Sport Real Estate Mgmt. v. Am. Zurich Ins. Co.

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SPORT REAL ESTATE MANAGEMENT, LLC a/k/a SPORT REAL ESTATE MGT, et al., Plaintiffs, v. AMERICAN ZURICH INSURANCE COMPANY, Defendant.

Civil Action No. 21-cv-01183-LKG

United States District Court, D. Maryland

February 10, 2022

MEMORANDUM OPINION AND ORDER

LYDIA KAY GRIGGSBY UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

In this civil action, plaintiffs, Sport Real Estate Management, LLC (“Sport Real Estate Management”), Sport Automotive, Inc. (“Sport Automotive”), Sport Chevrolet Company, LLC (“Sport Chevrolet”), Sport Real Estate Mortgage, LLC (“Sport Real Estate Mortgage”), and FFA LLD, bring various breach of contract, negligence, and negligent misrepresentation claims against defendant, American Zurich Insurance Company (“Zurich”) related to a fire loss that occurred at their premises. See generally Compl., ECF No. 3. Zurich has moved to dismiss this action for failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(6). See generally Def. Mot., ECF No. 9; Def. Mem., ECF No. 9-1 No. hearing is necessary to resolve the motion. See L.R. 105.6 (D. Md. 2021). For the reasons set forth below the Court GRANTS-in-PART and DENIES-in-PART Zurich's motion to dismiss.

II. FACTUAL AND PROCEDURAL BACKGROUND^[1]

A. Factual Background

This case involves breach of contract, negligence, and negligent misrepresentation claims arising from a fire loss that occurred at plaintiffs' premises. See generally Compl. Specifically, plaintiffs allege that Zurich breached the terms of an insurance policy (the “Zurich Policy”) covering certain property used by plaintiffs to operate an automobile sales and service business, and that Zurich and its agents made certain material misrepresentations to induce plaintiffs to purchase the Zurich Policy. Id. at ¶¶ 92-169. As relief, plaintiffs seek to recover compensatory damages from Zurich. Id.

As background, plaintiffs are engaged in the business of leasing buildings and the sale and service of automobiles in Maryland, and they are the insureds under the Zurich Policy. Id. at ¶¶ 1-6. Zurich is a seller of insurance products that regularly conducts business in Maryland through its agents and marketing team. Id. at ¶ 7.

The Binder And The Zurich Policy

In December 2018, Zurich's insurance agent, Michael Stout, met with plaintiffs to solicit their business and to encourage plaintiffs to purchase an insurance policy from Zurich. Id. at ¶¶ 20-22. At the time, plaintiffs were insured through Federated Insurance under a policy that covered, among other things, loss of business income and extra expense, loss of rental income, and loss of business rents. Id. at ¶¶ 9, 14, 17.

Plaintiffs allege that, during the December 2018 meeting, Mr. Stout told them that “he could procure a policy of insurance with Zurich that provided insurance coverage that was equal to or better than” their coverage through Federated Insurance. Id. at ¶ 23. Plaintiffs also allege that, based on Mr. Stout's representation, they were induced to purchase an insurance policy from Zurich and to discontinue their policy with Federated Insurance. Id. at ¶¶ 26-27.

Plaintiffs allege that, on December 21, 2018, Zurich provided them with an insurance proposal (the “Binder”), in which Zurich agreed to provide coverage for, among other things, business income continuation and extra expenses (“BICEE”). Id. at ¶¶ 30-32; see also Compl. Ex. 3 at 1. The Binder is dated December 21, 2018, and states that this proposal would remain valid for 60 days from that date. Compl. Ex. 3 at 1-2. In addition, the Binder states that the Zurich Policy would be effective from January 1, 2019, to January 1, 2020. See Id. at 1.

Plaintiffs allege that the terms of the Binder do not match the terms of the Zurich Policy. Compl. at ¶ 39. Specifically, plaintiffs allege that the BICEE coverage limits under the Zurich Policy have been reduced by 80 percent from the coverage amounts stated in the Binder. Id. at ¶¶ 36, 40. Although the Zurich Policy states that its effective dates are January 1, 2019, to January 1, 2020, plaintiffs also allege that Zurich did not provide them with a copy of the Zurich Policy until April 10, 2019. Id. at ¶¶ 39, 46, 47; see also Compl. Ex. 4.

The 2019 Fire Loss And Denial Of Plaintiffs' Claims

On April 9, 2019, a fire occurred at a building leased by plaintiff Sport Real Estate Management. Compl. at ¶ 45. And so, plaintiffs submitted claims for business interruption and lost rent to Zurich under the Zurich Policy. Id. at ¶ 48. Plaintiffs allege that Zurich denied their claim for lost rent, because Zurich maintains that the Zurich Policy does not provide coverage for lost rent. Id. at ¶ 49. But, plaintiffs disagree with Zurich's interpretation of the policy, and they contend that Mr. Stout stated that lost rent was covered by the Zurich Policy during a meeting with plaintiffs held on December 23, 2019. Id. at ¶¶ 52-53.

