Assurance Company of America v. Defoor Station, LLC et al
Filing
153
ORDER granting 115 Motion for Summary Judgment. Signed by Judge Thomas W. Thrash, Jr on 11/15/11. (dr)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
ASSURANCE COMPANY OF
AMERICA,
Plaintiff,
v.
CIVIL ACTION FILE
NO. 1:09-CV-3198-TWT
DEFOOR STATION, LLC, et al.,
Defendants.
ORDER
This is a declaratory judgment action arising out of an insurance coverage
dispute. It is before the Court on the Plaintiff’s Motion for Summary Judgment [Doc.
115]. For the reasons set forth below, the Court GRANTS the Plaintiff’s motion.
I. Background
This litigation arises out of a builder’s risk insurance policy (the “Policy”)
issued by Assurance Company of America (“Assurance”) to Defoor Station, LLC
(“Defoor”) [See Doc. 18-1]. The Policy provided coverage for a building located at
1700 Defoor Avenue, Atlanta, GA 30318 (the “Property”). The Policy covered losses
to “Existing Buildings or Structures” at actual cash value [See id.].
Loss to
remodeling work performed during the policy period was calculated on a replacement
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cost basis [See id.]. Thus, the Policy covered damage to remodeled structures at a
greater value than preexisting structures.
The Policy also contains a “Concealment, Misrepresentation or Fraud”
provision. This provision provided:
This Coverage Part is void in any case of fraud, intentional
concealment or misrepresentation of a material fact, by you
or any other insured, at any time, concerning:
1. This Coverage Part;
2. The Covered Property;
3. Your interest in the Covered Property; or
4. A claim under this Coverage Part.
[Doc. 18-1, p. 2].
In May 2007, Defoor submitted a claim under the Policy resulting from
vandalism damage to HVAC units on the Property (the “2007 Loss”). (See Pl.’s Br.
in Supp. of Pl.s’ Mot. for Summ. J., Ex. A, p. 190.) This claim was resolved. (Id., p.
198.) On November 11, 2008, the Property was allegedly vandalized again (the “2008
Loss”).
Jeffrey Gladstein, member-manager of Defoor, reported the loss to
Assurance. Defoor also retained Worldclaim, a public adjuster, to assist with the
claim. On July 10, 2009, Worldclaim provided a Sworn Statement in Proof of Loss
claiming $335,354.18 in damages [See Doc. 101-2]. The Proof of Loss included
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claims for replacement of HVAC systems and water-damage to the Property [Id.]. All
items were claimed on a replacement cost basis.
On November 18, 2009, Assurance filed this Complaint for Declaratory
Judgment against Defoor and Station Realty Investments, LLC [Doc. 1]. The Plaintiff
argues that there is no coverage under the Policy because the Defendants violated the
“Concealment, Misrepresentation or Fraud” provision of the Policy. The Defendants
filed an answer and counterclaimed for bad faith and attorney’s fees under O.C.G.A.
§ 33-4-5 [Doc. 14].
II. Summary Judgment Standard
Summary judgment is appropriate only when the pleadings, depositions, and
affidavits submitted by the parties show that no genuine issue of material fact exists
and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
The court should view the evidence and any inferences that may be drawn in the light
most favorable to the nonmovant. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59
(1970). The party seeking summary judgment must first identify grounds that show
the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323-24 (1986). The burden then shifts to the nonmovant, who must go beyond
the pleadings and present affirmative evidence to show that a genuine issue of material
fact does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).
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III. Discussion
Assurance contends that the Defendants violated the “Concealment
Misrepresentation or Fraud” provision of the Policy. “Under a misrepresentation
clause, a willful and intentional misrepresentation of material facts made for the
purpose of defrauding the insurer will void the contract.” Perry v. State Farm Fire &
Cas. Co., 734 F.2d 1441, 1443 (11th Cir. 1984); see also Woods v. Independent Fire
Ins. Co., 749 F.2d 1493, 1495 (11th Cir. 1985) (quoting Claflin v. Commonwealth Ins.
Co., 110 U.S. 81, 94-95 (1884)) (“A false answer as to any matter of fact material to
the inquiry, knowingly and wilfully made, with intent to deceive the insurer, [is]
fraudulent.”). “A misrepresentation is material if it ‘might affect [the insurer's] action
in respect to . . . settlement or adjustment of the claim of the insured.’” Perry, 734 F.2d
at 1443 (quoting American Alliance Insurance Co. v. Pyle, 62 Ga. App. 156, 160
(1940)). “[M]ateriality is a mixed question of law and fact that can be decided as a
matter of law if reasonable minds could not differ on the question.” Id. at 1496
(quoting Long v. Insurance Co. of North Am., 670 F.2d 930, 934 (10th Cir. 1982)).
A.
Concealed Documents
The Plaintiff contends that the Defendants withheld documents, including bank
records and appraisals, that would have revealed prior misrepresentations regarding
the 2008 Loss. The Defendants, however, produced those documents to Assurance
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in May 2011. (See Pl.’s Br. in Supp. of Pl.’s Mot. for Summ. J., at 5 n.2.) Thus, the
Defendants did not violate the “Concealment, Misrepresentation or Fraud” provision
of the Policy by failing to produce documents.
