Ionian Corp. v. Country Mutual Insurance Company

Filing 293

OPINION & ORDER: Ionian's motion for partial summary judgment 285 is granted to the extent that it seeks a determination that the $350,000 interpleaded by Country Mutual into the Court represents the proceeds of the Building cover age under Section A.1.a of the policy. It is also granted to the extent that it seeks a determination that any property claimed by Precision under the BPP part of the policy as part of the claim litigated in the Precision Seed v. Country Mutual case, 03:10-cv-01023-HZ, may not be compensated out of the $350,000 interpleaded sum. To the extent Ionian seeks a determination that any piece of machinery or equipment, or any fixture, installed by Precision is an improvement under the Lease , the Court denies the motion because without evidence regarding the property, the Court cannot make that determination in the abstract. The parties shall be guided, however, by the discussion in this Opinion of the meaning of the word "improvement" in the Lease. See 12-page opinion & order attached. Signed on 8/3/2015 by Judge Marco A. Hernandez. (mr)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
IONIAN CORP., an Oregon corporation,
Plaintiff,

No. 03:10-cv-00199-HZ

v.
COUNTRY MUTUAL INSURANCE
CORPORATION, a foreign corporation,

OPINION & ORDER

Defendant/
Interpleader Plaintiff
v.
IONIAN CORP., an Oregon corporation,
PRECISION SEED CLEANERS, INC.
an Oregon corporation,
Interpleader Defendants.
Gordon T. Carey
Attorney at Law
1020 S.W. Taylor Street, Suite 375
Portland, Oregon 97205
Attorney for Plaintiff/Interpleader Defendant Ionian Corp.
1 - OPINION & ORDER

Frederick M. Millard
Douglas M. Bragg
419 5th Street,
Oregon City, Oregon 97045
Attorney for Interpleader Defendant Precision Seed Cleaners, Inc.
HERNANDEZ, District Judge:
Ionian Corp. moves for partial summary judgment on its unjust enrichment crossclaim
against Precision Seed Cleaners, Inc. The motion and Precision's response raise a number of
issues regarding the insurance policy at issue in this case as well as a lease between these two
parties. For the reasons discussed below, I grant the motion in part.
Much of the background of the dispute and the nature of the unjust enrichment crossclaim
are discussed in the recently filed Opinion & Order denying Ionian's motion for a jury trial. July
21, 2015 Op. & Ord. ECF 291. I do not repeat that discussion here. Essentially, Ionian's motion
seeks a determination of the policy language. Various issues are raised by both parties in an
attempt to ascertain which party has a financial interest in what property as a result of the policy
language and the Lease.
STANDARDS
Summary judgment is appropriate if there is no genuine dispute as to any material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The
moving party bears the initial responsibility of informing the court of the basis of its motion, and
identifying those portions of "'the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence
of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting

2 - OPINION & ORDER

former Fed. R. Civ. P. 56(c)).
Once the moving party meets its initial burden of demonstrating the absence of a genuine
issue of material fact, the burden then shifts to the nonmoving party to present "specific facts"
showing a "genuine issue for trial." Fed. Trade Comm'n v. Stefanchik, 559 F.3d 924, 927-28
(9th Cir. 2009) (internal quotation marks omitted). The nonmoving party must go beyond the
pleadings and designate facts showing an issue for trial. Bias v. Moynihan, 508 F.3d 1212, 1218
(9th Cir. 2007) (citing Celotex, 477 U.S. at 324).
The substantive law governing a claim determines whether a fact is material. Suever v.
Connell, 579 F.3d 1047, 1056 (9th Cir. 2009). The court draws inferences from the facts in the
light most favorable to the nonmoving party. Earl v. Nielsen Media Research, Inc., 658 F.3d
1108, 1112 (9th Cir. 2011).
If the factual context makes the nonmoving party's claim as to the existence of a material
issue of fact implausible, that party must come forward with more persuasive evidence to support
his claim than would otherwise be necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
DISCUSSION
I. The Policy
In support of a motion for summary judgment filed in 2011, Precision filed a copy of the
insurance policy as an attachment to the Affidavit of Dale Hussemann.1 ECF 103. The policy in

