Morgan et al v. American Security Insurance Company

Filing 27

ORDER AND REASONS denying 8 Motion for Summary Judgment. Signed by Honorable Eldon E. Fallon on 10/27/2011. (CAA)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

MARY MORGAN, ET AL.
VERSUS
AMERICAN SECURITY INSURANCE COMPANY

*
*
*
*
*

CIVIL ACTION
NO. 10-594
JUDGE FALLON

ORDER & REASONS
Before the Court is a Motion for Summary Judgment filed by American Security
Insurance Company (Rec. Doc. No. 8). The Court has reviewed the submitted memoranda and
the applicable law. For the following reasons, the motion is denied.
I.

BACKGROUND
This case arises from an insurance dispute between Plaintiffs, Alfred and Mary

Morgan, and Defendant American Security Insurance Company (“American Security”) over
damages caused by a fire to Plaintiffs’ residence, located at 8802 Orleans Drive, Baton Rouge,
Louisiana, on August 21, 2009. At the time of the incident, Plaintiffs’ home was insured by
American Security for $100,000.00, at an annual premium of $1,234.80. The policy was issued
to First Franklin Loan Services, Plaintiffs’ mortgage carrier, and Plaintiffs were additional
insureds. Plaintiffs now seek damages resulting from the fire, including increase in monthly
mortgage for insurance premiums, attorneys fees, and penalties.
II.

PENDING MOTIONS
American Security has now filed a Motion for Summary Judgment (Rec. Doc. No.

8). American Security argues that prior to the fire on August 21, 2009, Plaintiffs’ home was

1

already severely damaged, and, consequently, the residence had no value when the policy was
issued.
It is undisputed that prior to 2009, the insureds’ home had caught on fire on two
separate occasions. First, on March 20, 2007, Plaintiffs’ home was damaged by a fire. State
Farm Fire and Casualty Company (“State Farm”) paid Plaintiffs to rebuild the residence.
Plaintiffs’ home also caught on fire on September 1, 2008 (the “2008 fire”), and in this instance,
State Farm denied coverage on the basis of arson. Plaintiffs’ had not repaired the residence from
the 2008 fire before the home was again burned in a fire on August 21, 2009 (the “2009 fire”),
which is the subject matter of this lawsuit. The home was demolished on February 25, 2010, by
the City of Baton Rouge, following a condemnation proceeding.
American Security claims that a real estate appraisal report, written by John
Dunaway, indicates that Plaintiffs’ residence had lost all its value after the 2008 fire. American
Security alleges that the report states that the entire property was worth $124,000.00 prior to the
2008 fire and that following the fire the land value was worth $20,000.00. Mr. Dunaway
allegedly opined that given the destruction sustained after the 2008 fire, the “remains would
probably require demolition as any structural reconfiguring, rebracing and/or refurbishing would
have a considerable affect, or stigma, on its marketability and resulting value.”
Plaintiffs counter that American Security mischaracterizes Mr. Dunaway’s appraisal.
According to Plaintiffs, the appraisal indicated that the value of home was worth $124,000.00
prior to the 2008 fire and the 2009 fire. Plaintiffs claim that Mr. Dunaway appraised the market
value of the vacant land at $20,000.00 by calculating the value of the lot (estimated at
$30,000.00) less demolitions costs and costs to clean the site (estimated at $10,000.00).

2

Plaintiffs also assert that Mr. Dunaway could not have calculated the value of the home after the
2008 fire because the home was demolished prior to the appraisal date.
American Security contends that the property had no value following 2008, because
the property was not repaired. Moreover, American Security asserts that Plaintiffs present no
evidence that indicates the property had any value at the time of the August 21, 2009, fire.
Consequently, American Security claims Plaintiffs’ recovery under the policy is limited to the
“actual cash value” of the insured home at the time of the loss, or the depreciated value of the
dwelling, and in this case, the “actual cash value” was zero.
American Security also argues that Plaintiffs may not see recovery under the policy
under the principle of indemnity. Insureds are only meant to be placed in the same position as
before they sustained the damage. American Security claims since there is no evidence the home
had any value on August 21, 2009, Plaintiffs are not entitled to any recovery
Lastly, American Security claims that Plaintiffs’ bad faith claims should be
dismissed. American Security argues that a claim under good faith requires that there be a breach
of contract or evidence the American Security refused to pay the Plaintiffs’ claims in arbitrary or
caprious manner, or without probable cause. American Security claims that there were no policy
benefits due; thus, there was no breach of contract or requirement to pay.
Plaintiffs counter that American Security acted in an arbitrary and capricious manner
in handling the claims at issue. Plaintiffs note specific documents written by American Security
personnel that indicate American Security would handle the Plaintiffs’ claim through “inventive”
means. American Security allegedly intended to refer Plaintiffs to State Farm with the
knowledge that State Farm had refused to pay the claim relating to the 2008 fire. Moreover,

