Walsh et al v. State Farm Fire and Casualty Company

Filing 36

MEMORANDUM OPINION OF THE COURT re Motion for Summary Judgment (Docket No. 15 ). Signed by District Judge Aleta A. Trauger on 7/17/2017. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(mg)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
JAMES WALSH and BELINDA
WALSH,

)
)
)
Plaintiffs,
)
)
v.
)
)
STATE FARM FIRE AND CASUALTY )
COMPANY,
)
)
Defendant.
)

Case No. 3:15-cv-1036
Judge Aleta A. Trauger

MEMORANDUM
Pending before the court is a Motion for Summary Judgment (Docket No. 15) filed by the
defendant, State Farm Fire and Casualty Company (“State Farm”), to which the plaintiffs, James
and Belinda Walsh (the “Homeowners”), have filed a Response in opposition (Docket No. 30),
and State Farm has filed a Reply (Docket No. 34). For the reasons stated herein, the motion will
be granted.
BACKGROUND & PROCEDURAL HISTORY
This insurance dispute arises from allegations that State Farm, a provider of property
insurance coverage to the Homeowners, denied the Homeowners’ insurance claim for damage to
their property that was caused by sinkhole activity, despite the fact that the Homeowners had met
all conditions of the policy and the policy covered sinkhole damage. (Docket No. 1-2.) It is
undisputed that the Homeowners’ residential property (the “Property”) was insured by State
Farm, that their policy includes sinkhole damage (but not other types of damage to the land
rather than the dwelling), and that the Homeowners’ insurance claim submitted on September 15,
2014 for damages to their dwelling and surrounding land (the “Claim”) was denied by State

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Farm on the grounds that the damage was not caused by sinkhole activity or any other covered
calamity. The dispute in this action focuses solely on whether State Farm was justified in its
denial of the Claim.
It is further undisputed that, upon receiving the Claim, State Farm sent representative
Jeremy Moran to visit the Property and to observe the damage on September 19, 2014. On
September 23, 2014, State Farm retained Conestoga-Rovers & Associates (“CRA”) to
investigate the damage to the Property and determine the cause. It is undisputed that CRA is a
preferred vendor for State Farm and that it has regularly conducted investigations related to
sinkhole claims and provided expert testimony in lawsuits over denied sinkhole claims on behalf
of State Farm. Further, it is undisputed that State Farm did not provide to the Homeowners its
contractual agreement with CRA for the investigation done on the Claim, nor did it disclose to
the Homeowners the rate at which CRA was compensated for its investigation.
On October 1, 2014, CRA inspected the Property. On November 4, 2014, CRA issued a
report of its findings, certified by Tennessee licensed geologists Bernd T. Rindermann and
Norman R. Meeks, Tennessee licensed geotechnical engineer Steven A. Janosik, and licensed
structural engineer Charles N. Stewart.1 (Docket No. 17-3 (the “CRA Report”).) The CRA
Report includes the following:





Statement that the CRA Report is based on a visual assessment of the
Property and geotechnical evaluation of the soil conditions.
Statement that: “[I]t is CRA’s opinion that the cause of the [Claim] is not
sinkhole activity. In our opinion, the analysis conducted by CRA, as
documented in this report, was of sufficient scope to eliminate sinkhole
activity as the cause of the damage to the home within a reasonable
professional probability.” (Docket No. 17-3, p.2.)
Identification of the following causes of damage to the Property, based on
evaluation of the Property and the surrounding subsurface conditions:

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Documentation of these licenses is found in the record at Docket No. 31-3.

