Uptown Market LLC v. Ohio Security Insurance Company

Filing 37

Opinion and Order. The Court GRANTS Defendant's Motion (# 25 ) for Summary Judgment, DENIES as moot Defendant's Alternative Motion (# 25 ) for Partial Summary Judgment, DENIES as moot Plaintiff's Motion (# 27 ) for Partial Summary Judgment on Defendant's Affirmative Defenses, and DISMISSES Plaintiff's Complaint with prejudice. IT IS SO ORDERED. Signed on 2/8/18 by Judge Anna J. Brown. (jy)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
UPTOWN MARKET, LLC,
Plaintiff,
v.

3:16-cv-01961-BR
OPINION AND ORDER

OHIO SECURITY INSURANCE
COMPANY,
Defendant.
FREDERICK M. MILLARD
DOUGLAS M. BRAGG
419 Fifth St.
Oregon City, OR 97405
[phone]
Attorneys for Plaintiff
JOHN A. BENNETT
MATTHEW E. HEDBERG
Bullivant Houser Bailey PC
300 Pioneer Tower
888 S.W. Fifth Ave.
Portland, OR 97204
[phone]
Attorneys for Defendant
BROWN, Senior Judge.
This case comes before the Court on Defendant Ohio Security
Insurance Company’s Motion (#25) for Summary Judgment or,
Alternatively, Motion for Partial Summary Judgment and Plaintiff
Uptown Market, LLC’s Motion (#27) for Partial Summary Judgment on
1 - OPINION AND ORDER

Defendant’s Affirmative Defenses.
For the reasons that follow, the Court GRANTS Defendant’s
Motion for Summary Judgment and DENIES as moot Plaintiff’s Motion
for Partial Summary Judgment.

BACKGROUND
The following facts are taken from the Joint Statement of
Agreed Upon Facts (#20) and the materials the parties submitted
in support of their Motions.

Accordingly, these facts are

undisputed unless otherwise noted.
Plaintiff is the sole tenant of a building located at 6620
Southwest Scholls Ferry Road in Tigard, Oregon.

The building is

owned by Uptown Market Property, LLC (Uptown Property).1
Plaintiff conducts a beer-brewing and retail-sales business in
the leased building.
The obligations and responsibilities of Plaintiff and Uptown
Property are set forth in their Lease and include the following
relevant provisions:

(1) Uptown Property is required to have

standard multi-peril insurance covering the building and other
improvements, but that insurance does not include Plaintiff’s
trade fixtures, improvements, and other property on the leased
premises; (2) Uptown Property is not liable for injury to “goods,
stock, merchandise, or any other property” of Plaintiff and is

1

Although the principal members of Plaintiff and the
principal members of Uptown Property are the same individuals,
Uptown Property is not named as a party in this case.
2 - OPINION AND ORDER

required to have its own insurance to cover risks to Plaintiff’s
property; (3) any improvements, alterations, and other work
performed on the property are considered the property of Uptown
Property with the exception of Plaintiff’s trade fixtures; and
(4) Uptown Property is responsible for “structural repairs and
maintenance and repairs necessitated by structural disrepair or
defects,” repair and maintenance of the “foundation of the
Building,” and repair of “floors, and floor coverings when such
repairs are made necessary because of failure of [Uptown
Property] to keep the structure in repair.”
As noted, Uptown Property is the owner of the building.

The

loan for purchase of the building is secured by an installment
note, and the building is the collateral for the loan.

Uptown

Property also granted a Deed of Trust to the bank “to all real
property” located at 6620 S.W. Scholls Ferry Road.

Pursuant to

the loan agreement, Uptown Property was required to provide the
bank “with evidence of insurance coverage” to ensure that the
bank did not have to purchase insurance to protect its own
interests in the building.
Plaintiff is a guarantor of the loan on the property, and
Plaintiff granted to the bank “a security interest in all
property in which [Plaintiff] has an ownership interest which is
now or in the future in the possession of [the] [b]ank to secure
payment under the [Guaranty] Agreement.”
Defendant issued a Commercial Package Insurance Policy to
Plaintiff as the named insured for the period of January 22,
3 - OPINION AND ORDER

2014, to January 22, 2015.

Uptown Property is not named as an

insured under Defendant’s Policy.

On November 18, 2014, a

policy-change endorsement added U.S. Bank as a loss payee for
business personal property under the Loss Payable Provisions of
the Policy.
Subject to its terms, conditions, limitations, and
exclusions, Defendant’s Policy provides:
A.