3

American Security allegedly considered the Plaintiffs’ policy to be “null and void” and admitted
that a policy should not have been written on the house. Plaintiffs assert summary judgment is
not appropriate because facts concerning the party’s knowledge and good faith are at issue.
American Security responds that there are no good faith issues because American
Security did not make any misrepresentation or fail to pay the claim. American Security admits
that its employees modified a form “other coverage letter” to fit the present situation. However,
American Security asserts that it did not make any misrepresentations to Plaintiffs and that the
denial of coverage letter accurately reflected American Security’s position that the claim should
be denied.
Plaintiffs also argue that summary judgment is not appropriate because there are
various legal and factual issues in dispute regarding the extent of damage to Plaintiffs’ residence.
Plaintiffs allege that American Security did not conduct an independent investigation to
determine whether the home had value after the 2008 fire. Further, Plaintiffs argue that
American Security cannot assert that the home had no value following the 2008 fire, because
American Security issued a $100,000.00 insurance policy on the home after the 2008 fire. By
issuing the policy, Plaintiffs assert that American Security valued the property at $100,000 and is
liable for the value it placed in its policy. Plaintiffs argue that a reasonably interpretation of the
policy exists to indicate that coverage could be afforded.
Plaintiffs also dispute the valuation of the land. Plaintiffs allege that an insurance
adjuster employed by American Security was informed by a State Farm adjuster on September 1,
2009, that the actual cash value of the damage to the 2008 fire was $100,722.08. Therefore,
Plaintiffs assert that the value of the home on August 21, 2009, was approximately $23,000.00,

4

reaching that figure by subtracting the value of the damage indicated by State Farm
($100,722.08) from Mr. Dunaway’s valuation of the property ($124,000.00). Plaintiffs also
contend that American Security was aware the roof of the home was attached after the 2008 fire,
which signifies there was some value to the property.
American Security counters that Plaintiffs misrepresent their estimates. American
Security asserts that the State Farm’s estimated the replacement cost value of the damage of the
property to be $105,118.33. American Security argues that even if it were assumed that the
property was worth $124,000.00, subtracting the replacement cost value ($105,118.33) against
the value of the property would indicate that the property was worth less than the land, which
was valued at $20,000.00 by Mr. Dunaway. Consequently, the site had no value after the 2008
fire.
Notably, Plaintiffs argue that American Security is liable to “indemnify or
compensate” the Plaintiffs under Louisiana Revised Statute 22:1813(A) for the “total loss” of the
property. Since American Security did not indicate a “different method” to compute loss in
either the policy or in “any application therefor,” Plaintiffs argue they are entitled under the
statute for the entire value of the property indicated in the policy.
American Security counters that Louisiana Revised Statute 22:1813(A) is not
applicable in this case. American Security argues that the statute only applies where the insurer
“places a valuation upon the covered property.” American Security asserts that it did not place
value on the property because it issued the policy to First Franklin Loan Services, Plaintiffs’
mortgage lender, without prior inspection as a forced-placed policy. Moreover, even if
American Security “placed a valuation on the covered property,” American Security contends

5

that it indicated a different method of qualifying loss in its policy under “Loss Settlement.”
Moreover, American Security asserts that the statute only applies when there is a “total loss” of
the property, but in this case, the property was already a “total loss” at the time of the 2009 fire.
Moreover, Plaintiffs argue that American Security admitted the Plaintiffs’ premium
should be returned, but American Security has not returned the money. Plaintiffs contend that
American Security will be unjustly enriched by receiving a premium on an insurance policy that
American Security claims is void. Plaintiffs assert they have requested a return for their premium
in their petition.
American Security responds that the duty to refund the premium is at least
premature. Although American Security admits that the insurance premium should be refunded
if it was unearned, American Security did not inspect the property before the policy was issued
under the terms of its conditions with First Franklin Loan Services. Therefore, American
Security assumed the residence was valued properly and the premium was earned. American
Security also counters that Plaintiffs’ petition does not expressly request that the premium be
refunded. Moreover, the American Security asserts that Plaintiffs’ claim for refund is not ripe
until the court concludes the insured property had not value.
Plaintiffs argue that American Security’s motion is premature, because Plaintiff has
not been given opportunity to depose American Security’s corporate representatives. American
Security counters that discovery is not a prerequisite to granting a motion for summary
judgment; instead, Plaintiffs’ remedy would be to file a motion for continuance under Federal
Rule of Civil Procedure 56(f).
III.

