GuideOne Elite Insurance Company v. Synergy Building Systems, Inc. et al

Filing 18

DECISION AND ENTRY GRANTING DEFENDANT THE ALEX N. SILL COMPANY'S MOTION TO DISMISS (Doc. 10 ). Defendant Alex N. Sill Company is terminated as a party to this civil action. Signed by Judge Timothy S. Black on 9/24/12. (mr1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
GUIDEONE ELITE INS. CO.,
Plaintiff,
vs.
SYNERGY BLDG. SYS., INC., et al.,
Defendants.

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Case No. 3:12-cv-110
Judge Timothy S. Black

DECISION AND ENTRY GRANTING DEFENDANT THE ALEX N. SILL
COMPANY’S MOTION TO DISMISS (Doc. 10)
This civil action is before the Court on the motion of Defendant Alex N. Sill
Company (“Sill”)1 to dismiss the Complaint as against Sill (Doc. 10), and the parties’
responsive memoranda (Docs. 14, 17).2
I.

FACTS ALLEGED

For purposes of this motion to dismiss, the Court must: (1) view the Complaint in
the light most favorable to Plaintiff; and (2) take all well-pleaded factual allegations as
true. Tackett v. M&G Polymers, 561 F.3d 478, 488 (6th Cir. 2009).
Plaintiff GuideOne is an Iowa insurance company. (Doc. 1 at 1). Defendant Sill is
an Ohio corporation engaged in the business of public insurance adjusting. (Id. at 1-2).
Defendant Synergy is an Ohio corporation engaged in commercial construction. (Id. at 1).

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Defendant Synergy Building Systems, Inc. (“Synergy”) is also a party to this case.

To the extent the Court finds GuideOne’s pleadings to be deficient, GuideOne seeks
leave to amend or supplement pursuant to Fed. R. Civ. P. 15(a)(2).

On September 8, 2008, fire damaged the Spring Valley Academy (“the school”), a
private school with students from kindergarten through twelfth grade. (Id. at 2). The
Ohio Conference Association of Seventh-Day Adventists Church (“OCSDA”) owned the
school. (Id.) At the time of the fire, Plaintiff GuideOne insured OCSDA under a
commercial property policy and this policy covered OCSDA’s loss arising from the fire
on September 8, 2008. (Id. at 3-5).
Following the fire, without GuideOne’s authorization, OCSDA contracted with
Synergy for immediate construction remediation to ensure the safety of the building and
to avoid additional damages. (Id.) OCSDA also contracted with Sill to appraise and
adjust the repair and replacement of OCSDA’s loss. (Id.) In October 2008, upon Sill’s
approval and advice, and without GuideOne’s authorization or approval, OCSDA entered
into a second agreement with Synergy to perform additional work at the school. (Id.)
This work included design, demolition, reconstruction, repair and replacement of fire
damaged portions of the school building. (Id.)
In November 2008, GuideOne requested that Synergy cease and desist from
construction and demolition at the school that was not reasonable and necessary to protect
the property from further damage. (Id. at 5-6). In December 2008, GuideOne notified
OCSDA and Sill of its intent to repair, rebuild, or replace the lost or damaged property.
(Id. at 6). GuideOne’s intent to this extent was later communicated to Synergy. (Id.)
Thereafter, Synergy, in concert with Sill, continued with demolition and construction at

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the school that allegedly was not reasonably necessary to protect the property from further
damage from the fire. (Id.)
GuideOne now brings this action against Synergy and Sill. GuideOne alleges that
Sill:
breached its contract with OCSDA to properly and accurately
appraise and adjust this fire loss by directing, facilitating,
coordinating, assisting or encouraging Synergy to continue
demolition and construction activities not related to immediate
construction remediation measures after the November 18, 2008,
meeting and by including enhanced, enlarged, or unsupported costs
or expenses in its appraisal(s) submitted to GuideOne for payment,
thereby delaying and unnecessarily complicating the determination
of scope of repair and resolution and causing or contributing to the
enhanced repair, rebuild and replacement expenses that GuideOne
was required to incur on behalf of OCSDA under the policy.
(Id. at 7). GuideOne asserts that it possesses OCSDA’s right of action against Sill on the
breach of contract by virtue of its payment to OCSDA under the policy. (Id.) Sill now
moves to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6). (Doc. 10).
II.

