Safeco Insurance Company of America v. Howard et al
Filing
50
OPINION AND ORDER granting Wells Fargos 38 Motion for Partial Summary Judgment; denying SafeCos 40 Motion for Summary Judgment. Count II of Wells Fargos Counterclaim remains pending. Signed by Judge Rudy Lozano on 2/10/12. (mc)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
SAFECO INSURANCE COMPANY
OF AMERICA,
)
)
)
)
)
)
)
)
)
)
)
Plaintiff,
vs.
CHARLES HOWARD,
et al.,
Defendants.
NO. 2:09-CV-166
OPINION AND ORDER
This matter is before the Court on: (1) Defendant Wells Fargo
Home Mortgage’s Motion for Partial Summary Judgment (DE# 38), filed
on July 6, 2011; and (2) Counter-Defendant’s Motion for Summary
Judgment (DE# 40), filed by Safeco Insurance Company of America, on
July 6, 2011.
For the reasons set forth below, Wells Fargo’s motion for
partial summary judgment is GRANTED. Accordingly, this Court finds
that SafeCo is liable to Wells Fargo for the remaining mortgage
amount due on the Gary, Indiana property as of July 5, 2008.
SafeCo’s motion for summary judgment is DENIED.
Fargo’s Counterclaim remains pending.
-1-
Count II of Wells
BACKGROUND
SafeCo filed a complaint seeking declaratory judgment on June
11, 2009. (DE #1).
In that complaint, SafeCo argues that it is not
liable to pay any insurance proceeds to either Howard, its primary
insured, or Wells Fargo, the first mortgagee on the property.
Wells Fargo filed its answer and two-count Counterclaim on January
21, 2010, arguing that it was entitled to the insurance proceeds
and that SafeCo breached both its contract with Wells Fargo and its
duty of good faith. (DE #15).
Wells Fargo filed its motion for summary judgment(DE #38) on
July 6, 2011, seeking judgment in its favor on the claims asserted
against it in SafeCo’s complaint and on its breach of contract
counterclaim.
On that same day, SafeCo filed its motion for
summary judgment. (DE #40).
SafeCo seeks summary judgment in its
favor on both of Wells Fargo’s counterclaims. The Howards have not
yet appeared in this case or responded to the complaint.
Facts
On March 29, 2007, Charles Howard (“Howard”) entered into a
mortgage agreement with Wells Fargo for the purchase of a property
located at 1011 E 47th Place in Gary, Indiana. (Robinson Dep., Ex.
3). The original loan amount totaled $52,700. On April 9, 2008,
SafeCo
entered
coverage
to
into
the
an
Gary
insurance
property
-2-
policy
effective
agreement
through
extending
April
9,
2009.(Cmplt, Ex. A). Wells Fargo was listed as “1st Mortgagee”
under the terms of the policy and carried a policy limit of
$77,000. (Cmplt, Ex. A). All policy premiums had been paid as of
July 5, 2008. (Parker Dep. at 14:17-20; 65:5-8).
Howard failed to make his April 2008 and May 2008 mortgage
payments, leading Wells Fargo to hire a company to conduct monthly
inspections of the mortgaged, insured property. (Crowder Dep. at
23:18-24:10;
24:22-25:6;
25:21-25:5;
44:25-45:20;
55:8-56:11).
Inspections occurred on May 22, 2008 and on June 25, 2008. (Foreman
Dep. at 33:12-15; 33:24-34:3; 38:14-16; 41:7-9).
On July 5, 2008, a fire occurred at the insured Gary property
(Crowder Declaration ¶6), and on November 7, 2008, Howard submitted
to SafeCo a signed proof of loss statement claiming a total loss of
the Gary property in the amount of $77,000. (Wells Fargo Ex. I-2).
Following receipt of Howard’s proof of loss, SafeCo opened an
investigation into the July 5, 2008 fire loss which included an
examination under oath of Howard. Wells Fargo learned of the fire
loss on July 8, 2008 (Crowder Declaration ¶6) and submitted a
timely signed, sworn statement of loss. (Wells Fargo Ex. I-2). At
that time, the principal mortgage and accrued interest totaled
$54,351,57. (Crowder Declaration ¶7). A third property inspection
by Wells Fargo’s agent was conducted on July 6, 2008 with findings
conclusive that the Gary property was vacant and a total loss.