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







Differential slab/foundation movement (settlement) in response to
saturation and frost penetration as well as
compression/consolidation of poorly compacted underlying fill soil
deposits and cyclical slope creep;
 Shrinkage of cementitious materials based on properties of the
materials themselves that are likely to cause cracks that can then be
exacerbated by soil conditions;
 Cyclical expansion and contraction of various building materials in
response to changes in temperature and humidity levels;
 Drywall “nail pop” caused by improper installation and/or
withdrawal of fasteners due to shrinkage and swelling of the wood
caused by changes in humidity;
 Excess moisture entering the ceiling near the family room fireplace
due to inadequately sealed joints, roof penetrations, utility pipes or
other mechanisms unrelated to foundation settlement; and
 Separation of the rear porch slab from the main structure due to a
lack of structural continuity between the slab and the home,
exacerbated by soil conditions and cyclical slope creep.
Listing of the following work that was performed by CRA:
 Site visit to document the condition of the Homeowners’ residence
and Property and to interview the Homeowners and their
representative;
 Review of the Sumner County Assessor of Property website for
information about the Property and other local geologic,
topographic, and soil information;
 Geophysical testing, including an electrical resistivity imaging
(“ERI”) survey;
 Relative elevation floor survey;
 Excavation of a test pit to expose the geometric features of the
perimeter wall and foundation of the dwelling;
 Performance of two hand auger borings and three Standard
Penetration Test borings to explore both shallow and deeper soil
conditions, up to 19 feet;
 Review and classification of recovered soil samples; and
 Assessment of soil conditions revealed in the borings and
evaluation of the relationship between the soil and the damage to
the Property.
Summary of the features of the Property and a detailed description of the
damage, including an explanation of how the above identified causes of
the damage were assessed.
Detailed discussion of the findings of the above tests and inspections.
Explanation of the sinkhole activity assessment, including a definition of
the different types of sinkholes and how they are caused, and an
enumeration of sinkhole indicators.

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

Application of the above information about sinkhole indicators to the
results of the above listed tests and observations, reaching the conclusion
that sinkhole activity was not the cause of the damage to the Property.

It is further undisputed that, on December 1, 2014, State Farm sent a letter to the
Homeowners, explaining that the Claim would be denied based on the findings in the CRA
Report. On March 10, 2015, counsel for the Homeowners sent a letter to State Farm, disputing
the denial of the Claim and requesting that the Claim be reopened for further review. On April
13, 2015, State Farm responded, affirming the denial of the Claim but inviting the Homeowners
to submit any information supporting their challenge to the decision. There is no evidence in the
record that the Homeowners ever submitted any additional information to State Farm.2 The only
evidence in the record that purports to support a finding that the damage to the Property was
caused by sinkhole activity is the expert report of the Homeowners’ retained engineer, Sonny
Gulati of Florida Testing & Environmental, Inc. (Docket No. 16-1 (“Gulati Report”).) Mr.
Gulati has B.S. and M.S. degrees from the Illinois Institute of Technology and is a Registered
Professional Engineer in the state of Florida, a Registered Environmental Property Assessor, a
Certified Florida Environmental Assessor, and a Licensed Water Well Contractor in Florida.
(Docket No. 16-2.) His resume indicates that he has extensive experience in conducting
geotechnical and geoenvironmental investigations, including sinkhole evaluations.
According to the Gulati Report, Mr. Gulati did not conduct any testing or investigation of
his own into the damage to the Property. Rather, the Gulati Report is based solely on Mr.
Gulati’s review of the CRA Report. The Gulati Report makes the following conclusion: “Florida
Testing & Environmental, Inc. does not concur with CRA’s conclusions in that it is our

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The Homeowners state that they provided State Farm with a copy of the Gulati Report (defined
herein), and that State Farm continued to deny the Claim, but the Homeowners do not confirm
that this information was exchanged prior to the filing of the instant action. (Docket No. 31,
¶13.)
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professional opinion that based on the data presented sinkhole activity is present at the subject
residence. It is my opinion that structural damage has occurred at the subject residence.”
(Docket No. 16-1, p. 3.) The Gulati Report later concludes that “adverse impact due to sinkhole
activity at the subject residence cannot be ruled out” (id. at p. 4), but nowhere in the Gulati
Report is there a definitive finding that the damage to the Property that is the subject of the
Claim was caused by sinkhole activity.3 The Gulati Report contains only the following
information to support the above conclusion:







