Ardente v. The Standard Fire Insurance Company

Filing 29

OPINION AND ORDER granting in part and denying in part 21 Motion for Summary Judgment, granting in part and denying in part 25 Cross-Motion for Summary Judgment. So Ordered by Judge William E. Smith on 11/27/12. (Jackson, Ryan)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
______________________________
)
)
)
Plaintiff,
)
)
v.
)
)
THE STANDARD FIRE INSURANCE
)
COMPANY,
)
)
Defendant.
)
______________________________)
EVAN ARDENTE,

C.A. No. 10-362 S

OPINION AND ORDER
WILLIAM E. SMITH, United States District Judge.
I.

Facts 1
In

1999,

Evan

Ardente,

the

Plaintiff

in

this

case,

purchased a 1997 580 Super Sun Sport Sea Ray yacht (the “Yacht”)
from its original owner.

During the period of time relevant to

this suit, the Yacht was insured by the Defendant, Standard Fire
Insurance Company (“Standard”).
The
“accidental

insurance
direct

policy
physical

covers,

among

other

loss

damage

caused

or

occurrence” to the Yacht and auxiliary equipment.

things,
by

an

(Ex. A to

Parties’ Joint Statement of Undisputed Facts in Supp. of their
1

The facts are derived from the parties’ joint statement of
undisputed facts and are not disputed, unless noted as such.
(See Parties’ Joint Statement of Undisputed Facts in Supp. of
their Cross-Mots. for Summ. J. (“SUF”), ECF No. 23.)

Cross-Mots. for Summ. J. (“SUF”), ECF No. 23-1.)
coverage

is,

however,

subject

to

several

This grant of

exclusions,

two

which are of particular relevance in the instant case.
policy

excludes

loss

caused

by

“[d]efects

in

of
The

manufacture,

including defects in construction, workmanship and design other
than latent defects as defined in the policy.”

(Id.)

The

policy separately excludes loss caused by latent defects, but it
goes on to state that “any resulting direct physical loss or
damage to your yacht resulting from the latent defect will be
covered.”

(Id.)

The

policy

defines

“latent

defect”

as

“a

hidden flaw inherent in the material existing at the time of the
original building of the yacht, which is not discoverable by
ordinary observation or methods of testing.”
During

the

summer

of

problems with the Yacht.

2009,

Ardente

(Id.)
began

to

experience

He noticed that the Yacht’s top speed

had decreased and that the Yacht was listing to starboard.

In

November of 2009, Ardente retained Stafford Marine Services, LLC
(“Stafford”) to perform a marine survey of the Yacht.

After

conducting a survey, Stafford concluded that water intrusion had
caused damage to the Yacht’s hull and deck.
Around

November

16,

2009,

Ardente

Standard for the damage to the Yacht.
Standard
Yacht

and

staff
found

surveyor
high

Christopher

moisture

a

claim

to

On November 20, 2009,

MacDougall

levels
2

presented

in

the

inspected
hull

and

the

deck.

MacDougall
that

reported

Standard

his

obtain

findings
a

to

Standard

and

expert

to

laminations

determining the cause of the water intrusion.
Stephen

J.

(“Burke”)

Burke,
to

inspection,

of

infrared

naval

further
conducted

moisture levels.
Ashton

a

architect

inspect
on

the

with

15,

assist

in

Standard retained
Burke

Yacht.

December

recommended

Design,

Burke’s

2009,

LLC

initial

revealed

high

At Burke’s recommendation, Standard hired Mark

Independent
survey

of

Marine
the

Systems

Yacht.

to

conduct

Ashton,

like

a

thermal
Stafford,

MacDougall, and Burke before him, found high moisture levels in
the Yacht.