Plaintiffs also contend that the Zurich Policy applies an “inappropriate” arithmetic calculation for their BICEE claims, which effectively reduces their ability to be compensated for the fire loss. Id. at ¶¶ 63-70. In addition, plaintiffs allege that the omission of definitions for the terms “Limit of Insurance” and “Premises” in the Zurich Policy creates certain ambiguities, which allowed Zurich to reduce the value of their claims under the Zurich Policy. Id. at ¶¶ 73-91. And so, plaintiffs maintain that Zurich breached the Zurich Policy and made certain material misrepresentations about the coverage under the Zurich Policy. Id. at ¶¶ 92-169.

B. Procedural Background

Plaintiffs commenced this action in the Circuit Court for Prince George's County, Maryland on March 8, 2021. See Compl. at 1. Zurich removed the case to this Court on May 14, 2021. See Notice of Removal, ECF No. 1.

On June 4, 2021, Zurich filed a motion to dismiss the complaint for failure to state a claim for which relief can be granted and a memorandum in support thereof, pursuant to Fed.R.Civ.P. 12(b)(6). See Def. Mot.; Def. Mem. Plaintiffs filed a response in opposition to Zurich's motion to dismiss on July 9, 2021. Pl. Resp., ECF No. 12. Zurich filed a reply in support of its motion to dismiss on August 6, 2021. Def. Reply, ECF No. 16.

Zurich's motion to dismiss having been fully briefed, the Court resolves the pending motion.

III. LEGAL STANDARDS

A. Fed.R.Civ.P. 12(b)(6)

To survive a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), a complaint must allege enough facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible when “the plaintiff pleads factual content that allows the [C]ourt to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). When evaluating the sufficiency of a plaintiff's claims under Fed.R.Civ.P. 12(b)(6), the Court accepts the factual allegations in the complaint as true and construes them in the light most favorable to the plaintiff. Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009); Lambeth v. Bd. of Comm'rs, 407 F.3d 266, 268 (4th Cir. 2005) (citations omitted). But, the complaint must contain more than “legal conclusions, elements of a cause of action, and bare assertions devoid of further factual enhancement[.]” Nemet Chevrolet, 591 F.3d at 255. And so, the Court should grant a motion to dismiss for failure to state a claim if “it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” GE Inv. Private Placement Partners II, L.P. v. Parker, 247 F.3d 543, 548 (4th Cir. 2001) (quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 249-50 (1989)).

B. Breach Of Contract Claims

In Maryland, the elements of a breach of contract claim include: (1) a contractual obligation and (2) a material breach of that obligation. Allstate Ins. Co. v. Warns, No. 11-1846, 2012 WL 681792, at *10 (D. Md. Feb. 29, 2012) (citing Taylor v. NationsBank, N.A., 365 Md. 166 (Md. 2001)). And so, plaintiffs must plead that there existed a “contractual obligation, breach, and damages” to state a plausible breach of contract claim. Class Produce Grp., LLC v. Harleysville Worcester Ins. Co., No. 16-3431, 2018 WL 1471682, at *17 (D. Md. Mar. 23, 2018) (citations omitted). Also relevant to this dispute, Maryland courts have interpreted insurance policies in the same manner as any other contract when the rules of law governing the reformation of written agreements are to be applied. See Am. Cas. Co. of Reading, Pa. v. Ricas, 179 Md. 627, 634 (Md. 1941). And so, to establish that reformation of an insurance policy is warranted, plaintiffs must show that: (1) a valid agreement exists and (2) by reason of fraud, or mutual mistake on the part of both parties to the agreement, the policy does not conform to the actual agreement of the parties. See id.

C. Negligent Misrepresentation And Negligence Claims

In addition, to state a claim for negligent misrepresentation plaintiffs must show: (1) the defendant, owing a duty of care to the plaintiffs, negligently asserted a false statement; (2) the defendant intended that his statement would be acted upon by the plaintiffs; (3) the defendant had knowledge that the plaintiffs would probably rely on the statement, which, if erroneous, would cause loss or injury; (4) the plaintiffs justifiably took action in reliance on the statement; and (5) the plaintiffs suffered damage proximately caused by the defendant's negligence. Lloyd v. Gen. Motors Corp., 397 Md. 108, 135-36 (Md. 2007); see also Kiddie Acad. Domestic Franchising, LLC v. Wonder World Learning, LLC, No. 17-3420, 2020 WL 4338891, at *21 (D. Md. July 27, 2020). In this...