Greystone Condo. at Blackhawk Owners Ass'n v. AmGuard Ins. Co.

GREYSTONE CONDOMINIUM AT BLACKHAWK OWNERS ASSOCIATION, INC., Plaintiff, v. AMGUARD INSURANCE COMPANY, Defendant.

19-cv-768-slc

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN

January 19, 2021

OPINION AND ORDER

In this civil removal action, plaintiff Greystone Condominium at Blackhawk Owners Association, Inc. (Greystone) asserts causes of action for breach of contract and bad faith against its insurer, AmGUARD Insurance Company, for its alleged mishandling of Greystone's claim for fire-related losses to a building in its condominium development in Middleton, Wisconsin. Before the court are competing summary judgment motions from plaintiff (dkt. 35) and from defendant (dkt. 50).

For the reasons stated below, I am denying both motions with respect to Greystone's claim that AmGUARD failed to investigate and pay the rebuild costs in good faith. The evidence allows for competing inferences that require the court to evaluate the live testimony of the witnesses at trial. Moreover, to prove bad faith, Greystone must establish not only that AmGUARD lacked a reasonable basis for denying the claim, but that AmGUARD knew or recklessly disregarded this fact. Questions of subjective intent generally cannot be resolved on summary judgment. Alexander v. Erie Ins. Exch., 982 F.2d 1153, 1160 (7th Cir. 1993) ("[S]ummary judgment ought to be used sparingly and with great caution . . . where subjective intent is a factor in the determination.").

I am granting AmGUARD's motion for summary judgment (and denying Greystone's) with respect to the bad faith claim concerning the mitigation expenses. Greystone has not adduced sufficient evidence from which a trier of fact could find that AmGUARD's investigation of those expenses was unreasonable.

I am granting summary judgment to AmGUARD on a handful of other freestanding breach-of-contract claims that are patently meritless.

The following facts are undisputed¹:

FACTS

At all relevant times, Greystone owned and operated an eight-building condominium complex in Middleton, Wisconsin. On August 13, 2018, a fire occurred at "Building 1" of the complex. Greystone immediately notified its insurer, AmGUARD, which opened a claim file and assigned it to William Ardoline, a property adjuster who had been with AmGUARD for more than five years. That same day, Ardoline hired an independent adjusting firm, Engle Martin & Associates ("Engle Martin"), to adjust the loss.

Keith Schmelling, an adjuster from Engle Martin, inspected the property the following day. Nearly all of the units in Building 1 had varying degrees of fire or water damage, with Units 2 and 3 being the worst. CAT 5 Restoration, a mitigation contractor, already was on site securing structures and starting the cleanup and restoration process. Ardoline authorized Schmelling to hire J.S. Held, LLC, a building repair expert, to evaluate the scope and repair cost of the fire damaged property.

On September 11, 2018, Greystone hired its own adjuster, Miller, P.A., to represent it in connection with the claim.

On September 19, 2018, Schmelling emailed Ardoline and asked him to "clarify your coverage statement you made to the Public Adjuster," regarding whether AmGUARD would cover the cost of replacing finishes in the units back to original construction or just the drywall with no finishes. Schmelling volunteered his view that AmGUARD's policy "covers ceiling, wall and floor finish out, which includes trim work as well," with the quality of the finish equivalent to that which existed at the time of the original construction, and told Ardoline that if he agreed, then Schmelling would convey this to JS Held and to Miller. Ardoline responded that he agreed with Schmelling's coverage opinion.

J.S. Held representatives spent over 55 hours between August 17 and October 12, 2018 at the property reviewing the damages, analyzing photographs and preparing an initial estimate. On October 12, 2018, J.S. Held submitted a detailed, 189-page line item report to AmGUARD estimating that it would cost $711,496.49 to repair the building. In the email forwarding the estimate, J.S. Held stated that at the time of its second inspection, Units 2 and 3 were still under investigation and it was not able to perform detailed take-offs, nor had any demolition occurred which would expose potentially damaged framing and components of the building. J,S. Held indicated that once demolition was complete, it would revisit the property and re-inspect Units 2 and 3 to determine if the "current scope attached needs to be revised to account for additional work."