STANDARD OF REVIEW

A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) operates to test the
sufficiency of the complaint and permits dismissal of a complaint for “failure to state a
claim upon which relief can be granted.” To show grounds for relief, Fed. R. Civ. P. 8(a)
requires that the complaint contain a “short and plain statement of the claim showing that
the pleader is entitled to relief.”

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While Fed. R. Civ. P. 8 “does not require ‘detailed factual allegations,’ . . . it
demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”
Ashcroft v. Iqbal, -- U.S. --, 129 S.Ct. 1937, 1949 (2009) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544 (2007)). Pleadings offering mere “‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action will not do.” Id. (citing Twombly,
550 U.S. at 555). In fact, in determining a motion to dismiss, “courts ‘are not bound to
accept as true a legal conclusion couched as a factual allegation[.]” Twombly, 550 U.S. at
555 (citing Papasan v. Allain, 478 U.S. 265 (1986). Further, “[f]actual allegations must
be enough to raise a right to relief above the speculative level[.]” Id.
Accordingly, in order “[t]o 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.’” Iqbal, 129 S.Ct. at 1949. A claim is plausible where “plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. Plausibility “is not akin to a ‘probability requirement,’
but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.
“[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the
pleader is entitled to relief.’” Id. (citing Fed. Rule Civ. Proc. 8(a)(2)).
III.

ANALYSIS

Sill moves to dismiss the Complaint arguing that it fails to assert a subrogation
claim.
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GuideOne argues that Sill was acting on behalf of OCSDA in causing the loss, and
that Sill reached and acted outside the scope of the contract. When an agent acts outside
the scope of his authority the principal is not bound. See, e.g., Damon’s of Missouri, Inc.
v. Davis, 590 N.E.2d 254 (Ohio 1992). The Complaint alleges that Sill breached its
contract with OCSDA and that breach lead to the enhanced damages sustained by
OCSDA and paid for by GuideOne. (Doc. 1 at ¶ 18).
Specifically, GuideOne argues that its Complaint arises out of a so-called “second
loss” allegedly separate from the initial loss resulting from the September 2008 fire that
damaged Spring Valley Academy. Although GuideOne makes repeated reference to the
purported “first loss” and “second loss” in their memorandum contra, the Complaint is
devoid of such terminology. Additionally, the Complaint does not allege that GuideOne
issued an insurance policy to OCSDA covering “negligent workmanship,” which
GuideOne describes as the cause of the co-called “second loss.” (Doc. 14 at 8). Nor does
GuideOne allege that its insurance policy extended to its insured’s contractual
responsibility for the “second loss.” Instead, as the property and casualty insurer,
GuideOne insured the damage and losses resulting from the fire. If the so-called “second
loss” in fact was a separate loss, then there was no insurance coverage and GuideOne has
no subrogation claim. See, e.g., PIE Mut. Ins. Co. v. Ohio Ins. Guar. Ass’n, 611 N.E.2d
313, 316 (1993) (no subrogation right arises out of a voluntary payment).

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First, Sill contends that GuideOne is precluded as a matter of law from asserting
claims against it because it worked as an agent of GuideOne’s insured. “An agent is not
liable for harm to a person other than his principal because of his failure adequately to
perform his duties to his principal, unless physical harm results from reliance upon
performance of the duties by the agent, or unless the agent has taken control of land or
other tangible things.” Meridian Sec. Ins. Co. v. Hoffman Adjustment Co., 933 N.E.2d 7,
12 (Ind. App. 2010) (citing Greg Allen Const. Co., Inc. v. Estelle, 798 N.E.2d 171 (Ind.
2003)). Sill’s citation to Meridian is misguided, because GuideOne asserts the claims of
Sill’s principal, i.e., OCSDA, via a contractual subrogation provision. Accordingly, Sill’s
first argument is unavailing.
Second, Sill contends that GuideOne’s subrogation claim 3 is waived, because any
assertion that its adjustment of OCSDA’s fire loss claim was inflated would have been a
defense to paying the entire amount of the allegedly inflated loss. In essence, Sill argues
that GuideOne volunteered full payment. GuideOne seeks to assert its insured’s claim
against the insured’s adjuster pursuant to a subrogation provision in the insurance policy.
Specifically, GuideOne’s theory is that it paid too much to OCSDA for post-fire repair
work performed by Synergy, and that Sill thereby “breached its contract with OCSDA.”

