Mt. Hawley Insurance Company v. Adell Plastics, Inc.

Filing 144

MEMORANDUM. Signed by Chief Judge James K. Bredar on 12/3/2018. (bmhs, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

MT. HAWLEY INS. CO.,

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Plaintiff,

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v.

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ADELL PLASTICS, INC.,

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Defendant.
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CIVIL NO. JKB-17-252

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MEMORANDUM
In January 2017, Mt. Hawley Insurance Co. (“Mt. Hawley”) sued Adell Plastics, Inc.
(“Adell”), seeking a declaration that their commercial property insurance contract did not cover
Adell’s losses resulting from a fire. The fire began on October 4, 2016 and proceeded to demolish
several buildings at Adell’s Baltimore facility. Since January 2017, Mt. Hawley and Adell have
engaged in significant discovery and, most recently, moved for summary judgment. This Court
decided the cross-motions for summary judgment, denying Adell’s motion in full and Mt.
Hawley’s motion in part. Mt. Hawley Ins. Co. v. Adell Plastics, Inc., Civ. No. JKB-17-252 (D.
Md. Oct. 11, 2018). Pending before the Court is Mt. Hawley’s motion to partially reconsider. See
Fed. R. Civ. P. 54(b). The issues have been fully briefed. No hearing is required. See Local
Rule 105.6 (D. Md. 2016). For the reasons set forth below, the Court will grant Mt. Hawley’s
motion to partially reconsider and deny its partial motion for summary judgment.
I.

Mt. Hawley’s Motion to Partially Reconsider
Mt. Hawley asks the Court to reconsider its partial motion for summary judgment on

Adell’s lack of good faith claim. (Mot. Recon. at 2, ECF No. 137.) Rule 54(b) governs

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reconsideration of orders that are not final judgments in a case and provides that “any order or
other decision, however designated, that adjudicates fewer than all the claims or the rights and
liabilities of fewer than all the parties does not end the action as to any of the claims or parties and
may be revised at any time.” Fed. R. Civ. P. 54(b). Mt. Hawley asserts that, although the Court
ruled on Adell’s argument that Mt. Hawley lacked good faith in its investigation, the Court did not
rule on Mt. Hawley’s argument that Mt. Hawley demonstrated good faith in its investigation.
(Mot. Recon. at 2.) Mt. Hawley is correct. (See Mt. Hawley Mem. M.S.J. at 41, ECF No. 110-1.)
Consequently, the Court exercises its discretion to reconsider its judgment and decide Mt.
Hawley’s partial motion for summary judgment on Adell’s lack of good faith claim. Lynn v.
Monarch Recovery Mgmt., Inc., 953 F. Supp. 2d 612, 618 (D. Md. 2013) (“[W]hen warranted, a
district court retains the power to reconsider and modify its interlocutory judgments at any time
before final judgment.”).
II.

Mt. Hawley’s Motion for Partial Summary Judgment
To prevail on its lack of good faith claim, see Md. Cts. & Jud. Proc. § 3-1701 (West 2016),

Adell must establish that (1) it was entitled to coverage and (2) Mt. Hawley acted in bad faith, see
St. Paul Mercury Ins. Co. v. Am. Bank Holdings Inc., 819 F.3d 728, 739 (4th Cir. 2016). It follows
that Mt. Hawley may defeat the lack of good faith claim by showing the absence of either element.
In its previous Memorandum, the Court concluded that the parties genuinely disputed whether Mt.
Hawley owed coverage to Adell and, therefore, held that Adell could not establish lack of good
faith at the summary judgment stage. Mt. Hawley, Civ. No. JKB-17-252. In its motion to
reconsider, Mt. Hawley adds that Adell’s lack of good faith claim fails at the summary judgment
stage.

