Park Avenue North LLC v. Travelers Casualty Insurance Company of America

• Court: District Court, D. Arizona
• Decided: March 13, 2024
• Docket: 2:21-cv-01508
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8

Park A venue North LLC, ) No. CV-21-01508-PHX-SPL ) 9 ) 10 Plaintiff, ) ORDER vs. ) ) 11 ) Travelers Casualty Insurance Company ) 12 of America, ) 13 ) ) 14 Defendant. )

15 Before the Court are Defendant’s Motion for Summary Judgment (Doc. 96), 16 Defendant’s Separate Statement of Facts in Support of Motion for Summary Judgment 17 (Doc. 97), Plaintiff’s Motion for Partial Summary Judgment Regarding Defendant’s 18 Liability for Breach of Contract (Doc. 98), and Plaintiff’s Statement of Material Facts in 19 Support of its Motion for Partial Summary Judgment (Doc. 99). The Motions have been 20 fully briefed and are ready for consideration.1 (Docs. 102, 103, 104, 105, 108, 109). The 21 Court rules as follow. 22 I. BACKGROUND 23 On May 31, 2019, Plaintiff’s commercial property located at 212, 228, and 242 24 South Park Avenue, Tucson, Arizona 85719 (the “Property”) was substantially damaged 25 by a fire. (Doc. 1-3 at ¶¶ 5, 8). At the time of the fire, the Property was insured by 26

27 1 Because it would not assist in resolution of the instant issues, the Court finds the pending motion is suitable for decision without oral argument. See Fed. R. Civ. P. 78(b); 28 Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 Defendant. (Doc. 1-3 at ¶¶ 6–7). The Businessowners Policy (the “Policy”) provided 2 replacement cost coverage for damage to the Property for up to $1,346,498. (Doc. 96 at 2; 3 Doc. 96-3 at 6). The Policy provides in part that: 4. Loss Payment – Building and Personal Property 4

5 e. We will determine the value of Covered Property in the event of covered loss or damage as follows: 6

7 (1) At replacement cost (without deduction for depreciation), except as provided in Paragraphs (2) through (18) below. 8 9 (a) You may make a claim for loss or damage covered by this insurance on an actual cash value basis instead of on a 10 replacement cost basis. In the event you elect to have loss or 11 damage settled on an actual cash value basis, you may still make a claim on replacement cost basis if you notify us of your 12 intent to do so within 180 days after the loss or damage.

13 (b) We will not pay on a replacement cost basis for any loss or 14 damage: (i) Until the lost or damage property is actually repaired or 15 replaced; and 16 (ii) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage. 17

18 (c) We will not pay more for loss or damage on a replacement cost basis than the least of Paragraph (i), (ii) or (iii) subject to 19 Paragraph (d) below: 20 (i) The Limit of Insurance applicable to the lost or damaged property: 21 (ii) The cost to replace the lost damaged property with other 22 property: a) Of comparable material and quality; and 23 b) Used for the same purpose; or 24 (iii) The amount actually spent that is necessary to repair or replace the lost or damaged property. 25 If a building is rebuilt at a new premises, the cost described in 26 Paragraph (ii) above is limited to the cost which would have 27 been incurred if the building had been rebuilt at the original premises. 28 1 (d) The cost of repair or replacement does not include the 2 increased cost attributable to enforcement of any ordinance or law regulating the construction, use or repair of any property. 3 (Doc. 96-3 at 108). 4 Under the Policy, Plaintiff was entitled to collect the actual cash value (“ACV”) of 5 the covered damages prior to starting any repairs to the Property, and the replacement cost 6 value (“RCV”) after the repairs were completed. (Doc. 96-3 at 107–08). 7 After Plaintiff reported the fire loss, Defendant accepted coverage and began 8 investigating the extent of the damage. (Doc. 96 at 4; Doc. 102 at 3). Defendant hired a 9 structural engineer and a building consultant to assist with identifying the scope and cost 10 of repairs. (Id.). On June 10, 2019, Defendant’s claims adjuster and consultants conducted 11 a site inspection and negotiated the scope of the necessary repairs with Plaintiff’s public 12 adjuster and general contractor. (Id.). This initial inspection occurred prior to the removal 13 of any fire damage debris and any material demolition to the Property. (Doc. 102 at 3). On 14 July 29, 2019, Defendant issued Plaintiff a payment of $315,647.43 which represented the 15 undisputed ACV of the damage to the Property. (Doc. 1-3 at ¶ 17; Doc. 96-9). 16 Thereafter, upon receiving additional information about the cost of repairs, 17 Defendant revised the RCV and the ACV three times.2 (Doc. 96 at 4). On September 12, 18 2019, Defendant estimated the RCV at $678,018.51, and the ACV at $396,803.59. (Doc. 19 96-6 at 20). On September 30, 2019, Defendant estimated the RCV at $636,438.51, and 20 the ACV at $445,959.07. (Doc. 96-7 at 20). On October 31, 2019, Defendant issued 21 Plaintiff a final estimate that included a proposed plan for reconstruction, and it estimated 22 the RCV at $638,014.38 and the ACV at $447,534.94. (Doc. 96-8 at 20). Plaintiff’s general 23 contractor, however, agreed to reconstruct the property in accordance with Travelers’ 24 September 12, 2019 estimate for $678,018.51. (Doc. 96 at 5; Doc. 96-12). As of October 25