1

The entire policy is appended to Hussemann's Affidavit, although it was docketed in
two parts: Docket #103 and Docket #103-1. Because the pages continue from #103 to #103-1
without interruption, I simply refer to the specific page number of the exhibit without noting the
docket number.
3 - OPINION & ORDER

its entirety has three coverage parts: (1) commercial property coverage; (2) commercial general
liability coverage; and (3) commercial inland marine coverage. Id. at p. 43. The issues here
concern the property coverage.
Section A of the Building and Personal Property Coverage Form provides that Country
Mutual will pay for "direct physical loss of or damage to Covered Property" at the insured
premises. Id. at 79. Section A has several subsections, including subsection "1" defining
"Covered Property." Id. Subsection 1 itself has two subsections: "a," which defines "Building";
and "b," which defines "Business Personal Property." Id.
The definition of "Covered Property" which applies to both "Building" and to "Business
Personal Property" (BPP) is "the type of property described in this Section, A.1., and limited in
A.2., Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of
property. Id. No "Property Not Covered" argument is raised by Ionian's motion or Precision's
response. Further discussion of the definitions for "Building" and "BPP" is below.
In the Supplemental Declarations of the Commercial Property Coverage Part, there are
separate insurance limits for building and BPP. E.g., id. at 11 (showing building limit of
$275,000 and two separate coverages for BPP, one for $300,000 and another for $500,000).2
II. Building Coverage
This case concerns the building coverage portion of the Building & Personal Property

2

It is unclear to the Court why this same form appears several times in the policy. Ex. 1
to Hussemann Decl. at 15, 19, 23, 27, 31, 35. Additionally, Ionian represents that while the
Building coverage was originally $275,000, it was later increased to $350,000. However, neither
party cites to a particular page of the policy reflecting that increase. Because Precision does not
object to that representation, I assume that Ionian is correct that at the time of the fire, the policy
limit for the Building coverage was $350,000.
4 - OPINION & ORDER

Coverage Form. Country Mutual interpleaded only the $350,000 policy limits for the building
portion of the policy with the Court. See Country Mut.'s Am. Answer & Interpleader
Counterclaim at ¶¶ 14, 21 (asserting that the property limit for the policy was $350,000 and
stating that "property" referred to structure and machinery).3 ECF 61. None of the proceeds for
the BPP portion of the policy were deposited with the Court. Instead, those were litigated in a
separate case brought by Precision against Country Mutual. Precision Seed Cleaners, Inc. v.
Country Mut. Ins. Co., No. 03:10-cv-01023-HZ.
The definition of "Building" under Section A.1.a. makes clear that the building coverage
is for more than just the building structure. While the definition begins with the "building or
structure described in the Declarations," it goes on to expressly include five separately identified
types of property as "Building": (1) completed additions; (2) fixtures, including outdoor fixtures;
(3) permanently installed machinery and permanently installed equipment; (4) personal property
owned by the insured that is used to maintain or service the building or structure or its premises,
including fire extinguishing equipment, outdoor furniture, floor coverages, and appliances used
for refrigeration, ventilating, cooking, dishwashing, or laundering; and (5) if not covered by other
insurance, additions under construction, alterations, and repairs to the building or structure and
materials, equipment, supplies, and temporary structures used for making additions, alterations,
or repairs to the building or structure. Ex. 1 to Hussemann Affid. at 79.
The policy language establishes that the building coverage is not limited to the physical

