Ray, Inc. v. Nationwide Mutual Fire Insurance Company
MEMORANDUM OPINION. Signed by Judge L Scott Coogler on 3/7/13. (KGE, )
2013 Mar-07 AM 11:43
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NATIONWIDE MUTUAL FIRE
MEMORANDUM OF OPINION
Before this Court is a motion for summary judgment filed by Defendant
Nationwide Mutual Fire Insurance Company (“Nationwide”) on June 27, 2012.
(Doc. 36.) Nationwide seeks summary judgment as to Plaintiff’s claims for breach of
contract and bad faith. (Id. at 3.) A brief in support of the motion was
contemporaneously filed. (Id.) Plaintiff filed a response to the motion on July 13, 2012
(Doc. 38), and Nationwide filed a reply brief on July 23, 2012. (Doc. 41.) This motion
is now ripe for decision.
The facts set out in this opinion are gleaned from the parties’ individual submissions of facts
claimed to be undisputed, their respective responses to those submissions, and the Court’s own examination
of the evidentiary record. All reasonable doubts about the facts have been resolved in favor of the nonmoving
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Nationwide insured Plaintiff pursuant to a Businessowners policy. On April 15,
2011, a tornado struck the Coventry neighborhood in Tuscaloosa. Included in the
tornado’s path were the houses that are the subject of this action. On that day, several
of Plaintiff’s rental properties in Coventry sustained substantial damage, and as a
result of the damage, Plaintiff made a claim with Nationwide.
Nationwide’s agent, Mr. Jeffrey Rowell (“Rowell”), visited the sites to inspect
the damage. Rowell determined that three of the houses were repairable while one was
a total loss. He calculated the actual cash value (the “ACV”) of the properties by
inputting data into a computer program known as “Exactimate,” allowing for
necessary materials and labor at an observed local market rate. Rowell then
incorporated the resultant amount into a report for Plaintiff. The report, along with
checks for the calculated actual cash value of the properties, was sent to Plaintiff on
April 20, 2011. Plaintiff then cashed the checks.
Since filing its claim, Plaintiff has contended that all four houses were a total
loss. In July, more than two months after the tornado, Plaintiff contacted Nationwide
to dispute the amount of the insurance payments it received. Because of the dispute,
Nationwide hired an engineering consultancy firm to perform a second inspection of
party. See Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224 (11th Cir. 2002). These are the
“facts” for summary judgment purposes only. They may not be the actual facts. See Cox v. Adm’r U.S. Steel
& Carnegie Pension Fund, 17 F.3d 1386, 1400 (11th Cir. 1994).
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the damaged properties. Additionally, Nationwide scheduled a walk-through to be
performed with Plaintiff and Plaintiff’s engineer on August 3, 2011. The engineering
consultancy firm performed its home inspection on July 14, 2011. The consultancy
firm created reports of its inspections that were sent to Plaintiff on August 1, 2011.
That same day, Plaintiff’s representative, Mr. Lang Ray, cancelled the walk-through
that was set for August 3, 2011, and indicated that he would not reschedule until
Plaintiff’s engineers performed an inspection.
On August 3, 2011, Plaintiff informed Nationwide that Plaintiff’s engineer had
determined that the homes were structurally unsound and recommended demolition
of the properties. Plaintiff further stated that it would demolish the properties on
August 10 in the absence of any agreement. Finally, Plaintiff directed that Rowell
should call Plaintiff if Nationwide had any objections. On August 10, Nationwide
mailed a response letter via certified mail to Plaintiff. On that same day, Plaintiff
demolished the three standing houses. Plaintiff responded to Nationwide’s August 10
letter on August 22, 2011, and included a copy of Plaintiff’s engineer’s reports.
Summary judgment is proper “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
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there is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.” FED. R. CIV. P. 56(c). The party moving for
summary judgment “always bears the initial responsibility of informing the district
court of the basis for its motion, and identifying those portions of [the evidence] which
it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986). The movant can meet this burden by presenting
evidence showing that there is no genuine dispute of material fact, or by showing that
the nonmoving party has failed to present evidence in support of some element of its
case on which it bears the ultimate burden of proof. Celotex, 477 U.S. at 322-23. In
evaluating the arguments of the movant, the court must view the evidence in the light
most favorable to the nonmoving party. Mize v. Jefferson City Bd. of Educ., 93 F.3d 739,
742 (11th Cir. 1996).