(Foreman Dep. at 45:14-17; 49:13-15).
-3-
On July 11, 2008, Wells Fargo initiated mortgage foreclosure
proceedings against Howard. (Complaint; Robinson Dep. at 63:10-12).
On October 22, 2008, a personal judgment was entered against Howard
and in rem against the Gary property in the amount of $57,632.96.
(Exhibit L). The property was never sold. (Robinson Dep. at 65:2123).
On July 15, 2008, Wells Fargo sent SafeCo an “Urgent Notice of
Vacancy.” (Exhibit I at ¶8). Wells Fargo hired Superior Home
Services (“Superior”) to help it secure payment of policy proceeds,
and Superior forwarded a copy of the Gary property foreclosure
complaint to SafeCo on September 17, 2008. (Ohmer Declaration at
¶4; Exhibit K at ¶ 6). On April 24, 2009, SafeCo requested that
Wells Fargo submit a Proof of Loss form which Wells Fargo submitted
on May 14, 2009. (Exhibit K at ¶8; Exhibit I at ¶10). Wells Fargo
submitted an additional Proof of Loss form on August 10, 2009.
(Exhibit K at ¶9-10; Exhibit K-4). SafeCo has not paid Wells Fargo
any of the insurance proceeds associated with the Gary property.
(Exhibit I at ¶11).
SafeCo filed a complaint for declaratory judgment on June 11,
2009, seeking this Court to declare that it did not owe any
insurance policy proceeds to either Howard or Wells Fargo. (DE #
1). Neither Howard nor his wife, who was also named, responded. On
January 21, 2010, Wells Fargo filed its counterclaims against
SafeCo, arguing that SafeCo was in breach of contract and violated
-4-
its duty of good faith by refusing to pay Wells Fargo the insurance
proceeds. (DE #15).
SafeCo and Wells Fargo have now filed their
respective motions for summary judgment, which will be addressed in
turn.
DISCUSSION
I.
Wells Fargo’s Motion for Summary Judgment
The standards that generally govern summary judgment motions
are familiar. Pursuant to Rule 56(c) of the Federal Rules of Civil
Procedure, summary judgment is proper only if it is demonstrated
that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law.
See
Nebraska v. Wyoming, 507 U.S. 584, 590 (1993); Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986).
In other words, the record
must reveal that no reasonable jury could find for the nonmovant.
Karazanos v. Navistar Int'l Transp. Corp., 948 F.2d 332, 335 (7th
Cir. 1991); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250 (1986).
In deciding a motion for summary judgment, a court
must view all facts in the light most favorable to the nonmovant.
Anderson, 477 U.S. at 255; Nucor Corp. v. Aceros Y Maquilas De
Occidente, 28 F.3d 572, 583 (7th Cir. 1994).
The burden is upon the movant to identify those portions of
"the
pleadings,
depositions,
answers
to
interrogatories,
and
admissions on file, together with the affidavits," if any, that the
-5-
movant believes demonstrate an absence of a genuine issue of
material fact.
Celotex, 477 U.S. at 323.
Once the movant has met
this burden, the nonmovant may not rest upon mere allegations but
"must set forth specific facts showing that there is a genuine
issue for trial."
Fed. R. Civ. P. 56(e); Becker v. Tenenbaum-Hill
Assocs., Inc., 914 F.2d 107, 110 (7th Cir. 1990); Schroeder v.
Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir. 1989).
"Whether
a
fact
is
material
depends
on
the
substantive
law
underlying a particular claim and 'only disputes over facts that
might affect the outcome of the suit under governing law will
properly preclude the entry of summary judgment.'"
Walter v.
Fiorenzo, 840 F.2d 427, 434 (7th Cir. 1988) (citing Anderson, 477
U.S. at 248).
"[A] party who bears the burden of proof on a particular issue
may not rest on its pleading, but must affirmatively demonstrate,
by specific factual allegations, that there is a genuine issue of
material fact which requires trial." Beard v. Whitley County REMC,
840 F.2d 405, 410 (7th Cir. 1988) (emphasis in original); see also
Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1391 (7th Cir. 1993).