B.
Water Damage
The Plaintiff claims the Defendants misrepresented the existence of water
damage on the Property. The Defendants submitted an invoice from the Defendants’
contracting company for costs associated with cleanup of water damage. Further,
Jeffrey Gladstein, the Defendants’ representative, testified that while visiting the
property after the 2008 Loss, he noticed that “water had leaked in a number of places
and the copper piping was missing from a number of places.” (Gladstein Dep. at 192;
Doc. 115-2.)
Assurance contends that these representations were false. In support, the
Plaintiff offers the testimony of William Crane, the police officer who responded to
the 2008 Loss. Crane testified that he did not notice any water damage at the
Property. (Crane Aff. ¶¶ 11, 13, & 15; Doc. 115-5.) Crane further testified that the
Property appeared “dusty and dry.” (Id.) Although Crane did not notice any water
damage, Gladstein testified that there was water damage. Given this conflicting
testimony, the Court cannot conclude as a matter of law that the Defendants
misrepresented the existence of water damage on the Property.
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C.
Fraudulent Documentation
The Plaintiff argues that the Defendants verified a fraudulent invoice for
electrical work. The Defendants provided an invoice from Handy Electric describing
electrical work performed at the Property after the 2007 Loss. William Anderson, the
owner of Handy Electric, testified that Handy Electric did not create the invoice.
(Anderson Dep. at 27-28; Doc. 101-10.) The Plaintiff thus contends that the invoice
is fraudulent. Further, Assurance argues that the misrepresentation is material because
the fraudulent estimate increased the alleged value of the Property at the time of the
2008 Loss. To the extent Handy Electric completed work at the Property prior to the
2008 Loss, the Policy covers damage to those structures at actual cash value [See Doc.
18-1]. Thus, the Plaintiff asserts that the invoice fraudulently increased the value that
the Defendants may recover under the Policy.
Jeffrey Gladstein, however, testified that although Handy Electric did not
generate the invoice, he created it with the help of William Anderson. (Gladstein Aff.
¶¶ 16-17.) Indeed, Gladstein asserts that “all of the numbers in the estimate came
directly from [Mr. Anderson].” (Id.) The Plaintiff argues that the invoice is material
because it creates an artificially inflated value of the Property at the time of the 2008
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Loss.1 The Defendants, however, contend that all numbers in the invoice are accurate
and were reviewed and approved by Handy Electric. (Id.) Thus, given the conflicting
testimony between Anderson and Gladstein, there is an issue of material fact as to
whether the invoice includes material misrepresentations that fraudulently inflated the
value of the Property.
D.
Interior HVAC Units
The Plaintiff argues that the Defendants misrepresented the condition and
replacement value of the interior HVAC units. These interior units were damaged
during the 2007 Loss. Assurance contends that there is no evidence that the interior
HVAC units were repaired after the 2007 Loss. Specifically, the Plaintiff notes that
after the 2007 Loss, Mitchell Sosebee provided an estimate for repairs to the interior
HVAC units. Sosebee, however, testified that he never performed those repairs.
(Sosebee Dep. at 28-29; Doc. 101-9.) Thus, the Plaintiff claims that the Defendants
misrepresented the condition of the interior HVAC units at the time of the 2008 Loss.
The Defendants, however, did not testify that Sosebee performed the work
described in the estimate. Rather, the Defendants testified that they could not “recall
the specific name of the company or individual” that repaired the HVAC units [Doc.
1
Assurance does not contend that merely misrepresenting the author of the invoice was a
material misrepresentation.
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101-5, ¶ 12]. Nevertheless, the Defendants assert that the interior HVAC units were
repaired after the 2007 Loss. Thus, although the Defendants cannot recall who
performed the HVAC repair, there is an issue of material fact as to whether the
Defendants misrepresented the status of the interior HVAC units.
Assurance also argues that Sosebee’s estimate inflated the loss by including
replacement HVAC units that were higher quality than those damaged during the 2008
Loss [See Doc. 101-9]. Specifically, the estimate called for three phase HVAC units
[See id.]. Three phase units are more expensive than the one phase units originally
installed on the Property. The Defendants’ request for three phase replacement units,
however, was not fraudulent. Indeed, the Defendants openly submitted an estimate
for three phase replacement units. Although the Plaintiff believes that such units are
not covered under the Policy, the Defendants’ request did not misrepresent the fact
that one phase HVAC units had been on the Property previously. For these reasons,
there is an issue of material fact as to whether the Defendants made material
misrepresentations with respect to the interior HVAC units.
E.