Once the movant has met its burden, Rule 56(e) “requires the nonmoving party
to go beyond the pleadings and by her own affidavits, or by the ‘depositions, answers
to interrogatories, and admissions on file,’ designate ‘specific facts showing that there
is a genuine issue for trial.’” Celotex, 477 U.S. at 324 (quoting FED. R. CIV. P. 56(e)).
“A factual dispute is genuine only if a ‘reasonable jury could return a verdict for the
nonmoving party.’” Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224
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(11th Cir. 2002) (quoting United States v. Four Parcels of Real Property, 941 F.2d 1428,
1437 (11th Cir. 1991)).
Breach of Contract Claim
Plaintiff alleges that Nationwide “breached the policy of insurance by failing to
pay the [ACV] or debris removal due and  failed to pay the same without adequate
excuse or reason.” (Doc. 1 at 11.) “‘The elements of a breach-of-contract claim under
Alabama law are (1) a valid contract binding the parties; (2) the plaintiff’s performance
under the contract; (3) the defendant’s nonperformance; and (4) resulting damages.’”
Shaffer v. Regions Fin. Corp., 29 So. 3d 872, 880 (Ala. 2009) (quoting Reynolds Metals
Co. v. Hill, 825 So. 2d 100, 105 (Ala. 2002)).
Nationwide asserts two reasons for why its Motion for Summary Judgment as
to Plaintiff’s breach of contract claim should be granted. First, Nationwide argues that
Plaintiff did not perform under the contract by failing to cooperate and permit
Nationwide to re-inspect the damaged homes. Second, Nationwide argues that
Plaintiff cannot prove damages because it can offer no evidence or expert testimony
on what the correct ACV amount should be for the four homes.
Plaintiff’s Failure to Cooperate and Allow Inspection
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In this case, the parties’ insurance policy specifies a duty to cooperate and a
duty to allow reasonable inspection. (Doc. 36 at 10–11.) The duty to cooperate states
that the insured must “[c]ooperate with [the insurer] in the investigation or settlement
of the claim.” (Id. at 11.) The duty to allow reasonable inspection states that the
insured must, “[a]s often as may be reasonably required, permit [the insurer] to
inspect the damaged property.” (Id.) Nationwide contends that Plaintiff’s alleged
failure to cooperate and permit inspection constitutes a breach of these provisions,
relieving Nationwide from any further obligations under the insurance policy. See
Nationwide Ins. Co. v. Nilsen, 745 So. 2d 264, 267 (Ala. 1998).
While it may be true that, from the start, Plaintiff contended that all four houses
were a total loss, the evidence indicates that it did not contest the ACV amounts paid
by Nationwide until early July. At that time, Nationwide began to reinspect and
evaluate Plaintiff’s supplemental claims. The engineering firm hired by Nationwide
inspected the damaged properties on or about July 14, 2011, and issued a report.
Plaintiff, however, contends that Nationwide’s firm did not perform a proper
structural analysis of the properties or discuss the structural soundness in their report.
Due to this, Plaintiff cancelled a planned walk-through and indicated that it would not
allow access to the properties until such time as Plaintiff’s engineer could review the
premises. A few days later, Plaintiff informed Nationwide that its engineer reported
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that the houses were structurally unsound, and that the houses would be demolished
on August 10, 2011, unless Nationwide called and objected. After receiving no
objections, Plaintiff demolished the properties on the date specified.
Ordinarily, what constitutes a failure to cooperate by the insured is a question
of fact, and the insurer has the burden of proving non-cooperation. Ex parte Clarke, 728
So. 2d 135, 141 (Ala. 1998). “An insurer ‘cannot avoid its obligations on this ground’
unless the insured’s failure to cooperate ‘is both material and substantial.’” Id.
(quoting Home Indem. Co. v. Reed Equip. Co., 381 So. 2d 45, 48 (Ala. 1980)). In order
to prove Plaintiff’s performance under the contract, “the plaintiff must prove that it
substantially performed its obligations under the contract.” Superior Wall & Paver,
LLC v. Gacek, 73 So. 3d 714, 721 (Ala. Civ. App. 2011) (citing Mac Pon Co. v. Vinsant
Painting & Decorating Co., 423 So. 2d 216, 218 (Ala. 1982)). “Substantial performance
of a contract does not contemplate exact performance of every detail but performance
of all important parts.” Id. “Whether a party has substantially performed a promise
under a contract is a question of fact to be determined from the circumstances of each
case.” Cobbs v. Fred Burgos Constr. Co., 477 So. 2d 335, 338 (Ala. 1985).
