Jeb Stuart Auction Services, LLC v. West American Insurance Company
Filing
59
MEMORANDUM OPINION. Signed by Judge Jackson L. Kiser on 10/1/2015. (mlh)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
DANVILLE DIVISION
JEB STUART AUCTION SERVICES, LLC, )
)
Plaintiff,
)
)
v.
)
)
WEST AMERICAN INSURANCE
)
COMPANY,
)
)
Defendant.
)
Case No. 4:14-cv-00047
MEMORANDUM OPINION
By: Hon. Jackson L. Kiser
Senior United States District Judge
This matter is before the Court on cross-motions for summary judgment. I heard oral
arguments on the motions on August 6, 2015. For the reasons stated herein, I will grant West
American Insurance Company’s motion for summary judgment [ECF No. 49] and deny Jeb
Stuart Auction Services, LLC’s motion for summary judgment [ECF No. 45].
I.
STATEMENT OF FACTS AND PROCEDURAL BACKGROUND
Plaintiff Jeb Stuart Auction Services, LLC (“Jeb Stuart”) is a Virginia-based LLC owned
and operated by Robin Hiatt. In January 2014, Jeb Stuart purchased property on Aaron Street in
Martinsville, Virginia, as its main headquarters.
Jeb Stuart purchased the building for
$325,000.00.
Jeb Stuart and Defendant West American Insurance Company (“West American”)
entered into a contract for insurance with effective dates of January 22, 2014, through January
22, 2015 (“the Policy”). The Policy covered Jeb Stuart’s commercial business property located
in Martinsville.
The property was formerly a furniture factory and consisted of several
interconnected brick buildings, totaling more than 500,000 square feet. As is relevant here, the
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Policy covered damage by fire, and the Policy limits totaled $4,050,000.00; the applicable
deductibles totaled $5,000.00.
The Policy provided as follows:
4. Loss Payment. a. In the event of loss or damage . . . We [West American] will
determine the value of lost or damaged property, or the cost of its repair or
replacement, in accordance with the applicable terms of the Valuation Condition
in this Coverage Form or any applicable provision which amends or supersedes
the Valuation condition.
* * *
C. With respect to the building described in the above Schedule, the following
replaces items a. and b. of the VALUATION Loss Condition:
1.
If you contract for repair or replacement of the loss or damage to restore
the building shown in the above Schedule for the same occupancy or use,
within 180 days of the damage unless we and you [Jeb Stuart] otherwise
agree, we will pay the smallest of the following, a., b., c., or d.:
a.
The Limits of Insurance shown in the above Schedule as applicable
to the damaged building.
b.
In the event of total loss, the cost to replace the damaged building
on the same site (or on a different site if the relocation is required
by an ordinance or law . . . ), with a less costly building that is
functionally equivalent to the damaged building.
c.
In the event of a partial loss:
1)
The cost to repair or replace the damaged portion of the
building with less costly material, if available, in the
architectural style that existed before the loss or damage
occurred; and
2)
The amount you actually spend to demolish and clear the
site of undamaged parts of the building . . . .
d.
The amount you actually spend:
1)
That is necessary to repair or replace the lost or damaged
building with less costly material if available; and
2)
To demolish and clear the site of undamaged parts of the
building . . . .
2.
If you do not make a claim under Paragraph 1. above, we will pay the
smallest of the following, a., b., or c.:
a.
The Limit of Insurance shown in the above Schedule as applicable
to the damage building;
b.
The “market value” of the damaged building, exclusive of the land
value at the time of loss; or
c.
The amount it would cost to repair or replace the damaged building
on the same site, with less costly material in the architectural style
that existed before the damage occurred, less allowance for
physical deterioration and depreciation.
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This portion of the Policy is referred to as the “Functional Building Valuation,” or “FBV.” The
Policy defined “market value” to mean “the price at which the property might be expected to
realize if offered for sale in a fair market.”
Also applicable to the present situation, the Policy stated:
3. Duties In The Event Of Loss Or Damage
a.
You must see that the following are done in the event of loss or damage to
Covered Property:
* * *
(7)
Send to us a signed, sworn proof of loss containing the information
we request to investigate the claim. You must do this within 60
days after our request. We will supply you with the necessary
forms.
* * *
4. Loss Payment.
* * *
c.
We will give notice of our intentions within 30 days after we
receive the sworn proof of loss.
On March 3, 2014, the property in Martinsville was destroyed by fire. To date, the cause
of the fire has not been determined.
