ID Ventures, LLC v. Chubb Custom Insurance Company

Filing 9

ORDER denying 3 defendant's Motion to Dismiss. Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

ID VENTURES, LLC,
Plaintiff,
Case No. 17-14182
HON. GEORGE CARAM STEEH

vs.
CHUBB CUSTOM INS. CO.,
Defendant.
____________________________/

ORDER DENYING DEFENDANT’S MOTION TO DISMISS [DOC. 3]
This is a first-party property insurance dispute in which plaintiff ID
Ventures alleges that defendant Chubb Custom Insurance Company
(“Chubb”) breached the Commercial Property Insurance Policy it issued by
failing to pay a claim for damage to the plumbing in an apartment building
owned and operated by ID Ventures and covered under the subject
insurance policy. Plaintiff filed its complaint in state court on November 3,
2017, asserting two causes of action, one for breach of contract and the
other asking the court to declare the respective rights and obligations of the
parties under the insurance policy. Defendant removed the case, invoking
this court’s diversity jurisdiction. The matter is before the court on
defendant’s motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6).
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Defendant argues that both of plaintiff’s causes of actions are time-barred,
along with its assertion that penalty interest should be imposed under
Michigan’s Uniform Trade Practices Act, M.C.L. § 500.2006. Oral
argument on the motion was held April 9, 2018.
STATEMENT OF FACTS
Plaintiff owns and operates an apartment building located at 1141
Holcomb Street in Detroit, Michigan (“Subject Property”). Plaintiff obtained
insurance for the Subject Property through Charles Walker & Associates
(“Walker”) in Southfield, Michigan. Walker procured an insurance policy
with Chubb (“Subject Policy”) and plaintiff made payments directly to
Walker. Walker did not provide plaintiff with a policy number or the actual
insurance policy. Walker is not a party to this lawsuit, but plaintiff indicates
it may seek to amend to add Walker.1
On January 8, 2015, Detroit Water and Sewerage Department
(“DWSD”) repaired a water main break on Holcomb Street immediately
outside the Subject Property. Before the repair, the monthly bill for water
and sewer services at the Subject Property averaged $1,500 to $2,000.
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From the allegations made in the complaint it appears that plaintiff may have a claim
against Charles Walker & Associates. Walker is a Michigan entity, so if it is joined as a
party to this action the requisite complete diversity of citizenship would be lacking.
Post-removal procedure is governed by federal statute, 28 U.S.C. § 1447(e), rather than
by a motion to amend the complaint. Mackey v. J.P. Morgan Chase Bank, 786
F.Supp.2d 1338, 1339-40 (E.D. Mich. 2011).
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Following the repair, the monthly invoice increased exponentially: on
January 15, 2015, the monthly bill was for $13,380.51; on February 15,
2015, the bill was for $55,005.33; and on March 14, 2015, the bill was for
$39,773.26. Plaintiff determined that the typical number of units of water
consumed in a month before the repair was 100-200, with the highest
amount in five years being 514 units. Since the fix done by DWSD,
monthly usage was in excess of 8,000 units.
Eventually, plaintiff determined that stones, sand and other debris
used by DWSD to repair the water main break had flowed into the pipes
and plumbing at the Subject Property. Plaintiff alleges that it was
foreseeable by DWSD that “these materials would enter and infiltrate the
plumbing system of the Subject Property,” constituting negligence by
DWSW “and for which actions Plaintiff has sustained damages.”
(Complaint ¶14). In order to fix the problem, plaintiff had the plumbing
cleaned out and replaced the Sloan flush valves. Plaintiff also pursued an
administrative appeal of the water bills through DWSD.
Plaintiff engaged in discussions with Walker to obtain a copy of the
insurance policy and to file a claim with Chubb. Plaintiff asserts that after a
lengthy delay, Walker ultimately produced the policy and filed a claim which
was denied. (Complaint ¶¶ 20, 21). Plaintiff does not dispute that it had a
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copy of the policy on November 16, 2016. The claim is dated December
21, 2016 and it identifies the date of loss as January 8, 2015. (Property
Loss Notice, attached to Complaint). A synopsis accompanying the claim
describes the damages caused by the manner in which DWSW undertook
to repair the water main.
The Policy contains a two-year limitations on actions provision:
D.