In this case, there are three separate instances where Plaintiff may have failed
to cooperate or allow reasonable inspection of the premises: (1) Plaintiff’s cancellation
of the walk-through scheduled for August 3, 2011, (2) Plaintiff’s indication that it
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would not allow access to the properties until its engineer could inspect the premises,
and (3) Plaintiff’s demolition of the properties preventing Nationwide from further
inspections. Each of these instances are insufficient for the Court to grant summary
judgment in Nationwide’s favor.
The Court first considers the cancelled walk-through. Plaintiff’s primary
objection to the ACV amount paid was that Nationwide failed to properly assess the
structural integrity of the properties. A walk-through arguably would not help
Nationwide assess the structural soundness of the buildings; therefore, Plaintiff’s
failure to allow the walk-through may not have been material or substantial to
Nationwide’s assessment of the ACV amount for the covered properties.
Furthermore, a walk-through would arguably not have been a reasonable inspection
of the premises because it would not bring to light any structural issues that may have
been present. Additionally, Nationwide was given more than enough time to perform
a structural analysis of the buildings in the month before Plaintiff cancelled the walkthrough, but failed to do so. For these reasons, Plaintiff may have substantially
performed its duty to cooperate and allow reasonable inspection of the premises.
Next, the Court considers Plaintiff’s alleged indication that it was not allowing
access to the properties until its engineer could perform a structural analysis.
Nationwide had several prior opportunities to perform its own structural analysis of
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the houses. Indeed, Nationwide hired an engineer to inspect the houses, but the
engineer allegedly failed to perform a proper structural analysis. Furthermore, once
Nationwide was informed that Plaintiff’s engineer performed a structural analysis, it
was given ample time to either perform its own structural analysis of the properties or
call and object to the scheduled demolition of the properties. A reasonable jury could
look at these facts and determine that Plaintiff substantially performed its duty to
cooperate and allow reasonable inspection of the premises, even though it did not
allow access for a few days while its own engineer inspected the properties.
Finally, by demolishing the subject properties, Nationwide contends that it was
prevented from investigating the property further to determine the legitimacy of the
report by Plaintiff’s engineer. However, after informing Nationwide of its engineer’s
assessment that the houses were structurally unsound and needed to be demolished,
Plaintiff gave Nationwide time to object to the demolition of the properties. Rather
than call and object, Nationwide waited until the day the houses were to be
demolished, and sent its objections in a letter through the mail. Based on these facts,
there is a genuine question as to whether Plaintiff satisfied its duty to cooperate and
allow reasonable inspection of the premises.
Plaintiff argues that, under National Security Fire & Cas. Co. V. Coshatt, 690 So.
2d 391 (Ala. Civ. App. 1996), the insured is only required to secure the insured
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premises for a reasonable length of time in order to satisfy a duty to allow reasonable
inspection, and “a four-day notice gave the insurer sufficient time to inspect before the
damage was repaired as a matter of law.” (Doc. 38 at 21.) However, in Coshatt, the
court held that—as a matter of law—four days was a reasonable amount of time to
hold open the covered property when the undisputed evidence showed that the
insurer’s agent was notified of the claim, instructed the insureds to proceed with
repairs, and the insureds never impeded the insurer’s effort to examine the property.
Unlike the insurer in Coshatt, Nationwide has presented evidence that Plaintiff
impeded its effort to examine the property, and Plaintiff has presented no evidence
that Nationwide or its agents ever instructed Plaintiff to demolish the properties. Such
evidence establishes a question of fact as to whether five days, or even four months,
was a reasonable amount of time for Plaintiff to hold open the property. Therefore,
this Court will not find, as a matter of law, that Plaintiff held the premises open for a
reasonable amount of time.
Plaintiff’s Ability to Show Damages
Next, Nationwide argues that because Plaintiff cannot prove damages—a
necessary element for a breach of contract claim—summary judgment should be
granted. According to Nationwide, Plaintiff can only recover the ACV of the damaged
properties because it has not rebuilt or repaired the homes, and Plaintiff can offer no
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evidence or expert testimony about the correct ACV of the four homes. Plaintiff agrees
that it can only recover ACV on the damaged properties, but argues that the ACV
should have been based on the replacement cost of the properties, not the cost to
repair, because the repair cost used by Nationwide was underestimated and would
have been higher than the replacement cost had a proper structural analysis been
Under the policy, actual cash value is defined “as the amount it would cost to
repair or replace Covered Property, at the time of loss or damage, with material of like
kind and quality, subject to a deduction for deterioration, depreciation and
obsolescence.” (Doc. 36 at 15.) Furthermore, as stated in the policy, “[t]he actual cash
value of the lost or damaged property may be significantly less than its replacement
Soon after the initial evaluation, Nationwide submitted checks for the ACV
amount of the properties. (Id. at 4.) Nationwide prepared these calculations with a
computer program using data inputted by Rowell following his onsite inspection. (Doc.