LAW & ANALYSIS

6

A district court can grant a motion for summary judgment only when the “the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed.R.Civ.P. 56(a). When considering a motion for summary
judgment, the district court “will review the facts drawing all inferences most favorable to the
party opposing the motion.” Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th
Cir.1986). The court must find “[a] factual dispute [to be] ‘genuine’ if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party [and a] fact [to be] ‘material’ if it
might affect the outcome of the suit under the governing substantive law.” Beck v. Somerset
Techs., Inc., 882 F.2d 993, 996 (5th Cir.1989) (citing Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).
“If the moving party meets the initial burden of showing that there is no genuine
issue of material fact, the burden shifts to the non-moving party to produce evidence or designate
specific facts showing the existence of a genuine issue for trial.” Engstrom v. First Nat'l Bank of
Eagle Lake, 47 F.3d 1459, 1462 (5th Cir.1995) (citing Fed.R.Civ.P. 56(e); Celotex Corp. v.
Catrett, 477 U.S. 317, 322–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). The mere argued
existence of a factual dispute will not defeat an otherwise properly supported motion. See
Anderson, 477 U.S. at 248. “If the evidence is merely colorable, or is not significantly
probative,” summary judgment is appropriate. Id. at 249–50 (internal citations omitted).
B. Analysis
There are multiple unsettled facts in this dispute that warrant the denial of summary
judgment. See Fed.R.Civ.P. 56(a). First, there remain issues of fact in dispute regarding expert
opinions. Generally, in order to determine the value of real property, expert testimony is

7

required. Turner v. Murphy Oil USA, Inc., 759 F.Supp. 2d 854, 857 (E.D. La. 2011) (citing
Thomas v. Barton Lodge II, Ltd., 174 F.3d 636, 651 (5th Cir. 1999)). The trier of fact must
assess the credibility and weight of expert testimony. Lascola v. Schindler Elevator Corp., Civil
Action No. 08-4802, 2010 WL 971792, at *3 (E.D.La. March 12, 2010). “If a material fact
cannot be resolved without making a credibility determination, summary judgment is improper.”
Id. In this case, the parties dispute the analysis of Mr. Dunaway’s property appraisal and come to
varying conclusions as to the value of Plaintiff’s resident following the 2009 fire. Given that
such expert opinions are reasonably necessary to determine the valuation of the property, the
Court shall not assess the credibility of Mr. Dunaway’s property appraisal at the summary
judgment stage.
Moreover, a genuine issue exists as to the extent of the policy’s coverage.
“[S]ummary judgment declaring a lack of coverage under an insurance policy may not be
rendered unless there is no reasonable interpretation of the policy, when applied to the
undisputed facts shown by the evidence supporting the motion, under which coverage could be
afforded.” Sanchez v. Callegan, 1999-0137 (La.App. 1 Cir. 2/18/00); 753 So.2d 403, 405. Here,
Plaintiffs assert that the policy implies that the American Security valued the property at the
liability limits of $100,000.00. American Security counters that any value was presumed under
the terms of the forced-placed policy with the Plaintiffs’ mortgage lender and Plaintiffs may not
recover as additional insureds. This Court finds that there is more than one reasonable
interpretation of the policy. Consequently, the Court does not find it appropriate to determine
American Security’s liability under the policy on a motion for summary judgment.
The Court additionally finds that there are issues of fact as to whether American

8

Security acted in bad faith. Under Louisiana Revised Statue 22:1973, a plaintiff must prove a
claim that the insurance company acted in bad faith by demonstrating the insurance company
failed to pay a claim “sixty days after receipt of satisfactory proof of loss from the claimant when
such failure is arbitrary, capricious, or without probable cause.” The extent to which an insurer
acted in an arbitrary and capricious manner is usually considered to be a question of fact. Whelan
v. State Farm Fire and Cas. Co., Civil Action No. 10–1803, 2011 WL 1464209, at * 2 (E.D.La.
April 14, 2011). Whereas in this case, the parties disagree whether the insurance company is
liable for any of the claim, summary judgment on a bad faith claim is not appropriate.
Accordingly, this Court finds that there are genuine issues of fact and American Security is not
entitled to a judgment as a matter of law.
IV.

CONCLUSION
For the foregoing reasons, IT IS ORDERED that the Motion for Summary

Judgment filed by American Security Insurance Company is hereby DENIED.

New Orleans, Louisiana, this 27th day of October, 2011.

_________________________________
UNITED STATES DISTRICT JUDGE

9