455 Companies, LLC v. Landmark American Insurance Company
OPINION and ORDER granting in part and denying in part Defendant's 69 Motion for Partial Summary Judgment. Signed by District Judge Robert H. Cleland. (JOwe)
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
455 COMPANIES, LLC,
Case No. 16-10034
LANDMARK AMERICAN INS. CO.,
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT
Insured Plaintiff 455 Companies, LLC alleges that Defendant Landmark
American Insurance Company breached their property insurance contract by wrongly
denying Plaintiff’s claim resulting from water damage to the insured property. The
dispute was reassigned to this court on May 17, 2017—shortly before its scheduled jury
trial date of July 10, 2017. (Dkt. # 156.) The parties have engaged in extensive motion
practice in anticipation of trial, and numerous motions remain pending.
Now before the court is Defendant’s motion for partial summary judgment, asking
the court to find as a matter of law that Plaintiff is not entitled to a variety of asserted
consequential damages, that the allegations of “bad faith” fail to state a claim, and that
any recovery for property damage is limited to “actual cash value.” (Dkt. # 69.) The
motion is fully briefed and a hearing is unnecessary. See E.D. Mich. LR 7.1(f)(2). For
the reasons that follow, the court will grant the motion in part and deny it in part. 1
The court declines to set out a factual background here. Instead, the court refers to
and incorporates the relevant section of its opinion and order denying Plaintiff’s motion
for partial summary judgment. (See Dkt. # 158, Pg. ID 11564-70.)
Summary judgment is proper “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). “In deciding a motion for summary judgment, the court must
view the evidence in the light most favorable to the non-moving party, drawing all
reasonable inferences in that party’s favor.” Sagan v. United States, 342 F.3d 493, 497
(6th Cir. 2003). The movant has the initial burden of showing the absence of a genuine
dispute as to a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[T]hat
burden may be discharged by showing . . . that there is an absence of evidence to
support the nonmoving party’s case.” Bennett v. City of Eastpointe, 410 F.3d 810, 817
(6th Cir. 2005) (internal quotation marks omitted). The burden then shifts to the
nonmovant, who must put forth enough evidence to show that there exists “a genuine
issue for trial.” Horton v. Potter, 369 F.3d 906, 909 (6th Cir. 2004) (citation omitted).
Summary judgment is not appropriate when “the evidence presents a sufficient
disagreement to require submission to a jury.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 243 (1986). “[T]he judge’s function is not himself to weigh the evidence and
determine the truth of the matter . . . credibility judgments and weighing of the evidence
are prohibited.” Moran v. Al Basit LLC, 788 F.3d 201, 204 (6th Cir. 2015) (internal
quotation marks and citations omitted).
Defendant asks the court for three findings: (1) that Plaintiff is not entitled to
various consequential damages; (2) that Plaintiff’s “bad faith” count fails to state a claim
under Michigan law; and (3) any recovery by Plaintiff is limited to “actual cash value” as
opposed to “replacement cost” because Plaintiff has not repaired or replaced the
property. The court addresses each request in turn.
A. Consequential Damages
Under Michigan law, 2 the damages recoverable in an action for breach of a
commercial contract are those that “arise naturally from the breach, or which can
reasonably be said to have been in contemplation of the parties at the time the contract
was made.” Lawrence v. Will Darrah & Assocs., Inc., 445 Mich. 1, 13; 516 N.W.2d 43
(Mich. 1994) (quoting Kewin v. Mass. Mutual Life Ins. Co., 409 Mich. 401 419; 295
N.W.2d 50 (Mich. 1980)) (emphasis removed). The rule derives from the well-known
English case Hadley v. Baxendale, 9 Exch. 341; 156 Eng. Rep. 145 (1854). See
Lawrence, 445 Mich. at 6 (discussing Hadley). The Lawrence court explains that
Michigan courts take a “flexible approach when determining the foreseeability of
contract damages.” Id. at 12.