38 at 3.) The ACV amount determined by Nationwide included significant deductions
for depreciation. (Id. at 13.) Nationwide determined that three of the properties were
repairable, and one was a total loss. (Doc. 36 at 4.)
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Plaintiff’s evidence includes several experts. The first is Mr. Lang Ray, who will
testify as to his opinion on the replacement value of the properties. Mr. Lang Ray owns
the properties in question, has been in the real estate and construction business in
Tuscaloosa for several years, and has served as an appraiser. The second expert is
Plaintiff’s engineer, Mr. John H. Stevens, who will testify as to the extent of damage
to the properties. The third expert is Mr. Dwight Richardson, a contractor, who
testified that he could rebuild the properties for a certain amount, and that the cost to
repair could exceed the cost to rebuild the properties. Plaintiff has presented evidence
that the properties were not structurally sound (id. at 18; Doc. 38 at 11), Nationwide
did not perform a proper structural analysis of the houses (Doc. 38 at 16), and a
structural analysis could have shown that the cost to repair the properties exceeded the
cost to replace the properties. (Id. at 11.)
Based on the allegations in the complaint and the facts in this case, Plaintiff has
presented sufficient evidence from which a reasonable jury could determine that the
proper amount to be paid under the contract was higher than the amount paid by
Nationwide. Although the policy provides that the ACV may be significantly less than
the replacement cost of the properties, it is clear from the evidence that Nationwide
calculated the ACV based on the cost to repair the properties, and Plaintiff has
presented substantial evidence showing that the ACV should have been based on the
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replacement costs of the properties. For these reasons, Plaintiff will be permitted to
present the issue of damages to the factfinder at trial.
B. Bad Faith Claim
Bad faith claims under Alabama law have been divided into cases of “normal”
bad faith, where an insurer refuses to pay, and cases of “abnormal” bad faith, where
“unusual or extraordinary” circumstances arise. State Farm Fire & Cas. Co. V. Slade,
747 So. 2d 293, 306 (Ala. 1999). Plaintiff alleges that this case presents both a normal
and an abnormal case of bad faith. (Doc. 38 at 27.)
Normal Bad Faith
Plaintiff alleges that Nationwide “has, in bad faith and without justifiable excuse
or reason, denied plaintiff’s claim for additional actual cash value and for debris
removal to be paid.” (Doc. 1 at 12.) Nationwide argues that its Motion for Summary
Judgment as to Plaintiff’s normal bad faith claim should be granted because there was
a legitimate or arguable basis for paying the ACV amounts.
A normal bad faith claim in Alabama requires a plaintiff to prove “‘(a) an
insurance contract between the parties and a breach thereof by the defendant; (b) an
intentional refusal to pay the insured’s claim; (c) the absence of any reasonably
legitimate or arguable reason for that refusal (the absence of a debatable reason); [and]
(d) the insurer’s actual knowledge of the absence of any legitimate or arguable
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reason.’” White v. State Farm Fire & Cas. Co., 953 So. 2d 340, 348 (Ala. 2006) (quoting
Employees’ Benefit Ass’n v. Grissett, 732 So. 2d 968 (Ala. 1998)). Professional opinions
from an inspection have been held to create a legitimate reason for refusal. See Adams
v. Auto-Owners Ins. Co., 655 So. 2d 969, 971–72 (Ala. 1995).
In this case, Nationwide calculated the ACV amount according to its normal
procedures after an inspection by its adjuster and an engineer. Both the adjuster and
engineer testified that three of the buildings were repairable and that repair amounts
were appropriate for valuation. This, by itself, creates a legitimate reason for
Nationwide’s refusal of the claim. Furthermore, Nationwide’s ACV calculation was
subject to the appraisal provisions contained in the policy. The insurer arguably acted
reasonably in calculating the ACV according to its established procedures and in
entrusting any dispute to the appraisal process. Because Nationwide’s reliance on the
appraisal provision was reasonable, it had a legitimately reasonable reason to refuse the
additional amount claimed by Plaintiff. For these reasons, Plaintiff’s normal bad faith
claim fails as a matter of law.2
Abnormal Bad Faith
Alabama law also requires a plaintiff to show that it “is entitled to a directed verdict on the contract
claim and, thus, entitled to recover on the contract claim as a matter of law.” National Sav. Life Ins. Co. v.