Burke, based on his own inspection of the boat and

review of the thermal infrared survey, reported to Standard that
the

damage

techniques
vessel.”
of

the

was

caused

employed

during

by

“poor

the

composite

original

manufacturing

construction

of

the

More specifically, Burke concluded that “the failure
builder

to

terminate

the

(balsa)

core

material,

and

substitute solid composite laminate, [in the area of] hardware,
equipment, fasteners and related installations, allowed moisture
to enter the hull and deck laminates at many locations on the
vessel.” (SUF ¶ 16.)
In a properly built boat, port lights and other hardware
installed into the hull should be surrounded by solid laminate.
This is because solid laminate is a dense material that does not
transmit moisture.

Balsa wood, on the other hand, is not water
3

proof.

If it gets wet, it can rot.

In Ardente’s Yacht, balsa

wood is present in the areas surrounding installations in the
hull.

This poor manufacturing technique caused the damage to

the Yacht.

(See SUF ¶¶ 19-25; Exs. B, D, and F to SUF, ECF Nos.

23-2, 23-4, and 23-6.)
On February 17, 2010, Standard conducted a conference call
with its claims personnel and determined that the damage to the
Yacht

fell

defects.
called

within

the

policy

exclusion

for

manufacturing

On February 19, 2010, Standard employee Greg Forester

Ardente

to

explain

Standard’s

position.

During

this

call, Ardente told Forester that he believed the loss was caused
by a latent defect.

Forester responded, “it is a construction

issue and that is our position.”

(SUF ¶ 33.)

Finally, in a

letter dated February 25, 2010, Standard denied Ardente’s claim.
At no point did Standard discuss whether the damage to Ardente’s
Yacht may have been the result of a latent defect.

(SUF ¶ 34;

Pl.’s Statement of Additional Undisputed Facts in Supp. of his
Mot. for Summ. J. (“Pl.’s SUF”) ¶¶ 3-5, ECF No. 22.)
Ardente brought suit against Standard alleging breach of
contract,

breach

of

implied

covenant

and

fair

dealing, 2 and bad faith failure to pay an insurance claim.

(See

2

of

good

faith

Ardente’s claim for breach of the implied covenant of good
faith and fair dealing “is merely a recitation of an element of
bad faith . . . and is not a separate and distinct claim.”
4

Compl., ECF No. 1-1.)
(Id.)

Ardente also sought declaratory judgment.

Now before the Court are the parties’ cross-motions for

summary judgment. 3
II.

Discussion
Summary judgment is appropriate when, viewing the record in

the light most favorable to the non-moving party, there is no
genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. See Fed. R. Civ. P. 56; see also
Taylor

v.

Am.

Chemistry

Council,

576

F.3d

16,

24

(1st

Cir.

2009).
In the instant case, there is no factual dispute concerning
the

cause

of

the

damage

to

the

Yacht:

the

damage

occurred

because the hull was constructed in such a way that the holes
where

the

fixtures

attached

to

the

boat

passed

through

both

laminate and balsa wood; because of this, water intruded and
saturated the balsa wood over time.

The only dispute concerns

whether the loss sustained is covered by the insurance policy.
This issue may be properly resolved by the Court at the summary
Skaling v. Aetna Ins. Co., 799 A.2d 997, 1015 (R.I. 2002). For
this reason, this Court does not separately discuss this claim.
3
In its answer, Standard raised various affirmative
defenses that it failed to develop in its summary judgment
papers.
(See Answer 5-6, ECF No. 5.)
These affirmative
defenses are waived. See Am. States Ins. Co. v. LaFlam, 808 F.
Supp. 2d 400, 405 n.9 (D.R.I. 2011) (granting the plaintiff’s
motion for judgment on the pleadings and refusing to consider
affirmative defenses raised in the defendant’s answer but not
developed in her motion papers).
5

judgment stage.

See Littlefield v. Acadia Ins. Co., 392 F.3d 1,

6 (1st Cir. 2004) (“The parties contest only the interpretation
of the yacht insurance policy’s exclusion provisions.

Whether

there is any ambiguity in the exclusion provisions is a question
of law for the court to determine.”).
The parties agree that the use of balsa wood in the areas
surrounding installations in the hull is a manufacturing defect.
They

also

agree

that,

if

a

particular

manufacturing

defect

qualifies as a latent defect, the exclusion for manufacturing
defects does not apply.