Coverage

We will pay for direct physical loss or damage to
Covered Property at the premises described in the
Declarations [6620 S.W. Scholls Ferry Road] caused by
or resulting from any Covered Cause of Loss.
Under the “Building and Personal Property Coverage Form” of
the Policy, “Covered Property” is described in Section A as
“Building, meaning the building or structure described in the
Declarations,” “Your Business Personal Property located in or on
the building described in the Declarations,” and “Personal
Property of Others.”

The “Property Not Covered” is listed in

Section A.2. of the Policy and includes, among other things,
“[f]oundations of buildings, structures, machinery or boilers.”
Under a Custom Protector Plus Endorsement, “Foundations” is
deleted from the “Property Not Covered” under Section A.2. and
instead is included within the “Coverage Extensions” of Section
A.5. of the Policy.
Under the “Causes of Loss - Special Form” of the Policy,
“Covered Causes of Loss” means “Risks Of Direct Physical Loss”
unless the loss is excluded.

4 - OPINION AND ORDER

Section B.1. of the Policy sets out

the following exclusions:
1.

We will not pay for loss or damages caused
directly or indirectly by any of the following.
Such loss or damages is excluded regardless of any
other cause or event that contributes concurrently
or in any sequence to the loss.
* * *
b.

Earth Movement
* * *
(4)

Earth sinking (other than sinkhole
collapse,) rising or shifting including
soil conditions which cause settling,
cracking or other disarrangement of
foundations or other parts of realty.
Soil conditions include contraction,
expansion, freezing, thawing, erosion,
improperly compacted soil and the action
of water under the ground surface.
* * *

g.

Water
* * *
(4)

Water under the ground surface pressing
on, or flowing or seeping through:
(a)

Foundations, walls, floors or paved
surfaces; . . ..

On approximately January 5, 2015, Plaintiff discovered a
portion of the concrete floor in the building had “sunk” seven or
eight inches.

The parties agree the only property owned by

Plaintiff that was damaged were “taps at the bar” that do not
drain properly.

The taps are operational, but the drains are

not.
On January 6, 2015, Plaintiff submitted an insurance claim
to Defendant under the Policy.
5 - OPINION AND ORDER

On that date an insurance

adjuster-representative for Defendant met with Plaintiff about
its claim.

Defendant subsequently retained Jon Burks, a project

engineer with PT&C/LWG Forensic Consulting, to determine the
cause of the damage reported by Plaintiff.
On September 4, 2015, Burks inspected the building.

On

October 7, 2015, Burks issued a report in which he concluded the
cracking of the concrete slab-on-grade floor at the building was
consistent with long-term and ongoing nonuniform movement of the
underlying soils as well as subsequent differential movement of
the concrete slab; the concrete floor was built out-of-level, and
that condition had been exacerbated by nonuniform movement of the
underlying soils; and the cracking and out-of-level concrete
floor surface and separations of the counter-bar’s laminate and
cove base finishes were not the result of a spontaneous or
concentrated introduction of moisture into the underlying soil
such as that from a recent plumbing leak.
On October 8, 2015, Defendant denied Plaintiff’s claim on
the basis that there was not any coverage for its loss.
Defendant specifically relied on the “Earth Movement Exclusion”
of the Policy.
Plaintiff then retained Jeffery Lewis, a structural engineer
with West Coast Forensics, to investigate the cause of the damage
to the building and to recommend possible repairs.
November 12, 2015, Lewis inspected the premises.

On

On December 13,

2015, Lewis issued his report in which he found significant
settlement of the floor slab had occurred with the maximum
6 - OPINION AND ORDER

settlement located under the walk-in cooler; the cooler had
settled with the floor slab and the doors were “racked” even
though the cooler had been leveled; a water-supply line had
leaked significantly during the month of January 2015, and water
usage for the month was approximately 65,000 gallons higher than
the previous month’s usage; and a plumber reported he could not
find a physical break in the main sewage line for the building,
but the main line was “sagging badly” and was probably broken.
Lewis also concluded the slab damage was directly related to the
water leak (i.e., the leaking high-pressure pipe caused
underlying soils to erode and to wash away through the failed
sewer main line); settlement was responsible for the slab slope
in its entirety; and some of the slab cracks were from shrinkage
during the original construction, but some of the slab cracks
were fresh and associated with the high-pressure water leakage.
On June 21, 2016, Plaintiff filed a complaint against
Defendant and another party in Oregon state court.