On or about May 16, 2014, Jeb Stuart requested an extension to the 180-day period to
“contract for repair or replacement.”
On March 26, 2014, West American, through its adjuster Anthony DeCesare, requested
that Jeb Stuart submit a sworn proof of loss statement. Jeb Stuart’s attorney, Philip Gardner,
responded on April 7, attaching a proof of loss statement signed by Robin Hiatt, Jeb Stuart’s
owner. The proof of loss stated:
1.
2.
3.
4.
5.
6.
Replacement Cost of Property: at the time of loss…..$ IN EXCESS OF COVERAGE
Replacement or Repair Cost: at the time of the loss was….…..$ SEE ATTACHED
Applicable Depreciation or Betterment:……………………….$_________________
Actual Cash Value Loss: (line 2 minus line 3)……………......$__________________
Deductible:……………………………………………………..$ SEE ATTACHED
ACTUAL CASH VALUE CLAIM: (line 4 minus line 5).....$4,050,000.00 BLDG
ONLY
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Hiatt asserted, in an attachment to the proof of loss:
It is not possible to fill out the actual cash value and replacement
portion of the proof of loss at this time. The insured lost 500,000
square feet of storage space which cannot be repaired and cannot
be replaced to the original condition. . . . Accordingly, [because the
replacement value would far exceed the policy limits,] the insured
hereby makes claim for the full coverage of the two buildings
being $4,050,000.00.
[ECF No. 50-4.]
In June, Jeb Stuart advised West American that it was still in business and had rented
approximately 10,000 square feet in an effort to stay in business.
Jeb Stuart incurred
approximately $24,000.00 in rental fees associated with the building.
On July 2, 2014, West American granted Jeb Stuart a sixty-day extension to the 180period “to contract for repair or replacement,” “or until 11/3/14, whichever is longer.”
On July 18, 2014, Erik Anderson of Wakelee Associates, LLC, reported to West
American that his estimate for the “Functional Replacement Cost” for the insured buildings was
over $23,000,000.00. Despite several requests, West American did not share this information
with Jeb Stuart until it was required to do so in discovery in the present action.
By letter dated August 6, 2014, West American advised Jeb Stuart that it was denying
coverage for the March fire, and asserted that Jeb Stuart had lied on its application for insurance.
As a result, West American declared that the Policy was void ab initio. That was incorrect, and
Jeb Stuart was granted summary judgment on this issue.
After West American wrongfully declared the policy void ab initio, Jeb Stuart submitted
a plan to the City of Martinsville to construct a new facility on the insured premises. According
to Robin Hiatt, Jeb Stuart lacked the financial resources to commit to the project. (Aff. of Robin
Hiatt ¶ 9, Aug. 31, 2015 [ECF No. 46-7].)
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The parties agree that, under Paragraph C.1 of the FBV, the limits of the Policy are
$4,050,000.00 (C.1.a.).
Estimates for damages under Paragraph C.1.b range between
$15,000,000.00 and $23,000,000.00. Paragraph C.1.c is not applicable, as the fire resulted in a
complete loss. There is no agreement as to Paragraph C.1.d.
Under Paragraph 2 of the FBV,
the parties again agree that the limits of the insurance are $4,050,000.00 (C.2.a), the “market
value” of the buildings is $255,000.00 (C.2.b), and the “amount it would cost to repair or replace
the damaged building” is between $15,000,000.00 and $23,000,000.00 (C.2.c.). If Jeb Stuart is
limited to damages under Paragraph 2, it would be entitled to recover $255,000.00, plus other
incidental damages.
Jeb Stuart filed its Complaint against West American on October 10, 2014, alleging that
West American wrongfully rescinded the Policy. The parties filed cross-motions for summary
judgment in June of this year, and I ultimately granted Jeb Stuart’s motion. I held that West
American wrongfully rescinded the Policy, and that Jeb Stuart was entitled to coverage. The
matter was set for trial beginning September 22, 2015, but the parties moved to extend the trial
date to give the Court time to address the present issue with regard to possible damages. The
parties asserted that decision on this issue could obviate the need for a trial. Jeb Stuart filed its
second motion for summary judgment on September 1, 2015, and West American filed its
second motion for summary judgment (and response to Jeb Stuart’s motion) on September 11,
2015. Jeb Stuart responded to West American’s motion on September 18, 2015. I heard oral
arguments on the motions on September 22.
II.