1. Lost sale proceeds
Defendant first contends that Plaintiff is not entitled to recover proceeds from a
lost opportunity to sell the property, because the sale of the property was not
contemplated by the parties at the time of the contract. (Dkt. # 69, Pg. ID 2732-34.) In
support, Defendant points to a lack of evidence that the parties contemplated Plaintiff
selling the property. (Id.)
Plaintiff’s brief in opposition does not respond to this argument beyond a single
assertion in the “Facts” section that “The Building has been and is currently listed for
The court has diversity jurisdiction under 28 U.S.C. § 1332. Federal courts exercising
diversity jurisdiction apply the law of the forum state. Uhl v. Komatsu Forklift Co., Ltd.,
512 F.3d 294, 302 (6th Cir. 2008). The parties agree that Michigan law governs here.
sale on a property website.” (Dkt. # 90, Pg. ID 5590 (citing Dkt. # 90-6).) In its reply
brief, Defendant contends that Plaintiff’s response, such as it is, is “bereft of evidence
that Plaintiff informed Defendant, at the time the Policy was bound, that it intended to
sell the property.” (Dkt. # 93, Pg. ID 6233 (emphasis added).) The court agrees. Plaintiff
has failed to point to evidence creating a “genuine issue for trial” in response to
Defendant’s argument, and so fails to satisfy its burden under Horton, 369 F.3d at 909
(citation omitted). Accordingly, the court will grant Defendant’s motion with respect to
2. Lost rental proceeds
Defendant next contends that Plaintiff is not entitled to recover for lost proceeds
from renting out the building, because renting the building was not fairly contemplated
by the parties at the time of the contract (Dkt. # 69, Pg. ID 2732-34), because any
damage award would be speculative (Id. at Pg. ID 2734-38), and because Plaintiff failed
to mitigate the damage to the building (Id. at Pg. ID 2738).
The court finds that any claim for lost rental proceeds from a hypothetical tenant
too speculative to support an award of damages. “A party asserting a claim has the
burden of proving its damages with reasonable certainty.” Hofmann v. Auto Club Ins.,
Ass’n, 211 Mich. App. 55, 108; 535 N.W.2d 529 (Mich. Ct. App. 1995) (citation omitted).
Under Michigan law:
For a plaintiff to be entitled to damages for lost profits, the losses must be
subject to a reasonable degree of certainty and cannot be based solely on
mere conjecture or speculation; however, mathematical certainty is not
required, and even where lost profits are difficult to calculate and are
speculative to some degree, they are allowed as a loss item. The type of
uncertainty which will bar recovery of damages is uncertainty as to the fact
of the damage and not as to its amount . . . [since] where it is certain that
damage has resulted, mere uncertainty as to the amount will not preclude
the right of recovery.
Bonelli v. Volkswagen of America, Inc., 166 Mich. App. 483, 511; 421 N.W.2d 213, 226
(Mich. Ct. App. 1988) (internal citations and quotation marks omitted) (citing Lorenz
Supply Co. v. Am. Standard, Inc., 100 Mich. App. 600, 612; 300 N.W.2d 335 (1980)
aff’d 419 Mich. 610; 358 N.W.2d 845 (1984) and quoting Wolverine Upholstery Co. v.
Ammerman, Mich. App. 235, 244; 135 N.W. 2d 572 (1965) (in turn quoting 15 Am. Jur.,
Damages, § 23, pp. 414-16)).
The “facts” sections of Plaintiff’s brief points out that the previous tenant occupied
the building for 19 years and the building had been vacant for approximately 9 months
at the time Plaintiff purchased it in June of 2014 (Dkt. # 90-10, Pg. ID 5855); the building
displayed an “available” sign, indicating it was available for lease (Dkt. # 90, Pg. ID
5590), and points to the deposition testimony and affidavit of Plaintiff’s corporate
designee, Philippe Katz. stating that he doubts any potential tenants would be
interested in the building in its current (damaged) state (Dkt. # 90, Pg. ID 5599). In his
deposition testimony, Katz also stated that he “remember[ed] one offer that was made
to lease two floors, and there may have been another offer to lease one floor[,]” but any
such offers would have been rejected because Plaintiff was looking for a single tenant
for the entire building. (Dkt. # 70-2, Pg. ID 2779-80.) Plaintiff points to nothing further in
the record to show any negotiations with prospective tenants, efforts made to promote
or market the building to prospective tenants, or if any interested companies lost interest
as a result of the flooding.
