N. Star Mut. Ins. Co. v. Miller

311 Neb. 941

977 N.W.2d 195

NORTH STAR MUTUAL INSURANCE COMPANY, appellee and cross-appellant,

v.Jerry MILLER and David Miller, doing business as Old Mill Bulk Foods, appellants and cross-appellees.

No. S-21-505.

Supreme Court of Nebraska.

Filed July 8, 2022

Todd R. McWha, North Platte, and Jonathan Peiffer, of Waite & McWha Law Firm, for appellants.

Jonathan M. Brown, of Walentine O'Toole, L.L.P., Omaha, for appellee.

Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

Funke, J.

INTRODUCTION

Jerry Miller and David Miller, doing business as Old Mill Bulk Foods (Old Mill), operated a deli/grocery store in a building it rented in Valentine, Nebraska, which was the covered premises. On July 2, 2018, a fire destroyed the covered premises, and thereafter, Old Mill elected to renovate another building in which to relocate its business. Old Mill had an insurance policy through North Star Mutual Insurance Company (North Star) and sought $159,878.53, in addition to other reimbursements, under the policy's "Extra Expense" provision. North Star denied coverage for the extra expenses and filed a declaratory judgment action to determine the parties’ rights and obligations under the policy. The district court granted summary judgment, denying the extra expenses, and Old Mill appealed. We affirm in part, vacate in part, and in part reverse and remand with directions.

BACKGROUND

North Star issued the insurance policy to Old Mill, effective for a 1-year period beginning on November 21, 2017, and ending on November 21, 2018 (hereafter the Policy).

After the fire destroyed the deli/grocery store, which was the covered premises, Old Mill elected not to repair or rebuild it. As a result, Old Mill searched for a replacement property for lease in order to resume operations. Being unable to find anything suitable, Old Mill informed North Star that Miller Land Enterprises, LLC, owned by Jerry, David, and Mary Miller, intended to purchase a defunct movie theater in Valentine and lease it to Old Mill. Miller Land Enterprises purchased the replacement property on April 10, 2019, and subsequently entered into a rental agreement with Old Mill to operate the grocery store at the new location. The replacement property required substantial modification and renovation to make it suitable as a grocery store, including work to level the floors, remove walls and relocate walls, install flooring, install lighting and outlets, and install sinks.

During renovations, Old Mill submitted claims for loss to North Star under the terms of the Policy. The Policy provides for certain areas of coverage, including "Business Personal Property," "Business Income," and "Extra Expense." Pursuant to the terms of the Policy, North Star paid Old Mill $89,050 for business personal property coverage and $199,212 for business income coverage.

Old Mill also sought $159,878.53 it spent in converting the replacement property into a deli/grocery store under the "Extra Expense" coverage. The claimed expenses included $38,600 for electrical improvements to the replacement premises, $53,167.50 for other necessary improvements to the replacement premises, $36,884.15 for materials used in the improvements of the replacement premises, $19,500 for plumbing improvements to the replacement premises, and $4,600 for a walk-in cooler.

The "Extra Expense" provision of the Policy states, in pertinent part:

A. Coverage

....

5. Additional Coverages

....

g. Extra Expense

(1) We will pay necessary Extra Expense you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss....

....

(2) Extra Expense means expense incurred:

(a) To avoid or minimize the suspension of business and to continue "operations":

(i) At the described premises; or

(ii) At replacement premises or at temporary locations, including relocation expenses, and costs to equip and operate the replacement or temporary locations.

(b) To minimize the suspension of business if you cannot continue "operations".

(c) To:

(i) Repair or replace any property; or (ii) Research, replace or restore the lost information on damaged "valuable papers and records"; to the extent it reduces the amount of loss that otherwise would have been payable under this Additional Coverage or Additional Coverage f. Business Income.

....

(4) ... This Additional Coverage is not subject to the Limits of Insurance of Section I-Property.

