Shanta Inc v. Nautilus Insurance Company

Filing 75

ORDER granting 55 Defendant, Nautilus Insurance Company Motion for Summary Judgment, as more fully set out. Signed by Honorable David L. Russell on 3/8/17. (jw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
SHANTA, INC. D/B/A GREEN
CARPET INN,
Plaintiff,
v.
NAUTILUS INSURANCE
COMPANY,
Defendant.

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CIV-15-872-R

ORDER
Defendant, Nautilus Insurance Company, seeks summary judgment on Plaintiff’s
bad faith claim and its request for punitive damages. (Doc. No. 55). Plaintiff responded in
opposition to the motion, and Defendant has filed a reply in support of its position. Having
considered the parties’ submissions, the Court finds as follows.
“Summary judgment is appropriate if the record shows that there is no genuine issue
as to any material fact and that the moving party is entitled to judgment as a matter of law.
The moving party is entitled to summary judgment where the record taken as a whole could
not lead a rational trier of fact to find for the non-moving party. When applying this
standard, [the Court] examines the record and reasonable inferences drawn therefrom in
the light most favorable to the non-moving party.” Solid Waste Dep't Mechs. v. City of
Albuquerque, 156 F.3d 1068, 1071-72 (10th Cir. 1998) (internal citations and quotations
omitted). “Only disputes over facts that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary judgment. Furthermore, the

non-movant has a burden of doing more than simply showing there is some metaphysical
doubt as to the material facts. Rather, the relevant inquiry is whether the evidence presents
a sufficient disagreement to require submission to a jury or whether it is so one-sided that
one party must prevail as a matter of law.” Neustrom v. Union Pac. R.R. Co., 156 F.3d
1057, 1066 (10th Cir. 1998) (internal citations and quotations omitted).
Plaintiff alleges Defendant breached a contract of insurance issued by Defendant by
failing to pay certain losses incurred as a result of May 31, 2013 tornado that damaged the
insured property, comprised of a motel and restaurant. Plaintiff employed a public adjuster,
H&S, which informed Defendant of the storm-related losses on June 3, 2013. In response
to the notice, Defendant assigned an independent adjusting firm, Great Plains Inspection
Company, Inc., to assess the losses. Elvis Spoon, the adjuster for H&S, inspected the
property and concluded the roof of the entire motel structure needed replacement.
According to the notes in the claims file from June 26, 2013, “[t]he main reason is the new
code requires thicker sheathing and if we patch, then there will be a difference in the roof,
and the contractor will not warranty it.” Doc. No. 68-3, p. 3. Mr. Spoon conveyed his
conclusion to the Defendant.
On June 6, 2013, Larry Hickok of Great Plains inspected the property on behalf of
the Defendant. Elvis Spoon was present for the inspection. Hickok opined that the damage
to the roof could be repaired and did not require replacement. Mr. Hickok submitted an
estimate to Defendant indicating a replacement cost value of $139,395.24, which excluded
certain of the guest rooms he was unable to inspect on June 6, 2013. Faced with a
disagreement between adjusters regarding repair versus replacement, the Nautilus claims
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examiner, Bryant Wilcox, authorized Larry Hickok to retain an engineer to inspect the
premises and render an opinion. Hickok retained Engineering Inc., whose principal, Shawn
Thompson, P.E., inspected the property on July 10, 2013; he was accompanied by Mr.
Hickok. Mr. Hickok was able to access the previously inaccessible guest rooms, which
permitted him to provide Defendant with a supplemental estimate of damage.1
On July 15, 2013, Defendant issued a check to Plaintiff for $72,856.62, representing
the actual cash value, $139,395.24, less depreciation and a $38,000 deductible, as estimated
by Hickok’s original estimate. That same day, Hickok provided a supplemental estimate
addressing the guest rooms he inspected on July 10, 2013, indicating an additional
$14,458.89 in recoverable loss to the property.2 On July 19, 2013, Elvis Spoon provided