(See Pl.’s SUF ¶ 2.)

Indeed, this

proposition is clear from the plain language of the policy which
excludes

manufacturing

(Ex. A to SUF.)
the

Yacht

defects

“other

than

latent

defects.”

Thus, whether the policy covers the damage to

depends

upon

whether

that

damage

resulted

from

a

latent defect.
The policy defines the term “latent defect” as “a hidden
flaw

inherent

in

the

material

existing

at

the

time

of

the

original building of the yacht, which is not discoverable by
ordinary observation or methods of testing.”

(Id.)

The parties

agree that the balsa wood was present in the areas surrounding
installations at the time of the Yacht’s original construction
and

that

this

condition

was

not

observation or methods of testing.

discoverable

by

ordinary

(See SUF ¶¶ 26-27.)

Thus,

the only disputed issue is whether the damage to Ardente’s Yacht
6

resulted

from

a

“flaw

inherent

in

the

material”

within

the

meaning of the policy.
The parties agree that Rhode Island law should govern the
Court’s

analysis

of

applies

to

interpretation

the

this

issue.

While
of

federal

yacht

maritime

insurance

law

policies,

“[s]tate law may supplement maritime law when maritime law is
silent or a local matter is at issue.”

Windsor Mount Joy Mut.

Ins. Co. v. Giragosian, 57 F.3d 50, 54 (1st Cir. 1995).
there

is

“no

federal

interpretation”
applies

in

(applying

of

this

New

statute

maritime

case.

or

insurance

See

Hampshire

federal

law

governing

contracts,

Littlefield,
to

rule

interpret

392
a

Because

state

F.3d

yacht

the
law

at

6-7

insurance

policy).
Under Rhode Island law, if the terms of an insurance policy
are unambiguous “no further judicial construction is needed and
the

parties

are

bound

by

the

terms

as

they

are

written.”

Narragansett Jewelry Co. v. St. Paul Fire and Marine Ins. Co.,
526 F. Supp. 2d 245, 247 (D.R.I. 2007) (citing St. Paul Fire and
Marine Ins. Co. v. Warwick Dyeing Corp., 26 F.3d 1195, 1199 (1st
Cir. 1994)).

“On the other hand, if the policy, as written, is

ambiguous or its terms can be reasonably interpreted in more
than one way, the policy ‘will be construed liberally in favor
of the insured and strictly against the insurer.’”
Warwick

Dyeing

Corp.,

26

F.3d

at
7

1199).

Id. (quoting

However,

“a

court

should not, through an effort to seek out ambiguity when there
is no ambiguity, make an insurer assume a liability not imposed
by the policy.”

Id. (quoting McGowan v. Conn. Life Ins. Co.,

289 A.2d 428, 429 (R.I. 1972)).
In the present case, Ardente argues that the policy’s use
of

the

suggests

word

“inherent”

that

such

a

in

its

defect

definition

must

characteristic to the material.”

be

of

latent

“something

defect

intrinsic

or

(See Pl.’s Opp’n to Def.’s

Cross-Mot. for Summ. J. 5, ECF No. 27.)

Indeed, “inherent” is

defined as “involved in the constitution or essential character
of

something

:

Merriam-Webster

belonging
Dictionary,

by

nature

available

webster.com/dictionary/inherent.

or
at

habit

:

intrinsic.”

http://www.merriam-

Because susceptibility to rot

is a characteristic of all balsa wood, Ardente contends that it
constitutes a latent defect within the meaning of the policy. 4

4

Standard cites Carrier v. RLI Ins. Co., 854 F. Supp. 2d
1324 (S.D. Ga. 2010), aff’d, 463 F. App’x 824 (11th Cir. 2012),
and Egan v. Washington Gen. Ins. Corp., 240 So. 2d 875 (Fla.
Dist. Ct. App. 1970), in support of its contention that
Ardente’s interpretation of the policy is unreasonable, but
these cases are of little help. In Carrier, the court held that
a policy exclusion for latent defects did not modify a
completely separate exclusion for manufacturing defects, which
made no mention of latent defects. See 854 F. Supp. 2d at 1326
(quoting policy). In the present case, by contrast, the policy
excludes manufacturing defects “other than latent defects.”
Egan, unlike the present case, involved a policy which did not
expressly define “latent defect.”
See 240 So. 2d at 876
(quoting policy).
8

Standard counters by emphasizing the policy’s use of the
word “flaw.”