Plaintiff

later filed an amended complaint naming only Defendant.

On

September 30, 2016, Defendant was served with summons and
complaint.

Plaintiff alleges claims against Defendant for breach

of contract and breach of the implied covenant of good faith and
fair dealing.
On October 20, 2016, Defendant removed the state-court case
to this Court and filed its Answer.

Defendant denies Plaintiff’s

claims and asserts the Policy exclusions as an affirmative
defense.
7 - OPINION AND ORDER

On December 4, 2016, the parties filed their respective
Motions for Summary Judgment.

STANDARD
Summary judgment is appropriate when “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”

Washington Mut. Ins. v. United

States, 636 F.3d 1207, 1216 (9th Cir. 2011).
Civ. P. 56(a).

See also Fed. R.

The moving party must show the absence of a

dispute as to a material fact.

Rivera v. Philip Morris, Inc.,

395 F.3d 1142, 1146 (9th Cir. 2005).

In response to a properly

supported motion for summary judgment, the nonmoving party must
go beyond the pleadings and show there is a genuine dispute as to
a material fact for trial.
one . . . .

Id.

"This burden is not a light

The non-moving party must do more than show there is

some 'metaphysical doubt' as to the material facts at issue."

In

re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010)
(citation omitted).
A dispute as to a material fact is genuine "if the evidence
is such that a reasonable jury could return a verdict for the
nonmoving party."

Villiarimo v. Aloha Island Air, Inc., 281 F.3d

1054, 1061 (9th Cir. 2002)(quoting Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986)).

The court must draw all

reasonable inferences in favor of the nonmoving party.

8 - OPINION AND ORDER

Sluimer

v. Verity, Inc., 606 F.3d 584, 587 (9th Cir. 2010).

"Summary

judgment cannot be granted where contrary inferences may be drawn
from the evidence as to material issues."

Easter v. Am. W. Fin.,

381 F.3d 948, 957 (9th Cir. 2004)(citation omitted).

A “mere

disagreement or bald assertion” that a genuine dispute as to a
material fact exists “will not preclude the grant of summary
judgment.”

Deering v. Lassen Cmty. Coll. Dist., No. 2:07-CV-

1521-JAM-DAD, 2011 WL 202797, at *2 (E.D. Cal., Jan. 20, 2011)
(citing Harper v. Wallingford, 877 F.2d 728, 731 (9th Cir.
1989)).

When the nonmoving party's claims are factually

implausible, that party must "come forward with more persuasive
evidence than otherwise would be necessary."

LVRC Holdings LLC

v. Brekka, 581 F.3d 1127, 1137 (9th Cir. 2009)(citation omitted).
The substantive law governing a claim or a defense
determines whether a fact is material.

Miller v. Glenn Miller

Prod., Inc., 454 F.3d 975, 987 (9th Cir. 2006).

If the

resolution of a factual dispute would not affect the outcome of
the claim, the court may grant summary judgment.

Id.

DISCUSSION
Defendant contends it is entitled to summary judgment as to
Plaintiff’s entire Complaint or, in the alternative, as to
Plaintiff’s Second Claim for breach of the implied covenant of
good faith and fair dealing.

Plaintiff, in turn, contends it is

entitled to partial summary judgment on Defendant’s First
9 - OPINION AND ORDER

Affirmative Defense of Exclusions.
I.

Standards for Insurance Contract Interpretation
Oregon law provides “every contract of insurance shall be

construed according to the terms and conditions of the policy.”
Ore. Rev. Stat. § 742.016.

The interpretation of an insurance

policy is a question of law, and the court’s “task is to
determine the intent of the parties.”

Bjugan v. State Farm Fire

and Cas. Co., 969 F. Supp. 2d 1283, 1286 (D. Or. 2013)(citing
Groshong v. Mut. of Enumclaw Ins. Co., 329 Or. 303, 307 (1999)).
See also Hoffman Constr. Co. v. Fred S. James & Co., 313 Or. 464,
469 (1992).

The court determines the intention of the parties

“based on the terms and conditions of the insurance policy.”
Hoffman, 313 Or. at 469 (citing Or. Rev. Stat. § 742.016).
If the Court concludes the insurance policy “unambiguously
expresses the intent to provide coverage or to not provide
coverage, the contract language is controlling.”
Supp 2d at 1287.

Bjugan, 969 F.

See also Allstate Ins. Co. v. State Farm Mut.