STANDARD OF REVIEW
Summary judgment is appropriate where there is no genuine dispute of material fact and
the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); George & Co. LLC
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v. Imagination Entertainment Ltd., 575 F.3d 383, 392 (4th Cir. 2009). A genuine dispute of
material fact exists “[w]here the record taken as a whole could . . . lead a rational trier of fact to
find for the nonmoving party.” Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (internal quotation
marks and citation omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
A genuine dispute cannot be created where there is only a scintilla of evidence favoring the
nonmovant; rather, the Court must look to the quantum of proof applicable to the claim to
determine whether a genuine dispute exists.
Scott v. Harris, 550 U.S. 372, 380 (2007);
Anderson, 477 U.S. at 249−50, 254. A fact is material where it might affect the outcome of the
case in light of the controlling law. Anderson, 477 U.S. at 248. On a motion for summary
judgment, the facts are taken in the light most favorable to the non-moving party insofar as there
is a genuine dispute about those facts. Scott, 550 U.S. at 380. At this stage, the Court’s role is
not to weigh the evidence, but simply to determine whether a genuine dispute exists for trial.
Anderson, 477 U.S. at 249. It has been noted that “summary judgment is particularly appropriate
. . . [w]here the unresolved issues are primarily legal rather than factual” in nature. Koehn v.
Indian Hills Cmty. Coll., 371 F.3d 394, 396 (8th Cir. 2004).
III.
DISCUSSION
Jeb Stuart contends that three occurrences—two of West American’s making—hindered
it from fulfilling the condition precedent in the FBV which required Jeb Stuart to contract for
repair or replacement. First, Jeb Stuart argues that it could not afford to contract for repair or
replacement without proceeds from the Policy.
Next, it contends that West American, by
rescinding the Policy, deprived it of the 180 days in which it was entitled to make its decision
regarding repair or replacement.
Finally, Jeb Stuart argues that West American did not
“participate” in the adjustment process by providing its estimates for functional replacement
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value to Jeb Stuart. The evidence, however, establishes that West American’s actions did not
“hinder” Jeb Stuart from contracting to repair or replace the destroyed property so as to excuse
the condition precedent in Paragraph C.1 of the Functional Building Valuation (“FBV”).
“The prevention doctrine is a generally recognized principle of contract law according to
which if a promisor prevents or hinders fulfillment of a condition to his performance, the
condition may be waived or excused.” Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717,
725 (4th Cir. 2000) (citing Restatement (Second) of Contracts § 245 (1981)). Virginia law
recognizes the prevention doctrine. See Parrish v. Wightman, 34 S.E.2d 229, 232 (Va. 1945).
Application of the prevention doctrine does not require proof that the condition “would
have occurred ‘but for’ the wrongful conduct of the promisor;” rather, it is enough to show that
the conduct “‘contributed materially’ to the non-occurrence of the condition.” Moore Bros. Co.,
207 F.3d at 725 (citing Restatement (Second) of Contracts, supra, § 245 cmt. b). The Supreme
Court of Virginia has specifically noted, “It is as effective an excuse of performance of a
condition that the promisor has hindered performance as that he has actually prevented it.”
Parrish, 34 S.E.2d at 232.
Robin Hiatt’s testimony establishes that it was Jeb Stuart’s lack of capital to finance
repair or replacement—not the rescission of the Policy or the lack of West American’s
appraisal—that was responsible for its failure to satisfy the applicable condition precedent. For
example, in his affidavit, Hiatt states the following:
6.
Without the coverage to which it is entitled under its policy
with West American Insurance Company, Jeb Stuart lacks the
financial resources to rebuild the buildings located on the insured
property.
7.
Even if it found a bank willing to loan it money given the
company’s financial situation since March 3, 2014, Jeb Stuart
believes it would be financially unwise to incur debt in an effort to
replace its buildings, unless it receives the funds to do so, to which
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it is entitled, under its coverage with the policy issued by West
American Insurance Company.
...
9.
After West American declared the Jeb Stuart policy void ab
initio, Jeb Stuart considered constructing a new building on the
insured premises, and submitted a building plan to the City of
Martinsville. However, without the coverage proceeds from West
American, Jeb Stuart lacked the financial resources to finance this
construction.
(Aff. of Robin Hiatt ¶¶ 6–7 & 9, Aug. 31, 2015 [ECF No. 46-7].) All of these statements place
the blame for Jeb Stuart’s inaction on the lack of capital, not on West American’s declaration
that the Policy was void. In fact, Hiatt stated that, after the Policy was declared void Jeb Stuart
considered rebuilding the property but failed to do so because it “lacked the financial resources
to finance this construction.” (Id. ¶ 9.) Thus, even after the rescission of the Policy, Jeb Stuart
was still considering repairing or replacing the damaged structure. In light of that admission, it
strains credibility to say that it was the rescission which prevented Jeb Stuart from action.