LEGAL ACTION AGAINST US

No one may bring a legal action against us under this Coverage Part
unless:
1. There has been full compliance with all of the terms of this
Coverage Part; and
2. The action is brought within 2 years after the date on which the
direct physical loss or damage occurred.
The water main repair occurred on January 8, 2015. Plaintiff maintains that
damage to its plumbing and water fixtures “commenced on January 8, 2015
and continued on through and including the present.” (Complaint ¶ 16).
Plaintiff submits a plumbing proposal for $94,360.00, dated September 20,
2016, to support its position that damage was still being done to the
plumbing on that date. Plaintiff also asserts that its obligation to pay the
water bill did not occur until his appeal became final on April 12, 2016.
Plaintiff filed its action against defendant on November 3, 2017
alleging breach of contract and declaratory relief. Defendant asserts that
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the contractual limitations period for filing lawsuits expired on January 8,
2017. Plaintiff maintains that its lawsuit is not barred because the
limitations period is tolled while its claim is being adjusted and because its
damages were incurred over time and not all on January 8, 2015.
LEGAL STANDARD
Rule 12(b)(6) allows the Court to make an assessment as to whether
the plaintiff has stated a claim upon which relief may be granted. Under the
Supreme Court’s articulation of the Rule 12(b)(6) standard in Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 554-56 (2007), the Court must construe
the complaint in favor of the plaintiff, accept the allegations of the complaint
as true, and determine whether plaintiff=s factual allegations present
plausible claims. A=[N]aked assertion[s]= devoid of >further factual
enhancement=@ are insufficient to Astate a claim to relief that is plausible on
its face@. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,
550 U.S. at 557, 570). To survive a Rule 12(b)(6) motion to dismiss,
plaintiff=s pleading for relief must provide Amore than labels and
conclusions, and a formulaic recitation of the elements of a cause of action
will not do.@ D=Ambrosio v. Marino, 747 F.3d 378, 383 (6th Cir. 2014)
(quoting Twombly, 550 U.S. at 555) (other citations omitted). Even though
the complaint need not contain Adetailed@ factual allegations, its Afactual
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allegations must be enough to raise a right to relief above the speculative
level on the assumption that all the allegations in the complaint are true.@
New Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1051
(6th Cir. 2011) (citing Twombly, 550 U.S. at 555).
ANALYSIS
The contract language in the Policy provides that commencement of
the limitations period is triggered on “the date on which the direct physical
loss or damages occurred.” When policy language is clear, it is enforced
as written. See Rory v. Cont’l Ins. Co., 473 Mich. 457, 486 (2005). In
interpreting a policy of insurance, the Michigan Supreme Court held that
“an unambiguous contractual provision providing for a shortened period of
limitations is to be enforced as written unless the provision would violate
law or public policy.” Id. at 470. Defendant contends that the date on
which the damage to plaintiff occurred was January 8, 2015 when DWSD
was negligent in repairing the broken water main.
I.

Date of Loss
Plaintiff maintains that not all of the damage or physical loss occurred

on that date, as the damage was on-going. For example, the increased
flow of water which occurred as a result of the stones and debris getting
into the plumbing system and allowing the plumbing fixtures to run
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continuously resulted in the need for $94,000.00 worth of plumbing work to
be undertaken in September of 2016. In addition, plaintiff disputed the
water bill before both DWSD and in the Wayne County Circuit Court.
Ultimately, plaintiff exhausted its appeals and became liable for paying a
portion of the water bill on April 12, 2016.
The Michigan Court of Appeals interpreted the same two year
limitation language found in the Subject Policy in Thierry v. North Pointe
Ins., 2004 WL 2873808 (Mich. App. 2004) (unpublished). The court
rejected the insureds’ attempt to delay commencement of the limitations
period by alleging a continuing loss or additional repair expenses. The
court held the two-year suit limitations period began to run on the date the
damage began and “[t]here is no indication that any such damages
occurred after [the date the insurance claim was denied].” Id. at *3. The
court tolled the limitations period while plaintiff’s insurance claim was
pending, pursuant to the Michigan Insurance Code. See McDonald v.
Farm Bureau Ins. Co., 480 Mich. 191, 200-01 (2008). In affirming a grant
of summary disposition, the Thierry court did not include a discussion of the
exact date on which the original damage occurred. The court found that
there was “no indication” that any damages occurred after the date the
claim was rejected, which leaves the door open that on-going damages
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were a possibility, albeit one that was not supported by evidence in that
case.
At this stage of the proceedings there is not enough evidence to
determine if the “direct physical loss or damage” all occurred on January 8,
2015 or if damage was on-going over an extended period of time. The
court finds that plaintiff’s allegations are sufficient to survive the motion to
dismiss on defendant’s limitations of actions argument.
II.

