Wells Fargo Bank v. Allstate Ins. Co.

• Court: Court of Appeals for the Sixth Circuit
• Decided: August 22, 2019
• Docket: 18-4206
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 19a0447n.06

Case No. 18-4206

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED Aug 22, 2019 WELLS FARGO BANK, N.A., ) DEBORAH S. HUNT, Clerk ) Plaintiff-Appellee, ) ) ON APPEAL FROM THE v. ) UNITED STATES DISTRICT ) COURT FOR THE NORTHERN ALLSTATE INSURANCE COMPANY, ) DISTRICT OF OHIO Defendant-Appellant. )

OPINION

BEFORE: SUTTON, McKEAGUE, and KETHLEDGE, Circuit Judges.

McKEAGUE, Circuit Judge. Wells Fargo Bank owned an insurance policy on an

abandoned home that an arsonist set ablaze. Allstate Insurance Company refused to indemnify

Wells Fargo for the loss, relying on a policy exclusion for damage caused by “vandalism or

malicious mischief” after the property has been vacant for more than 30 days. Wells Fargo sued,

arguing that other policy provisions confirm that fire damage is considered distinct from vandalism

or malicious mischief. The district court agreed with Wells Fargo and entered summary judgment

in its favor. We AFFIRM.

I

The facts leading to this insurance-coverage dispute and the policy provisions that govern

the result are straightforward. Case No. 18-4206, Wells Fargo Bank, N.A. v. Allstate Ins. Co.

Our story begins with Antoniano Delsignore, though his role is limited. In September

2010, Delsignore took out a mortgage from Wells Fargo on his home in Poland, Ohio. Delsignore

purchased a homeowner’s insurance policy from Allstate, with Wells Fargo listed as the insured

mortgagee. Delsignore defaulted in 2013, and Wells Fargo foreclosed.

In February 2014, an unknown arsonist set fire to the property. Wells Fargo filed a claim

with Allstate for the damage caused by the arson. Allstate denied the claim under a provision in

the policy that excludes coverage for damage caused by vandalism or malicious mischief if the

loss occurs after the property has been vacant or unoccupied for more than 30 consecutive days.

The homeowner’s policy provides coverage in three parts: (1) dwelling protection, (2) other

structures protection, and (3) personal property protection. The only one directly at issue here is

dwelling protection, specifically a provision excluding coverage for loss “consisting of or caused

by”:

6. Vandalism or Malicious Mischief if your dwelling is vacant or unoccupied for more than 30 consecutive days immediately prior to the vandalism or malicious mischief.

The terms “vandalism” and “malicious mischief” are not defined, but Allstate determined that

arson fell within them and thus denied Wells Fargo’s claim under the exclusion.

Looking elsewhere in the policy, the district court concluded otherwise. Mindful that

isolated terms in a contract should be interpreted with an eye toward a coherent whole, the district

court examined the coverage and exclusions for personal property. Because loss resulting from

“fire” was specifically addressed there, even though a similar “vandalism or malicious mischief”

provision was present, the district court concluded that arson could fit within the fire provision just

as easily as it could within the vandalism or malicious mischief provision. That made it unclear

whether damage resulting from arson (a fire, after all) fell under the “vandalism or malicious

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mischief” exclusion for dwelling protection. The district court found further support for Wells

Fargo’s position in the policy’s arson-reward provision, which discusses arson in connection with

a fire loss, not a vandalism loss. Accordingly, the district court granted summary judgment to

Wells Fargo.

Allstate appealed, but the appeal was premature, as the district court had yet to address

Wells Fargo’s demand for breach-of-contract damages. Because the district court’s grant of

summary judgment did not constitute a final judgment under 28 U.S.C. § 1291, we dismissed the

appeal for lack of jurisdiction. See Wells Fargo Bank, N.A. v. Allstate Ins. Co., 735 F. App’x 208

(6th Cir. 2018). On remand, the parties jointly stipulated to a damages figure, and the district court

again entered judgment in favor of Wells Fargo.

Allstate again appeals the district court’s grant of summary judgment.

II

A. Standard of Review

First, some preliminaries. We review the district court’s summary judgment order de novo.

Lexicon, Inc. v. Safeco Ins. Co. of Am., 436 F.3d 662, 667 (6th Cir. 2006). Summary judgment is

proper where “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). In reviewing a motion for summary judgment,

we must view the evidence in the light most favorable to the non-moving party. Escher v. BWXT

Y-12, LLC, 627 F.3d 1020, 1025 (6th Cir. 2010).

Whether summary judgment was appropriate here turns on the application of Ohio contract

law. Affiliated FM Ins. Co. v. Owens-Corning Fiberglas Corp., 16 F.3d 684, 686 (6th Cir. 1994)

(applying state substantive law on exercise of diversity jurisdiction). “An insurance policy is a

contract whose interpretation is a matter of law” for judges, not juries, to decide. Sharonville v.