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On its motion for partial summary judgment, Mt. Hawley bears the burden of showing that
Adell’s lack of good faith claim fails. “The court shall grant summary judgment if 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). The burden is on the moving party to demonstrate the
absence of any genuine dispute of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157
(1970). “[I]t is clear . . . that at the summary judgment stage the judge’s function is not himself to
weigh the evidence and determine the truth of the matter but to determine whether there is a
genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Having held
that the issue of coverage is genuinely disputed, the Court turns to whether the parties genuinely
dispute the material issue of Mt. Hawley’s good faith or lack thereof.
“Good faith” is defined in the statute as “an informed judgment based on honesty and
diligence supported by evidence the insurer knew or should have known at the time the insurer
made a decision on a claim.” Md. Code Ann. Cts. & Jud. § 3-1701(a)(4); see, e.g., Barry v.
Nationwide Mut. Ins. Co., 298 F. Supp. 3d 826, 831 (D. Md. 2018) (holding insured stated lack of
good faith claim by alleging insurer’s delay, failure to dispute nature or cost of injury, and
unwillingness to negotiate). “Cases construing [this] good-faith standard are sparse.” All Class
Const., LLC v. Mut. Benefit Ins. Co., 3 F. Supp. 3d 409, 416 (D. Md. 2014). These cases have
settled on a totality-of-the-circumstances approach, looking to: (1) “measures taken by the insurer
to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to the
insureds”; (2) “the substance of the coverage dispute or the weight of legal authority on the
coverage issue”; and (3) “the insurer’s diligence and thoroughness in investigating the facts
specifically pertinent to coverage.” Cecilia Schwaber Trust Two v. Hartford Accident & Indem.
Co., 636 F. Supp. 2d 481, 486–87 (D. Md. 2009). On its own, the fact that an insurer disputes

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coverage will not sustain a lack of good faith claim. Class Produce Grp., LLC v. Harleysville
Worcester Ins. Co., Civ. No. ELH-16-3431, 2018 U.S. Dist. LEXIS 49023, at *27–28 (D. Md.
March 23, 2018). Rather, “[t]he question of good faith turns . . . on . . . what the insurer reasonably
believed and articulated they covered at the time of denial.” Charter Oak Fire Co. v. Am. Capital,
Ltd., Civ. No. DKC-09-100, 2016 WL 827380, at *15 (D. Md. March 3, 2018).
Mt. Hawley asserts it acted with honesty and diligence and performed a reasonable
investigation. (Mt. Hawley Mem. M.S.J. at 41; Mem. Mot. Recon. at 14, ECF No. 137-1.) Mt.
Hawley supports this assertion with a declaration from its claim professional detailing the steps
taken immediately after the fire. (Mt. Hawley Mem. M.S.J. Ex. 16, ECF No. 110-18.) Mt. Hawley
also cites its correspondence with Adell, including an October 2016 reservation of rights letter and
January 2017 denial of coverage letter. (Mt. Hawley Mem. M.S.J. Ex. 16(B)(D)(L).) Based on
the declaration and correspondence, Mt. Hawley argues its claim professional sufficiently
investigated and reasonably decided the claim. (Mem. Mot. Recon. at 16.) Throughout the
process, Mt. Hawley communicated with Adell, explaining the investigation and, in the end, the
denial of coverage. (Id. at 17.) Mt. Hawley concludes that “no reasonable trier of fact could find
that Mt. Hawley lacked good faith in its handling of this matter.” (Id.)
Adell disagrees, offering several examples of Mt. Hawley’s bad faith, which Adell supports
with deposition testimony. (Mem. Opp. Mot. Recon. at 6–8, ECF No. 142; see also Adell Mem.
M.S.J. at 28–32, ECF No. 95.) Mt. Hawley responds to each assertion of bad faith in turn. (Mem.
Reply Supp. Mot. Recon. at 8–11, ECF No. 143.) The Court does not repeat every bad faith
argument here; instead, it notes those arguments on which it relies in finding a dispute of fact. For
example, Adell argues Mt. Hawley stopped covering Adell’s losses for a reason other than the
coverage dispute, pointing to the information available to Mt. Hawley at the time it made the