3

Country Mutual also interpleaded the separate sum of $12,750 for a Siemens Motor
Control System. Country Mut.'s Am. Answer & Interpleader Counterclaim at ¶ 20; see also Feb.
23, 2011 Order to Deposit Funds (noting amount of $372,750 to be deposited with the Court).
The insurance proceeds for the Siemens Motor Control System are not at issue in this motion.
5 - OPINION & ORDER

structure but includes other items such as fixtures, permanently installed machinery and
equipment, and certain personal property as defined by the policy. But, absent identification of
any particular items of property, this Court cannot resolve whether any given item fits within the
definition of "Building" under Section A.1.a. of the policy.
I reject Precision's argument that BPP is part of the "Covered Property" at issue in this
case. As indicated above, "Covered Property" includes both building and BPP. Precision argues
that because Section A.1 defines "Covered Property" to include both Building and BPP, BPP is
part of the "Covered Property" at issue in this lawsuit. The Supplemental Declarations page
makes clear that the "Building" coverage is separate from the "BPP" coverage even though both
are "Covered Property" under Section A.1. And, as explained above, the amount interpleaded
into this Court is limited to the building coverage, meaning Section A.1.a. This lawsuit is not
concerned with the BPP coverage in Section A.1.b.
Next, Precision contends that if its property comes within the building portion of the
coverage under Section A.1.a(1)-(5), and went uncompensated in the other lawsuit which sought
coverage of BPP under Section A.1.b., that property is nonetheless covered under the Building
portion of the policy. Precision represents that it recovered $2,220,000 for its scheduled and
unscheduled equipment under the BPP coverage in its lawsuit against Country Mutual as a result
of a settlement. It asserts that it remains uncompensated for $221,623.75 because its actual claim
for the equipment was $2,441,623.75.4 Precision's position is that to the extent a particular piece
4

In support of the $2,441,623.75 amount, Precision cites to the Itemized List of Special
Damages it submitted with its pretrial filings in the Country Mutual case. See ECF 157 in 03:10cv-01023-HZ. But, that figure is inconsistent with Paul Kloft's Declaration submitted earlier in
that case in support of Precision's motion for summary judgment. ECF 49 in 03:10-cv-01023-HZ
(Kloft Decl. at ¶¶ 16, 17; Exs. 4, 5 to Kloft Decl. showing a total of $2,266,184.23 claimed for
6 - OPINION & ORDER

of property meets the definition of "Building" under Section A.1.a., the fact that Precision sought
coverage for that property in the case against Country Mutual under Section A.1.b for BPP does
not preclude it from seeking coverage here. I disagree.
Even assuming for the purposes of this Opinion that certain property could be covered
under both portions of the policy, Precision cannot establish that it remains "uncompensated" for
any property for which it sought coverage as BPP in the other lawsuit. At oral argument on
Ionian's pending motion for partial summary judgment, Precision's counsel stated that Precision
did not assign any of the $2,220,000 equipment-related settlement funds to any particular piece
of equipment. This means that Precision is unable to establish that it was uncompensated for any
given piece of property.
Additionally, Precision's settlement with Country was a "compromise of disputed
claims[.]" Precision Seed Cleaners, Inc. v. Country Mut. Ins. Co., No. 03:10-cv-01023-HZ,
Opinion at 4 (D. Or. Nov. 21, 2013) (discussing, in the context of an award of prejudgment
interest, that the amounts paid by Country to Precision in settling the case were on account of
particular losses and that the settlement payments were a compromise of disputed claims). In
accepting that settlement, Precision dismissed its claims and thus essentially waived any right to
continue to pursue payment from Country for the losses it asserted in that case. See Bragg Oct.
4, 2013 Decl. at ¶ 6 (quoting settlement agreement between Precision and Country Mutual in the
10-1023 case as providing that "all claims are dismissed"). Precision cannot now seek payment
from the funds interpleaded by Country, for a claim that it has already dismissed.

unscheduled and scheduled equipment). With the latter figure, the allegedly uncompensated
amount is $46,184.23.
7 - OPINION & ORDER