Therefore, if a party fails to establish the existence of an
essential element on which the party bears the burden of proof at
trial, summary judgment will be appropriate.
The substantive law underlying any given claim determines
whether a fact is material, and “only disputes over facts that
-6-
might affect the outcome of the suit under governing law will
properly preclude the entry of summary judgment.” Liberty Lobby,
Inc., 477 U.S. at 248 (1986). “Generally, construction of a written
contract is a question of law for which summary judgment is
particularly appropriate.” See Merrillville Conservancy District ex
rel. Bd. of Directors v. Atlas Excavating, Inc., 764 N.E.2d 718,
724 (Ind. Ct. App. 2002).
In its instant motion for summary judgment, Wells Fargo argues
that SafeCo is liable for the remaining mortgage on the Gary
property. Wells Fargo contends SafeCo breached its insurance policy
contract with Wells Fargo when it failed to pay the amount due
under the mortgage. Although SafeCo proposes that Wells Fargo
failed to meet certain of its own post-loss obligations, Wells
Fargo argues that it complied with all contract requirements, thus
rendering SafeCo in material breach for non-payment.
1.
Wells
Breach of contract claim
Fargo
claims
that
SafeCo
materially
breached
its
contract with Wells Fargo when SafeCo failed to pay insurance
policy proceeds to Wells Fargo as first mortgagee on the Gary
property. In response, SafeCo argues that Wells Fargo materially
breached the same contract terms, thus justifying SafeCo’s delay
and nonpayment.
-7-
An insurance policy constitutes a contract between the insurer
and the insured. See Cincinnati Ins. Co. v. Mallon, 409 N.E.2d
1100, 1103 (Ind. App. 1980); South Bend Escan Corp. v. Federal Ins.
Co., 647 F.Supp. 962, 966 (N.D. Ind. 1986). The insurer’s interest
is payment of insurance premiums, while the insured’s interest is
peace of mind that a property is covered by a policy should
specifically covered damage or loss occur. However, secondary
parties, such as mortgagees, may also hold an interest in the
policy proceeds if certain conditions are met. See SafeCo Ins. Co.
Of America v. Howard, 2010 WL 5058549 *2 (Dec. 6, 2010). “If a
mortgagee is listed under a standard or mortgage clause in an
insurance contract, then the mortgagee is deemed to have entered
into a separate contract with the insurer and is entitled to
payment regardless of the mortgagor’s acts or omissions.” See id.
at *2; Fifth Third Bank v. Indiana Insurance Co., 771 N.E.2d 1218,
1223 (Ind. Ct. App. 2002). Indeed, “[...] if the mortgagee is
listed under a New York, or standard, or union, mortgage clause, it
is universally held that the mortgagee has entered into a separate
contract with the insurer [...].” See Property Owners Ins. Co. v.
Hack, 559 N.E.2d 396, 400 (Ind. Ct. App. 1990).
In this case, Howard entered into a contract with SafeCo when
he purchased insurance policy OZ4028752, effective beginning on
April 9, 2008 and continuing coverage through April 9, 2009. This
policy listed Wells Fargo as “1st mortgagee” by virtue of its
-8-
status as holder of Howard’s mortgage on the Gary property. The
policy at issue was in effect on the date of the fire, July 5, 2008
and at that time, it constituted a valid and enforceable contract
between the parties. It contained a “Mortgage Clause” which read,
in pertinent part:
Mortgage Clause. [...] If we deny your claim, that denial
shall not apply to a valid claim of the mortgagee, if the
mortgagee: (a) notifies us of any change in ownership,
occupancy, or substantial change in risk of which the
mortgagee is aware; (b) pays the premium due under this
policy on demand if you have neglected to pay the
premium; [and] (c) submits a signed, sworn statement of
loss within 60 days after receiving notice from us of
your failure to do so. [...]
Wells Fargo argues that it complied with all three obligations of
the “Mortgage Clause” and that because Howard, the insured, is not
eligible to collect the proceeds of the loss, Wells Fargo, as first
mortgagee, stands in line to collect the remaining mortgage amount
due on the Gary property. Because SafeCo has not paid this amount,
Wells Fargo argues that SafeCo is in breach of the insurance policy
contract and demands relief.
