not be equated with notice to ASIC.
(See Doc. 77). Because ASIC’s arguments regarding notice to Shomer could have
been raised in its reply brief, the court will not entertain them now. See Ocwen
Fin., 488 Fed. Appx. at 428.
Moreover, even if GlassRatner’s call to Shomer is not considered, the court
concludes ASIC still did not meet its burden of establishing notice of the loss was
untimely as a matter of law. Viewing the evidence in the light most favorable to
GE, as required at this stage in the litigation, GE first learned of a loss at the
Property on January 21, 2011. (See Doc. 67-27, p. 16). ASIC acknowledged in its
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reply brief it was notified in May 2011 of a loss at the Property. (Doc. 77, p. 11;
see also Doc. 67-27, p. 34; Doc. 67-31, p. 67). Thus, ASIC received notice of the
loss approximately four months after GE first learned of it. ASIC did not point to
any binding authority holding a four-month delay in notice was unreasonable as a
matter of law.

(See Doc. 67-1, p. 30 n.119; Doc. 77, pp. 11-12, n.24).3

Additionally, under California law, an insurer must show the delay in notice
caused substantial prejudice before it will be excused from its obligations under an
insurance policy. See Safeco Ins. Co. of America v. Parks, 170 Cal. App. 4th 992,
1103-04 (Cal. App. 2009) (citations omitted). ASIC has not pointed to evidence
establishing that, as a matter of law, it was substantially prejudiced by the delay in
receiving notice of the loss. (See Doc. 67-1, pp. 29-30; Doc. 77, pp. 11-12).
As the party moving for summary judgment, ASIC bears the burden of
showing there are no issues of material fact and it is entitled to judgment as a
matter of law. E.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The court
finds ASIC did not meet its burden of showing it is entitled to summary judgment
based on the untimely notice of the loss. Therefore, reconsideration of the court’s
July 18 Order is not warranted.
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In its reply brief ASIC cited one case, Phoenix Assurance Co. v. Harry Harless Co., 303
F.Supp. 867 (N.D. Ala. 1969), in which this court found an insured’s four-month delay in giving
notice of a loss was untimely as a matter of law. That case, however, is not binding authority.
Additionally, in Phoenix Assurance Co., the burden was on the insured to show it gave notice of
the loss “as soon as practicable.” Id. at 868. Here, the burden is on ASIC, not the insured, to
show there is no issue of fact regarding the timeliness of the notice of the loss.

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B. Application of the Policy’s Mortgage Clause
ASIC asserts the court erred by applying the mortgage clause to GE because
GE did not satisfy all of the conditions required to gain the protection of the
Policy’s mortgage clause. (Doc. 84, pp. 4-6). The court is not persuaded.
The mortgage clause in the Policy provides in pertinent part as follows:
If [ASIC] den[ies] [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:
...
(3) Has notified [ASIC] of any change in ownership, occupancy, or
substantial change in risk known to the mortgageholder.
All of the terms of the Coverage Part will then apply directly to the
mortgageholder.
(Doc. 67-2, pp. 24-25).
ASIC argues the mortgage clause does not apply to GE because GE did not
inform ASIC of a substantial change in risk. Specifically, ASIC asserts GE has no
separate rights under the mortgage clause because GE failed to notify ASIC the
Property lacked power. (Doc. 84, p. 5). The record shows GE first learned the
Property had no power on January 21, 2011. (See Doc. 67-13, p. 7; 67-27, p. 16;
Doc. 73-1, p. 24). By that time, ASIC had already decided to cancel the Policy and
had informed GE the Policy would be cancelled, effective February 2, 2011—less
than two weeks after GE learned the Property had no power. (See Doc. 67-9).

