Pioneer Christian Academy v. The Cincinnati Insurance Co.

Filing 44

MEMORANDUM OPINION OF THE COURT. Signed by District Judge Todd J. Campbell on 5/12/2014. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(eh)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

PIONEER CHRISTIAN ACADEMY
v.
THE CINCINNATI INSURANCE CO.

)
)
) NO. 3-12-0610
) JUDGE CAMPBELL
)

MEMORANDUM
Pending before the Court is Defendant’s Motion for Summary Judgment (Docket No. 30).
For the reasons stated herein, Defendant’s Motion is DENIED.
FACTS
This is an action for the alleged failure to pay a covered loss under an insurance contract.
Plaintiff contracted with Defendant for property insurance covering property at 4479 Jackson Road,
Whites Creek, Tennessee (“the Property”). Plaintiff has asserted claims for breach of contract,
violation of the Tennessee Consumer Protection Act (“TCPA”), negligence, unjust enrichment, and
bad faith denial of its claim under Tennessee statutory law. Docket No. 1.1
Defendant filed an Answer and Counterclaim (Docket No. 6), denying Plaintiff’s allegations
and raising claims for declaratory judgment, unjust enrichment and reverse bad faith.2
During parts of 2009 and 2010, the Property was leased by Plaintiff to Nashville Global
Academy, a charter school. It is undisputed that sometime in the summer of 2010, Nashville Global

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Plaintiff has agreed to dismiss its TCPA claim. Docket No. 38, p. 8.

Defendant has agreed to dismiss its claims based upon the allegation that the
property was vacant for 60 days before the water loss was discovered. Docket No. 31, n. 7.

Academy lost its charter and vacated the Property. Plaintiff alleges that after Nashville Global
Academy vacated the premises, Plaintiff began to look for a new tenant.
On August 6, 2010, a water supply line at the Property failed, causing water damage to the
Property. Pursuant to the contract between the parties, Defendant paid for damages to the Property
caused by the water damage. Thereafter, Plaintiff made a claim under the business income section
of its policy with Defendant for lost rental income. That section provides, in part, that Defendant
will pay for the actual loss of business income Plaintiff sustains due to the necessary suspension of
its operations during a period of restoration of the Property. “Business income” is defined to include
net income that would have been earned or incurred.
Plaintiff claims that, as a result of the water damage to the Property, Plaintiff lost income
from a new tenant for the Property. Plaintiff asserts that, at the time of the water supply pipe failure,
it had an agreement with Family Christian Academy (“FCA”) to lease the Property for the coming
year. Plaintiff provided, in support of its business income loss claim, an Affidavit of Belinda
Scarlata, Administrator of FCA, dated December 7, 2010.
Scarlata’s Affidavit (Docket No. 32-1) stated, among other things, that she contacted Rev.
Samuel Gage, the Chairman of Plaintiff’s Board of Directors, expressing FCA’s desire to lease and
possibly eventually purchase the property. Scarlata stated that she and Rev. Gage had several
conversations, culminating with her request to send for her review a lease agreement that would
formalize their agreement. Moreover, Scarlata stated: “Very shortly thereafter, we became aware
of the problems caused by a water leak in the building and that it would not be available for the
beginning of the current school year. While it would not be possible for us to start a lease term and

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relocate during the current school year, we are still quite interested in leasing the property for the
next school year if it is still available.” Docket No. 32-1.
With regard to her Affidavit, Scarlata later testified: “I felt that I was being used at that point
because I felt like - - I was told that I needed - - they needed an affidavit from me . . . and then I
realized that they were maybe making claims, or thinking that, that our interest was more - - or that
the insurance company may have thought that our interest was more serious than it really was, and
I felt like it was misrepresented.” Scarlata Deposition (Docket No. 36-4), p. 26. Scarlata testified
that the initial affidavit presented to her by Plaintiff made her uncomfortable because it made it
sound like FCA was about to purchase the building and then could not as a result of water damages.
Id., p. 23. “And that wasn’t the truth. The truth was that we had inquired about the property, we were
interested in the property, we didn’t ever know about the water damage.” Id. Scarlata testified that
the reason she did not pursue a lease with Plaintiff was not because of the water loss, but because
FCA was able to go ahead and secure everything with its current landlord. Id., p. 30.
In her deposition, Scarlata testified that FCA and Plaintiff never had an agreement, formal
or informally, to lease the Property. Scarlata Deposition (Docket No. 36-4), p. 19. Scarlata testified
that she inquired about Plaintiff’s property only as a “backup plan,” just in case FCA’s landlord
decided to sell out from under FCA and that “he [Gage] never called me back and gave me a price,
and we never even had a discussion about a lease because I never got that price.” Id., p. 15. “[W]e
never discussed a penny, ever.” Id., p. 18.
Plaintiff’s corporate representative, Sydney Jordan, testified that he and Gage went to FCA
and met with Scarlata, talked about a five-year lease and agreed on a price of $1,000 less per month
than what Plaintiff had charged Nashville Global. Jordan Deposition (Docket No. 36-1), p. 82. On