North Star denied Old Mill's claim, maintaining that expenses incurred to convert the replacement property into a deli/grocery store are not covered under the "Extra Expense" provision of the Policy, and subsequently filed its complaint for declaratory judgment, arguing the same. In response, Old Mill filed an answer and counterclaim, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and bad faith. Eventually, both parties moved for summary judgment.

The district court acknowledged two out-of-state cases cited by the parties: Thompson v. Threshermen's Mut. Ins. Co.¹ and Midwest Regional Allergy v. Cincinnati Ins. Co.² North Star argued the former controlled the present case, while Old Mill argued the latter case controlled. The court rejected both arguments.

The court found the policy provisions were ambiguous, determining that there are two reasonable, but conflicting interpretations of the "Extra Expense" provision in the Policy:

• [I]t provides coverage for the costs associated with starting the business at a replacement location, including structural modifications and the mechanical, electrical and plumbing installation/modifications to the newly acquired premises at the replacement location, or • [I]t limits coverage to the costs for replacement and relocation of personal business property necessary to carry on business at the new location.

In light of its finding of ambiguity, the trial court proceeded to define the phrase "to equip" as meaning to "provide someone or something with objects that are needed for a particular activity or purpose." And, further, determined that the word "equip" refers to objects, such as refrigerators, stoves, and coolers, and not "walls, floors and bathrooms." In doing so, the court found that the "[E]xtra [E]xpense" coverage was limited to expenses incurred to avoid or minimize the suspension of business at the replacement property, including relocation expenses and costs to equip and operate at the new location. In other words, the coverage encompassed the continuance of operations or business activities at the replacement premises, but did not provide coverage for the acquisition of the replacement location or improvements and/or modifications made at the replacement location.

The court concluded that at the time the Policy was issued, the parties did not expect or intend that North Star would insure Old Mill against the loss of the location where it conducted its business, and further, the parties did not agree to provide whatever was necessary for Old Mill to commence operations at a new location. However, because North Star agreed to pay the costs to relocate and equip the replacement premises, the court found that North Star was contractually obligated to pay for the walk-in cooler.

Accordingly, the district court granted North Star's complaint for declaratory judgment to the extent that the court found that the Policy does not require North Star to provide coverage to Old Mill for electrical improvements, structural work associated with conversion of the replacement premises, materials associated with the improvements, and plumbing improvements. The district court also granted Old Mill's counterclaim to the extent that the court entered judgment against North Star in the amount of $4,600 for the walk-in cooler.

Old Mill requested attorney fees in the amount of $33,797.99. The court determined that such request was not reasonable because North Star had a reasonable basis for denying Old Mill's claim, and instead, the court found that a reasonable attorney fee was $5,000 and awarded such to Old Mill.

ASSIGNMENTS OF ERROR

Old Mill assigns, restated, that the district court erred in (1) finding that the " ‘Extra Expense’ " provision of the Policy does not cover improvements made to convert and equip the replacement building and (2) awarding only $5,000 of the requested $33,797.99 in attorney fees.

On cross-appeal, North Star assigns, restated, that the district court erred in (1) determining the Policy provisions to be ambiguous, (2) determining that the walk-in cooler was covered under the " ‘Extra Expense’ " provision of the Policy, and (3) awarding attorney fees to Old Mill.

STANDARD OF REVIEW

Summary judgment is proper when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.³

The interpretation of an insurance policy is a question of law, in connection with which an appellate court has an obligation to reach its own conclusions independently of the determination made by the lower court.⁴

Plain error is error plainly evident from the record and of such a nature that to leave it uncorrected would result in damage to the integrity, reputation, or fairness of the judicial process.⁵

ANALYSIS

THE POLICY

The parties have narrowly framed the central issue before this court as whether the claims Old Mill has asserted against North Star are covered under the "Extra Expense" provision of the Policy as expenses "to equip" the replacement property. This framing necessarily limits our analysis of the Policy to the issue of coverage as defined by the definition of "to equip" and omits the impact, if any, of policy exclusions and definitions which have...