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Am. Emp. Ins. Co., 846 N.E.2d 833, 836 (Ohio 2006). While Ohio courts have not confronted the

question whether arson is categorically encompassed by “vandalism or malicious mischief,” Ohio

law’s interpretive principles guide us to the answer in this case. “[W]ords and phrases used in an

insurance policy must be given their natural and commonly accepted meaning,” Gomolka v. State

Auto. Mut. Ins. Co., 436 N.E.2d 1347, 1348 (Ohio 1982), “unless another meaning is clearly

apparent from the contents of the policy,” Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256, 1261

(Ohio 2003). Put differently, if words carry some “special meaning manifested in the contractual

context,” that understanding trumps the man-on-the-street’s. Gomolka, 436 N.E.2d at 1351.

Accordingly, the meaning of a disputed contract term “must be derived . . . from the instrument as

a whole, and not from detached or isolated parts thereof.” Id. In the end, if we cannot ascertain

the parties’ intended meaning and the disputed term remains “reasonably susceptible of more than

one interpretation,” the ambiguity “will be construed liberally in favor of the insured.” Laboy v.

Grange Indem. Ins. Co., 41 N.E.3d 1224, 1227 (Ohio 2015).

B. Analysis

We begin with the words themselves, Sunoco, Inc. (R & M) v. Toledo Edison Co., 953

N.E.2d 285, 293 (Ohio 2011), though they leave us at an unhappy impasse. On the one hand, as

Allstate urges, the “usually accepted meanings of the words used” suggest arson should qualify as

vandalism.1 Black’s Law Dictionary (11th ed. 2019) defines arson as the “malicious burning of

someone else’s dwelling house . . . .” The same source defines vandalism as the “[w]illful or

ignorant destruction of public or private property.” Webster’s Third New International Dictionary

(1986), meanwhile, defines arson as “the willful and malicious burning of or attempt to burn any

building, structure, or property of another.” It defines “vandalism” as the “willful or malicious

1 Allstate does not argue that arson constitutes “malicious mischief,” but rather focuses its argument exclusively on “vandalism.”

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destruction or defacement of things of beauty or of public or private property.” If vandalism is, at

bottom, the intentional destruction of property, arson seems like one (particularly pernicious) way

to accomplish that objective.

On the other hand, when someone intentionally sets fire to the property of another, would

anyone—especially those steeped in legal parlance, like the lawyers who drafted this insurance

contract—characterize that act as “vandalism”? Probably not. We have a well-established term

of art for that: arson. Contrast arson with other, archetypal acts of vandalism. A rebellious youth

throwing a brick through a window? A small-time gang spray painting a train car? Some bored

teenagers “toilet-papering” their math teacher’s house? “Vandalism” would roll off our tongues.

Yet that word would be far from the first to describe the act of burning down a person’s dwelling.

Indeed, we think one would describe arson as vandalism about as regularly as one would call

murder a battery—which is to say almost never. Though the former act in each instance cannot

be completed without the latter, that does not mean one would interchange the terms in everyday

speech. This points up the difficulty in deciding this case on the words alone.

So we broaden our search for connotative clues. Gomolka, 436 N.E.2d at 1351 (instructing

courts to define contract terms by reading the “instrument as a whole”). Like the district court, we

find two bits of context crucial. The first is that the policy’s personal property coverage section

lists fire loss separately from loss caused by vandalism or malicious mischief. Wells Fargo

contends that if the vandalism term did not subsume fire damage in that section of the policy, it

cannot do so for the dwelling coverage at issue here. The second contextual feature is the policy’s

arson-reward provision, which contains the policy’s lone mention of “arson,” but does so in

connection with fire (not vandalism or malicious mischief) loss. The first piece of context dampens

Allstate’s plain-meaning argument; the second drowns it out altogether. We consider each in turn.

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Because the meaning of disputed terms must be determined from the contract as a whole,

Gomolka, 436 N.E.2d at 1351, identical terms should ordinarily have the same meaning throughout

the contract. Here, Wells Fargo notes that the “vandalism or malicious mischief” term appears in

both the personal property and dwelling sections of the policy. Yet the personal property section—

a “named-peril” section—separately lists fire loss. Wells Fargo argues, and the district court

agreed, that the separate treatment of fire and vandalism informs the meaning of the vandalism

exclusion for the dwelling protection section of the policy. If “fire” and “vandalism or malicious

mischief” are treated as separate phenomena for the purposes of personal property coverage, the

argument goes, they ought to be treated separately for the purposes of dwelling protection. Or put

more precisely, if “vandalism or malicious mischief” doesn’t encompass all fires in one section of

the policy, it cannot capture all fires in another section of the policy. Were it otherwise, the

policy’s separate listing of fire and vandalism loss would be superfluous. Affiliated FM Ins. Co.,

16 F.3d at 686 (“In construing a contract, a court . . . must give meaning to every paragraph, clause,

phrase and word, omitting nothing as meaningless, or surplusage.”). But that not all fires are

vandalism is an obvious point. The more essential takeaway from the policy’s separate listing of

fire and vandalism is that it presents two potential landing spots for arson, teeing up the question

of which is the more natural fit.

