Landmark Am. Ins. Co. v. Heco Realty, LLC

554 F.Supp.3d 910

LANDMARK AMERICAN INSURANCE COMPANY, Plaintiff,

v.HECO REALTY, LLC and Liberty Mutual Fire Insurance Company, Defendants.

No.: 1:20-cv-02631-STA-jay

United States District Court, W.D. Tennessee, Eastern Division.

Signed August 11, 2021

Carey Michael Johnson, Pro Hac Vice, Thomas Kearney Wingfield, Pro Hac Vice, Hall Booth Smith Atlanta, Atlanta, GA, Karl M. Braun, Hall Booth Smith, PC, Nashville, TN, for Plaintiff.

Catherine Fornias Giarrusso, Pro Hac Vice, Henry Minor Pipes, III, Pro Hac Vice, Pipes Mikes Beckman, LLC, New Orleans, LA, Gregory Brown, William Scott Hickerson, Lowe Yeager & Brown PLLC, Knoxville, TN, for Defendant Heco Realty, LLC.

Brian C. Neal, Burr & Forman, LLP, Nashville, TN, Catherine Fornias Giarrusso, Pro Hac Vice, Henry Minor Pipes, III, Pro Hac Vice, Pipes Mikes Beckman, LLC, New Orleans, LA, for Defendant Liberty Mutual Fire Insurance Company.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ORDER DENYING DEFENDANT'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

S. THOMAS ANDERSON, CHIEF UNITED STATES DISTRICT JUDGE

Before the Court is Plaintiff Landmark American Insurance Company's Motion for Summary Judgment (ECF No. 50) filed on March 2, 2021. Defendant Liberty Mutual Fire Insurance Company has responded in opposition and filed its own Cross-Motion for Partial Summary Judgment (ECF No. 62). Both parties have fully briefed the issues, and the Motions are now ripe for determination. For the reasons set forth below, Landmark American's Motion is GRANTED , and Liberty Mutual's Cross-Motion is DENIED.

BACKGROUND

This declaratory judgment action arises from the parties’ dispute over whose policy of insurance provided primary coverage for damage to commercial property in Dyersburg, Tennessee. Both Landmark American Insurance Company ("Landmark") and Liberty Mutual Fire Insurance Company ("Liberty Mutual") issued policies insuring certain risks to the property, albeit to two different policyholders. Landmark insured the owner of the property, HECO Realty, LLC ("HECO"). Liberty Mutual insured HECO's tenant Renwood Acquisitions, LLC d/b/a Heckethorn Manufacturing ("Heckethorn") and listed HECO as an additional insured. When damage occurred at the property during Heckethorn's tenancy, HECO made claims for the damage under the Liberty Mutual policy and the Landmark policy. Liberty Mutual answered and ultimately agreed to settle the claim with HECO. As part of the settlement, HECO assigned its interests in any recovery under the Landmark policy to Liberty Mutual. Landmark and Liberty Mutual now seek a declaration from the Court about which policy's coverage is primary, among other issues.

To decide the parties’ coverage dispute, the Court must first consider whether any genuine issue of material fact exists that might preclude judgment as a matter of law. A fact is material if the fact "might affect the outcome of the lawsuit under the governing substantive law." Baynes v. Cleland , 799 F.3d 600, 607 (6th Cir. 2015) (citing Wiley v. United States , 20 F.3d 222, 224 (6th Cir. 1994) and Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson , 477 U.S. at 248, 106 S.Ct. 2505. For purposes of summary judgment, a party asserting that a material fact is not genuinely in dispute must cite particular parts of the record and show that the evidence fails to establish a genuine dispute or that the adverse party has failed to produce admissible evidence to support a fact. Fed. R. Civ. P. 56(c)(1).

Local Rule 56.1(a) requires a party seeking summary judgment to prepare a statement of facts "to assist the Court in ascertaining whether there are any material facts in dispute." Local R. 56.1(a). In support of their cross-Motions, both sides have filed their own statements of undisputed facts and submitted responses to the opposing party's statement.

Based on the parties’ submissions, the Court finds that the following facts are undisputed for purposes of summary judgment, unless otherwise noted. HECO leased buildings and real property located at 2005 Forrest Street, Dyersburg, Tennessee, to Heckethorn through August 10, 2019. (Landmark American's Statement of Undisputed Fact ¶ 1, ECF No. 64.) Heckethorn took out an insurance policy against certain damages at the leased property. (Id. ¶ 11.) That policy was issued by Liberty Mutual. (Id. ) Heckethorn was the named insured under the Liberty Mutual policy, and HECO was later added as an additional insured. (Id. ) HECO took out its own commercial property policy through Landmark. (Id. ¶ 12.) HECO's policy with Landmark insured only HECO and did not name Heckethorn as an additional insured. (Id. ¶ 13.)