26 2 The repair estimates define the RCV as the estimated cost of repairing or replacing 27 an item with a similar one. (Docs. 96-6, 96-7, 96-8). The ACV is defined as the estimated value of the damage at the time of the loss. (Id.). The ACV is calculated by subtracting the 28 depreciation from the RCV. (Id.). 1 31, 2019, Defendant paid Plaintiff a total of $446,534.94 which represented the total ACV 2 less Plaintiff’s $1,000 deductible. (Doc. 96 at 5). 3 After removing debris and completing initial demolition work, Plaintiff’s general 4 contractor “discovered that additional work would be needed to complete the repairs 5 described in [Defendant’s] estimate.” (Doc. 102 at 3–4). So, on August 9, 2020, Plaintiff’s 6 contractor gathered photographs of the work underway and prepared a supplemental 7 estimate listing additional repairs that totaled to $286,540.94 (the “August Supplement”). 8 (Doc. 96 at 5; Doc. 102 at 3–4). On September 25, 2020, Defendant rejected most of the 9 items listed in the August Supplement because those items reflected a method of 10 construction that differed from the photographs. (Doc. 96 at 8). Defendant determined that 11 the bulk of the work described in the August Supplement was not necessary and concluded 12 that the RCV was $681,516.62 and the ACV was $484,661.86. (Doc. 108 at 3; Doc. 96- 13 16). Thus, Defendant issued Plaintiff an additional payment of only $37,126.92 to cover 14 the additional undisputed ACV costs. (Id.). 15 Ultimately, Plaintiff disagreed with Defendant’s method for reconstructing the 16 Property and completed the repairs following its general contractor’s method of 17 construction. (Doc. 102 at 4–5). On October 12, 2020, after the repairs were completed, 18 Plaintiff’s contractor prepared another supplemental estimate showing that it would cost 19 an additional $227,614.60 (the “October Supplement”) to complete the repairs at the 20 Property. (Doc. 102 at 4). Defendant, however, rejected the October Supplement in its 21 entirety and concluded that “[it] was identical to the August [Supplement] and was nothing 22 more than a hypothetical estimate for work that was not necessary and never actually 23 done.” (Doc. 96 at 7). In total, Plaintiff claims that the cost to complete all the necessary 24 repairs totaled to $924,361.22. (Doc. 102 at 4). Defendant disputes that Plaintiff paid this 25 amount and argues that Plaintiff paid its contractor no more than $674,944.02. (Doc. 96 at 26 8; Doc. 96-20). 27 On October 20, 2020, Plaintiff’s public adjuster provided Defendant with a copy of 28 the October Supplement to collect the depreciation holdback. (Doc. 96 at 7–8; Doc. 102 at 1 4–5). On November 9, 2020, Defendant paid Plaintiff for the undisputed depreciation 2 holdback but declined to pay any additional costs. (Doc. 96 at 8). The total RCV paid to 3 Plaintiff for the claim was $691,643.02. (Doc. 96 at 8). 4 On February 2, 2021, Plaintiff invoked the appraisal provision of the Policy to 5 resolve the parties’ dispute about value of the loss. (Doc. 102 at 5). In response, on February 6 22, 2021, Defendant requested that Plaintiff provide information regarding the amount 7 expended on the completed repairs to confirm whether there was a dispute. (Doc. 96 at 8). 8 On February 23, 2021, Plaintiff moved forward with the appraisal process unilaterally 9 without providing the requested information. (Id.). On March 1, 2021, Defendant made a 10 second request for Plaintiff to show whether the cost of repairs exceeded the payments 11 Defendant had already paid. (Id.). Plaintiff claims that Defendant breached the Policy by 12 failing to participate in the appraisal process. (Doc. 102 at 5–6). 