TAMKO Building Products, Inc. v. Factory Mutual Insurance Company
Filing
81
MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that defendants motion to dismiss and to strike [# 55 ] is DENIED. IT IS FURTHER ORDERED that plaintiffs motion to compel [# 69 ] is GRANTED, except for the award of fees and costs, and defendant must produ ce the requested discovery no later than November 1, 2011. IT IS FURTHER ORDERED that defendants motion for a protective order [# 71 ] is DENIED. IT IS FURTHER ORDERED that defendants motion to enforce the appraisal award or undertake a new appraisal process [# 73 ] is DENIED as premature. Signed by Honorable Catherine D. Perry on 10/12/11. (KJS)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
TAMKO BUILDING
PRODUCTS, INC.,
Plaintiff,
vs.
FACTORY MUTUAL
INSURANCE COMPANY,
Defendant.
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Case No. 4:10CV891 CDP
MEMORANDUM AND ORDER
Plaintiff TAMKO Building Products, Inc. brought this action seeking a
declaratory judgment that its insurance policy with Factory Mutual Insurance
Company covered TAMKO’s business interruption losses caused by a problem
with a supplier. The insurance policy contains an appraisal clause, and, after this
suit was filed, the parties submitted to an appraisal. That appraisal assessed the
loss at approximately $3.5 million, which is far less than TAMKO seeks. After the
appraisal, TAMKO amended its complaint to add a fraud and suppression count,
asserting that the appraiser Factory Mutual selected was biased and that Factory
Mutual concealed the bias.
Factory Mutual then moved to dismiss the newly added claim and to strike
the claims for relief that sought a jury determination. TAMKO has filed a motion
to compel Factory Mutual to respond to discovery related to the bias of the
appraiser, and Factory Mutual has filed motions for a protective order and to
enforce the appraisal award.
I will deny the motion to dismiss and to strike, as TAMKO has appropriately
pleaded the claims and the request for relief. I will grant TAMKO’s motion to
compel, as it is entitled to discovery on the issue of appraiser bias. I will deny
Factory Mutual’s motion for a protective order, as I believe it must produce the
discovery sought. And I will deny the motion to enforce the appraiser’s award
without prejudice, as the motion cannot be decided before the parties have had a
full and fair opportunity to obtain discovery about appraiser bias.
Background
TAMKO produces roofing shingles that require a certain type of asphalt
flux. In late 2008, TAMKO’s asphalt flux supplier was unable to supply it with the
necessary amount of this product and no adequate alternative supplies were
available. Consequently, TAMKO was forced to shut down its factory in
Frederick, Maryland for approximately one month. TAMKO alleges that the shutdown resulted in approximately $12 million in losses.
TAMKO submitted a claim for this loss to Factory Mutual in September of
2008. Factory Mutual and TAMKO exchanged information regarding TAMKO’s
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claim for approximately nine months before Factory Mutual determined that it
would not cover the claim. Even after Factory Mutual denied coverage, the parties
continued to exchange demands and information until May of 2010, when
TAMKO filed this suit. In response, Factory Mutual invoked the appraisal
provision of the parties’ contract. The appraisal provision provided that:
If the insured and [Factory Mutual] fail to agree on the amount of loss,
each will, on the written demand of either, select a competent and
disinterested appraiser after:
1) the Insured has fully complied with all provisions of this Policy,
including REQUIREMENTS IN CASE OF LOSS; and
2) [Factory Mutual] has received a signed and sworn proof of loss
from the Insured.
Each will notify the other of the appraiser selected within 20 days of
such demand.
The appraisers will first select a competent and disinterested umpire.
If the appraisers fail to agree upon an umpire within 30 days then, on
the request of the Insured or [Factory Mutual], the umpire will be
selected by a judge of a court of record in the jurisdiction in which the
appraisal is pending. The appraisers will then appraise the amount of
loss, stating separately the Actual Cash Value and replacement cost
value as of the date of loss and the amount of loss, for each item of
physical loss or damage or if, for TIME ELEMENT loss, the amount
of loss for each TIME ELEMENT coverage of this Policy.
If the appraisers fail to agree, they will submit their differences to the
umpire. An award agreed to in writing by any two will determine the
amount of loss.
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The Insured and [Factory Mutual] will each:
1) pay its chosen appraiser; and
2) bear equally the other expenses of the appraisal and umpire.
A demand for APPRAISAL shall not relieve the Insured of its
continuing obligation to comply with the terms and conditions of this
Policy, including as provided under REQUIREMENTS IN CASE OF
LOSS.
[Factory Mutual] will not be held to have waived any of its rights by
any act relating to appraisal.
Factory Mutual selected Peter Hagen as its appraiser on May 14, 2010.