Recounts the damage to the Property that was noted in the CRA Report.
Asserts the opinion that the floor slab on the Property needs remediation,
including underpinning, based on 1) the CRA Report’s finding of approximately
5.25 inches of variation in the basement floor and 2 inches variation in first story
floor, and 2) the Standard Specifications for Tolerances for Concrete Construction
and Materials (ACI-117-06 Section 4.4.1) issued by the American Concrete
Institute’s guideline that floor slab alignment should have no more than ½ inch
deviation in any ten feet.
Recounts the CRA Report’s finding, based on geophysical testing, that there were
no “geologically significant features of interest that might be considered
anomalous to other areas surveyed across the property.”
Recounts the results of the CRA’s Standard Penetration Test borings and asserts
the opinion, without explanation, that “the data reported in all five borings
indicated varying degree of systematic weakening.”
Concludes that adverse impact due to sinkhole activity cannot be ruled out due to
the following:
“ - The subject structure is underlain by karst conditions.
- The minor differential settlement is not the cause of distress at the
subject residence. The cause of the damage is deep rooted. The structure
was built in 1983 and the distress was noticed recently and is still ongoing.
- Closed depressions which might indicate sinkhole activity were located
within one mile of the subject residence.
- The laws of gravitational compaction and original horizontality have
both been violated at this site.

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In his later-filed Affidavit, Mr. Gulati states that The Gulati Report does, in fact, conclude that
the damage to the Property was caused by sinkhole activity. (Docket No. 30-3, ¶5.) This is not
entirely clear, however, from the Gulati Report itself. Nevertheless, as discussed more fully
below, the conclusion that the damage to the Property was caused by sinkhole activity is
inadmissible for the same reasons that the other opinions proffered by Mr. Gulati are
inadmissible.
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- The main house floor slab has undergone significant differential
settlement of up to 2.0-5.25 inches. This is excessive in light of geologic
conditions and the fact that sinkholes don’t usually manifest themselves on
the ground surface. As pressure grouting is not intended to correct floor
slab elevation difference, it is recommended that the sinkhole remediation
must include underpinning.
- The main house concrete floor slab has undergone abnormal amount of
differential settlement due to underlying karst conditions.”
(Id. at p. 4.) Mr. Gulati does not explain the methodology he applied to reach the conclusion that
sinkhole activity is present on the Property, let alone explain the methodology to support his
finding that such sinkhole activity may have caused the damage to the Property that is the subject
of the Claim.4
On June 19, 2015, the Homeowners filed a breach of contract claim against State Farm in
the Circuit Court for Sumner County, Tennessee. The Homeowners further allege bad faith and
malicious conduct by State Farm and seek punitive as well as compensatory damages. (Id.) The
action was removed to federal court on September 28, 2015. (Docket No. 1.)
On February 24, 2017, State Farm filed a Motion for Summary Judgment (Docket No.
15), along with a Memorandum in support (Docket No. 16), and a Statement of Undisputed
Material Facts with attachments (Docket No. 17). State Farm argues that it is justified in its
position that the damage to the Property was not caused by sinkhole activity or any calamity
covered by the Homeowners’ policy and, thus, the Claim was rightly denied. State Farm also
argues that the Gulati Report is inadmissible as evidence that the damage to the Property was
caused by sinkhole activity, because it does not meet the standard for an admissible expert