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Thompson’s August 21, 2103 report included the following:
Based on this inspection, which included visual observations and measurements, my professional
opinions of the damage to these motel buildings as a result of high winds from the recent May 21,
2013 storm is expressed in the following conclusions:
1. Damage has occurred to a portion of the wood roof deck and bituminous roof covering
on the flat roof, and to a limited number of asphalt composition shingles on the sloped
gable shaped roof surfaces, and all of these are capable of and would respond well to
repairs
2. Damage has occurred to a limited area of vinyl soffit on the west side second floor
walkway
3. A limited amount of water intrusion into the building has occurred at the north side
roof damage affecting the gypsum ceiling and wall board. Water damage to the wood
decking and framing, however is the result of the long term water intrusion into these
areas and Is not due to the recent storm
4. Damage has occurred to a portion of the brick veneer on a north side wall.
All materials removed including metal panels and wind girts should be replaced with material of the
same size, thickness, and quality in accordance with the requirements of the International
Residential Building Code as adopted by the local municipality and/or the State of Oklahoma.

Doc. No. 55-2.

Defendant concluded that the damage to the restaurant did not exceed the deductible on the structure, and therefore
tendered no payment for damage to that structure.

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Defendant with a copy of his estimate for repairs to the motel and restaurant, the net claim
totaled $773,275.31.
On August 6, 2013, Defendant received from Plaintiff a Sworn Statement in Proof
of Loss. Contrary to the $773,275.31 indicated in Mr. Spoon’s estimate, “The Amount
Claimed” on the form was $87,324.51. The form was signed by Mr. Patel, and he indicated
that he received assistance from Mr. Spoon in completing the form.3 On August 7, 2013,
Defendant tended a check for $14,458.89 to Plaintiff consistent with Mr. Hickok’s
supplemental estimate of July 15, 2013. Defendant’s payments to Plaintiff totaled
$87,615.51.
On September 9, 2013, Defendant’s internal claims adjuster Bryant Wilcox sent a
letter to Plaintiff’s adjuster, Elvis Spoon, with a copy of the Thompson report. The letter
stated “[a]s you are aware the flat roof and comp shingles areas are repairable, which we
have estimated and indemnified the insured. However, the engineer also pointed out some
area’s (sic) of damage that were not a result of this storm. The engineer discovered rot, due
to long term exposure to water. . . . Unfortunately, rot is excluded and we will be unable to
assist with the repairs to any rotted materials.” Doc. No. 55-2, Ex. 2-J. Thereafter,
Defendant reiterated to Plaintiff’s public adjuster that the claim remained open for Plaintiff
to recoup recoverable depreciation. Plaintiff submitted no additional proof of loss to
Defendant regarding the roof or the structure.

 Plaintiff does not dispute this is the sole proof of loss it submitted to Defendant. He asserts without citation to
evidence that the adjuster who procured the Proof of Loss misrepresented the effect thereof. Plaintiff, however, does
not identify the adjuster, and when asked in deposition about the submission Plaintiff testified that it was his
signature on the page and that he submitted it to Nautilus, through Mr. Spoon. Doc. No. 55-3, p. 110. He further
testified that he and Mr. Spoon worked together in completing the form. Id. at 112.
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With regard to business personal property and loss of business income coverage
related to the claim, Defendant sought information from Plaintiff via Elvis Spoon
requesting inventory of the business personal property and copies of tax filings and profit
and loss statements. Defendant retained a certified public accountant to assist with the
claim. However, because Defendant received no response prior to the onset of litigation,
save for submission of a “Daily Report” for May 31, 2013, identifying occupancy for the
day of the tornado, the accountant did not calculate businesses losses at that time.
Defendant, either directly or via the CPA, sent letters requesting information on these
losses to Plaintiff, Mr. Spoon, or Plaintiff’s counsel on September 26, 2013, December 2,
2013, January 3, 2014, February 10, 2014, March 10, 2014, March 12, 2014, May 6, 2014,
May 13, 2014, July 7, 2014, August 1, 2014, and September 9, 2014, all without response.4
Plaintiff filed this action on May 29, 2015, in the District Court of Oklahoma County.
Plaintiff seeks relief under theories of breach of contract and bad faith breach of
contract, requesting compensatory and punitive damages, as well as declaratory relief.
Defendant seeks summary judgment on Plaintiff’s bad faith claim and argues that the
evidence herein is not sufficient to support an award of punitive damages.
In Christian v. American Home Assurance Company, 1977 OK 141,
577 P.2d 899, this Court adopted the rule that an insurer has an implied duty
to deal fairly and to act in good faith with its insured. The violation of this
duty gives rise to an action in tort for which consequential damages, as well
as punitive damages, may be sought. Id., at 904. We did not hold that an
insurer breaches this duty merely by litigating a claim or by receiving a
judgment against it in an amount larger than it offered its insured. Tort
liability is to be imposed only upon a clear showing “that the insurer

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 During this time both Defendant and its accountant were informed via letter that Plaintiff had retained counsel.  