In settling its BPP claim against Country, Precision abandoned any continued claim to a
financial interest in the property at issue in that claim. Therefore, even if Precision owned
property which meets the definition of "Building" under Section A.1.a of the policy, it cannot
now make a claim under the building coverage if it sought compensation for that property in its
previous lawsuit against Country under the BPP portion of the policy in Section A.1.b.
III. The Lease's Effect on Property Ownership
Ionian and Precision were parties to a lease executed May 26, 2009. Ex. 2 to July 10,
2015 Bragg Decl. Ionian leased a 14,000 square foot building on .72 acres at 8765 Pueblo
Avenue to Precision. Id. The Lease commenced on June 1, 2009 and was to run for three years,
until May 31, 2012. Id. The Lease contained the following language: "Any improvements to the
premises whether installed by the lessor or lessee shall become [p]art of the building and the
property of lessor unless otherwise provided[.]" Id.
Precision argues that because the word "improvement" as used in the Lease does not
encompass all permanently installed machinery or equipment or all fixtures, Precision retained
ownership of these items despite the Lease's language providing that any improvements installed
by Precision belonged to Ionian. Thus, any machinery and equipment items that Precision
installed that do not meet the definition of improvement belong to Precision, not to Ionian.
The Lease does not define "improvement." However, it is commonly defined as "[a]n
addition to real property, whether permanent or not, esp., one that increases its value or utility or
enhances its appearance." Black's Law Dictionary 826 (9th ed. 2004). Nothing in the Lease
suggests that the word "improvement" carries anything other than its ordinary, common meaning.
Thus, under the terms of the Lease, any piece of property (equipment, machinery, etc.), that
8 - OPINION & ORDER

Precision installed or otherwise "added" to the real property, whether permanent or not, is an
improvement if it tended to increase the value or utility of the real property or enhance its
appearance.
Without the identification of a single piece of property at issue, I cannot tell whether a
particular item is or is not an "improvement" under the Lease and thus is owned by Ionian. I
agree with Precision that whether or not a piece of equipment or machinery was permanently
installed is not determinative of whether it is an "improvement" under the Lease. But, as defined,
an "improvement" under the Lease is broad and includes, as noted, additions to real property that
increase the value or utility of that real property or enhance its appearance. It may be that
Precision can establish that a particular piece of equipment was not intended to increase the value
of the real property or enhance its appearance. But it seems less likely that Precision will be able
to demonstrate that such machinery or equipment did not increase the utility of the real property.
Inasmuch as no particular property has been identified in the motion briefing, however, I cannot
determine whether a particular piece of property which (a) meets the Building coverage
definition in the first instance and (b) was not a part of Precision's BPP claim in its suit against
Country, and is thus a piece of property in which Precision has a financial interest, is or is not an
improvement under the Lease.
IV. Tenant's Interest
Precision contends that even if Ionian is the owner of all machinery, equipment, fixtures
and the like under the Lease, Precision retains a financial interest in the property as a lessee.5 In
5

Ionian concedes that Precision might have a financial interest in the remaining
leasehold which, Ionian notes, was in default. See Ionian's Unjust Enrichment Crossclaim at ¶ 24
(asserting that Precision is entitled to none of the interpleaded funds, but alternatively
9 - OPINION & ORDER

support, Precision cites cases indicating that "the owner of property which has been insured by a
lessee has no claim on the insurance proceeds[.]" Transp. Equip. Rentals, Inc. v. Or. Auto, Ins.
Co., 257 Or. 288, 299, 478 P.2d 620, 626 (1970) (citing Miller v. Gold Beach Packing Co., 131
Or. 302, 282 P. 764 (1929)).
Based on these cases, Precision argues that it does not need to be the owner of property
under the policy to recover on the policy following a loss. It contends that it derived benefits
from the fixtures it attached and from the machinery and equipment it installed and suffered an
actual and substantial loss due to the fire. Thus, it should be allowed to present evidence at trial
as to its insurable interest in the property.
Again, Precision makes this argument in the abstract because it fails to identify a single
piece of property it attached or installed and from which it derived a benefit. Putting that aside,
however, I reject Precision's argument because the cases it relies on are distinguishable. As
Judge Stewart previously noted in this case, the lease in Miller, unlike in the instant case, did not
require the assignee to obtain insurance to cover the lessor's building. Ionian Corp. v. Country
Mut. Ins. Co., 744 F. Supp. 2d 1104, 1111 (D. Or. 2010). And, Judge Stewart continued,
In Yoshida [v. Sec. Ins. Co., 145 Or. 325, 26 P.2d 1082 (1933)], the essential fact
on which the court relied, and the fact missing from this case, is that the
contracting parties had deleted a provision contained in previous leases requiring
the lessees to insure the premises and to pay the lessors the insurance proceeds.
Finally, in contrast to the present case, the owner in Transp. Equip. Rentals, Inc.
was in possession of the asset when it was destroyed and had already been
compensated under his own insurance policy.
Id. Because the cases were distinguishable, Judge Stewart found them "not helpful or