Auto. Ins. Co., 67 Or. App. 623, 627 (1984).
The insured has the initial burden to prove that a loss
comes within the coverage of the policy.

ZRZ Realty Co. v.

Beneficial Fire & Cas. Ins. Co., 349 Or. 117, 127 (2010).

The

insurer has the burden of proof to show that the loss is within
an exclusion of the policy.

Bjugan, 969 F. Supp 2d at 1286.

The

insured has the burden to prove a claim is within an exception to
an exclusion.

Emp’r Ins. of Wausau v. Tektronix, Inc., 211 Or.

10 - OPINION AND ORDER

App. 485, 514 (2007), rev. den., 343 Or. 363 (2007).
II.

Defendant’s Motion for Summary Judgment
Defendant contends it is entitled to summary judgment as a

matter of law on all of Plaintiff’s claims on the grounds that
Plaintiff does not have an insurable interest in the damaged
property and did not suffer an actual loss to covered property.
Defendant also contends Plaintiff’s damages claim is barred by
the “Earth Movement” exclusion.
Plaintiff, in response, contends it has an insurable
interest because it has financial responsibility for the subject
property, derives a benefit from the property, and has suffered a
financial loss as a result of damage to the property.

Plaintiff

also contends the Earth Movement Exclusion is ambiguous; the
endorsement granting coverage for “foundations” is inconsistent
with the Exclusion; and, therefore, the Exclusion does not apply.
A.

Insurable Interest
1.

The Law

Under Oregon law the extent of an insured’s insurable
interest is determined at the time of the loss.

Oregon Revised

Statutes § 742.011 provides:
Insurable interest in property. No policy of
insurance of property or of any interest in
property or arising from property shall be
enforceable as to the insurance except for the
benefit of persons having an insurable interest in
the things insured as at the time of loss.
Oregon courts have held:
It is well settled that any one has an insurable
interest in property who derives a benefit from
its existence or would suffer loss from its
11 - OPINION AND ORDER

destruction. It is sufficient to constitute an
insurable interest in property that the insured is
so situated with reference to the property that he
would be liable to loss should it be injured or
destroyed by the peril against which it is
insured.
Bird v. Cent. Mut. Ins. Co., 168 Or. 1, 6 (1942).

See also

Davtian v. Safeco Ins. Co. of Oregon, No. 6:13-cv-00516-MC, 2014
WL 12569390, at *3 (D. Or. Mar. 13, 2014).

In other words, the

insured must have a “direct pecuniary interest in the
preservation of the insured property.”

Davtian, 2014 WL

12569390, at *3 (citing Fenter v. Gen. Acc. Fire & Life Assur.
Corp., 258 Or. 545, 550 (1971)).
In addition to having an insurable interest, the
insured must suffer an actual loss.
the actual loss sustained.

Any recovery is limited to

Id. (citing Transp. Equip. Rentals,

Inc. v. Oregon Auto. Ins. Co., 257 Or. 288, 295–96 (1970)).
In Transportation Equipment Rentals the Oregon Supreme
Court held:
The rule with regard to the lessor-lessee . . .
relationships is a concomitant of the general rule
that an insured with only a limited interest in
the property can recover only to the extent of his
limited interest.
257 Or. at 301.

The court cited with approval the principle that

“[i]f the insured has an insurable but only a qualified, partial,
or limited interest in the property insured, . . . he may not
recover the full value or an amount exceeding his actual interest
in the res. . . .

But the general rule is that the insured is

limited in recovery to the value of his actual interest in the
property insured.”

Id. (citing 3 Richards on Insurance 1613,

12 - OPINION AND ORDER

§ 503).
The terms of a lease between an insured-tenant and the
lessor also affects the determination of insurable interest.
Ionian Corp. v. Country Mut. Ins. Corp., No. 3:10-cv-00199-HZ,
2015 WL 4628907, at *4 (D. Or. Aug. 3, 2015).

2.

Analysis

Plaintiff contends it derives a benefit from the
existence of the building as the tenant; has suffered a loss as a
result of damage to the building; and, therefore, has an
insurable interest.
Here it is undisputed that Plaintiff does not own the
building where the damage occurred.

The building is owned by

Uptown Property and leased to Plaintiff to conduct business on
the property.

Plaintiff derives a benefit from the continued

existence of the building and would suffer a loss if the building
were destroyed.