Exterior HVAC Units
Assurance contends that the Defendants falsely testified that the exterior HVAC
units were stolen from the Property during the 2008 Loss. In his deposition, Jeffrey
Gladstein stated that “after the 2007 prior loss, equipment was left in various states
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of disrepair in the building and the outdoor condensing and compressor units
remained.” (Gladstein Dep. at 237; Doc. 115-2.) Further, Gladstein testified that after
the 2008 Loss, “the outdoor condensing compressor units were completely stolen,
gone, and additional damage was done to the equipment that remained in the building
that had been at least partially rehabilitated at that time.” (Id.) Indeed, Gladstein
repeated several times during his deposition that after the 2007 Loss, the outdoor
compressing units remained. He even testified that “I think we showed you the plastic
pads the [the outdoor condensing units] had been on previously when you were out
there.” (Id.) Finally, in their response to interrogatories, the Defendants claimed that
“[a]fter the 2007 Loss, the outdoor condensing units, although vandalized, remained
in place on the premises. During the 2008 incident, these remaining outdoor units
were stolen” [Doc. 101-5] (emphasis added). Thus, the Defendants clearly testified
that condensing units remaining “in place” after the 2007 Loss and were stolen during
the 2008 Loss.
The Plaintiff, however, has shown by indisputable evidence that there were no
exterior HVAC units at the Property on November 11, 2008. In support, the Plaintiff
produced three real estate appraisals performed by McColgan and Company
[See Docs. 101-6, 101-7, & 101-8]. These reports indicate that there were no exterior
HVAC units on the Property after the 2007 Loss [See id.]. Indeed, the September 5,
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2008 report indicates that the exterior units had been stolen and that “insurance [had
been] paid for the replacement equipment but it [had] yet to be installed” [Doc. 101-6,
p. 28].
In response to the Plaintiff’s motion, the Defendants produced an affidavit
stating that the stolen HVAC units were inside the Property at the time of the 2008
Loss. (See Gladstein Aff. ¶ 14; Doc. 139-2.) This affidavit, however, directly
contradicts the Defendants’ previous written and deposition testimony. “When a party
has given clear answers to unambiguous questions which negate the existence of any
genuine issue of material fact, that party cannot thereafter create such an issue with
an affidavit that merely contradicts, without explanation, previously given clear
testimony.” Cooper v. Southern Co., 260 F. Supp. 2d 1317, 1326 (N.D. Ga. 2003)
(quoting Van T. Junkins & Assocs., Inc. v. U.S. Indus., Inc., 736 F.2d 656, 657 (11th
Cir. 1984)). In response to written and oral discovery, the Defendants clearly testified
that the exterior HVAC units remaining “in place” after the 2007 Loss had been stolen
in the 2008 Loss. The Defendants contradictory affidavit cannot create an issue of
material fact as to the location of the stolen HVAC units.
Further,
the
Defendants’
misrepresentations
were
material.
“A
misrepresentation is material if it ‘might affect [the insurer’s] action in respect to . .
. settlement or adjustment of the claim of the insured.’” Perry, 734 F.2d at 1443
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(quoting Pyle, 62 Ga. App. at 160). Here, knowledge that exterior HVAC units were
not stolen during the 2008 Loss would surely affect Assurance’s adjustment of the
claim. See Perry, 734 F.2d at 1443 (quoting Pyle, 62 Ga. App. at 160 (1940)) (“A
misrepresentation is material if it ‘might affect [the insurer’s] action in respect to . .
. settlement or adjustment of the claim of the insured.’”). Indeed, by misrepresenting
the existence of the exterior HVAC units, and claiming those units were stolen, the
Defendants misrepresented the amount of the loss. See Perspolis, Inc. v. Federated
Mut. Ins. Co., No. 1:03-CV-2456, 2006 U.S. Dist. LEXIS 20801, at *6 (N.D. Ga.
March 28, 2006) (“The amount lost in a burglary is a material fact, as that is the
amount the insurance company-defendant is obligated to pay unless there is some
reason to void the policy.”). Thus, the Defendants made a material misrepresentation
in violation of the “Concealment, Misrepresentation or Fraud” provision of the Policy.
For this reason, there is no issue of material fact as to the Plaintiff’s liability under the
Policy.
F.
Bad Faith
Finally, the Plaintiff has moved for summary judgment as to the Defendants’
bad faith counterclaim. O.C.G.A. § 33-4-6 provides that:
In the event of a loss which is covered by a policy of
insurance and the refusal of the insurer to pay the same
within 60 days after a demand has been made by the holder
of the policy and a finding has been made that such refusal
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was in bad faith, the insurer shall be liable to pay such
holder, in addition to the loss, not more than 50 percent of
the liability of the insurer for the loss or $ 5,000.00,
whichever is greater, and all reasonable attorney's fees for
the prosecution of the action against the insurer.
O.C.G.A. § 33-4-6. However, “where the insurer is ‘justified in litigating the issue [it]
cannot, as a matter of law, be liable for the statutory penalty for bad faith.’” Ware v.
Nationwide Mut. Ins. Co., 140 Ga. App. 660, 662 (1976) (quoting State Farm Mutual
Auto Ins. Co. v. Bass, 231 Ga. 269 (1973)). Here, as discussed above, Assurance was
justified in disputing the claim under the “Concealment, Misrepresentation or Fraud”
provision of the Policy. For this reason, the Defendants’ counterclaim for bad faith
is dismissed.
IV. Conclusion
For the reasons set forth above, the Court GRANTS the Plaintiff’s Motion for
Summary Judgment [Doc. 115].
SO ORDERED, this 15 day of November, 2011.
/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge
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