It argues that a “flaw,” unlike a characteristic,

cannot be something common to all balsa wood.

(See Standard

Fire Insurance Company’s Mem. of Law in Opp’n to Pl.’s Mot. for
Summ. J. and in Supp. of Cross-Mot. for Summ. J. (“Def.’s Mem.”)
13, ECF No. 26.)

A “flaw” is defined as “a feature that mars

the perfection of something; defect; fault.”

French Cuff, Ltd.

v. Markel Am. Ins. Co., 322 F. App'x 669, 673 (11th Cir. 2009)
(quoting

The

Random

House

Dictionary

503

(rev.

ed.

1980)).

Here, susceptibility to rot is a characteristic of balsa wood,
but it is not a flaw.

The balsa wood used in Ardente’s Yacht

was perfectly good balsa wood notwithstanding its susceptibility
to rot. 5
There

is

a

fundamental

definition

of

latent

material.”

The word “inherent” requires that a latent defect be

defect

contradiction

in

as

inherent

a

“flaw

characteristic of or intrinsic to the material.
5

the

policy’s
in

the

The word “flaw”

Ardente relies on French Cuff in arguing that his
interpretation of the policy language is reasonable.
This
reliance is misplaced.
In French Cuff, the Eleventh Circuit
held, on similar policy language, that the use of foam that was
“too thin or friable” in a yacht’s hull constituted a latent
defect under a reasonable reading of the policy.
French Cuff,
Ltd. v. Markel Am. Ins. Co., 322 F. App'x 669, 673 (11th Cir.
2009).
The present case is different than French Cuff because
there is no problem with the material used in the construction
of the hull beyond those features characteristic to all pieces
of that material. While the thinness of the foam in French Cuff
could reasonably be construed as a “flaw,” the susceptibility of
all balsa wood to rot cannot be reasonably construed as a flaw.
9

imposes the exact opposite requirement.
with

a

specific

piece

of

It includes problems

material,

characteristic of the material itself.

but

not

problems

In short, giving the

terms their plain and reasonable meaning, there can be no such
thing as an inherent flaw.
Contradictory provisions in an insurance contract “must be
interpreted
insured.”

to

reflect

the

reasonable

expectations

of

the

Stratford Sch. Dist. v. Emp’rs Reinsurance Corp., 105

F.3d 45, 47 (1st Cir. 1997) (citing Commercial Union Assurance
Co. v. Gilford Marina, Inc., 408 A.2d 405, 407 (N.H. 1979)).
Here, the policy language at issue contains a grant of coverage,
an exclusion for losses caused by manufacturing defects, and an
exception to that exclusion.

It would be inconsistent with the

insured’s reasonable expectations to hold that, because there is
no

such

thing

as

an

“inherent

flaw,”

the

exception

to

the

manufacturing defects exclusion is entirely meaningless.
Gilford,

408

contradictory

A.2d

at

provisions

407
in

a

(interpreting
manner

that

a

gave

policy
effect

See
with
to

an

exception to a coverage exclusion).

If Standard intended to

exclude

from

all

manufacturing

exception,

it

“should

language.”

have

defects
so

stated

in

coverage
plain

and

without
simple

Id. at 408.