During the appraisal process, TAMKO became suspicious of Factory Mutual’s
appraiser. Hagen had performed several appraisals for Factory Mutual and Hagen
appeared to favor and advocate for Factory Mutual. TAMKO requested
information from Factory Mutual about the extent of Hagen’s ties to Factory
Mutual, but Factory Mutual refused to provide the requested information and
asserted that Hagen was disinterested. The appraisal process resulted in an award
of $3,569,261 – roughly one-fourth the amount TAMKO claimed. Shortly
thereafter TAMKO filed its amended complaint adding the fraud and suppression
allegations. Factory Mutual has refused to answer TAMKO’s discovery requests
relating to the bias issue, seeks dismissal of the fraud and suppression claim, and
seeks enforcement of the appraisal.
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Motion to Dismiss
A complaint must contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “[P]leadings under
the Federal Rules of Civil Procedure are designed to give the opposing party fair
notice of the claim asserted.” Shelter Mut. Ins. Co. v. Public Water Supply Dist.
No. 7 of Jefferson County, Mo., 747 F.2d 1195, 1197 (8th Cir. 1984). “To survive
a motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 129
S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. For claims of fraud, however, “a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “Rule 9(b)
requires plaintiffs to plead the who, what, when, where, and how: the first
paragraph of any newspaper story.” Summerhill v. Terminix, Inc., 637 F.3d 877,
880 (8th Cir. 2011) (quotations omitted).
TAMKO has sufficiently pled the factual circumstances constituting Factory
Mutual’s fraud. TAMKO has specified that the parties involved were TAMKO
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and Factory Mutual and that Factory Mutual’s misrepresentations were about the
qualifications of its appraiser Peter Hagen. TAMKO has identified that the
relevant time period was from May of 2010 until January of 2011, when Factory
Mutual had a duty to appoint a disinterested appraiser, but did not do so. Instead,
according to TAMKO, Factory Mutual appointed a biased appraiser, then lied
about the appraiser’s qualifications. TAMKO alleges that after concealing
Hagen’s bias, Factory Mutual worked with Hagen to manipulate the appraisal
process, which resulted in an illegitimate award. These allegations sufficiently
plead the who, what, where, why, when, and how of Factory Mutual’s fraud to
satisfy the requirements of Rule 9(b).
Factory Mutual argues that TAMKO’s fraud claim should be dismissed
because it has not sufficiently pled that it was ignorant of the fraud and because
TAMKO should have objected to Hagen’s participation earlier. Factory Mutual
claims that TAMKO’s complaint demonstrates that TAMKO was aware that
Factory Mutual was lying about Hagen’s lack of bias. Under Missouri law, one of
the elements of fraud is that the party alleging fraud must not know that the
allegedly fraudulent statement was false.1 Renaissance Leasing, LLC v. Vermeer
1
The “elements of fraudulent misrepresentation are: (1) a representation; (2) its falsity;
(3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) the
speaker’s intent that it should be acted on by the person in the manner reasonably contemplated;
(6) the hearer’s ignorance of the falsity of the representation; (7) the hearer’s reliance on the
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Mfg. Co., 322 S.W.3d 112, 131-32 (Mo. 2010).
Despite Factory Mutual’s arguments, TAMKO’s amended complaint
adequately alleges that it was ignorant of Hagen’s bias. Although TAMKO admits
it had suspicions about Hagen, it claims that it was not certain of Hagen’s bias
because of Factory Mutual’s lies and its refusal to provide information about
Hagen’s qualifications. The amended complaint does not state that TAMKO had
actual knowledge of Hagen’s bias and it does not imply that TAMKO knew that
Hagen was biased until after the appraisal award, when Factory Mutual’s fraud was
complete. As a result, TAMKO’s allegations sufficiently indicate that it did not
know that Factory Mutual had misrepresented Hagen as disinterested until after the
appraisal.
Factory Mutual’s arguments about waiver and estoppel must be rejected for
the same reason. “To rise to the level of waiver, the conduct must be so manifestly
consistent with and indicative of an intention to renounce a particular right or
benefit that no other reasonable explanation of the conduct is possible.” Austin v.
Pickett, 87 S.W.3d 343, 348 (Mo. Ct. App. 2002). To successfully assert the
defense of equitable estoppel, the party asserting the defense must show that “the
representation being true; (8) the hearer’s right to rely thereon; and (9) the hearer’s consequent
and proximately caused injury.” Renaissance Leasing, 322 S.W.3d at 131-32.
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representation made by the party estopped must be inconsistent with the claim
afterwards asserted and sued upon, and [the party asserting the defense] must have
relied upon the representation and been injured thereby.” Comens v. SSM St.
Charles Clinic Medical Group, Inc., 258 S.W.3d 491, 496-97 (Mo. Ct. App. 2008).