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The Homeowners also attach to their Response a drilling log from Richard Simmons Drilling
Co, Inc. (Docket No. 30-5.) It appears that this is intended to further support the Gulati Report,
but the Gulati Report does not cite to this document at all, let alone explain how it supports a
finding that the damage to the Property may have been caused by sinkhole activity. The
significance of the drilling report alone is unclear without additional explanation.
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opinion under Rule 26(a)(2)(B).5
On May 5, 2017, the Homeowners filed a Response in opposition (Docket No. 30), along
with a Response to State Farm’s Statement of Undisputed Material Facts (Docket No. 31), and a
number of exhibits (Docket Nos. 32-33). Attached to the Homeowners’ Response is the
Affidavit of Sonny Gulati, which reiterates that he reviewed the CRA Report and adds that it is
Mr. Gulati’s professional opinion that 1) sinkhole activity is a cause of the damage to the
Property; and 2) “CRA’s opinions are inadequate, and not supported by the data presented.”
(Docket No. 30-3, ¶¶5-6.) There is no additional explanation given for how these conclusions
were reached.
On May 19, 2017, State Farm filed a Reply. (Docket No. 34.)
LEGAL STANDARD
Rule 56 requires the court to grant a motion for summary judgment if “the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). If a moving defendant shows that there is no genuine issue
of material fact as to at least one essential element of the plaintiff’s claim, the burden shifts to the
plaintiff to provide evidence beyond the pleadings, “set[ting] forth specific facts showing that
there is a genuine issue for trial.” Moldowan v. City of Warren, 578 F.3d 351, 374 (6th
Cir. 2009); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). “In evaluating the
evidence, the court must draw all inferences in the light most favorable to the non-moving

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The parties both cite to other cases in which opinions of Mr. Gulati have been admitted or
excluded, respectively. Because the conclusions and methodologies of the opinions are different
in each case and the decisions about admissibility were based on the opinions themselves, rather
than Mr. Gulati’s credentials alone, the court will not consider these other cases in deciding
whether Mr. Gulati’s opinions in this case are admissible but will instead base its determination
solely on the court’s analysis of Mr. Gulati’s opinions proffered in this action.
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party.” Moldowan, 578 F.3d at 374 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986)).
At this stage, “‘the judge’s function is not . . . to weigh the evidence and determine the
truth of the matter, but to determine whether there is a genuine issue for trial.’” Id. (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). But “[t]he mere existence of a
scintilla of evidence in support of the [non-moving party’s] position will be insufficient,” and the
party’s proof must be more than “merely colorable.” Anderson v. Liberty Lobby, 477 U.S. 242,
249, 252 (1986). An issue of fact is “genuine” only if a reasonable jury could find for the nonmoving party. Moldowan, 578 F.3d at 374 (citing Anderson, 477 U.S. at 252).
ANALYSIS
Tennessee Law provides as follows:
Upon receipt of a claim for sinkhole loss under a policy providing sinkhole loss
coverage, an insurer must meet the following standards in investigating the claim:
(1) The insurer shall make an inspection of the insured’s premises to
determine if there has been structural damage to the covered structure
resulting from possible sinkhole activity;
(2) If, upon the investigation pursuant to subdivision (d)(1), the insurer
determines that there is no sinkhole loss, the insurer may deny the
claim;
(3) If the insurer concludes that structural damage to a covered structure is
inconsistent with sinkhole activity, then prior to denying the claim, the
insurer shall obtain a written certification from an engineer, a
professional geologist, or other qualified individual stating that:
(A) An analysis was conducted of sufficient scope to provide an
opinion within a reasonable professional probability on the
cause of the observed structural damage; and
(B) Sinkhole activity did not cause the observed structural damage;
...
Tenn. Code. Ann. § 56-7-130(d) (the “Sinkhole Statute”).
The Homeowners’ claims in this action hinge on a dispute as to whether sinkhole activity
caused the damage to the Property underlying the Claim. The Homeowners mischaracterize