13 On May 28, 2021, Plaintiff initiated this action against Defendant in Maricopa 14 County Superior Court. (Doc. 1-3). On July 30, 2021, Plaintiff filed the operative First 15 Amended Complaint alleging claims for breach of insurance contract, breach of implied 16 duty of good faith and fair dealing, and tortious bad faith claims handling. (Id.). On 17 September 2, 2021, Defendant removed the case to this Court. (Doc. 1). 18 On August 29, 2023, Defendant filed its Motion for Summary Judgment. (Doc. 96). 19 On August 30, 2023, filed its Motion for Partial Summary Judgment. (Doc. 98). The 20 motions have been fully briefed. 21 II. LEGAL STANDARD 22 Summary judgment is appropriate if “the movant shows that there is no genuine 23 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 24 Fed. R. Civ. P. 56(a). A party seeking summary judgment always bears the initial burden 25 of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 26 477 U.S. 317, 323 (1986). The moving party can satisfy its burden by demonstrating that 27 the nonmoving party failed to make a showing sufficient to establish an element essential 28 to that party’s case on which that party will bear the burden of proof at trial. Id. When 1 considering a motion for summary judgment, a court must view the factual record and draw 2 all reasonable inferences in a light most favorable to the nonmoving party. Leisek v. 3 Brightwood Corp., 278 F.3d 895, 898 (9th Cir. 2002). When parties file cross-motions for 4 summary judgment, the court must review each motion separately, giving the nonmoving 5 party for each motion the benefit of all reasonable inferences. Eat Right Foods Ltd. v. 6 Whole Foods Mkt., Inc., 880 F.3d 1109, 1118 (9th Cir. 2018). 7 III. DISCUSSION 8 Plaintiff and Defendant move for summary judgment with respect to Plaintiff’s 9 claim that Defendant failed to adhere to the terms of the Policy. (Docs. 96, 98). Plaintiff 10 seeks partial summary judgment and asks the Court to find as a matter of law that 11 Defendant is liable for breaching the appraisal provision of the Policy. (Doc. 98). In turn, 12 Defendant maintains that it complied with all provisions of the Policy and moves to dismiss 13 each of Plaintiff’s claims. (Doc. 96). The Court will address each issue individually. 14 A. Breach of Insurance Contract 15 Both parties move for summary judgment on the merits of Plaintiff’s breach of 16 contract claims. The parties agree that Arizona law governs the breach of contract claims. 17 “To state a cause of action for breach of contract, the Plaintiff must plead facts alleging (1) 18 a contract exists between the plaintiff and defendant; (2) the defendant breached the 19 contract; and (3) the breach resulted in damage to plaintiff.” Little v. Grand Canyon Univ., 20 516 F. Supp. 3d 958, 964 (D. Ariz. 2021) (internal citations omitted). It is undisputed that 21 a contract exists, therefore, the dispositive issues are whether Defendant committed a 22 breach that would entitle Plaintiff to damages. 23 i. Failure to Pay Full Benefits of the Policy 24 Plaintiff alleges that Defendant breached the Policy by “fail[ing] to make payments 25 properly owed under the Policy.” (Doc. 1-3 at ¶ 41). To allege a breach due to 26 underpayment in an insurance contract claim, Plaintiff must provide “evidence from which 27 a trier of fact could find that [it] incurred repair costs above the payment [it] received.” See 28 Bond v. Am. Fam. Mut. Ins. Co., No. CV-06-1249-PHX-DGC, 2008 WL 477873, at *2 (D. 1 Ariz. Feb. 19, 2008). Here, Defendant argues that “[t]o date, there has been no evidence 2 produced that Park Avenue spent more to repair the Property than the amount Travelers 3 paid.” (Doc. 96 at 13 (emphasis added)). But the parties openly dispute whether the October 4 Supplement can be used as evidence to show that Plaintiff’s claim was underpaid. 