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Subrogation, in the insurance context, “is ‘[t]he principle under which an insurer that
has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to
the insured against a third party with respect to any loss covered by the policy.’” Ohio Bureau of
Workers’ Comp. v. McKinley, 956 N.E.2d 814, 820 (Ohio 2011).
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(Doc. 1 at ¶ 18). However, GuideOne steps into the shoes of its insured, OCSDA and
acquires no greater rights than OCSDA. Underwriters at Lloyd’s Under Policy No.
LHO10497 v. Peerless Storage, Co., 404 F.Supp. 492, 496 (S.D. Ohio Nov. 26, 1975).
Therefore, because OCSDA does not itself have any claim against Sill under the contract
between Sill and OCSDA, GuideOne cannot assert its own separate claim against Sill
based on the notation that GuideOne paid too much.
Sill did not breach its contract with OCSDA by including in OCSDA’s proof of
loss (that GuideOne paid) the full measure of OCSDA’s insured loss. It is undisputed
that GuideOne, as the putative subrogee, steps into the shoes of the subrogor, OCSDA.
OCSDA itself has no claim against Sill, its public insurance adjuster, for including in
OCSDA’s proof of loss all of the losses arising out of the insured occurrence. Therefore,
because OSCDA itself has no claim against Sill, GuideOne has no pass-through
subrogation claim against Sill.
With respect to GuidOne’s newly-asserted “first loss” versus “second loss,”
GuideOne argues that Sill breached its contract with OCSDA because the contract
between Sill and OCSDA “consisted of appraising the ‘first loss’ and did not include
causing the ‘second loss.’” The implication is that it now characterizes the “first loss” as
somehow limited to initial measures “necessary to protect the property from further
damage” (Doc. 14 at 3), and the “second loss” as work relating to restoring the property,
which GuideOne described as “enhanced repair, rebuild or replacement expenses.” (Id. at
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2). However, the Complaint fails to set forth any allegations to such limited terms of
Sill’s contract with OCSDA, and GuideOne’s alleged distinction between the “first loss”
and “second loss” fails. The Complaint alleges that Sill conducts business as a “certified
public insurance adjuster” (Doc. 1 at ¶ 3), and that the contract between Sill and OCSDA
was to “appraise and adjust the repair and replacement of OCSDA’s building and
contents loss” (Id. at ¶ 7). Therefore, the very predicate of GuideOne’s subrogation claim
against Sill is that the so-called “second loss” was included within the proof of loss that
Sill, acting as a public adjuster, prepared on behalf of OCSDA. The contract between Sill
and OCSDA encompassed an appraisal of work and costs necessary to protect and repair
the property. Therefore, Sill did not breach its contract with OCSDA by including on
OCSDA’s proof of loss the full range and extent of the property damage sustained by
OCSDA.
Sill owed its duties to OCSDA, and not GuideOne, whose property damage claim
was adjusted by Sill and paid by GuideOne. Sill did not cause any damage or loss to
OCSDA. An insurer does not have a claim (subrogation or otherwise) against a public
adjuster hired by its insured for a proof of loss that he insurer later thinks is too big. This
case is similar to the decision in Credit Gen. Ins. Co. v. Marine Midland Bank, No. C-386-561, 1992 U.S. Dist. LEXIS 22747 (S.D. Ohio Aug. 24, 1992), where the insurer, like
GuideOne here, sought to shift losses suffered by the insurer arising out of claims that it
paid, including by way of breach of fiduciary duty claims asserted against agents of the

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insured. Id. at 1. The Court held that the insured’s agent owed fiduciary duties to its
principal (the insured), but such an “agent does not owe fiduciary duties to third parties
with whom it transacts business on behalf of its principal.” Id. at 19. Therefore, while
GuideOne may have a subrogation claim against the person or entity that caused the fire,
it does not have a subrogation claim against the agent of its insured that assisted the
insured in adjusting its resulting loss. Northwestern Mut. Ins. Co. v. Jackson Vibrators,
Inc., 402 F.2d 37, 40 (6th Cir. 1968) (“subrogee acquires no greater rights than those
possessed by this subrogor”).
The Court also denies GuideOne leave to amend, as any amendment of the
complaint would be futile because, as a matter of law, OSCDA has no claim against Sill
and therefore GuideOne has no subrogation claim against Sill either.
IV.

CONCLUSION

Accordingly, for the reasons stated above, Defendant Alex N. Sill Company’s
motion to dismiss with prejudice (Doc. 10) is GRANTED. Defendant Alex N. Sill
Company is terminated as a party to this civil action.
IT IS SO ORDERED.
Date:

s/ Timothy S. Black

9/24/12

Timothy S. Black
United States District Judge

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