To establish the “certainty” of the rent proceeds Plaintiff would have collected but
for the damage to the building, Plaintiff, presenting no appraiser expert of its own,
principally relies on an estimate prepared by Defendant’s expert appraiser, Brian Beaty
(See Dkt. # 90, Pg. ID 5598.) Beaty estimated that renting the entire building would net
$645,458 in annual operating income in its pre-loss condition. (Dkt. # 90-6, Pg. ID
5746.) But Beaty’s estimate assumed that Plaintiff successfully secured a renter—itself
dependent on efforts to market the property to potential tenants.
Plaintiff has pointed to no evidence that it was certain—or even likely—to find the
single, full-building tenant for whom it was searching. Nor has Plaintiff provided
evidence of any efforts made to secure such a tenant beyond posting an “available”
sign. Plaintiff owned a vacant building for some eight months at the time of the loss, and
the record provides no hint of interest in leasing the entire building—notwithstanding
Plaintiff’s statements about the recent success of Quicken Loans owner Dan Gilbert.
Nothing in the record suggests that Plaintiff is Dan Gilbert. The court sees no reason to
believe Plaintiff could reasonably expect a similar level of success after some eight
months without serious interest and absent any apparent efforts to market the building.
For these reasons, the court finds no genuine dispute of fact that Plaintiff did not lose a
potential tenant as a result of the loss or Defendant’s denial of coverage and, as a
result, that Plaintiff’s request for lost rental proceeds is based on speculation. See
Mattress Closeout Ctr. IV, LLC v. Panera, LLC, 2016 U.S. Dist. LEXIS 91881, *25-26
(E.D. Mich. July 15, 2016) (Rosen, J.) (finding claim for lost profits too speculative when
plaintiff could not establish basis for estimated lost customers). The court will grant this
portion of Defendant’s motion accordingly.
3. Signal litigation
Plaintiff also seeks to recover the cost, including attorney fees, of defending an
action brought against it by its remediation contractor, Signal Restoration Services
(“Signal”), for payment of more than $1.1 million for work done in a three-month period
following the loss. Defendant contends that Plaintiff “has no proof that such damage
was within the contemplation of the parties at time of contract.” (Dkt. # 69, Pg. ID 2734.)
Plaintiff responds that the Signal litigation was a natural consequence of Defendant’s
bad faith in “continuing to direct and supervise Signal’s mitigation work for months after
Landmark had already decided” to deny Plaintiff’s claim[,]” citing Fagerberg v. LeBlanc,
164 Mich. App. 349, 356-57; 416 N.W.2d 438 (Ct. App. Mich. 1987) (finding litigation
with third party to correct title deficiency to be “legal and natural consequence” of
defendant seller lying to plaintiff purchaser about legal boundaries of plot of land and
allowing recovery on tortuous fraud claim). (Dkt. # 90, Pg. ID 5606.) The court
It is undisputed that Plaintiff retained Signal before notifying Defendant of the
loss. The contract with Signal, negotiated by Plaintiff, explicitly provides,
In the event that there are Insufficient Insurance Proceeds for all or part of
the work performed, the owner or responsible party agrees to pay Signal
Restoration Services the cost of the services and materials, including
overhead and profit in an amount not to exceed 20%. The property owner
shall be responsible for payment of all sums due that are not covered by
the Insurance Proceeds.
(Dkt. # 22, Pg. ID 409.)
The court has no difficulty agreeing with the Michigan Court of Appeals in
Fagerberg that a natural consequence of lying to a land purchaser about the
dimensions of the land is litigation to determine the legitimate boundaries. But that is not
the case here. Here, Plaintiff made contractual arrangements to which Defendant was
not a party and in which Plaintiff committed to covering all costs not paid by Defendant,
apparently failed to keep a handle on the costs from that arrangement, and then was
unable to pay those costs once Defendant denied Plaintiff’s claim.