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unreasonably, and in bad faith, withholds payment of the claim of its
insured.” Id., at 905.
Falcone v. Liberty Mut. Ins. Co., 2017 OK 11, ¶ 10, --- P.3d ---, 2017 WL 587321 (Okla.
2017). In addressing whether to pay a claim, the insurer must conduct an investigation that
is “reasonably appropriate under the circumstances.” Willis v. Midland Risk Ins. Co., 42
F.3d 607, 612 (10th Cir. 1994)(quoting Buzzard v. Farmer ins. Co., 824 P.2d 1105, 1109
(Okla. 1991)). Furthermore, “[w]hen a plaintiff bases a bad faith claim on an inadequate
investigation theory, ‘the insured must make a showing that material facts were overlooked
or that a more thorough investigation would have produced relevant information.’” Sellman
v. AMEX Assur. Co., 274 Fed.Appx. 655, 658 (10th Cir. 2008)(unpublished)(quoting
Timberlake Cons. Co. v. U.S. Fidelity and Guar. Co., 71 F.3d 35, 345 (10th Cir. 1995). The
main focus of this dispute is whether Defendant acted in bad faith by virtue of the amount
it paid on Plaintiff’s claim with regard to the roof the of motel.5 Plaintiff also contends
Defendant failed to timely pay business income losses. The Court will address the issues
in turn.
Plaintiff first argues that Defendant manufactured a dispute to avoid payment of its
claim, asserting that Nautilus improperly relied on a 2011 hail damage claim Plaintiff
pursued against its previous insurer. Plaintiff asserts Defendant attempted to create the
appearance of a dispute, although the parties admit that Defendant did not rely on the prior
claim or any prior damage as a basis for denying the 2013 claim. Within its rights and

 Although there are other discrepancies with regard to the amount tendered by Defendant and the estimate provided
by Plaintiff’s public adjuster, the parties focus on the roof. 

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under its obligation to conduct an investigation, Defendant made inquiry into the contours
of Plaintiff’s 2011 claim for hail damage. Defendant ultimately concluded the 2011 claim
did not impact assessment of the 2013 claim because Nautilus had accepted the risk when
it issued its Policy. Mr. Wilcox testified that Defendant’s payment of the claim herein was
not reduced as a result of the 2011 claim and Defendant does aver otherwise. As such, the
Court concludes that Plaintiff’s contention that Defendant relied on an improper defense
to avoid payment does not support its bad faith claim. The remaining question is whether
Defendant conducted a reasonable investigation in adjusting Plaintiff’s claim.
Plaintiff argues, “[m]ore concerning is the fact that Nautilus never investigated the
reason given by Plaintiff’s public adjuster that the roof could not be repaired and had to be
replaced because of building code requirements. Despite knowing this contention, Nautilus
never investigated whether applicable building code would allow for repair of the damaged
roof at the Motel.” Doc. No. 72, p. 2. On June 26, 2013, Plaintiff’s public adjuster, Elvis
Spoon, conversed with the claims adjuster, Bryant Wilcox. As noted above, the claim file
indicates Spoon’s opinion “that the roof cannot be patched, contractor indicates he can
patch it but there is no warranty, our IA (according to the PA) indicates the roof can be
patched.” “The PA is indicating that the entire old section needs to be replaced[.] T[he]
main reason is the new code requires thicker sheathing and if we patch then there will be a
difference in the roof, and the contractor will not warranty.” Doc. No. 68-1. The claims
diary entry for July 3, 2013 notes the disagreement between the opinions of Spoon and
Hickok, and indicates that Nautilus has “retained a structural engineer to examine the roof
and confirm a repair/replace method.” Id. The relevant portions of the structural engineer’s
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report corroborate the opinion of Defendant’s independent adjuster that repair rather than
replacement of the roof was a viable option.6
Accordingly, in July 2013, Defendant had information about two competing
remedies, repair or replacement. Engineering Inc had inspected the roof and according to
Mr. Hickok agreed with his assessment that repair was appropriate. Defendant received the
estimate from Plaintiff’s public adjuster on July 19, 2013, listing roof replacement and
additional necessary repairs far in excess of the amount indicated by Mr. Hickok. Before
the official report of Engineering Inc. arrived, Plaintiff submitted a Sworn Proof of Loss
on August 6, 2013, seeking a total of $87, 324.51. This is the only proof of loss Plaintiff
submitted to Defendant. Nautilus, having already tendered $72,865.62, issued a check for
$14,458.89, for a total of $87,324.51, the amount contained in Plaintiff’s proof of loss.
The Court finds that Defendant is entitled to summary judgment with regard to
Plaintiff’s bad faith claim. Plaintiff complains about an inadequate investigation, however,
it points to no relevant information that would have altered the outcome of the decision.
Although Defendant contends Mr. Wilcox should have made specific inquiry regarding
building code, there is no dispute that both the adjuster and engineer retained by Defendant
opined that repair was an option. There is no evidence in the record beyond the conflicting
opinions that existed at the time the claim was processed regarding building code and
whether it mandated replacement of the entire roof as a result of the tornado damage.