A reasonable insured would expect the term “latent defect”
to include the use of an otherwise appropriate boat building
10

material

in

a

flawed

manner

where

such

discoverable by ordinary observation.

improper

use

is

not

The parties agree that

the areas of the Yacht’s hull surrounding installations should
have

been

wood.

constructed

from

solid

laminate

rather

than

balsa

The use of balsa wood in these areas was a flaw in the

construction of the Yacht, even if it was not a flaw in the
underlying material itself.
defective

manufacturing

Here we have what amounts to a

technique;

the

flaw

results

from

a

combination of an inherent characteristic of balsa wood, i.e.
its susceptibility to rot, and the placement of that material in
and around the boat’s fixtures.
thing

as

a

“flaw

inherent

in

Thus, while there is no such
the

material,”

this

case

does

involve a flaw in the construction of the hull resulting from an
inherent characteristic of balsa wood.
Court

interprets

the

policy

language

For this reason, the
to

cover

the

to

Ardente’s

loss

to

Yacht

is

Ardente’s Yacht.
Standard

contends

that

the

loss

excluded from coverage even if this Court finds that it was
caused by a “latent defect.”
excluding

manufacturing

This is because, in addition to

defects,

exclusion for latent defects.
“any

resulting

defects.

direct

policy

has

a

separate

The policy does, however, cover

physical

(Ex. A to SUF.)

the

loss

or

damage”

from

latent

Standard argues that, to the extent

the costs of repair in this case are necessary to remove wet
11

balsa wood from the hull, those costs would go to repairing the
latent

defect

latent

itself

defect.

rather

This

than

damage

reasoning

resulting

relies

on

a

misconception of the latent defect in this case.

from

the

fundamental
As previously

explained, the “latent defect” is the use of balsa wood in areas
surrounding

hull

installations.

infiltrated

the

hull

and

was

The

loss

absorbed

caused

by

when
balsa

the

constitutes a loss resulting from that defect.

water
wood

This, in turn,

is distinct from the underlying latent defect itself.

To put it

another way, replacing the material around the fixtures would
repair the defect; replacing the damaged balsa wood repairs the
damage resulting from the defect. 6
Ardente also brings a claim of bad faith refusal to pay an
insurance claim under R.I. Gen. Laws § 9-1-33.

That section

provides, in pertinent part:
Notwithstanding any law to the contrary, an insured
under any insurance policy as set out in the general
laws or otherwise may bring an action against the
insurer issuing the policy when it is alleged the
insurer wrongfully and in bad faith refused to pay or
settle a claim made pursuant to the provisions of the
policy, or otherwise wrongfully and in bad faith
refused to timely perform its obligations under the
contract of insurance. In any action brought pursuant
to this section, an insured may also make claim for
6

Because Ardente moves for summary judgment as to liability
only, this Court does not consider the amount of damages he is
entitled to recover.
(See Pl.’s Mot. for Summ. J. 1, ECF No.
21; Cross-Mots. for Summ. J. Hr’g Tr. 36.) Rather, the Court
merely holds that the loss to Ardente’s Yacht does not fall
within the policy’s exclusion for latent defects.
12

compensatory damages, punitive damages, and reasonable
attorney fees.
In all cases in which there has been
no trial in the Superior Court on or before May 20,
1981, the question of whether or not an insurer has
acted in bad faith in refusing to settle a claim shall
be a question to be determined by the trier of fact.
R.I.

Gen.

Laws

§

9-1-33(a).

Notwithstanding

the

statute’s

explicit reservation of the issue of bad faith failure to settle
for

the

trier

recognized

of

that

fact,

summary

the

Rhode

judgment

appropriate on § 9-1-33 claims.
Ins.

Co.,

742

plaintiff’s

A.2d

Island

is,

in

Supreme
some

has

circumstances,

See Lewis v. Nationwide Mut.

1207,

1209-10

(R.I.

that

summary

judgment

argument

Court

2000)

(rejecting

was

the

inappropriate

because § 9-1-33 directs that bad faith is an issue for the
trier

of

fact);

see

also

Prudential

Ins.

Co.

of

Am.

v.