Ardoline asked Robert Cartagena, a more senior adjuster at AmGUARD, to review J.S. Held's estimate. Cartagena did so, subtracting amounts for depreciation and interior finishes that he did not think were covered under the condominium association's bylaws. Afteraccounting for these deductions, Cartagena estimated that Greystone's costs to repair the building was Replacement Cost Value (RCV) of $576,761.75 and an Actual Cost Value (ACV) of $469,121.71. Cartagena shared his estimate and his rationale with Ardoline.²

Although Ardoline previously had told Greystone that AmGUARD would cover the interior finishes, he did not tell Cartagena this, nor did he ask Cartagena to change his estimate. Further, Cartagena was not aware that at the time that J.S. Held had prepared its estimate, at least two of the units still were under investigation and demolition had not been completed.

On November 4, Ardoline presented Cartagena's estimate to Greystone without commenting on AmGUARD's change in position with respect to the interior finishes.

On November 19, 2018, JS Held reinspected the property, including Units 2 and 3, but it did not issue a supplemental report or make any changes to its initial estimate.

On December 4, 2018, Greystone accepted AmGUARD's offer of payment of the ACV amount of $469,121, but indicated that additional amounts were "to be determined." On December 20, 2018, AmGUARD issued payment of $469,121.71 for the undisputed ACV amount.

Building construction began in early January 2019. In early February, Greystone, through Miller, submitted to AmGUARD its own detailed estimate of the rebuild costs (the "Miller Estimate"). Miller estimated that the rebuild cost was $1,247,667.05, which was more than double what AmGUARD was predicting. AmGUARD reengaged J.S. Held to review theMiller Estimate and to provide an opinion on the additional amounts claimed to be owed for repair costs.

Around that same time, AmGUARD engaged Young & Associates, a water/fire restoration firm, to review a large invoice that had been submitted by CAT 5 for its cleanup and remediation work. On March 17, 2019, Young & Associates submitted to Engle Martin a report stating that it had reached an agreement with CAT 5 that $352,500 was the fair market value of their remediation and mitigation services. Engle Martin forwarded the Young & Associates' report to AmGUARD on April 29, 2019, offering its opinion that the $352,500 amount was excessive and should be closer to $290,000.

Meanwhile, on March 11, 2019, J.S. Held's adjuster, Chris Smith, met with Miller and the general contractor and inspected the property. On March 13, 2019, Smith advised AmGUARD of some changes that needed to be made to Miller's estimate and said that he would soon review it "side by side" with AmGUARD's original estimate, verify that proper items that should be credited were captured, and would recommend changes based on his on-site inspection.

Due to unexplained personal issues, however, Smith dropped incommunicado for several weeks. This greatly consternated Greystone: its affected unit owners already were complaining that the rebuild was taking too long (even though it was mostly on schedule), and Greystone was aware that AmGUARD was awaiting Smith's review on behalf of J.S. Held. AmGUARD was equally vexed by Smith's unresponsiveness and took its concerns to J.S. Held's upper management.

On May 10, 2019, Tom Constantini from J.S. Held sent the following email to Ardoline:

I was finally able to discuss the loss, and outstanding issues with the [public adjuster], David Miller. The general contractor provided a detailed proposal, in the amount of $1,245,167, to complete all the repairs. Chris & the GC went through the estimate, line by line, and agreed to the scope. The only issue was with the roof trusses, and associated framing which Chris asked for support for these scope items. An engineering report, vendor & contractor detailed support documents were provided. That said, there should be no other questions regarding the scope or cost to complete the repairs. Chris, please add anything that I may be missing.

That same day, May 10, 2019, Ardoline emailed to Miller a Proof of Loss form "for an interim $50,000 advance while we await further information." Greystone refused to accept this payment.

On May 13, 2019, J.S. Held finally provided AmGUARD with its report, completed by one of its other associates.

On May 17, 2019, Ardoline and Cartagena met to review the J.S. Held supplemental report and the CAT 5 invoice. The J.S. Held supplemental analysis was four pages in total, including two pages of line item summaries that described recommended reductions and removal of line items with reference to the Miller Estimate and two additional pages describing credits and overlap between the estimates. J.S. Held suggested a reduction of $31,864 from the Miller Estimate, after which the costs of the building repairs would be $1,213,303.03.

Ardoline and Cartagena both claimed at their depositions that J.S. Held's May 13 supplement lacked the detail necessary for AmGUARD to fairly determine whether the amounts claimed in the Miller Estimate were reasonable. J.S. Held had not compared the Miller Estimate and AmGUARD's initial estimate "side by side," which meant, said Ardoline and Cartagena, that they could not discern why the Miller Estimate of the rebuild cost was half a million...