SafeCo
counters
that
Wells
Fargo
failed
to
meet
its
obligations under the above-captioned “Mortgage Clause” because it:
(1) failed to notify SafeCo of a substantial change in risk of
which Wells Fargo was aware and (2) failed to submit a signed,
sworn statement of loss within 60 days after receiving notice from
SafeCo of its failure to do so. The Court will address each of
these arguments in turn.
-9-
a.
Default on mortgage is not a substantial change in risk
Under the “Mortgage Clause” of the insurance policy at issue,
Wells Fargo’s first obligation was to notify SafeCo of “any change
in ownership, occupancy, or substantial change in risk” of which it
was aware.
SafeCo argues that this clause required Wells Fargo to
notify SafeCo of the foreclosure proceedings taking place on the
Gary property because those proceedings constituted a “substantial
change in risk.”
Safeco continues by arguing that Wells Fargo
breached the terms of the contract, and is thus not entitled to any
insurance
proceeds,
when
it
failed
to
notify
Safeco
of
the
foreclosure proceedings.
Under Indiana law, there is no clear-cut definition of what
constitutes a “substantial change in risk.” Indiana law does,
however, provide unambiguous language delineating those situations
that do not rise to the level of a substantial change in risk.
Notably,
the
institution
of
foreclosure
proceedings
does
not
constitute an increase in hazard substantial enough for an insurer
to escape policy liability. See Phenix Ins. Co. Of Brooklyn, N.Y.
v. Union Mut. Life Ins. Co. Of Maine, 101 Ind. 392, *2-3 (1885). So
clear was the Supreme Court of Indiana on this point that it did
not even let the case in question survive a motion to dismiss.
Rather,
while
the
insurance
company
in
Phenix
argued
that
foreclosure proceedings increased the risk of loss by fire so
greatly as to allow it to avoid the contract, the court instead
-10-
held that if knowledge of foreclosure proceedings were so important
to the insurer, it would have explicitly provided so in the policy.
101 Ind. at *2 (“Besides, it may well be supposed that if the
appellant had desired to be notified of the commencement of
foreclosure proceedings, or had supposed that the mere commencement
of such proceedings would increase the hazard of the risk, it would
have stipulated for such notice in direct terms in the mortgage
clause.”)(emphasis added). Because it did not so provide, it could
not escape its coverage liability.
Although SafeCo directs the Court’s attention to several cases
that
discuss
policies
explicitly
providing
for
notice
of
foreclosure proceedings, the policy in the instant case does not
contain such a provision. Rather, “substantial change in risk” is
undefined, and the Court is thus guided by Phenix. In Phenix,
foreclosure proceedings had already begun, and those proceedings
did not constitute an increase in hazard.
In this case, the
foreclosure process on the Gary property did not even commence
until after the fire loss.
At issue before the loss was the
insured’s default on his mortgage loan payments. If Indiana law
holds that foreclosure proceedings do not rise to the level of a
“substantial change in risk” of the property profile, the Court is
certainly not persuaded that a mere default on an insured’s
mortgage, though a serious matter in itself, so increased the risk
of fire loss that it could be deemed a “substantial change in
-11-
risk.” Nor is the Court persuaded that default on a mortgage loan,
in the current market, can be deemed an event no reasonable insurer
would contemplate at the time of policy issuance.
Had
SafeCo
foreclosure
desired
to
proceedings
be
or
apprised
even
the
of
either
mere
mortgage
commencement
thereof–commencement which can still be cured by the defaulting
mortgagee–then
it
could
and
should
have
so
provided
in
the
insurance policy contract that it drafted and entered into with
Howard and Wells Fargo. Because it failed to provide for that
contingency, and because contracts are to be construed against the
drafting party when it maintains equal or greater bargaining power
than its counterparts, SafeCo cannot now escape liability for the
mortgage remainder by claiming that Wells Fargo should have put it
on notice of foreclosure proceedings.
b.
Wells Fargo submitted a signed, sworn statement within 60
days of its obligation to do so
SafeCo next argues that Wells Fargo failed to comply with
policy
requirements
when
it
failed
to
attach
supporting
documentation to its Proof of Loss submissions. Specifically,
SafeCo claims that Wells Fargo was obligated to submit a “complete”
signed, sworn statement of loss but that Wells Fargo instead
submitted to SafeCo a signed statement of loss form “simply”
showing the total loss claimed in the property. Under the “Mortgage
Clause” of the policy, however, supporting documentation is not
-12-
required, and while it can conceivably be requested to facilitate
insurer payment, failure to submit it with the signed, sworn
statement of loss does not violate policy terms or breach the
contract.