5 Defendant claims that the October Supplement “represents the cost of a hypothetical repair 6 methodology that was never utilized to repair the Property.” (Doc. 96 at 13). Whereas 7 Plaintiff argues that Defendant “accepted the [October Supplement] in the amount of 8 $924,361.22 as proof of the amount paid or owed by Plaintiff for the repairs to the 9 [P]roperty.” (Doc. 102 at 5). Plaintiff further argues that it informed Defendant that the 10 October Supplement was the invoice for the total costs incurred and because Defendant 11 refused to pay the total invoice Plaintiff owes its general contractor the remaining balance. 12 (Doc. 103 at 14; Doc. 103-7 at 2; Doc. 103-5 at 16). Therefore, Plaintiff has presented some 13 evidence to show that it incurred additional costs, and Defendant’s assertion that “[i]t is 14 undisputed that the [October Supplement] does not represent the amount actually incurred 15 for repairs” is false. (Doc. 96 at 13). Undoubtably, there is a genuine dispute regarding 16 whether Plaintiff incurred costs that exceeded the payments it received from Defendant. 17 See Craten v. Foster Poultry Farms Inc., 305 F. Supp. 3d 1051, 1054 (D. Ariz. 2018) (“A 18 fact is material if it might affect the outcome of the case, and a dispute is genuine if a 19 reasonable jury could find for the nonmoving party based on the competing evidence.”). 20 Accordingly, whether Defendant breached the Policy by failing to pay Plaintiff its full 21 benefit under the Policy is a question of fact for the jury to decide. 22 ii. Failure to Submit to Appraisal 23 Plaintiff argues that it is entitled to summary judgment as a matter of law because it 24 is undisputed that Defendant failed to participate in the appraisal process. (Doc. 98 at 7– 25 8). However, Defendant argues that it did not have to proceed with Plaintiff’s demand for 26 appraisal because Plaintiff did not have a right to invoke the appraisal provision. (Doc. 104 27 at 8–10). Whether Defendant had an obligation to submit to Plaintiff’s appraisal request is 28 a question of contract interpretation. “[T]he interpretation of a contract is a matter of law, 1 and a contract must be construed so that every part is given effect.” SiteLock LLC v. 2 GoDaddy.com LLC, 562 F. Supp. 3d 283, 308 (D. Ariz. 2022). Arizona courts “construe 3 provisions in [insurance] contracts according to their plain and ordinary meaning.” First 4 Am. Title Ins. Co. v. Johnson Bank, 372 P.3d 292, 294 (Ariz. 2016). “If a policy is subject 5 to conflicting reasonable interpretations, it is ambiguous . . . .” Teufel v. Am. Fam. Mutual 6 Ins. Co., 419 P.3d 546, 548 (Ariz. 2018) (internal quotation marks omitted). To resolve an 7 ambiguity, courts first “look[ ] to legislative goals, social policy, and the transaction as a 8 whole.” First Am. Title Ins. Co. v. Action Acquisitions, LLC, 187 P.3d 1107, 1110 (Ariz. 9 2008). “If an ambiguity remains, we construe it against the insurer . . . .” Teufel, 419 P.3d 10 at 548. 11 The Court interprets the contract by reading it as a whole, see Tech. Constr., Inc. v. 12 City of Kingman, 278 P.3d 906, 911 (Ariz. Ct. App. 2012), but the appraisal provision in 13 the Policy is particularly relevant in this case. The “Appraisal” provision states in relevant 14 part: If we and you disagree on the value of the property, the amount 15 of Net Income and operating expense or the amount of loss, 16 either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial 17 appraiser. The two appraisers will select an umpire. If they 18 cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state 19 separately the value of the property, the amount of Net Income 20 and operating expense or the amount of loss. If they fail to agree, they will submit their differences to the umpire. A 21 decision agreed to by any two will be binding. Each party will: 22 a. Pay its chosen appraiser; and 23 b. Bear the other expenses of the appraisal and umpire equally.