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State Farms’ position to be that the dispute is solely about whether State Farm followed the
Sinkhole Statute and that compliance with the Sinkhole Statute renders State Farm “immune
from suit.” (Docket No. 30, p. 5.) To the contrary, State Farm’s position is that, having
complied with the Sinkhole Statute, State Farm can only be liable for breach of contract if the
Homeowners can show that such reliance was improper. The court agrees with this assertion.
While it is true that the undisputed evidence shows that State Farm complied with the Sinkhole
Statute in denying the Claim, evidence that the damage to the Property was, nevertheless, caused
by sinkhole activity could still provide a basis for the Homeowners to prevail on their claim for
breach of contract. The Homeowners are, thus, correct in their argument that the CRA Report’s
finding that sinkhole activity did not cause the damage underlying the Claim does not resolve
this dispute. The question before the court on the pending motion, however, is whether the
Homeowners have offered evidence of sinkhole damage that would properly support a triable
issue of fact as to whether the CRA Report was incorrect and/or State Farm’s reliance on it
improper. As discussed more fully below, the Homeowners have no such evidence and,
therefore, their claim for breach of contract must be dismissed.6
The Homeowners are correct that State Farm is asserting a Daubert challenge to exclude
the opinions of their expert witness, Sonny Gulati. Because the Gulati Report is central to the
Homeowners’ claim, the court will first consider whether it is admissible before turning to the
question of whether the evidence in the record can properly support a triable issue of fact.
I.

The Gulati Report Is Not Admissible

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The Homeowners also point out that State Farm is not by law required to rely on the findings
of CRA. This assertion, however, is of no import because State Farm is certainly permitted by
law to rely on the CRA Report in denying the Claim and, absent evidence that the CRA Report is
incorrect or State Farm’s reliance on it is otherwise improper, the Homeowners’ action cannot
proceed.
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Expert testimony in federal court is governed by Federal Rule of Evidence 702, which
states:
A witness who is qualified as an expert by knowledge, skill, experience, training,
or education may testify in the form of an opinion or otherwise if: (a) the expert’s
scientific, technical, or other specialized knowledge will help the trier of fact to
understand the evidence or to determine a fact in issue; (b) the testimony is based
on sufficient facts or data; (c) the testimony is the product of reliable principles
and methods; and (d) the expert has reliably applied the principles and methods to
the facts of the case.
In its “gate-keeping” role, a trial court must evaluate the relevance and reliability of all expert
testimony, whether the testimony offered is “scientific” or not. Kumho Tire Co., Ltd. v.
Carmichael, 526 U.S. 137, 147 (1999) (citing Daubert v. Merrell Dow Pharm., Inc., 509 U.S.
579, 589-90 (1993)). Also, under Rule 26(a)(2)(B), an expert report must contain “a complete
statement of all opinions the witness will express and the basis and reasons for them.” Failure to
disclose this information in the expert report mandates exclusion of the expert’s opinion on
motion, at a hearing, or at trial, unless the violation was harmless or substantially justified. Fed.
R. Civ. P. 37(c)(1); see also R.C. Olmstead, Inc. v. CU Interface, LLC, 606 F.3d 262, 271-72
(6th Cir. 2010).
The Gulati Report is inadmissible because it contains no explanation of the methodology
used or the application of the methodology to the facts justifying the conclusion that sinkhole
activity was present at the Property and cannot be ruled out as the cause of the damage
underlying the Claim. Moreover, the Gulati Report does not explain the methodology by which
it determines that the CRA Report, or the investigation on which it was based, is in some way
inaccurate or unreliable. The Gulati Report, thus, does not meet the criteria of Daubert or Rule
702 and may not be introduced as evidence that the damage to the Homeowners’ property was

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caused by sinkhole activity. Nor can the Gulati Report be used to show that the CRA Report is
incorrect or that it was improper for State Farm to rely on it.
Further, even if the court were to find admissible Mr. Gulati’s opinion that he is unable to
rule out sinkhole activity as the cause of the damage to the Homeowners’ property for the
reasons enumerated in his report, this does not provide sufficient evidence to support the legal
claim at issue in this action. Mr. Gulati does not have the same expertise as the authors of the
CRA Report, nor did he conduct any additional testing or investigation. The fact that he in
unable, from his professional standpoint and based on his review of the data, to rule out sinkhole
activity as the cause of the damage giving rise to the Claim does not show that the CRA Report
was incorrect or inaccurate in its finding that sinkhole activity was not the cause of the damage,
given the expertise of the parties who prepared the CRA Report. Nor does it show that State
Farm breached its statutory or contractual obligations to the Homeowners in relying on the CRA
Report to deny the Claim.7
II.