The court finds these circumstances too removed to qualify as the “natural result”
of Defendant’s conduct under the circumstances here, particularly in light of Plaintiff’s
failure to cite a single case in the context of insurance where, presumably,
circumstances such as these are common. Moreover, the court has been unable to
locate a case on its own. Plaintiff points to nothing to suggest damages such as these
were contemplated by the parties at the time of the contract. Accordingly, the court will
grant Defendant’s motion with respect to the claim for damages from the Signal litigation
B. Bad Faith
At the outset, the court notes that Michigan courts have refused to recognize
bad-faith breach of an insurance contract as a separate tort independent of the contract
claim. Casey v. Auto Owners Ins. Co., 273 Mich. App. 388, 729 N.W.2d 277, 286 (2006)
(“An alleged bad-faith breach of an insurance contract does not state an independent
tort claim.”); see also Cromer v. Safeco Ins. Co. of Am., 2010 U.S. Dist. LEXIS 36630,
*7-11 (E.D. Mich. April 14, 2010) (Rosen, J.) (collecting cases). Neither does Michigan
law allow punitive or exemplary damages for breach of an insurance contract absent a
tort claim that is “independent of the breach.” Casey, 273 Mich. App. at 402 (quoting
Kewin, 409 Mich. at 419, 421. Thus, to the extent Plaintiff seeks to assert a freestanding
claim for bad faith and to recover punitive or exemplary damages, Defendant is entitled
to summary judgment.
Plaintiff contends that it is entitled to penalty interest pursuant to Mich. Comp.
Laws § 500.2006, which requires that an insurance company be penalized at a rate of
12 percent per annum for the untimely payment of benefits. Insurers are subject to this
penalty if they fail to timely pay the insured regardless of whether a claim is “reasonably
in dispute.” Griswold Properties, LLC v. Lexington Ins. Co, 276 Mich. App. 551, 565-66;
741 N.W.2d 549 (Mich. Ct. App. 2007) (characterizing as dicta earlier Michigan
Supreme Court language to the contrary); see also Nickola v. MIC General Ins. Co., 894
N.W.2d 552, 559-61 (Mich. 2017) (discussing Griswold with approval). Given that
Defendant would be subject to the penalty interest regardless of the reasonableness of
its refusal to pay under Griswold, the court sees no reason why “bad faith” is relevant to
the application of penalty interest statute. Plaintiff’s cited cases on this point all predate
Plaintiff correctly contends that “there is a covenant of good faith and fair dealing
in every insurance contract.” (Dkt. # 90, Pg. ID 5605.) Michigan courts “have held only
that an insurer has the duty to act in good faith in negotiating a settlement within the
policy limits and the duty to act in good faith in investigating and paying claims.”
Reliance Ins. Co. v. Triss Corp., 2008 WL 1925054, *3 (E.D. Mich. May 1, 2008)
(Edmunds, J.) (collecting cases). Plaintiff asserts that Defendant breached this
covenant “by continuing to direct and supervise Signal’s mitigation work for months after
Landmark had already decided” to deny Plaintiff’s claim. (Dkt. # 90, Pg. ID 5606.) As the
court has already found damages relating to the cost of the Signal litigation unavailable,
it need not address Plaintiff’s arguments here.
Finally, Plaintiff also argues that Defendant’s alleged bad faith is relevant to
whether it may recover the full cost of repairing or replacing the building. The court
addresses this issue in the following section.
C. Recovery limited to actual cash value
Defendant contends that Plaintiff’s potential recovery is limited to the “Actual
Cash Value” of the property, as opposed to the replacement cost, because Plaintiff has
not yet repaired or replaced the damaged property. (Dkt. # 69, Pg. ID 2743-44.) The
relevant policy provision states:
3. Replacement Cost
. . .
d. We will not pay on a replacement cost basis for any loss or
(1) Until the lost or damaged property is actually repaired or
(2) Unless the repairs or replacement are made as soon as
reasonably possible after the loss or damage.
(Dkt. # 1-1, Pg. ID 65.)