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the other hand, Scarlata testified that they never met at all. Scarlata Deposition (Docket No. 36-4),
pp. 16-17. Gage testified that he did not think they ever agreed on a price with FCA or on a term
for the lease. Gage’s Examination under Oath (Docket No. 33-1), p. 49.
Jordan also testified that the “kink” in their discussions with FCA was the water loss and
their agreement was contingent on Plaintiff getting the Property to the point where FCA could use
it “reasonably soon.” Jordan Deposition, p. 83. Yet Scarlata testified she didn’t even know about
the water damage (Scarlata Deposition, p. 23) and FCA’s reason not to lease the property had
nothing to do with a water loss. Id, p. 65 (“I just know that that didn’t affect my decision and I had
no knowledge of it at the time.”) .
Defendant has moved for summary judgment on all of Plaintiff’s claims, asserting that
Plaintiff had no agreement with any tenant or prospective tenant to lease the Property at the time of
the loss. Therefore, Defendant argues, Plaintiff cannot demonstrate that it incurred an actual loss
of business income as a result of the water damage.
SUMMARY JUDGMENT
Summary judgment is appropriate where there is no genuine issue as to any material fact and
the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Pennington v. State
Farm Mut. Automobile Ins. Co., 553 F.3d 447, 450 (6th Cir. 2009). The party bringing the summary
judgment motion has the initial burden of informing the Court of the basis for its motion and
identifying portions of the record that demonstrate the absence of a genuine dispute over material
facts. Rodgers v. Banks, 344 F.3d 587, 595 (6th Cir. 2003). The moving party may satisfy this
burden by presenting affirmative evidence that negates an element of the non-moving party’s claim
or by demonstrating an absence of evidence to support the nonmoving party’s case. Id.

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In deciding a motion for summary judgment, the Court must review all the evidence, facts
and inferences in the light most favorable to the nonmoving party. Van Gorder v. Grand Trunk
Western Railroad, Inc., 509 F.3d 265, 268 (6th Cir. 2007). The Court does not, however, weigh the
evidence, judge the credibility of witnesses, or determine the truth of the matter. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The Court determines whether sufficient evidence
has been presented to make the issue of fact a proper jury question. Id. The mere existence of a
scintilla of evidence in support of the nonmoving party’s position will be insufficient to survive
summary judgment; rather, there must be evidence on which the jury could reasonably find for the
nonmoving party. Rodgers, 344 F.3d at 595.
DISCUSSION
Because the policy of insurance at issue was issued for the benefit of a Tennessee non-profit
corporation by a company doing business in Tennessee, Tennessee law controls the substantive
claims and defenses in this case. Tenn. Code Ann. § 56-7-102. As the insured, Plaintiff has the
burden of proving coverage for the claimed loss. Massachusetts Mut. Life Ins. Co. v. Jefferson, 104
S.W.3d 13, 22 (Tenn. Ct. App. 2002).
The purpose of business interruption insurance is to protect the insured against losses that
occur when its operations are unexpectedly interrupted and to place it in the position it would have
occupied if the interruption had not occurred. Continental Ins. Co. v. DNE Corp., 834 S.W.2d 930,
934 (Tenn. 1992). A policy of this type may not be used to place the insured in a better position
than it would have occupied in the absence of the catastrophe. Id.

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The disputed issue here is whether Plaintiff can show that but for the water damage, FCA3
would have occupied the Property and paid rent. Plaintiff must show at least a genuine issue of
material fact as to whether, because of the water damage, FCA could not occupy the Property as
agreed and Plaintiff actually lost that business income.4
Clearly there are disputed issues of fact as to whether, at the time of the water damage,
Plaintiff had an agreement with FCA to lease the Property. Plaintiff’s corporate representative,
Sydney Jordan, testified that an agreement was reached regarding the term of the lease and the price.
Jordan Deposition (Docket No. 36-1), pp. 109-110. Jordan testified that FCA would have been a
tenant had it not been for the water loss. Id., p. 124. On the other hand, the Chair of Plaintiff’s
Board of Directors, Sam Gage, testified that he did not think they ever agreed on a price with FCA
and that they did not have an agreement as to the term of the lease. Gage’s Examination under Oath
(Docket No. 33-1), p. 49.5 As noted above, Scarlata has provided contradictory testimony in her
Affidavit, Deposition and E-mail.

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Plaintiff’s allegations concerning other tenants is merely speculative. Similarly,
any claim that Plaintiff itself intended to use the Property is not persuasive, given that the space
Plaintiff intended to use was the west building, not the water-damaged building. Jordan
Deposition, p. 40.
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With regard to Plaintiff’s assertion that, had it been unable to find a new tenant, it
could have made a claim against Nashville Global for lost rents, that claim is defeated by
Plaintiff’s admission that it could not go after Nashville Global because Nashville Global had no
assets. Jordan Deposition (Docket No. 33-2), p. 73.
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In an e-mail from Scarlata to Plaintiff’s representatives, she stated: “I did initiate
a phone call about renting some space and using the football field. But to be quite honest, no
one ever returned my call with availability, quoted me a price, showed me a lease, walked me
through the facility, etc. I believe that I actually have the possibility of weakening your case, not
strengthening it, because of the lack of follow-through that transpired between Pastor Sam and
I.” Docket No. 32-2.
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Defendant asserts that the dispute concerning the alleged agreement shows there was no
meeting of the minds. The Court finds, however, that a reasonable jury could find that there was a
meeting of the minds which was later denied. Defendant admits that the evidence as to whether
there was an agreement between Plaintiff and FCA presents a “he-said, she-said” issue.
Until this factual dispute - whether Plaintiff would have had a tenant but for the water loss is resolved, the legal issue of coverage upon which Plaintiff’s claims are based cannot be
determined. Defendant has not carried its burden of showing the absence of any genuine issue of
material fact, and its Motion for Summary Judgment is denied.
IT IS SO ORDERED.

___________________________________
TODD J. CAMPBELL
UNITED STATES DISTRICT JUDGE

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