24 If there is an appraisal, we will still retain our right to deny the 25 claim. 26 (Doc. 96-3 at 106). Reading the contract as a whole, the Court finds that it unambiguously 27 provides that Plaintiff is entitled to make a written request for an appraisal of the loss if the 28 parties disagree on the amount of the loss. 1 Defendant contends that Plaintiff had no right to invoke the Appraisal provision 2 because the parties did not disagree as to the amount of the loss and Plaintiff failed to 3 submit documentation showing a disagreement. (Doc. 104 at 9–10). But, according to the 4 briefings, the parties disagreed on whether the repairs listed in the August and October 5 supplemental estimates were necessary to restore the property. (Doc. 96 at 7, 11–12; 6 Doc. 102 at 3–5). So, in other words, the parties disagreed as to the amount of the loss 7 because the supplemental estimates increased the overall cost of the claim. Defendant also 8 argues that because Plaintiff has not paid its contractor the full invoice price there is no 9 disagreement as to the amount of the loss. (Doc. 108 at 6). This argument fails—Plaintiff 10 claims that it still owes its contractor an outstanding balance. (Doc. 102 at 6). Thus, 11 pursuant to the terms of the Policy, Plaintiff was entitled to request an appraisal. 12 The Court also rejects Defendant’s argument that it was precluded from “fairly 13 inspecting and evaluating” the additional damages because Plaintiff waited to invoke the 14 Appraisal provision until after the repair work was already completed. (Doc. 104 at 10). In 15 its briefing, Defendant admitted that “aside from some credits for certain line items, the 16 October [Supplement] was identical to the August [Supplement].” So, Defendant had an 17 opportunity to inspect and evaluate the additional work prior to the completion of repairs 18 when it received the August Supplement. Defendant violated the terms of the Policy by 19 failing to participate in the appraisal process. Accordingly, for the reasons discussed, the 20 Court finds that as a matter of law, Defendant is liable for breaching the Appraisal provision 21 of the Policy. 22 B. Insurance Bad Faith Claim Handling and Implied Duty of Good Faith and 23 Fair Dealing 24 Under Arizona law, “there is a legal duty implied in an insurance contract that the 25 insurance company must act in good faith in dealing with its insured on a claim, and a 26 violation of that duty of good faith is a tort.” Noble v. Nat. Life Ins. Co., 624 P.2d 866, 868 27 (Ariz. 1981) (en banc). To establish a bad faith claim, “‘a[n insured] must show the absence 28 of a reasonable basis for denying benefits of the policy and the [insurer’s] knowledge or 1 reckless disregard of the lack of a reasonable basis for denying the claim.’” Deese v. State 2 Farm Mut. Auto. Ins. Co., 838 P.2d 1265, 1267–68 (Ariz. 1992) (en banc) (quoting Noble, 3 624 P.2d at 866); Creasman v. Farmers Cas. Ins. Co., No. CV-22-01820-PHX-DJH, 2023 4 WL 4533964, at *9 (D. Ariz. July 13, 2023) (“The tort of bad faith only arises when an 5 insurance company intentionally denies or fails to process or pay a claim without a 6 reasonable basis for such action.”) (citation omitted). 7 This test turns on whether the insurer acted reasonable under the circumstances and 8 treated its insureds fairly in evaluating their claims. Deese, 838 P.2d at 1268 (citations 9 omitted). “Although the initial inquiry consists of an objective finding, i.e., whether the 10 insurer acted unreasonably, the second inquiry focuses on the insurer’s conduct and 11 whether the insurer knew that its conduct was unreasonable or acted with such reckless 12 disregard that such knowledge could be imputed to it.” Id. (citing Rawlings v. Apodaca, 13 726 P.2d 565, 573 (Ariz. 1986) (en banc)). 