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There is nothing in the mortgage clause or Policy requiring GE to give notice of a
change in the risk within two weeks. (See Doc. 67-2). Once the Policy ended on
February 2, there could be no substantial change in the risk insured and, therefore,
no requirement for GE to notify ASIC of a change in risk. Thus, the court
concludes ASIC has not established there is no coverage for GE’s claim under the
Policy as a matter of law because GE failed to notify ASIC the Property had no
power.
Additionally, viewing the evidence in favor of GE, GE did not learn of any
change in the risk insured until after the loss occurred. Therefore, at the time of
the loss, GE had no knowledge of a substantial change in the risk insured and no
duty under the mortgage clause to notify ASIC of a change. ASIC did not cite any
cases in which a court held a mortgage clause did not apply to a mortgagee when
the mortgagee first learned of a change in ownership, occupancy, or risk insured
after the loss had already occurred and did not inform the insurer of the change.
Rather, in the case relied upon by GE, the mortgagee learned of a change in
ownership of the property insured approximately eight months before the loss
occurred. See Trust Co. of St. Louis County v. Phoenix Ins. Co. of Hartford,
Connecticut, 210 S.W. 98 (Mo. App. 1919).4 In Trust Co. of St. Louis County, the

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In the cases cited in Trust Co. of St. Louis County, the mortgagee also learned of a change in
ownership or risk insured prior to a loss, or the evidence indicated the mortgagee or his agent
learned of the change prior to the loss. See Ormsby v. Phenix Ins. Co. of Brooklyn, 58 N.W. 301

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Missouri Court of Appeals held “the mortgage clause agreement cannot be held to
be in force and effect from and after the time plaintiff had knowledge of such
change of ownership and failed or neglected to notify the insurer thereof.” Id. at
102.

Based on that holding, the mortgage clause was in effect before the

mortgagee had knowledge of the change in ownership. Thus, if a loss occurred
before the mortgagee had knowledge of the change, the mortgage clause could
protect the mortgagee even if the mortgagee later learned of a change in ownership
or risk and failed to notify the insurer of the change. As a result, Trust Co. of St.
Louis County does not persuade the court that the Policy’s mortgage clause cannot
apply to GE when GE did not learn of a substantial change in risk until after the
loss had already occurred at the Property.
Viewing the evidence in the light most favorable to GE and construing the
Policy in favor of coverage, the court finds ASIC did not meet its burden of
proving the mortgage clause cannot apply to GE as a matter of law. As a result,
reconsideration of the court’s July 18 Order is not warranted.
C. Application of California Law
Finally, ASIC asserts reconsideration of the July 18 Order is warranted
because California law mandates a conclusion that GE’s claim is not covered under

(S.D. 1894); Gasner v. Metropolitan Ins. Co., 13 Minn. 483 (Minn. 1868); Cole v. Germania
Fire Isn. Co., 1 N.E. 38 (N.Y. App. 1885); Continental Ins. Co. v. Anderson, 33 S.E. 887 (Ga.
1899); Galantchik v. Globe Fire Ins. Co., 31 N.Y.S. 32 (N.Y. 1894).

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the Policy based on FSC’s procurement misrepresentations. (Doc. 84, pp. 7-10;
see also Doc. 77, pp. 4-5). The court disagrees.
ASIC argues the Policy is void ab initio as to both FSC and GE under
California law because California statutes grant ASIC the right to rescind the
Policy due to FSC’s procurement misrepresentations. (Id.). Just as in its reply
brief in support of its motion for summary judgment, however, ASIC does not cite
any California case law addressing if a standard mortgage clause in an insurance
policy is void as a result of an insured’s procurement misrepresentations. (See Id.;
see also Doc. 77, pp. 4-5).
ASIC did not dispute that the mortgage clause in the Policy is a standard
mortgage clause, which “creates a separate contract with the mortgagee, so that the
mortgagee’s interest cannot be affected by any act of the mortgagor.” Cal. Ins.
Law Handbook § 65:43 (citing Mosee v. Fireman’s Ins. Co. of Newark, 262 P. 436,
437 (Cal. App. 1927)); see also Int’l Surplus Lines Ins. Co. v. Assoc. Comm. Corp.,
514 So. 2d 1326, 1327 (Ala. 1987). Accordingly, a standard mortgage clause is
fundamentally different than a simple or open loss payable clause in an insurance
policy because a simple loss payable clause only creates a right of payment that is
“derivative of and no greater than, the rights of the named insured.” Cal. Ins. Law
Handbook § 65:43; see also 44 Am. Jur. 2d Ins. § 1042 (recognizing difference
between a standard mortgage clause and a simple or open loss payable clause). As
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a result, case law interpreting a party’s rights under a simple loss payable clause
does not necessarily apply to a mortgagee’s rights under a standard mortgage
clause.5
Additionally, because a standard mortgage clause creates a separate contract
between an insurer and mortgagee, an insurer does not necessarily have a right to
rescind its contract with the mortgagee even if the insurer has a right to rescind the
insurance policy as to the mortgagor. Indeed, “the prevailing view is that the union
or standard mortgage clause protects the mortgagee against any act or neglect of
the mortgagor at the inception of the policy or before the mortgage clause is
attached thereto.” 44 Am. Jur. 2d Ins. § 1043 (citations omitted); see also Couch
on Ins. 3rd ed. § 65:65 (recognizing that a standard mortgage clause “makes a new
contract between the insurer and mortgagee, which is unaffected by the
misrepresentations or false statements of the mortgagor . . . , of which the
mortgagee is ignorant, whereby the insurance never became valid as to the
mortgagor”). In other words, the majority view is that when an insurance policy
contains a standard mortgage clause, misrepresentations in a mortgagor’s
5