 Mr. Wilcox, on behalf of Defendant, conceded that the Engineering Inc. report does not specify whether code
required replacement of the decking and that Mr. Wilcox did not know the answer to the question. Doc. No. 72-2,
Deposition of Wilcox, p. 109. Plaintiff, however, presents no evidence in response to the motion for summary
judgment regarding what the building code required beyond the statements contained in the claims file.
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Furthermore, Plaintiff, having recovered the sum requested in his proof of loss could not
expect Defendant to continue to question whether replacement was necessary when it
appeared Plaintiff had abandoned the issue and accepted payment.
Furthermore, Plaintiff’s bad faith claim alleging that Defendant failed to timely pay
business income losses is without merit. Prior to the onset of this litigation, and more
specifically, Defendant’s August 2016 Motion to Compel, Plaintiff had submitted to
Defendant its occupancy record for a single date, May 31, 2013. This information, which
excluded necessary factors for calculating lost income, such as the motel’s average
occupancy rate and how long rooms were unavailable to rent as a result of tornado damage,
provided an insufficient basis to permit calculation of the amount owing under the Policy.
Defendant and its accountant made repeated inquiry of Plaintiff through his public adjuster,
and later counsel, without response.7 After Plaintiff provided certain of the documents to
Defendant, as compelled by the Court’s Order, Defendant was able to submit the
information to the accountant it had retained in 2013. He calculated the lost business
income, and provided Defendant with a report in October 2016. Defendant tendered
payment based on the report in January 2017. Plaintiff’s evidence fails to establish bad
faith by Defendant with regard to business income losses and the delay between October

  The Court assumes Plaintiff has abandoned any claim for business personal property; the issue is not addressed in
response to the motion for summary judgment. Regardless, Nautilus made repeated inquiry of Plaintiff regarding an
inventory of such property and Plaintiff never filed a proof of loss or provided an inventory. Accordingly,
Defendant’s failure to tender payment for business personal property cannot support a claim for bad faith breach of
the contract.
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2016 and January 2017 provides no basis for concluding that Defendant acted in bad faith,
especially in the absence of cooperation by the Plaintiff.8
Finally, the granting of summary judgment on the issue of bad faith moots the issue
of punitive damages. See Okla. Stat. tit. 23 §9.1.
For the reasons set forth herein, the Court hereby GRANTS Defendant’s Motion
for Summary Judgment.
IT IS SO ORDERED this 8th day of March 2017.

  To the extent Plaintiff complains about Defendant’s reliance on Mr. Hickok with regard to calculation of business
income loss, its complaints are without merit. The testimony was that Mr Hickok could provide information about
the duration of repairs, that is how long rooms were unavailable to be rented. Plaintiff’s contention that Defendant
relied on a person admittedly unqualified to render an opinion is a mischaracterization of the evidence. To the extent
Plaintiff complains about Mr. Wilcox’s actions after this litigation was filed, or his lack of knowledge regarding
proceedings during the course of litigation, it is undisputed that once the case was filed he was no longer the
adjuster.

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