14 Defendant argues that Plaintiff’s bad faith claims do not survive summary judgment 15 because Defendant reasonably investigated the loss and timely paid Plaintiff for all the 16 costs that it incurred. (Doc. 96 at 14). But, as previously discussed, whether Plaintiff 17 incurred additional costs for covered damages is a genuine dispute of material fact. The 18 parties also dispute whether it was unreasonable for Defendant to request additional 19 information prior to submitting to Plaintiff’s demand for appraisal. Thus, Defendant is not 20 entitled to summary judgment respect to these claims because there are genuine disputes 21 of material facts that remain. 22 C. Punitive Damages 23 Defendant argues that it is entitled to summary judgment as to Plaintiff’s punitive 24 damages claim because there is no clear and convincing evidence to show that Defendant 25 acted with an evil mind. “Summary judgment dismissing a punitive damages claim is 26 appropriate in the absence of facts sufficient to show by clear and convincing evidence that 27 the defendant acted with the requisite evil mind.” Purdy as Tr. of Survivors of Jones v. 28 Metcalf in & for Cnty. of Pima, 502 P.3d 36, 40 (Ariz. Ct. App. 2021) (quoting SWC 1 Baseline & Crismon Invs., L.L.C. v. Augusta Ranch Ltd. P’ship, 265 P.3d 1070 (Ariz. Ct. 2 App. 2011). “In a bad faith tort case against an insurance company, punitive damages may 3 only be awarded if the evidence reflects ‘something more’ than the conduct necessary to 4 establish the tort.” Holy Trinity Greek Orthodox Church v. Church Mut. Ins. Co., 476 F. 5 Supp. 2d 1135, 1140 (D. Ariz. 2007) (citation omitted). The Arizona Supreme Court has 6 explained that the requisite of “something more” or “evil mind” is established by producing 7 evidence to show that the defendant either: (1) intentionally caused an injury; (2) 8 committed a wrongful conduct motivated by spite or ill will; or (3) acted to serve its own 9 interests and knowingly and consciously disregarding a substantial risk that its conduct 10 might significantly injure the rights of others, even though defendant had neither desire nor 11 motive to injure. Bradshaw v. State Farm Mut. Auto. Ins. Co., 758 P.2d 1313 (Ariz. 1988). 12 Without more, Plaintiff alleges that Defendant is liable for punitive damages 13 because of its conduct in handling the claim and appraisal demand. (Doc. 102 at 16). As 14 previously discussed, Defendant violated the Policy by refusing to participate in the 15 appraisal process because it believed that Plaintiff did not have a right to invoke the 16 Appraisal provision. It is worth noting, however, that “Plaintiff [must] advance facts 17 additional to those supporting a finding of [] bad faith to prove that [Defendant’s] conduct 18 was willful and knowing, such as evidence of deliberate, overt and dishonest dealings.” 19 See Holy Trinity, 476 F. Supp. 2d at 1141. But Plaintiff has failed to provide any additional 20 facts to support its punitive damages claim. Instead, it makes an idle statement alluding to 21 an unknown issue of fact that entitles it to punitive damages against Defendant. (Doc. 102 22 at 16). Because Plaintiff has not presented clear and convincing evidence to show that 23 Defendant acted with an evil mind, Plaintiff’s claim for punitive damages fails. See 24 Linthicum v. Nationwide Life Ins. Co., 723 P.2d 675, 682 (Ariz. 1986) (“If it had been 25 shown that there was a deliberate ignoring of the [the plaintiff’s] rights and needs, then 26 punitive damages might have been awardable.”). 27 /// 28 /// 1 IV. CONCLUSION 2 In sum, the Court finds that, as a matter of law, Defendant breached the Policy by 3 | failing to participate in the appraisal process. Additionally, the Court grants Defendant’s 4| Motion with respect to Plaintiff's punitive damages claim. But the remaining claims must 5| beresolved at trial by a finder of fact, therefore, Defendant’s Motion is denied with respect 6 | to the remaining claims. Accordingly, 7 IT IS ORDERED that Plaintiff’s Motion for Partial Summary Judgment (Doc. 98) 8 | is granted. 9 IT IS FURTHER ORDERED that Defendant’s Motion for Summary Judgment 10 | (Doc. 96) is granted in part and denied in part. 11 Dated this 12th day of March, 2024. 12 13

15 United States District kudge 16 17 18 19 20 21 22 23 24 25 26 27 28