Dutton, 419 So. 2d 1357, 1362 (Ala. 1982). Because Nationwide does not argue that Plaintiff cannot show it
is entitled to recover on the contract claim as a matter of law, Plaintiff’s normal bad faith claim fails as a
matter of law on other grounds, and Plaintiff has not moved for summary judgment on the contract claim,
the Court does not consider whether Plaintiff can show it is entitled to a directed verdict on the contract
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Plaintiff alleges that Nationwide “acted in bad faith in failing to adequately
investigate [P]laintiff’s claim.” (Doc. 1 at 12.) Nationwide asserts two reasons for why
its Motion for Summary Judgment as to Plaintiff’s abnormal bad faith claim should be
granted. First, Nationwide argues that the undisputed evidence shows it did not
intentionally or recklessly fail to investigate Plaintiff’s claim or properly subject it to
a cognitive evaluation or review. Second, Nationwide argues that Plaintiff has failed
to present any evidence showing a dishonest purpose or breach of a known duty.
An abnormal bad faith claim can be either “(1) intentional or reckless failure to
investigate a claim, (2) intentional or reckless failure to properly subject a claim to a
cognitive evaluation or review, (3) the manufacture of a debatable reason to deny a
claim, or (4) reliance on an ambiguous portion of a policy as a lawful basis for denying
a claim.” Singleton v. State Farm Fire & Cas. Co., 928 So. 2d 280, 283 (Ala. 2005). An
abnormal bad faith claim does not require the plaintiff to show that he is entitled to a
directed verdict on the contract claim, unlike a normal bad faith claim. See Jones v. Alfa
Mut. Ins. Co., 1 So. 3d 23, 32–34 (Ala. 2008) (“The rule in ‘abnormal’ cases dispensed
with the predicate of a preverdict [judgment as a matter of law] for the plaintiff on the
contract claim if the insurer had recklessly or intentionally failed to properly
investigate a claim or to subject the results of its investigation to a cognitive
evaluation.”). However, it does require more than a showing of bad judgment or
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negligence; there must be some dishonest purpose or breach of a known duty.
Singleton, 928 So. 2d at 283.
In this case, Nationwide did not fail to either investigate the claims properly or
to submit the claims to cognitive review. After the tornado, Nationwide promptly
answered Plaintiff’s request for a claim by sending its adjuster to the damaged
properties. Upon review of the properties, Nationwide submitted its ACV to Plaintiff.
Once a disagreement arose a few months later, Nationwide responded quickly by
contacting and hiring an engineer to assess the properties. Nationwide’s engineer
subsequently inspected the properties and communicated his opinions to Nationwide
and Plaintiff. Nationwide also showed willingness to perform a walk-through with
Plaintiff’s engineer and expressed interest in the report by Plaintiff’s engineer. All of
these facts are undisputed and show a proper investigation and cognitive review of
Finally, while Plaintiff has produced substantial evidence from which it may be
determined that Nationwide breached the insurance policy, Plaintiff has failed to
present any evidence showing a dishonest purpose or breach of a known duty.
Nationwide’s actions were prompt and responsive to Plaintiff’s requests. Only a few
days after the tornado, Nationwide had an agent evaluate Plaintiff’s claim. An ACV
amount was then issued to Plaintiff. Upon being alerted of a potential dispute over the
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amount, Nationwide quickly retained an engineer to investigate the supplemental
issues. As such, the evidence presented does not indicate a dishonest purpose or a
breach of a known duty. Furthermore, the facts that indicate Nationwide’s
cooperativeness are undisputed. Although Nationwide may have acted negligently in
not performing a proper structural analysis, more is required to demonstrate abnormal
bad faith. For these reasons, it cannot be said that Nationwide had a dishonest purpose
or breached a known duty in its investigation of Plaintiff’s claim.
Nationwide’s Motion for Summary Judgment is due to be GRANTED IN
PART, and due to be DENIED IN PART. Plaintiff has provided sufficient evidence
showing a prima facie breach of contract claim. Therefore, Nationwide’s motion for
summary judgment is due to be DENIED as to Plaintiff’s breach of contract claim.
However, because Plaintiff’s normal and abnormal bad faith claims fail as a matter of
law, Nationwide’s motion for summary judgment is due to be GRANTED as to
Plaintiff’s bad faith claims. A separate order consistent with this opinion will be
Done this 7th day of March 2013.
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L. SCOTT COOGLER
UNITED STATES DISTRICT JUDGE
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