Tanenbaum, 167 A. 147, 149 (R.I. 1933) (affirming the dismissal
of a bill in equity seeking payment under two life insurance
policies

on

the

grounds

that

the

insured

made

material

mistatements in procuring those policies despite R.I. Gen. Laws
§

27-4-10,

which

provides

that

the

materiality

misstatement “shall be a question for the jury”).

of

such

a

Additionally,

it is notable that the relevant statutory language is explicitly
limited to bad faith failure “to settle a claim.”
Laws § 9-1-33(a) (emphasis added).

R.I. Gen.

This portion of the statute

does not, on its face, apply to bad faith failure to pay a
claim.

13

The Rhode Island Supreme Court has held that “not every
refusal to pay amounts to insurer bad faith.

A plaintiff must

demonstrate an absence of a reasonable basis in law or fact for
denying
properly

the

claim

or

investigate

cognitive evaluation.”
1012 (R.I. 2002).

an
the

intentional

or

claim

subject

and

reckless
the

failure

to

result

to

Skaling v. Aetna Ins. Co., 799 A.2d 997,

In the present case, Ardente does not contend

that Standard’s interpretation of the policy was unreasonable.
Rather, Ardente’s bad faith claim is predicated upon Standard’s
alleged failure to perform an adequate investigation.
Ardente has failed to create a genuine issue of fact with
respect to whether Standard’s response to his claim constituted
“an intentional or reckless failure to properly investigate the
claim and subject the result to cognitive evaluation.” 7

Just

days after Ardente filed his claim, Standard’s staff surveyor,

7

In his motion for summary judgment papers, Ardente
purports to reserve the right “to conduct discovery on the bad
faith claim which, in the ordinary course, would be severed and
tried separately from the breach of contract action.”
(Pl.’s
Mem. of Law in Supp. of Pl.’s Mot. for Summ. J. (“Pl.’s Mem.”)
15 n.4., ECF No. 21-1.)
As authority for this reservation,
Ardente cites Corrente v. Fitchburg Mut. Fire Ins. Co., 557 A.2d
859 (R.I. 1989). In Corrente, the court held that “[s]ince the
burden of proof on a bad-faith claim is so formidable . . . it
is inherently prejudicial for a trial justice to decline to
sever that claim from a breach-of-contract claim.” Id. at 862.
The Corrente decision, however, predates the Rhode Island
Supreme Court’s decision in Skaling, which rendered the burden
of proof on a bad faith claim far less “formidable” than it once
was. Additionally, in the present case, unlike in Corrente, the
parties made no motion to sever.
14

MacDougall, inspected the Yacht.

Later, Standard retained both

Burke and Ashton to conduct further investigation.

Plaintiff’s

expert, Halsey C. Herreshoff, agreed that the reports prepared
by Burke and Ashton were “thorough.”
The

thoroughness

of

Standard’s

(Ex. I to Def.’s Mem.)

investigation

concerning

the

cause of the damage to Ardente’s Yacht distinguishes the present
case from Skaling.
Ardente argues that the Court should grant summary judgment
in his favor on the bad faith claim because there is no evidence
that

Standard

manufacturing
latent

ever

discussed

defect

it

defect.

or

discovered

However,

analyzed

in

the

because

whether

Yacht

was

Standard’s

the

also

a

thorough

investigation did not reveal any “flaw” in the balsa wood, the
policy’s requirement of a “flaw inherent in the material” was
clearly not met.

Standard was, thus, under no obligation to

debate the question with Ardente.
policy

language

interpretation

A difference of opinion as to
does

not

a

bad

faith

investigation make.
III. Conclusion
For

the

reasons

stated

above,

Plaintiff’s

motion

for

summary judgment as to liability is GRANTED with respect to his
breach

of

contract

claim.

Defendant’s

motion

for

summary

judgment is GRANTED with respect to Plaintiff’s claims of breach

15

of implied covenant of good faith and fair dealing and bad faith
failure to pay an insurance claim.
IT IS SO ORDERED.

/s/ William E. Smith
William E. Smith
United States District Judge
Date: November 27, 2012

16