acknowledging that the most Precision is entitled to is the fair market value of Precision's
remaining leasehold). The leasehold issue and the value of that leasehold are not at issue in this
motion.
10 - OPINION & ORDER

persuasive" and rejected Country Mutual's argument that "Ionian is not entitled to any proceeds
under Precision Seeds' insurance policy since it is a stranger to the contract and its benefits." Id.6
In the cases relied on by Precision, there was "no evidence that the insured intended to
indemnify" the property owner. See Transp. Equip. Rentals, 257 Or. at 299, 478 P.2d at 626
(Miller "is clear authority for the rule that the owner of property which has been insured by a
lessee has no claim on the insurance proceeds, where there is no evidence that the insured
intended to indemnify him.") (emphasis added). In contrast, the Lease in this case required
Precision to purchase fire insurance on Ionian's building. Ex. 2 to July 10, 2015 Bragg Decl.
Thus, as Judge Stewart has already found, these cases are not helpful or persuasive and do not
establish that Precision has an insurable interest in the property as a lessee.
Finally, Precision's position would contradict what I understand to be the Ninth Circuit's
remand instructions. If Precision retained an insurable interest in the covered property by virtue
of its lessee status, then Ionian's ownership of the covered property would be irrelevant. In that
case, Ionian would be unable to establish a financial interest in the property. In that case, the
Ninth Circuit would not have remanded the case with the instruction that this Court determine
the respective insured financial interests each party has in the insurance proceeds. As the Ninth
Circuit noted, "[a]warding all of the proceeds to Precision would contradict the plain terms of the
insurance policy." Ionian Corp. v. Country Mut. Ins. Co., 572 F. A'ppx 513, 515 (9th Cir. 2014).
Precision's claim to an insurable interest in all property even if owned by Ionian, is inconsistent

6

At the time Judge Stewart issued her decision, Precision was not yet a party to the case.
Moreover, Judge Stewart had full consent from both Ionian and Country Mutual and thus she
issued this decision on summary judgment motions as an Opinion & Order rather than a Findings
& Recommendation.
11 - OPINION & ORDER

with the Ninth Circuit's holding and instructions.
CONCLUSION
Ionian's motion for partial summary judgment [285] is granted to the extent that it seeks a
determination that the $350,000 interpleaded by Country Mutual into the Court represents the
proceeds of the Building coverage under Section A.1.a of the policy. It is also granted to the
extent that it seeks a determination that any property claimed by Precision under the BPP part of
the policy as part of the claim litigated in the Precision Seed v. Country Mutual case, 03:10-cv01023-HZ, may not be compensated out of the $350,000 interpleaded sum. To the extent Ionian
seeks a determination that any piece of machinery or equipment, or any fixture, installed by
Precision is an improvement under the Lease, I deny the motion because without evidence
regarding the property, I cannot make that determination in the abstract. The parties shall be
guided, however, by the discussion in this Opinion of the meaning of the word "improvement" in
the Lease.
IT IS SO ORDERED.
Dated this

day of

Marco A. Hernandez
United States District Judge

12 - OPINION & ORDER

, 2015