Hurst et al v. Ohio Security Insurance Company

Filing 28

ORDER DENYING 18 DEFENDANT'S MOTION FOR SUMMARY JUDGMENT. Signed by Judge Stanley A Bastian. (AY, Case Administrator)

FILED IN THE
U.S. DISTRICT COURT
EASTERN DISTRICT OF WASHINGTON

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Jan 16, 2018

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SEAN F. MCAVOY, CLERK

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF WASHINGTON

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8 CHYANNE HURST and KEVIN HURST,
Plaintiffs,

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No. 1:16-cv-03222-SAB

v.

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11 OHIO SECURITY INSURANCE CO., a

ORDER DENYING

12 foreign insurance company,

DEFENDANT’S MOTION FOR

Defendant.

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SUMMARY JUDGMENT

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Before the Court is Defendant’s Motion for Summary Judgment, ECF No.

16 18. The motion was heard without oral argument. Plaintiffs Chyanne and Kevin
17 Hurst are represented by Brian Anderson and Ned Stratton. Defendant Ohio
18 Security Insurance Co. is represented by John Silk and Sarah Eversole.
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Plaintiffs owned a small restaurant located in Grandview, Washington. They

20 purchased the business in June, 2013. A fire burned down the restaurant in
21 November, 2013. The Complaint alleges that Defendant, Plaintiffs’ insurer, “did
22 not pay out benefits due under the policy for Plaintiffs’ damages; commenced an
23 investigation and unreasonably prolonged its investigation, and has continued its
24 investigation without accepting or denying coverage for Plaintiffs’ claim.” ECF
25 No. 1, Ex. 2. Plaintiffs allege they suffered substantial damages in the structure
26 fire, including loss of the building structure, loss of equipment, and loss of
27 income. The fire was investigated by the local police but no criminal charges were
28 ever filed.
ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT ~ 1

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Defendant now moves for summary judgment on all the claims. Defendant

2 asserts it does not have to pay on the insurance policy due to Plaintiffs’ delay and
3 failure to cooperate with the investigation as well as their material
4 misrepresentations and omissions of fact during the insurance investigation. It
5 asserts its conduct was reasonable, and its reliance on the police investigation,
6 which found intentional misrepresentations and omissions of fact, was reasonable
7 to preclude any extra-contractual claims.
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Summary Judgment Motion Standard
Summary judgment is appropriate if the “pleadings, depositions, answers to

10 interrogatories, and admissions on file, together with the affidavits, if any, show
11 that there is no genuine issue as to any material fact and that the moving party is
12 entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). There is no genuine
13 issue for trial unless there is sufficient evidence favoring the nonmoving party for
14 a jury to return a verdict in that party’s favor. Anderson v. Liberty Lobby, Inc., 477
15 U.S. 242, 250 (1986). The moving party has the initial burden of showing the
16 absence of a genuine issue of fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317,
17 325 (1986). If the moving party meets its initial burden, the non-moving party
18 must go beyond the pleadings and “set forth specific facts showing that there is a
19 genuine issue for trial.” Id. at 325; Anderson, 477 U.S. at 248.
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In addition to showing that there are no questions of material fact, the

21 moving party must also show that it is entitled to judgment as a matter of law.
22 Smith v. University of Washington Law School, 233 F.3d 1188, 1193 (9th Cir.
23 2000). The moving party is entitled to judgment as a matter of law when the non24 moving party fails to make a sufficient showing on an essential element of a claim
25 on which the nonmoving party has the burden of proof. Celotex, 477 U.S. at 323.
26 The non-moving party cannot rely on conclusory allegations alone to create an
27 issue of material fact. Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 1993).
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ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT ~ 2

When considering a motion for summary judgment, a court may neither

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2 weigh the evidence nor assess credibility; instead, “the evidence of the non3 movant is to be believed, and all justifiable inferences are to be drawn in his
4 favor.” Anderson, 477 U.S. at 255.
Background Facts

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For purposes of this motion, the Court construes the facts in the light most

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7 favorable to Plaintiffs, the non-moving party.
Plaintiffs purchased a drive-in restaurant, located in Grandview,

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9 Washington in June, 2013. They put $10,000 down, made monthly payments, and
10 also had scheduled balloon payments. The drive-in ran a brisk business in the
11 summer and especially on the weekends. Business was a little slow in the fall and
12 winter. According to Plaintiffs’ counsel, it was a landmark and he had eaten there
13 many times. The drive-in also served espresso and coffee.
On November 22, 2013, a fire broke out in the restaurant. Luckily, no one