The
insurance
policy
agreement
is
separate,
independent
contract by and between SafeCo, as insurer, and Wells Fargo, as
first mortgagee. See Fifth Third Bank v. Indiana Insurance Co., 771
N.E.2d 1218, 1223 (Ind. Ct. App. 2002). Wells Fargo is not a mere
third party beneficiary to the agreement between SafeCo and Howard,
the primary insured. Thus, because the parties entered into a valid
and enforceable contract separate from the one by and between
SafeCo and Howard, the agreement is to be construed using the
familiar cannons of contract interpretation.
Insurance
contracts
are
subject
to
the
same
rules
of
construction as other contracts. See Great Lakes Chemical Corp. v.
Int’l Surplus Lines Ins. Co., 638 N.E.2d 847, 850 (Ind. Ct. App.
1994). The most basic tenet of contract construction is that where
the agreement language is clear and unambiguous, it must be given
its plain and ordinary meaning. See Burkett v. American Family Ins.
Group, 737 N.E.2d 447, 452 (Ind. Ct. App. 2000). All language is
thus to be given effect, and the Court may not construe an
agreement so as to render language or terms meaningless. See
Western Southern Life Ins. Co. v. Acton, 779 N.E.2d 941, 943 (Ind.
Ct. App. 2002) (holding that the Court “must interpret the language
-13-
of a contract so as not to render any words, phrases, or terms
ineffective or meaningless”).
Two policy provisions are at issue in connection with the
required
signed,
sworn
statement
of
loss.
They
are
markedly
different from each other. The first provision is the “Mortgage
Clause” applicable to Wells Fargo, which, in relevant part reads as
follows:
Mortgage Clause. [...] If we deny your claim, that
denial shall not apply to a valid claim of the
mortgagee, if the mortgagee: [...](c) submits a
signed, sworn statement of loss within 60 days
after receiving notice from us of your failure to
do so. [...]
The
second
provision
is
the
“You
Duties
After
Loss”
Clause
applicable to the primary insured, Howard, which, in relevant part
reads as follows:
Your Duties After Loss. In case of a loss to which
this insurance may apply, you must perform the
following duties:[...](f) submit to us, within 60
days after we request, your signed, sworn proof of
loss which sets forth, to the best of your
knowledge and belief: (1) the time and cause of
loss; (2) interest of the insured and all others in
the property involved and all encumbrances on the
property; (3) other insurance which may cover the
loss; (4) changes in title or occupancy of the
property during the term of the policy; (5)
specifications of any damaged building and detailed
estimates of repair; (6) an inventory of damaged
personal property described in 4.e; and (7) records
supporting the Loss of Rent or Rental Value.
In this case, SafeCo argues that the signed, sworn statement
of loss required by Wells Fargo was subject to the same level of
documentary support as the proof of loss required of the primary
-14-
insured, Howard. However, this Court disagrees.
Under the policy, in order to collect insurance proceeds
following the July 5, 2008 fire, Howard was required to submit to
SafeCo a signed, sworn proof of loss within 60 days of the incident
in question. This proof of loss was to be supported by documents
showing, among others, the time and cause of loss, the interest of
the insured and others in the property, other insurance covering
the loss, changes in title of occupancy of the property during the
policy term, detailed repair estimates, an inventory of damaged
personal property, and records supporting the loss of rent or
rental value, if applicable. SafeCo argues that the same level of
specificity was required of Wells Fargo when it submitted its own
statement of loss.
This construction fails for at least two reasons. First, the
plain language of the agreement indicates otherwise. While a
plethora of supporting documentation was required of the primary
insured, the analogous provision describing Wells Fargo’s statement
of loss requirements did not include the same language. To suggest
that the same documents were required of Wells Fargo would be to
render entire portions of Howard’s required statement of loss
provision meaningless. Indeed, had SafeCo intended the same level
of specificity from a first mortgagee, it would have so provided in
the agreement which it drafted, which leads to the second reason
why SafeCo’s argument fails.