In response, Plaintiff argues that because Defendant’s denial was in bad faith,
the condition requiring the building be replaced is excused, citing McCahill v.
Commercial Union Ins. Co., 446 N.W.2d 579 (Mich. Ct. App. 1989) and Pollock v. Fire
Ins. Exchange, 423 N.W.2d 234 (Mich. Ct. App. 1988). (Dkt. # 90, Pg. ID 5609-10.)
Further, Plaintiff contends, even if Defendant’s denial is found to have been a good-faith
mistake, Defendant would be entitled to the actual cash value immediately, and to the
full replacement cost once the building was repaired or replaced, citing Smith v.
Michigan Basic Property Ins. Ass’n, 490 N.W.2d 864 (Mich. 1992). (Id.) Defendant does
not address this issue in its reply brief.
The statutory provision relied upon by Defendant expressly applies to “fire
insurance polic[ies].” Mich . Comp. Laws § 500.2826. 3 Every case cited by the parties
involves claims for property damaged by fire. See McCahill, 446 N.W.2d 579, 580 (fire
damage to home); Pollock, 423 N.W.2d at 234 (same); Cortez v. Fire Ins. Exchange,
196 Mich. App. 666; 493 N.W.2d 505 (Mich. Ct. App. 1992) (same); Smith, 490 N.W.2d
at 864 (same). Neither party addresses whether the applicable law differs outside the
context of fire insurance. In the absence of briefing to the contrary, the court concludes
that the relevant law is the same.
The court agrees with Plaintiff, and notes that this rule follows from well-settled
principles of contract law regarding conditions-precedent. See McCahill, 446 N.W.2d at
585 (“[I]f an insurer hinders an insured’s performance of a condition precedent, that
performance is excused on equitable grounds.”) (citing Pollock, 423 N.W.2d at 234.) 4
Defendant attempts to distinguish Smith’s holding that an insured may recover
replacement cost after litigation by arguing that Plaintiff is a corporation that paid the
$3.5 million purchase price for the building in cash, not a private party whose damaged
“An insurer may issue a fire insurance policy, insuring property, by which the insurer
agrees to reimburse and indemnify the insured for the difference between the actual
value of the insured property . . . and the amount actually expended to repair, rebuild, or
replace [the property] . . . . A fire policy issued pursuant to this section may provide that
there shall be no liability by the insurer to pay the amount specified in the policy unless
the property damaged is actually repaired, rebuilt, or replaced at the same or another
site.” Mich. Comp. Laws § 500.2826.
4 The court notes that whether the condition is excused—and the full replacement cost
due—appears to be an equitable determination made by the court. See Pollock, 423
N.W.2d at 237 (“[T]he trial court properly determined that Plaintiff was excused from
performing her obligation under the policy to repair or replace the building due to
defendant’s dilatory tactics.”)
home was mortgaged. (Dkt. # 69, Pg. ID 2743 n.2.) In light of the Signal litigation
spawned by Plaintiff’s failure to pay its remediation contractor, the court finds a dispute
of fact as to whether Defendant’s “unwillingness to recognize [Plaintiff’s] claims may, as
a practical matter, have disabled [Plaintiff] from undertaking the repair, rebuilding, or
replacement of [the building].” Smith, 490 N.W.2d at 868.
As a result, in the event that the finder of fact determines the loss to have been
covered under the policy, Defendant’s alleged bad faith would be relevant to whether
Plaintiff should receive the replacement cost immediately or only after repairing or
replacing the building. Id. Either way, Defendant’s motion must be denied with respect
to its contention that Plaintiff is limited to recovering only the actual cash value.
IT IS ORDERED that Defendant’s motion for partial summary judgment (Dkt. #
69) GRANTED IN PART and DENIED IN PART. The motion is DENIED with respect to
the contention that Plaintiff’s recovery, if any, is limited to actual cash value. The motion
is GRANTED in all other respects.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: August 9, 2017
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, August 9, 2017, by electronic and/or ordinary mail.
Acting in the absence of Lisa Wagner
Case Manager and Deputy Clerk
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