ASIC’s citation noting “the ‘act’ of the insured in the mortgageholder clause is ‘an act of the
insured after the loss has occurred’” quotes a section of American Jurisprudence, Second Edition
dealing with simple loss payable or open mortgage clauses, rather than standard mortgage
clauses. See 44 Am. Jur. 2d Insurance § 1042; Doc. 84 at 8. Likewise, the insurance policy at
issue in the Ninth Circuit case cited by ASIC, Brecht v. Law, Union & Crown Ins. Co., 160 F.
399 (9th Cir. 1908), contains a simple loss payable, or open, mortgage clause instead of a
standard mortgage clause. Id. at 401-03. Thus, the authority cited by ASIC does not persuade
the court the term “acts” as used in the Policy’s mortgage clause cannot mean misrepresentations
FSC made in its insurance application.

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application for insurance do not necessarily void the contract between the insurer
and mortgagee even when the misrepresentations render the policy void ab initio
as to the mortgagor. The California statutes and case law cited by ASIC do not
mandate a different result.
Under the California Insurance Code, an insurer has a right to rescind an
insurance policy if an insured conceals or misrepresents material facts in an
insurance application. Cal. Ins. Code §§ 330-31 & 359. The Insurance Code also
provides “[t]he rescission shall apply to all insureds under the contract, including
additional insureds, unless the contract provides otherwise.” Id. at § 650 (emphasis
added). Consistent with § 650, California case law cited by ASIC recognizes that,
in the context of Directors & Officers liability coverage, an insurance policy may
contain a severability provision such that a concealment or misrepresentation in the
insurance application by one officer or director would not be imputed to other
officers or directors. See TIG Ins. Co. of Michigan v. Homestore, Inc., 137 Cal.
App. 4th 749, 759 (Cal. App. 2006). Therefore, under California law, an insurance
policy may be void ab initio as to some insureds as a result of the insurer’s
statutory right to rescind the policy but still provide protection as to other insureds.
Based on the prevailing view of standard mortgage clauses, the Policy’s
mortgage clause provides that rescission of the Policy as to FSC does not
automatically rescind or void ASIC’s contract with GE under the mortgage clause
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even though the Policy is void ab initio as to FSC. Because ASIC did not cite any
California law addressing a mortgagee’s rights under a standard mortgage clause, it
has not shown California would not follow the prevailing rule regarding standard
mortgage clauses. As a result, ASIC has not met its burden of showing the Policy
is void as to GE as a matter of law, and reconsideration of the court’s July 18
Order is not warranted.
II. Conclusion
For the reasons discussed above, ASIC’s motion for reconsideration (Doc.
84) is DENIED.
DONE this 12th day of September, 2016.

______________________________
STACI G. CORNELIUS
U.S. MAGISTRATE JUDGE

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