Statutory One Year Extension
Under Michigan statute, policies of fire insurance must contain

clauses that provide a minimum of a one year extension to sue, which
commences at the point the insurance company denies the claim. M.C.L.
§500.2833(1)(q). Defendant argues that this section does not apply here
because the Subject Policy is a surplus lines policy. Defendant is a surplus
lines insurance carrier, meaning it is an unauthorized carrier eligible to write
insurance policies in Michigan under the Surplus Lines Insurance Act.
M.C.L. §500.1903(1)(a). Surplus lines insurance companies are only
permitted to insure risks that a traditional authorized carrier will not. See
M.C.L. §500.1910(1). Surplus lines carriers fill a void where there is a high
degree of risk involved and traditional carriers will not insure the risk.

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Policy forms issued by surplus lines carriers are exempt from the Michigan
Insurance Code by M.C.L. §500.1904(2) which provides:
Forms used by unauthorized insurers pursuant to this chapter
shall not be subject to this code, except that a policy shall not
contain language which misrepresents the true nature of the
policy or class of policies.
Michigan courts have repeatedly held that surplus lines carriers “are free to
include policy language that is otherwise inconsistent with the code so long
as it does not misrepresent the true nature of the policy.” Palmer Park
Square, LLC v. Scottsdale Ins. Co., No. 16-11536, 2017 WL 227958, *4
(E.D. Mich. January 19, 2017) (rev’d on other grounds), see also Gulf
Underwriters Ins. Co. v. McClain Indus., Inc., No. 273768, 2008 WL
3021134, *2 (Mich. Ct. App. Aug. 5, 2008) (citing M.C.L. §500.1904(2) to
support holding that surplus lines carrier was not subject to the
requirements of a provision of the Michigan Insurance Code).
Plaintiff contends there is an issue of fact whether it could have
been insured by an authorized insurance company licensed within
Michigan. Having procured the policy through Walker, plaintiff was not
involved in the process and claims that without conducting discovery it
does not know if the surplus lines policy was its only option. Defendant
argues this is not a material issue because the policy is in fact a surplus

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lines policy. Because the court denies defendant’s motion to dismiss, the
parties will be able to explore this issue in discovery.
III.

Judicial Tolling
Plaintiff argues that the limitations period should not start running until

defendant denies liability. Plaintiff asserts that the limitations provision has
not been triggered in this case because defendant has not affirmatively
denied the claim. In support, plaintiff cites to a footnote in a dissenting
opinion from the Michigan Supreme Court which disagrees with the
majority’s decision to “abolish the use of the judicial tolling doctrine”.
McDonald v. Farm Bureau Ins. Co., 480 Mich. 191, 209 n.1 (2008). The
dissent explains that judicial tolling is a doctrine that “encourages insureds
to give prompt notice of their claims to their insurers”, while “eliminate[ing]
any incentive insurers might have to wait until the contractual limitations
period expires before denying claims.” Id. at 210. However, the majority
opinion of the Michigan Supreme Court held that courts must enforce
unambiguous contract provisions as they are written, and that “express
[lawsuit] limitations periods in optional insurance contracts are not
automatically tolled as a matter of law by filing a claim.” Id. at 200-201. In
this case, the policy language does not provide for tolling during the period
when a claim is pending. Plaintiff’s tolling argument is unavailing.
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IV.

