Ind. GRQ, LLC v. Am. Guarantee & Liab. Ins. Co.

663 F.Supp.3d 857

INDIANA GRQ, LLC, Plaintiff, v. AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY et al., Defendants.

CAUSE NO. 3:21-cv-227 DRL

United States District Court, N.D. Indiana, South Bend Division

Filed March 23, 2023

Signed March 22, 2023

Benjamin Massarsky, PHV, Pro Hac Vice, Brian Friel, PHV, Pro Hac Vice, Mark E. Miller, PHV, Pro Hac Vice, William T. O'Neil, PHV, Pro Hac Vice, Miller Friel PLLC, Washington, DC, Clint A. Zalas, Lee and Zalas, South Bend, IN, Jodi D. Spencer Johnson, Brouse McDowell, Cleveland, OH, Phillip Wesley Lambert, Brouse McDowell, Akron, OH, for Plaintiff.

Jennifer J. Kalas, Hinshaw & Culbertson LLP, Schererville, IN, Brett Thomaston, PHV, Pro Hac Vice, David E. Heiss, PHV, Pro Hac Vice, Peter E. Kanaris, Hinshaw & Culbertson LLP, Chicago, IL, Daniel C. Egger, Reminger Co., Cleveland, OH, Andrew D. Jamison, Reminger & Reminger, Akron, OH, for Defendants American Guarantee and Liability Insurance Company, Starr Surplus Lines Insurance Company, Chubb Custom Insurance Company, General Security Indemnity Company of Arizona, Axis Surplus Insurance Company, Ironshore Specialty Insurance Company.

Jennifer J. Kalas, Hinshaw & Culbertson LLP, Schererville, IN, Andrew D. Jamison, Reminger & Reminger, Akron, OH, Daniel C. Egger, Reminger Co., Cleveland, OH, David E. Heiss, PHV, Pro Hac Vice, Peter E. Kanaris, Hinshaw & Culbertson LLP, Chicago, IL, David E. Schroeder, Mitchell A. Orpett, Tribler Orpett and Meyer PC, Chicago, IL, for Defendant Interstate Fire & Casualty Company.

OPINION AND ORDER

Damon R. Leichty, Judge

Indiana GRQ, LLC owns a facility in South Bend, Indiana used for commercially-leased tenant and warehouse space—originally a manufacturing site for Studebaker vehicles and jet engines during World War II. Indiana GRQ sued seven insurance companies after flooding caused significant environmental and electrical damage to the facility. The storm set a new South Bend record for rainfall. The insurers paid part of the owner's claimed losses and eventually denied other coverage. Indiana GRQ alleges breach of contract and bad faith and requests declaratory relief. Three partial summary judgment motions now pend—one each by Indiana GRQ, Interstate Fire & Casualty Company (Interstate), and the remaining six insurers. The court grants Indiana GRQ's motion and finds that the loss here remains subject to the $30 million flood coverage limit, not the $10 million sublimit, and otherwise denies the motions—save for a few bad faith theories.

BACKGROUND

Indiana GRQ's facility was covered under a multisite, multistate insurance policy with total limits of $500 million.¹ Certain properties are identified in a separate statement of values (SOV) for coverage purposes, and Indiana GRQ's South Bend facility appears on the list. The policy insured loss caused by flooding. The first layer of flood coverage was $30 million and was shared by American Guarantee and Liability Insurance Company, Interstate Fire & Casualty Company, Starr Surplus Lines Insurance Company, Chubb Custom Insurance Company, General Security Indemnity Company of Arizona, Axis Surplus Insurance Company, and Ironshore Specialty Insurance Company.

On August 15, 2016, heavy rain (7.69 inches) flooded the facility and caused damage. Indiana GRQ reported the claim. At the time of the loss, Indiana GRQ had eleven electrical transformers in six substations. Several were damaged. When flooded, the electrical transformers released chemical compounds called polychlorinated biphenyls (PCBs) into the floodwater. Indiana GRQ began to evaluate, repair, and replace the damaged electrical equipment. The company removed all six substations, replaced a transformer, and relocated one substation. The site also required environmental remediation.

The insurers retained Micah Thoman as their independent adjuster. Stuart Stromeyer assisted. In October 2016, Mr. Thoman inspected the South Bend facility to determine the scope of damage and to create a preliminary remediation plan. Within six weeks of the loss, the adjusters determined that the facility was partially located in a Federal Emergency Management Agency defined special flood hazard area (SFHA). The policy had a $10 million SFHA sublimit.

In November 2016, the insurers sent a letter notifying Indiana GRQ that this sublimit may apply to the South Bend facility instead of the $30 million flood limit. This same letter, labeled as a reservation of rights, reiterated that the insurers "expressly reserve all of their collective rights, privileges, and defenses under the Policies and at law, including the right to amend the above Reservation of Rights."