That brings us to the second, and we think decisive, bit of context: the policy’s arson-

reward provision. It contains the policy’s sole reference to arson, and it provides that Allstate will

pay “for information leading to an arson conviction in connection with a fire loss to property

covered under Section I of this policy.” If Allstate were correct that arson should be read as a

subset of “vandalism or malicious mischief”—and not “fire” loss—it is odd that the only mention

of arson in the policy is in connection with a fire loss, and not a vandalism loss. Sunoco, 953

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N.E.2d at 293 (“Under the doctrine of noscitur a sociis, the meaning of an unclear word may be

derived from the meaning of accompanying words.”). If the policy meant what Allstate says it

does—that arson is vandalism—we might expect the arson-reward provision to read “in

connection with a vandalism or malicious mischief loss to property” or avoid categorizing the loss

at all. But it does not; instead, the words around the policy’s lone reference to arson indicate that

arson is at least sometimes, if not always, considered a fire loss. Accord Johnson v. State Farm

Fire & Cas. Co., No. 278267, 2008 WL 4724322, at *4 (Mich. Ct. App. Oct. 28, 2008).

Allstate’s response fails to rekindle its argument. It asserts that the arson-reward provision

“has no bearing on whether arson is to be considered vandalism” since it is “not found in either”

the personal property or dwelling sections of the policy. True enough, but the provision by its

terms applies to all property covered under the policy. And in any event, there is no rule that we

cannot look to policy terms in one section of an insurance policy to inform the meaning of a term

in another section of the policy; just the opposite is true. Gomolka, 436 N.E.2d at 1351 (courts

must interpret contract terms in light of “the instrument as a whole”). Allstate also argues that the

arson-reward provision is irrelevant “due to the fact that there is no coverage for such losses

pursuant to the vandalism and malicious mischief exclusion.” But this merely assumes the

conclusion. Again, the interpretive question we are trying to answer is whether arson is a

vandalism or fire loss under the policy; the fact that the policy’s only mention of arson comes in

the context of a “fire loss” suggests the latter. Finally, Allstate contends that the arson-reward

provision is “not definitional.” We agree, to an extent. This provision is not a categorical

indication that the policy considers arson to be a fire, rather than vandalism, loss. But it is at least

a clue suggesting that interpretation and thus contributes to the policy’s ambiguity on this question.

And ambiguity, remember, is all Wells Fargo must show to prevail in this case.

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One last point. Allstate spends a good deal of its brief discussing the vacancy condition in

the vandalism or malicious mischief provision—the 30-day rule that demarcates when vandalism

loss ceases to be covered. Allstate may be right that the impetus for the vacancy condition is

“common sense.” We do not doubt that abandoned buildings are far more susceptible to vandalism

than occupied ones. Nor do we question the wisdom of insurers disclaiming responsibility for

vandalism to such buildings. We even grant Allstate’s argument that if there is any damage to an

abandoned building an insurer would be worried about, arson’s destructive potential puts it at the

top of the list. But Allstate misses the point. Its argument explains the rationale behind the vacancy

condition, but it does not help us determine whether arson is considered a fire loss or a vandalism

loss under the policy. And at any rate, the fact that arson carries the most destructive potential of

any purported act of vandalism only makes it more confounding that the policy does not more

explicitly account for it. After all, Allstate has proven it knows how to do so. McPherson v.

Allstate Indem. Co., No. 3:11CV638-WHA, 2012 WL 1448049, at *3 (M.D. Ala. Apr. 26, 2012)

(involving policy excluding coverage for “vandalism, or loss caused by fire resulting from

vandalism”); Bethel v. Allstate Indem. Co., No. 11-13664, 2012 WL 1060112, at *2 (E.D. Mich.

Mar. 29, 2012) (same).

Without such clear language, and in light of other indications in the policy that arson could

be considered a fire (not vandalism) loss, we cannot say that the policy unambiguously permits

Allstate to deny coverage for arson under the vandalism exclusion. We are made more certain of

this conclusion given Ohio’s rule of thumb that “an exclusion in an insurance policy [should] be

interpreted as applying only to that which is clearly intended to be excluded.” Sharonville, 846

N.E.2d at 836 (citation and quotations omitted). Instead, the furthest we can go—and what we

hold today—is that the policy is ambiguous with respect to whether this particular arson is a

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covered or excluded loss. This is cold comfort to Allstate, as we must resolve the ambiguity in

favor of the insured, Wells Fargo. See Laboy, 41 N.E.3d at 1227 (noting that words “reasonably

susceptible of more than one interpretation will be construed liberally in favor of the insured”).

III

The district court’s grant of summary judgment to Wells Fargo is affirmed.

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