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decision to dispute coverage—e.g., Mt. Hawley concluded there would be no subrogation several
days before it issued its reservation of rights letter. (Mt. Hawley Mem. M.S.J. Ex. 23 at 170:13–
173:22, ECF No. 95-24.) Next, Adell argues Mt. Hawley delayed obtaining the sprinkler system
monitoring logs even though Mt. Hawley knew the evidence would be critical to the dispute.
(Mem. Opp. Mot. Recon. at 7; Adell Mem. M.S.J., Ex. 9 at 184:21–186:4.) Mt. Hawley claims it
requested the monitoring logs from Adell, (Mt. Hawley Mem. M.S.J., Ex. 16(D)), but Adell asserts
it had no access to the logs and could not request them because Adell had been advised not to
contact the monitoring companies, (Adell Mem. M.S.J., Ex. 20 at 128:4–129:23, ECF No. 95-21).
Mt. Hawley replies that it did not request the monitoring logs only from Adell but also requested
them from a detective, who had subpoenaed them. (Mem. Reply Supp. Mot. Recon. at 10.)
This type of back and forth convinces the Court that both parties have presented sufficient
facts to render the lack of good faith issue genuinely disputed. The parties dispute why Mt. Hawley
stopped covering Adell’s losses: Mt. Hawley claims the investigation revealed the sprinklers never
activated, and Adell claims Mt. Hawley is using the sprinklers as pretext to deny coverage after its
attempts at subrogation failed. (Mem. Mot. Recon. at 17; Mem. Opp. Mot. Recon. at 6.) The
parties also dispute Mt. Hawley’s diligence in obtaining the monitoring logs: Mt. Hawley claims
it pursued the logs from multiple sources, and Adell claims Mt. Hawley failed to promptly obtain
the logs despite understanding their significance to the investigation. (Mem. Mot. Recon. at 15;
Mem. Opp. Mot. Recon. at 7; Mem. Reply Supp. Mot. Recon. at 10.) Significantly, the parties
continue to dispute whether Adell is entitled to coverage. See Mt. Hawley, Civ. No. JKB-17-252.
Because “the substance of the coverage dispute” is a factor in deciding lack of good faith, Cecilia
Schwaber, 636 F. Supp. 2d at 487, the questions of coverage and good faith may be (and, in this
case, appear to be) intertwined.

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Mt. Hawley cites several cases for the proposition that, even where the issue of coverage
is still in dispute, courts may conclude the insured failed to allege or establish a lack of good faith.
(Mem. Mot. Recon. at 1.) That general proposition is undoubtedly true. See, e.g., All Class, 3 F.
Supp. 3d at 418 (noting that, regardless of whether the insurer breached the contract, the insured
failed to state lack of good faith claim). Each of the cited cases dismissed the lack of good faith
claim because the insured failed to allege sufficient bad faith. See All Class, 3 F. Supp. 3d at 418
(dismissing lack of good faith claim because insured supported claim with only two denial letters,
which sufficiently explained the denial of coverage, and, consequently, insured failed to create
reasonable inference of bad faith); Pa. Nat’l Mut. Ins. Co. v. Tate Andale, Inc., Civ. No. ADC-170670, 2018 U.S. Dist. LEXIS 66981, at *15–16 (D. Md. April 19, 2018) (dismissing lack of good
faith claim because insurer provided lengthy communications between parties in which insurer
explained its decision to deny coverage); Class Produce Grp., 2018 U.S. Dist. LEXIS 49023,
at *26 (dismissing lack of good faith claim because insured “alleged only conclus[ions,]” e.g., that
the insurer “fail[ed] to properly investigate”).
This case is distinguishable. Adell does not merely put forward two denial letters or even
a stream of correspondence explaining the denial of coverage. See All Class, 3 F. Supp. 3d at 418;
Pa. Nat’l Mut., 2018 U.S. Dist. LEXIS 66981, at *15–16. Nor does Adell solely offer the
conclusion that Mt. Hawley acted in bad faith, see Class Produce Grp., 2018 U.S. Dist. LEXIS
49023, at *26; though Adell does offer some conclusory statements—e.g., “Mt. Hawley shifted
positions and furthered its own interests to the detriment of its unsuspecting policyholder”; “Mt.
Hawley misled Adell.” (Mem. Opp. Mot. Recon. at 7.) The Court does not rely on unsupported
or conclusory statements; rather, the Court has examined the parties’ arguments and accompanying
exhibits to determine that there is a genuine issue of material fact as to Mt. Hawley’s good faith.

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Where there is any dispute of material fact, a court must deny summary judgment. See
Charter Oak, 2016 WL 827380, at *15 (denying cross-motions for summary judgment on lack of
good faith claim because a single letter claiming a joint venture provision precluded coverage did
not resolve the dispute of fact as to whether the decision to deny coverage was “based on honesty
and diligence”). The Court does note that the lack of good faith issue appears to tilt in Mt.
Hawley’s favor. At the summary judgment stage, however, it is not for the court to pile the
evidence onto the scale and see which side weighs more. See Anderson, 477 U.S. at 249. To do
so, and to decide in Mt. Hawley’s favor, would usurp the role of the factfinder.
III.

Conclusion
For the foregoing reasons, an Order shall enter granting Mt. Hawley’s motion to partially

reconsider and denying Mt. Hawley’s motion for partial summary judgment as to the good faith
claim.

DATED this 3rd day of December, 2018.

BY THE COURT:

/s/
James K. Bredar
Chief Judge

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