Jeb Stuart argues that its lack of funds should warrant application of the prevention
doctrine, but it is wrong. Just as in Whitmer v. Graphic Arts Mutual Insurance Co., Jeb Stuart
“can point to no policy provision imposing a duty upon [West American] to tender [Jeb Stuart]
the cash value of [its] property prior to its replacement. Perhaps such a provision would be
advisable, but [the Court] cannot rewrite the policy to so provide.” 242 Va. 349, 356 (1991).
Nothing in the Policy entitles Jeb Stuart to any proceeds under Paragraph C.1 of the FBV prior to
completion of the construction of a replacement building. Under that section, one of the possible
measures of damages is the amount that the insured “actually spends,” an amount that may only
be determined once repair or replacement is complete. Because the lack of proceeds under the
Policy was Jeb Stuart’s sole reason for not contracting for repair or replacement, the prevention
doctrine has no applicability.
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Jeb Stuart’s reliance on Zaitchick v. American Motorists Insurance Co. is similarly
misplaced. The policy at issue in that case contained a provision which permitted an insured to
recover “necessary funds to begin rebuilding their home, and subsequently upon completion of
the construction, obtain additional amounts up to the replacement value.” Zaitchick v. Am.
Motorists Ins. Co., 554 F. Supp. 209, 217 (1982). There is no such provision in Jeb Stuart’s
policy, and West American’s refusal to pay up front is irrelevant.
The same is true of Jeb Stuart’s argument that West American was obliged to turn over
the appraisal it commissioned while attempting to determine the functional replacement cost.
Although the Policy does leave the value determination to West American, nothing in the Policy
establishes that Jeb Stuart had a right to consider West American’s internal information when
making its decision. While it is true it would have made Jeb Stuart’s decision easier, and it may
have been a beneficial provision to have in the Policy, the fact is that “[t]here is no policy
provision to support this contention, and it is simply irrelevant.” Whitmer, 242 Va. at 356.
Contrary to Jeb Stuart’s argument, this case falls squarely within the decision announced
in Whitmer. Without capital, Jeb Stuart was unable (and unwilling) to contract for repair and
replacement. 1 West American’s rescission of the Policy, while unfortunate, was not a motivating
factor in Jeb Stuart’s decision not to rebuild. The Record is devoid of evidence to support a
contrary position. 2
Because West American’s actions did not hinder performance of the condition, Jeb Stuart
is limited to damages under Paragraph C.2 of the Policy. At oral argument, West American
1
Robin Hiatt admitted in his affidavit that Jeb Stuart could not afford to build a replacement building (see
Hiatt Aff. ¶ 6) and was unwilling to incur debt to do so (id. ¶ 7).
2
There is one sentence of Robin Hiatt’s affidavit that lays the blame at West American’s feet (see id. ¶
11), but that conclusory statement is devoid of further factual support in the Record. It is, at best, the
“scintilla of evidence” that Rule 56 is meant to weed out. See Scott v. Harris, 550 U.S. 372, 380 (2007).
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conceded that Jeb Stuart is entitled to damages in addition to the market value of the damaged
building (which included, among other things, damages for destroyed personal property).
Therefore, the parties are instructed to tender to the Court a stipulation as to the total damages to
which Jeb Stuart is entitled under Paragraph C.2. If the parties are unable to agree on the
calculation of damages, they are to contact the Court’s scheduling deputy to set this matter for
trial on the sole issue of damages under Paragraph C.2 of the FBV.
IV.
CONCLUSION
Based on the Record before me, West American’s rescission of the Policy did not hinder
Jeb Stuart from contracting to replace the damaged property, a condition precedent to certain
damages. The evidence establishes that Jeb Stuart’s lack of capital prevented it from contracting
for replacement. Summary judgment is appropriate, and Jeb Stuart is not excused from the
applicable conditions precedent. Because it did not contract for repair or replacement within the
allotted time, it is limited to damages under Paragraph C.2 of the FBV.
The clerk is instructed to forward a copy of this Memorandum Opinion and
accompanying Order to all counsel of record.
Entered this 1st day of October, 2015.
s/Jackson L. Kiser
SENIOR UNITED STATES DISTRICT JUDGE
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