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15 was in the building when the fire started. Ultimately, the fire was ruled
16 accidental—most like caused by the use of propane heaters. On the evening of the
17 fire, Plaintiff Chyanne Hurst closed up the restaurant and drove her employee
18 home. When she came back, the building was on fire and several explosions
19 erupted. She had been gone only a few minutes. She returned to the drive-in to
20 count the money, finishing cleaning, and close up shop. She had even left her
21 purse at the restaurant.
Plaintiffs contacted Defendant, who issued their insurance policy, to start

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23 the process for submitting a claim. Plaintiff Chyanne Hurst spoke with David
24 Bjorkund on November 25, 2013. She indicated she had “$10 to $12k in sales a
25 month. $500 in profit a week.” ECF No. 22-1. Mr. Bjorklund appears to have
26 concluded that the Custom Protector Endorsement, which would cover loss of
27 business income, did not apply to Plaintiffs’ claim.
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ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT ~ 3

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On December 6, 2013, Richard Thompson, an employee of Defendant,

2 informed Plaintiffs that there was no business income coverage.
3 On December 11, 2013, Plaintiffs executed an “Authorization to Obtain
4 Information and/or Inspect Property,” relating to Claim number 23020660. ECF
5 No. 22-1.
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Meanwhile, Officer Glasenapp of the Grandview Policy Department began

7 an investigation into the cause of the fire. While arson was ruled out, he became
8 convinced that Plaintiffs were committing fraud by inflating their business income
9 and by claiming that certain items were lost, including money, an Ipod, and a
10 surround stereo system. It is not clear whether Officer Glasenapp had any
11 experience in investigating fires. Also, it appears that Officer Glasenapp believed
12 Plaintiffs were claiming lost profits in the amount of $24,000 for the first couple
13 of months, then $12,000 after that, rather than the $500 a week as explained to Mr.
14 Bjorklund.
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Beginning in January, 2014, Defendant wrote monthly letters to Plaintiffs

16 seeking additional information before it would make a decision on their claim.
17 Defendants wanted to conduct an Examination under Oath (EUO) and wanted
18 Plaintiffs to provide the following information: 1. Copies of individual and
19 business tax returns for 2011, 2012, and 2013; 2. Copies of credit card statements
20 from May, 2013 to present; 3. Copies of bank statements for each bank account
21 from May, 2013 to present; 4. Current paystub showing current income; 5. Final
22 inventory related to items claiming; 6. Copies of cell phone records for November,
23 2013 and December, 2013; 7. Copies of all records from accountant related to
24 purchase and operation of L & L Drive-in; 8. Any and all additional documents
25 and information believed to be relevant to the investigation not previously
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Plaintiffs never responded to the letters. In September, 2014, Plaintiffs

28 obtained counsel and counsel began to communicate with Defendants regarding
ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT ~ 4

1 the requested information and the scheduling of the EUO. The EUO took place in
2 December, 2015. After the EUO, Defendant sent numerous letters to Plaintiffs’
3 counsel seeking the following: 1. Return of the properly executed EUO
4 certification pages; 2. Executed release documents to gather the additional
5 information previously requested in December, 2015; and 3. Completed and
6 executed Authorization to Obtain Information forms that were sent in May, 2016.
7 Ultimately, Defendant denied the claim.
Analysis

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Here, there are genuine questions of material fact regarding whether

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10 Plaintiffs made material misrepresentations, whether an EUO was justified, and
11 whether Plaintiffs substantially complied with the insurance investigation. A
12 reasonable fact finder could find that Plaintiffs provided accurate information
13 regarding their loss of business income and Defendant gave the wrong information
14 to Officer Gasenapp, or at the minimum, Officer Gasenapp heard the wrong
15 information and relied on it for his conclusions. Even in that situation, Defendant
16 should have known that Officer Gasenapp was operating under false facts. Rather
17 than correct Officer Glasenapp’s false conclusions, however, it now wants to rely
18 on those conclusions to deny coverage. A fact finder could easily conclude that
19 that was not reasonable. Moreover, there are genuine issues of material fact
20 regarding whether Defendant’s requests for an EUO and related documents was
21 reasonable, and whether Defendant was prejudiced by any alleged delay. See
22 Staples v. All State, 176 Wash.2d 404 (2013).
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ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT ~ 5

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Accordingly, IT IS ORDERED:

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1. Defendant’s Motion for Summary Judgment, ECF No. 18, is DENIED.

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IT IS SO ORDERED. The District Court Clerk is hereby directed to enter

4 this Order and to provide copies to counsel.
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DATED this 16th day of January 2018.

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Stanley A. Bastian

United States District Judge

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ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT ~ 6