-15-
Any ambiguities in an insurance contract are to be construed
against the drafter and in favor of the insured. See Beam v. Wausau
Ins. Co., 765 N.E.2d 524, 528 (Ind. 2002); Argonaut Ins. Co. v.
Jones, 953 N.E.2d 608 (Ind. Ct. App. 2011). “This is especially
true where a policy excludes coverage.” See Everett Cash Mut. Ins.
Co. v. Taylor, 926 N.E.2d 1008, 1012 (Ind. 2010). Thus, if an
ambiguity can be said to exist between what was required of Howard
versus what was required of Wells Fargo, the uncertainty must be
construed in Wells Fargo’s favor. In this case, such a construction
leads to the conclusion that SafeCo demanded far less of Wells
Fargo’s
signed,
sworn
statement
than
it
required
of
Howard.
Certainly, it was the actual property owner who could provide an
inventory of property lost of damaged and lengthy repair estimates,
not the mortgagee, who dealt at arms-length with the property and
was never the homeowner.
With these points in mind, Wells Fargo’s Motion for Summary
Judgment is GRANTED. SafeCo is liable to Wells Fargo for the
remaining mortgage amount due on the Gary property as of July 5,
2008.
II.
SafeCo’s Motion for Summary Judgment
The legal standard for granting summary judgment is explained
above in Part I. The Court reiterates here that it is only proper
when “the pleadings, depositions, answers to interrogatories, and
-16-
admissions
on
file,
together
with
the
affidavits,”
if
any,
demonstrate that there is no genuine issue of material fact and
that the moving party is entitled to judgment as a matter of law.
F.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317,
322–23 (1986).
SafeCo argues that it is not liable to pay Wells Fargo any
policy proceeds. First, in rehashing an argument discussed in Wells
Fargo’s motion for summary judgment, SafeCo contends that Wells
Fargo failed to meet its obligations under the insurance policy
contract. Second, SafeCo argues that Wells Fargo’s damage amount is
speculative and based solely on conjecture, which cannot form he
basis of a damage award. SafeCo urges that because Wells Fargo
could not, during discovery, explain precisely how it arrived at
the amount claimed, it is not entitled to policy proceeds at all.
Third,
SafeCo
insurance
contends
policy
that
contract
Wells
were
Fargo’s
extinguished
rights
when
under
Wells
the
Fargo
instituted mortgage foreclosure proceedings on the Gary property.
In addition, SafeCo seeks summary judgment on Count II of Wells
Fargo’s counterclaim; breach of the duty of good faith and fair
dealing.
For the reasons discussed below, each of these arguments
fails as a matter of law.
-17-
1.
Breach of Contract
a.
Wells Fargo met its obligations under the contract
For the reasons discussed above in Part I-1, Wells Fargo is
deemed to have met its obligations under the “Mortgage Clause” of
the insurance policy pursuant to which it stands as 1st mortgagee
with rights to collect policy proceeds. In this case, Wells Fargo
complied with all applicable requirements in order to preserve its
claims following the July 5, 2008 fire loss of the Gary property.
With this in mind, the Court now turns to SafeCo’s remaining
arguments.
b.
Wells Fargo’s damages are not speculative
SafeCo contends that the damage amount brought forth by Wells
Fargo is speculative. It is well established that damages can be
neither speculative nor based on conjecture or guess.
Boyd v.
Tornier, Inc., 656 F.3d 487, 496 (7th Cir. 2011). SafeCo premises
its argument on the fact that during her deposition, Wells Fargo’s
representative, Tabitha Crowler, could not explain how the bank had
arrived at the amount of loss.
Typically, “the rights of the mortgagee to the insurance
proceeds are determined at the time of loss.”
Fifth Third, 771
N.E.2d at 1223. Although at her deposition Ms. Crowler could not
definitively explain how Wells Fargo calculated its damages, based
on the discovery produced, Ms. Crowder has since determined that
the principal due on the mortgage and accrued interest as of July
-18-
5, 2008 was $54,340.75.
(Wells Fargo, Ex. C, ¶ 9).
Accordingly,
this Court finds Wells Fargo’s damages are not speculative.
c.