There is no Evidence to Support a Triable Issue of Fact
Because the court finds – for the reasons discussed above – that Mr. Gulati’s expert

opinions are not admissible under Rule 702 and Daubert, and because there is no other evidence
of sinkhole activity having caused the damage to the Property or of breach of contract by State
Farm, the court finds that there is no triable issue of fact as to the Homeowners’ breach of
contract claim. Further, since the Homeowners have failed to place evidence in the record to
support a finding that State Farm breached its contract with the Homeowners, they certainly

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State Farm also argues that the Gulati Affidavit attached to the Homeowners’ Response – which, unlike
the Gulati Report, definitively opines that the damage to the Property was caused by sinkhole activity –
was untimely disclosed as an expert report. The court need not reach this issue, however, because, even if
timely, the Gulati Affidavit does not constitute an admissible expert opinion for the same reasons that his
report is not admissible. There is no discussion of the methodology used to reach the conclusions stated
therein or the application of the methodology to the facts of the case.

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cannot proceed with a claim that State Farm did so in bad faith.8 The Homeowners argue that
the court should infer bad faith from State Farm’s decision to retain CRA, based on the fact that
CRA has been an expert on behalf of State Farm in the past. The Homeowners also ask the court
to draw inferences of bad faith from the fact that State Farm has not produced its financial
agreement with CRA. These things do not on their own, however, give rise to an inference that
CRA’s conclusions are biased, let alone that State Farm’s retention of CRA and reliance on the
CRA Report were carried out in bad faith.
Finally, the Homeowners cite the fact that they made a demand to State Farm to reconsider
the Claim as grounds to allow them to pursue their claim for bad faith. While such a demand is
necessary under the Tenn. Code Ann. § 56-7-105, it is not sufficient. As a matter of law, the
Homeowners need to have evidence in the record to support their claim in order to proceed.
Because they do not, there is no triable issue of fact as to whether State Farm acted in bad faith.
The Homeowners argue that the burden is on State Farm to show that its process for selecting
experts to investigate sinkhole claims is unbiased, but they cite no authority for this proposition.
To the contrary, the burden is on the Homeowners, as plaintiffs in this action, to show that there
is a triable issue of fact. Because they have not met this burden, their claims will be dismissed.

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As State Farm points out in its briefing, there is no common law bad faith claim for punitive
damages available in this context, as bad faith in the handling of a sinkhole claim by an
insurance carrier is governed exclusively by Tenn. Code Ann. § 56-7-105 (mandating liability of
up to an additional 25% of liability on the loss for bad faith refusal to pay insurance claims). See
Heil Co. v. Evanston Ins. Co., 690 F.3d 722, 728 (6th Cir. 2012). The Homeowners’ citation to
Akers v. Allstate Prop. & Cas. Ins. Co., No. 2:14-CV-72, 2015 WL 11005023 (E.D. Tenn. Sept.
28, 2015), as an example of a case where common law punitive damages were permitted in the
context of processing a sinkhole claim is misplaced. Akers expressly states that these damages
were allowed because the case arose prior to the enactment of Section 56-7-105 but that such
damages would not be available for cases arising thereafter. 2015 WL 11005023, at *5.
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CONCLUSION
For the foregoing reasons, State Farm’s Motion for Summary Judgment will be granted
and this action will be dismissed.
An appropriate Order will enter.

______________________________
ALETA A. TRAUGER
United States District Judge

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