Heckethorn's business operations suffered financial setbacks over a period of time, eventually causing Heckethorn to surrender its assets to a secured-creditor, Tenneco Automotive Operating Company, Inc. (Id. ¶ 14.) Tenneco arranged for the removal and sale by auction of all of Heckethorn's machinery, equipment, and other property at the leased premises. (Id. ¶ 15.) HECO was fully aware of Tenneco's acquisition of Heckethorn's assets and its plan to auction them, including the fact that all of Heckethorn's equipment and trade fixtures would be removed from the leased buildings. (Id. ¶ 16.) Tenneco retained a third-party vendor to conduct the auction, and the vendor hired a subcontractor to dismantle, disconnect, and remove Heckethorn's property from the buildings on the premises. (Id. ¶ 17.) At some time in the lead-up to the auction, the subcontractor began its work of removing Heckethorn's business property. But according to HECO, the subcontractor went further and improperly removed copper wiring and electrical components that were not Heckethorn's property at all, causing extensive damage to HECO's buildings. (Id. ¶ 18.) An appraisal obtained by HECO set the value of the damage at $2,273,563.13. (Id. ¶¶ 20, 21.)

In September 2019, HECO made a claim for the loss of the copper wiring and electrical components, characterized the loss as a "theft," and served notice of its claim on both Landmark and Liberty Mutual. (Landmark's Statement of Undisputed Fact ¶ 19.) On October 6, 2020, after Landmark initiated this action, HECO and Liberty Mutual entered into a settlement, whereby Liberty Mutual paid HECO $1,675,000 as "full compensation under the Liberty Mutual Policy." (Id. ¶ 22.) As part of the agreement, HECO assigned to Liberty Mutual whatever rights of coverage it had, if any, under the Landmark policy. (Id. ¶ 23.) The Liberty Mutual policy had a policy limit of $12,252,472, so Liberty Mutual's payment to HECO did not exhaust the full limits of its coverage. (Id. ¶ 24.)

By and large, the remaining statements of fact submitted by the parties concern the proper construction of the relevant provisions of the lease agreement between HECO and Heckethorn and the policies issued by Landmark and Liberty Mutual. The parties disagree over the correct reading of these contractual provisions and how best to give them effect under the facts of the case. Generally speaking, the construction of contractual agreements presents a question of law for the Court to decide. Toomey v. Atyoe , 95 Tenn. 373, 32 S.W. 254, 256 (1895) ; Manley v. Plasti-Line, Inc. , 808 F.2d 468, 471 (6th Cir. 1987) ; see also 10B Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice & Procedure § 2730.1 (3d. ed. 2009) ("The legal effect or construction of a contract is a question of law that properly may be determined on a summary-judgment motion when the parties’ intentions are not in issue."). As such, the Court will examine the relevant contractual provisions in greater depth as part of its analysis of the legal questions presented for summary judgment.

Landmark now seeks judgment as a matter of law, arguing that Liberty Mutual's policy provides primary coverage for the damages to HECO's property. Landmark takes the position that the lease agreement between HECO and Heckethorn required Heckethorn to repair damages like those caused by the work of the subcontractor as well as to carry insurance with coverage for such a loss. Heckethorn purchased insurance coverage from Liberty Mutual. Therefore, Liberty Mutual's policy is primary. In support of its position, Landmark cites the features of the lease agreement itself. Not only did Heckethorn have a contractual duty to take out insurance during its leasehold, the lease also required Heckethorn to have HECO named as an additional insured on the policy. The parties agreed that Heckethorn would waive its right of subrogation in favor of HECO and stipulated that any insurance payment for covered losses at the property would be payable to HECO, not Heckethorn. Heckethorn further assumed responsibility for repairs to property damage and the replacement of any property affected by certain risks, including theft. Likewise, the lease provided that Heckethorn would reimburse HECO for any damages caused by the removal of "trade fixtures" on the premises. The parties agreed that HECO would have no liability for any damages caused by the criminal acts of any third party. Each of these lease provisions underscores the fact that Heckethorn was contractually responsible to insure and repair any damages to HECO's property resulting from acts like those of the subcontractor who removed the copper wiring and other electrical fixtures from the premises.

Landmark argues that based on the terms of the lease, Heckethorn also had the sole responsibility for procuring insurance and paying all costs to repair property damage. The lease therefore shifted all risk of loss to Heckethorn. It follows then that Heckethorn's insurance coverage through Liberty Mutual is primary in this case. Because the amount of damage sustained to HECO's property did not exhaust the...