SafeCo
Wells Fargo’s rights were not extinguished by
foreclosure proceedings on the Gary property
next
argues
that
even
if
Wells
Fargo
met
its
obligations under the insurance policy contract and presented
damages that were neither speculative nor conjecture, it is still
barred from recovery because its rights to the proceeds were
extinguished by the foreclosure proceedings it instituted postloss. Specifically, SafeCo contends that foreclosing on the Gary
property left Wells Fargo with nothing more than a judgment lien
against the property. Notably, SafeCo fails to cite to a single
case or secondary source to support its novel position which is in
direct conflict with existing case law and thus, the Court rejects
it.
“A
foreclosure
action
brought
after
the
loss
will
not
necessarily affect the insurer’s liability to the mortgagee.” See
Fifth Third Bank v. Indiana Ins. Co., 771 N.E.2d 1218, 1223-23
(Ind. Ct. App. 1983). If an insured has already collected through
the foreclosure judgment lien against the primary insured or by
sheriff’s sale of the foreclosed property, the insurer will be
released from liability for any amount satisfied in full. So long
as only one full recovery of any debt owed results, a mortgagee has
-19-
various options in deciding how to satisfy the debt, and any of the
available methods can be utilized. See RESTATEMENT (THIRD)
OF
PROPERTY
§ 4.8.
In this case, by SafeCo’s own admission, Wells Fargo has
delayed
both
collection
of
judgment
lien
and
sheriff’s
sale
proceeds. Indeed, no sheriff’s sale has taken place in light of the
instant litigation. There has been no satisfaction of any debt owed
to
Wells
Fargo
by
SafeCo.
Consequently,
here,
Wells
Fargo’s
foreclosure action brought after the July 5, 2008 fire loss of the
Gary property does not affect SafeCo’s liability to Wells Fargo as
first mortgagee. So long as Wells Fargo continues to hold off on
collection of judgment lien proceeds or a sheriff’s sale of the
Gary property, the Court notes that only one full recovery will
result in SafeCo’s payment of debts owed.
2.
Breach of duty of good faith
In its counterclaim, Wells Fargo argues that SafeCo breached
its duty of good faith in two ways.
First, Wells Fargo contends
that SafeCo unfoundedly refused to pay policy proceeds to Wells
Fargo as first mortgagee. Second, Wells Fargo claims that SafeCo
caused an unfounded delay in making payment, which, to date, has
not been made. SafeCo seeks summary judgment on this claim, arguing
that Wells Fargo cannot make a bad faith claim because it has
presented no evidence to show a “special relationship” between
-20-
itself and SafeCo, as required to support the cause of action.
“There is a legal duty implied in all insurance contracts that
the insurer deal in good faith with the insured.” See Erie Ins. Co.
v. Hickman by Smith, 622 N.E.2d 515, 518 (1993). Specifically,
“Indiana law has long recognized [this] [...] legal duty [...]” See
id. Therefore, a duty to conduct business in good faith is implied
in the policy agreement governing the relationship between Wells
Fargo and SafeCo. “The obligation of good faith and fair dealing
with
respect
to
the
discharge
of
the
insurer’s
contractual
obligation includes the obligation to refrain from (1) making an
unfounded refusal to pay policy proceeds; [and] (2) causing an
unfounded delay in making payment [...]” See id. Further, “the
unique character of the insurance contract [...] supports the
conclusion that there is a “special relationship” [between the
parties]. See id. at 519. “That insurance companies may, in good
faith, dispute claims, has long been the rule in Indiana.” See id.
at 520. However, “an insurer which denies liability knowing that
there is no rational, principled basis for doing so has breached
its duty.” See id.
In this case, SafeCo delayed payment of policy proceeds to
SafeCo and ultimately denied coverage entirely.
found
that
this
has
been
the
product
of
This Court has
SafeCo’s
breach
of
contract. Yet, material facts exist as to whether SafeCo had any
“rational, principled basis for doing so.”
-21-
CONCLUSION
For the reasons set forth above, SafeCo’s Motion for Summary
Judgment (DE #40) is DENIED, and Wells Fargo’s Motion for Partial
Summary Judgment (DE #38) is GRANTED.
DATED:
February 10, 2012
/s/RUDY LOZANO, Judge
United States District Court
-22-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?