Equitable Estoppel
Plaintiff next argues that it was not provided a copy of the Policy until

November 16, 2016. This was two months before the two year limitations
period ran. Plaintiff asserts that the equitable principles of estoppel and
waiver apply such that defendant should not be allowed to hold plaintiff to
the contractual two year period of limitations. Plaintiff asks the court for
leave to amend its complaint to properly articulate these claims.
Waiver and estoppel are contractual defenses. “A waiver is a
voluntary relinquishment of a known right.” McDonald, 480 Mich. at 200
(citation omitted). There is no indication that Chubb voluntarily relinquished
its right to enforce the two year limitation period in its contract, so waiver is
not applicable in this case.
For equitable estoppel to apply, plaintiff must establish that (1)
defendant's acts or representations induced plaintiff to believe that the
limitations period clause would not be enforced, (2) plaintiff justifiably relied
on this belief, and (3) plaintiff was prejudiced as a result of its reliance on
the belief that the clause would not be enforced. Id. at 204–05. Plaintiff
contends it did not learn of the two year limitations period until after
obtaining a copy of the Subject Policy. The policy appears to have been
given to plaintiff’s counsel by November 15, 2016 which was prior to the
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time the limitations period ended on January 8, 2017. Any delay in
providing the policy to plaintiff appears to have been due to the acts or
omissions of its agent, not due to any act or representation of defendant.
However, discovery will be available to establish what actually happened.
The court notes that equitable estoppel and waiver are contractual
doctrines in the nature of a defense to the assertion of a limitations period,
as opposed to causes of action that must be pled in the complaint.
Therefore, plaintiff’s request to amend the complaint is denied as moot.
V.

Declaratory Judgment Action
Plaintiff seeks an order from the court “declaring the respective rights

and obligations of the parties pursuant to the Subject Policy of Insurance.”
(Complaint, ¶ 39). Defendant argues the declaratory judgment action is
redundant of plaintiff’s breach of contract action, and does not seek to
guide the parties’ conduct in the future, as it is required to do.
To the extent that plaintiff seeks a declaration that defendant
breached its obligations under the Subject Policy by failing to pay plaintiff’s
claims (see Complaint ¶ 38), the declaratory judgment claim seeks to
adjudicate past conduct as opposed to guiding future conduct. The Sixth
Circuit has held that a declaratory judgment action is intended to clarify the
legal duties for the future, rather than address alleged past harm. See
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Amsouth Bank v. Dale, 386 F.3d 763, 786 (6th Cir. 2004). This is the
standard in Michigan as well. An “actual controversy” under MCR
2.605(A)(1) exists only “when a declaratory judgment is necessary to guide
a plaintiff’s future conduct in order to preserve legal rights,” UAW v. Central
Mich. Univ. Trustees, 295 Mich. App. 486, 495 (2012), so as to enable the
parties to obtain an adjudication of rights “before an actual injury occurs.”
Rose v. State Farm Mut. Auto. Ins. Co., 274 Mich. App. 291, 294 (2006).
However, to the extent plaintiff seeks an adjudication that requires
defendant to adjust plaintiff’s claim (Complaint ¶¶ 24, 37), such an
adjudication would guide future conduct and be an appropriate request for
declaratory relief.
VI.

Penalty Interest
Plaintiff seeks penalty interest for defendant’s failure to adjust and

pay its claim on a timely basis. The Sixth Circuit interpreted the same
limitation of action contract language and held that statutory penalty
interest was a valid independent cause of action available to an insured
and was not subject to the two year limitations period in the contract.
Palmer Park Square, LLC v. Scottsdale Ins. Co., 878 F.3d 530, 534-36 (6th
Cir. 2017) (“Palmer Park II”). The court based its holding on the view that
a claim for penalty interest was a separate and distinct claim not on the
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policy itself, even though it arose from the policy. Id. Michigan’s general
six-year statute of limitations was found to govern a claim for penalty
interest. MCL 600.5813. Palmer Park II, 878 F.3d at 539.
In this case, plaintiff seeks 12% interest under MCL 500.2006(4) due
to defendant’s bad faith failure to adjudicate and/or pay benefits on a timely
basis pursuant to the requirements of the insurance policy. A six year
statutory limitations period would apply. Id. Of course, if plaintiff’s claim
under the policy is ultimately unsuccessful, then plaintiff will have no action
for penalty interest.
CONCLUSION
For the reasons stated above, defendant’s motion to dismiss is
denied.
Dated: April 16, 2018
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
April 16, 2018, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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