The complaint does not describe any actions or statements by TAMKO
indicating that TAMKO consented to Factory Mutual’s fraud. As discussed above,
TAMKO was not aware that Hagen was biased until after the appraisal, so it could
not have somehow consented to an appraisal with a biased appraiser.
Factory Mutual argues for dismissal of TAMKO’s suppression claim by
characterizing it as a discovery dispute and claiming that the issue is moot because
it has recently provided TAMKO with all of the information that TAMKO had
previously requested. First, TAMKO’s claim for suppression, or fraudulent
concealment,2 is not a discovery dispute. In the complaint, TAMKO does not seek
to compel Factory Mutual to produce any particular documents, but instead seeks
damages for Factory Mutual’s refusal to provide certain information before the
appraisal. Second, Factory Mutual has also not shown that TAMKO’s suppression
claim should be dismissed because of Factory Mutual’s recent disclosures.
2
The elements of fraudulent concealment are essentially the same as for fraud, except that
“[c]oncealment of a material fact can serve as a substitute for the elements of a false
representation if there exists a duty to disclose.” White v. Bowman, 304 S.W.3d 141, 149 (Mo.
Ct. App. 2009).
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TAMKO seeks damages for Factory Mutual’s fraudulent concealment during the
appraisal. Factory Mutual has provided no authority supporting its argument that it
can avoid liability for its fraud by providing the information after the damage has
been done.
Motion to Strike
Factory Mutual seeks to strike TAMKO’s request to submit the issue of
damages to a jury. Factory Mutual argues that even if the appraisal award is
vacated, the proper remedy is simply another appraisal, and so TAMKO may not
request that the issue be tried to a jury. Factory Mutual has not cited to any
provisions of the insurance contract or to any controlling legal authority for this
proposition. Under Rule 12(f), a “court may strike from a pleading an insufficient
defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R.
Civ. P. 12(f). “However, [m]otions to strike under Fed. R. Civ. P. 12(f) are viewed
with disfavor and are infrequently granted.” Stanbury Law Firm v. I.R..S., 221
F.3d 1059, 1063 (8th Cir. 2000) (internal quotations omitted); see also BJC Health
System v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007) (“Striking a
party’s pleading, however, is an extreme and disfavored measure.”); 5C Charles
Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1380 (3d ed.
2010) (“Both because striking a portion of a pleading is a drastic remedy and
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because it often is sought by the movant simply as a dilatory or harassing tactic,
numerous judicial decisions make it clear that motions under Rule 12(f) are viewed
with disfavor by the federal courts and are infrequently granted.”). Under these
standards, I must deny the motion to strike. It is premature for me to rule that the
matter cannot be submitted to a jury.
Motions to Compel and for Protective Order
TAMKO’s motion to compel and Factory Mutual’s motion for a protective
order relate to the same information: discovery requests regarding bias or interest
involved in the appraisal process. Discovery into appraisal bias is relevant because
Missouri law and the contract involved in this case both require a fair and
disinterested process. The validity of the appraisal process is also directly related
to TAMKO’s claims for breach of contract, vexatious refusal to pay, fraud, and
suppression.
For the same reasons that I declined to accept Factory Mutual’s arguments
regarding waiver and estoppel related to the fraud claim, I find that TAMKO did
not waive its right to object to Hagen’s selection or the appraisal process generally.
Furthermore, despite Factory Mutual’s contentions, these discovery requests are
not overly burdensome, considering their relevance to the claims and the type of
information requested.
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Therefore, I will grant TAMKO’s motion to compel3, except for the request
for sanctions of fees and costs associated with these motions, and I will deny
Factory Mutual’s motion for a protective order.
Motion to Enforce the Appraisal Award
Factory Mutual’s motion to enforce the appraisal award or order a new
appraisal is premature. TAMKO is entitled to discovery on the issue of appraisal
bias. Once the discovery is completed, is completed, the parties may further
litigate the validity of the appraisal process.
Accordingly,
IT IS HEREBY ORDERED that defendant’s motion to dismiss and to
strike [#55] is DENIED.
IT IS FURTHER ORDERED that plaintiff’s motion to compel [#69] is
GRANTED, except for the award of fees and costs, and defendant must produce
the requested discovery no later than November 1, 2011..
IT IS FURTHER ORDERED that defendant’s motion for a protective
order [#71] is DENIED.
3
Factory Mutual’s responsive brief said that it had produced documents responsive to
Document Requests 9 and 21. But, like TAMKO, I cannot tell if that means it has done so
merely by producing Hagen’s file, and has not produced all responsive documents from its own
files. If it has produced all responsive documents to these requests, it may state so
unambiguously instead of producing the documents again.
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IT IS FURTHER ORDERED that defendant’s motion to enforce the
appraisal award or undertake a new appraisal process [#73] is DENIED as
premature.
__________________________________
CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE
Dated this 12th day of October, 2011.
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