From October 2016 into 2019, the adjusters continued to adjust the loss and work with Indiana GRQ, various consultants, and the insurers. During part of this time, Mr. Thoman conducted "weekly, if not daily, discussions" with Indiana GRQ and the insurers about the progress of the claim, an appropriate environmental workplan, and costs submitted by Indiana GRQ. Settlement negotiations were also ongoing throughout the adjustment period.

On October 18, 2017, within a section of a report entitled "Requested Settlement Consideration," Mr. Thoman wrote, "[w]e are in agreement with the [Indiana GRQ] in that this Loss can and will drag on due to its very nature of Seepage and Pollution, Clean-up and Contaminant loss situation." In March 2018, Mr. Thoman's status report said that "we have continued in our efforts to discuss a potential early settlement with the insured."

Throughout the claim's adjustment, the parties reached impasse on environmental remediation and electrical repair. Indiana GRQ asserted that the environmental remediation must comply with the requirements of the Toxic Substance Control Act (TSCA) because of the PCB levels in the floodwater; whereas, the insurers disagreed, believing the environmental work plans developed by Indiana GRQ's consultant would appropriately address the PCB presence. Separately, the insurers expressed frustration at the pace of the electrical repairs and alleged that Indiana GRQ changed its mind in its desire to have "like for like" transformer replacement. This was allegedly shared at a May 16, 2018 meeting with Mr. Thoman and Indiana GRQ representatives when they also discussed a potential resolution of the claim. From this meeting, Indiana GRQ agreed to provide information about additional electrical and environmental costs the company was requesting.

On September 13, 2018, the insurers sent a letter to Indiana GRQ indicating that they had yet to receive additional information on the claim and warned the company that its failure to provide this information could result in their file's closure. On March 7, 2019, the insurers sent another letter requesting a final settlement demand and meeting as well as informing Indiana GRQ that under the policy "any added property related repairs, replacements, or clean-ups that are contemplated moving forward will each be valued at Actual Cash Value (ACV)" because of a two-year limitation.

In May 2019, the insurers dispatched another letter to Indiana GRQ, labeled again a reservation of rights, that largely quoted policy provisions but with limited commentary. The letter quoted Section 6.13.05 that required suit within twelve months "after the date of direct physical loss or damage to Covered Property or to other property as set forth herein." The insurers offered no context for quoting this provision other than to refer Indiana GRQ to it.

In July 2019, Indiana GRQ submitted additional information for coverage. Then, on August 23, 2019, the insurers sent a letter to Indiana GRQ denying coverage for several reasons. The insurers said several exclusions applied and the flood had not caused all the property damage. The insurers disputed the scope of work. And the insurers believed that Indiana GRQ "breached the contractual suit limitation, time-barring the New Claims," and "the two-year time limit to complete replacement expired long ago."

Before then, the insurers paid Indiana GRQ $2,682,315.13. Indiana GRQ submitted proof of loss in December 2017, and the insurers paid $421,630.00; in March 2018, Interstate made a payment of $360,000.00; in May 2018, the insurers paid $764,000.13 after proof of loss; and another was submitted in May 2018 (specific to Axis) with $36,685.00 paid.

STANDARD

Summary judgment is warranted when "the movant shows that 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). The non-moving party must present the court with evidence on which a reasonable jury could rely to find in his favor. Weaver v. Speedway, LLC, 28 F.4th 816, 820 (7th Cir. 2022). The court must construe all facts in the light most favorable to the non-moving party, viewing all reasonable inferences in that party's favor, Bigger v. Facebook, Inc., 947 F.3d 1043, 1051 (7th Cir. 2020), and avoid "the temptation to decide which party's version of the facts is more likely true," Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003); see also Joll v. Valparaiso Cmty. Schs., 953 F.3d 923, 924-25 (7th Cir. 2020). With crossmotions, each party receives the benefit of all reasonable inferences drawn from the record when considering the opposing party's motion. Tegtmeier v. Midwest Operating Eng'rs Pension Tr. Fund, 390 F.3d 1040, 1045 (7th Cir. 2004).

In performing its review, the court "is not to sift through the evidence, pondering the nuances and inconsistencies, and decide whom to believe." Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). Instead, the "court has one task and one task only: to decide, based on the evidence of record, whether there is any material dispute of fact that requires a trial." Id. The court must grant a summary judgment motion when no such genuine factual issue—a triable issue—exists under the law. Luster v. Ill. Dep't of Corr., 652 F.3d 726, 731 (7th Cir. 2011).

DISCUSSION

A...