Plaintiff, however, must have suffered an actual

loss for an insurable interest to exist, and any recovery for
such loss would be limited to the actual loss sustained.
As noted, pursuant to the terms of the Lease, Uptown
Property owns all of the property on the premises with the
exception of Plaintiff’s “trade fixtures,” Uptown Property is
responsible for the repair and maintenance of the structure, and
Uptown Property is obligated to maintain in full force a multiperil policy covering the building and other improvements
exclusive of Plaintiff’s trade fixtures.
13 - OPINION AND ORDER

Plaintiff, as the

tenant, was obligated to obtain insurance coverage only as to its
own property, but it was not required to obtain first-party
property coverage on the building.

Although Plaintiff obtained a

policy of insurance from Defendant, Uptown Property was not named
as an insured under the Policy.
The parties agree the only damage to property owned by
Plaintiff was the damage to its bar taps.

Plaintiff, however,

seeks damages that include replacement of the foundation and the
pouring of a new concrete floor.

It is undisputed that Uptown

Property owned the concrete slab, foundation, and plumbing of the
building that were damaged.

Under the terms of the Lease, those

repairs are the sole responsibility of Uptown Property as the
lessor.
The record does not reflect Plaintiff actually suffered
any loss as a result of the damage to the building other than the
damage to the bar taps.

Plaintiff, however, argues:

“At the

time of loss, there was the possibility that the damage caused
would result in financial injury to Plaintiff, in the damage to
trade fixtures, damage to the cooler and the resulting impact
upon the marketability of Plaintiff’s product and Plaintiff’s
continued business operations.”

Pl.’s Response at 4

(#32)(emphasis added).
On this record the Court concludes there is not a
genuine dispute of material fact as to the damage Plaintiff
sustained to its bar taps (although the parties agree “the taps
are operational, [but] the drains are not”).
14 - OPINION AND ORDER

The record does not

reflect any evidence of actual loss of business or negative
impact on Plaintiff’s products or operations as a result of the
alleged damage.

Accordingly, the Court concludes Plaintiff has

not shown actual loss sufficient to constitute an insurable
interest.
Plaintiff, nevertheless, contends it has a “financial
interest” in the building because, as guarantor of the mortgage,
Plaintiff had the obligation to insure the building due to the
fact that Uptown Property did not have insurance.

Uptown

Property, however, was aware the bank “may purchase insurance at
[Uptown Property’s] expense to protect [the bank’s] interest” if
Uptown did not provide evidence of insurance to the bank.

Thus,

Plaintiff’s only obligation as guarantor was to guarantee payment
of the cost of any insurance that the bank might obtain to
protect its own interests if Uptown Property did not obtain such
insurance.

In other words, Plaintiff was not obligated to obtain

first-party property insurance on the building on behalf of
Uptown Property.

As the parties note, although Plaintiff

obtained insurance from Defendant, it did not name Uptown
Property or even the bank as an insured.

The Court, there,

concludes Plaintiff does not have a financial interest in the
building that is sufficient to constitute an insurable interest
based on its status as a guarantor of the loan.
In summary, the Court concludes Plaintiff has not shown

15 - OPINION AND ORDER

it suffered any actual loss other than the alleged damage to its
own property.

The damages Plaintiff seeks for replacement of the

foundation and pouring a new concrete floor are not an insurable
interest of the Plaintiff, and, in fact, are the sole
responsibility of Uptown Property.
Accordingly, on this record the Court GRANTS
Defendant’s Motion for Summary Judgment and DISMISSES Plaintiff’s
Complaint in it entirety.

The Court also DENIES as moot

Defendant’s Alternative Motion for Partial Summary Judgment
against Plaintiff’s Second Claim based on the Earth Movement
Exclusion.
III. Plaintiff’s Motion for Partial Summary Judgment
Based on the Court’s ruling on Defendant’s Motion,
Plaintiff’s Motion for Partial Summary Judgment against
Defendant’s Affirmative Defenses is DENIED as moot.

CONCLUSION
For these reasons the Court GRANTS Defendant’s Motion (#25)
for Summary Judgment, DENIES as moot Defendant’s Alternative
Motion (#25) for Partial Summary Judgment, DENIES as moot
Plaintiff’s Motion (#27) for Partial Summary Judgment on

Defendant’s Affirmative Defenses, and DISMISSES Plaintiff’s
Complaint with prejudice.
16 - OPINION AND ORDER

IT IS SO ORDERED.
DATED this 8th day of February, 2018.
/s/ Anna J. Brown
ANNA J. BROWN
United States Senior District Judge

17 - OPINION AND ORDER