Universal Image Prod.S Inc v. The Chubb Corp.

703 F.Supp.2d 705

UNIVERSAL IMAGE PRODUCTIONS, INC., a/k/a Universal Image, Plaintiff,v.The CHUBB CORPORATION, Chubb Group Of Insurance Companies, Chubb & Son, Inc., New Jersey Corporations; and Federal Insurance Company, an Indiana Corporation, Defendants.

Case No. 06-12805.

United States District Court,

E.D. Michigan,

Southern Division.

March 29, 2010.

Mayer Morganroth, Jeffrey B. Morganroth Morganroth & Morganroth, PLLC, Birmingham, MI, Jason R. Hirsch, Morganroth & Morganroth, Southfield, MI, for Plaintiff.

Mark E. Shreve, Alan G. Davis, Karen Libertiny Ludden, Garan Lucow, Troy, MI, for Defendants.

ORDER

JULIAN ABELE COOK, JR., District Judge.

In this case, the Plaintiff, Universal Image Productions, Inc. (“Universal”), seeks to obtain damages from the Defendant, Federal Insurance Company (“Federal”) ¹ on the basis of the parties' insurance policy which covers claims for losses to Universal's commercial property under two theories; namely, breach of contract, and violations of the Uniform Trade Practices Act, Mich. Comp. Laws § 500.2001, et seq.

On June 24, 2009 and July 30, 2009, Federal filed three motions for the entry of summary judgments relating to Universal's (1) claims which seek damages for its anticipated losses; (2) attempt to recover damages for business interruption, abandoned properties, fixtures, and areas not subject to its lease; and (3) effort to recover for concurrent causes of loss. Universal opposes Federal's motions.

I.

In 1986, the Supreme Court opined that “[o]ne of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupportable claims or defenses....” Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Under Federal Rule of Civil Procedure 56(c), a motion for a summary judgment should be granted if a party “show[s] that there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law.” Here, the burden is on the movant to demonstrate the absence of a genuine issue of a material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

In assessing a summary judgment motion, the Court must examine any pleadings, depositions, answers to interrogatories, admissions, and affidavits in a light that is most favorable to the nonmoving party. Fed.R.Civ.P. 56(c); Boyd v. Ford Motor Co., 948 F.2d 283, 285 (6th Cir.1991). It is the responsibility of the Court to determine “whether ... there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.” Anderson, 477 U.S. at 250, 106 S.Ct. 2505.

A dispute is genuine only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248, 106 S.Ct. 2505. Hence, a summary judgment must be entered only if (1) the evidence clearly suggests that the contested matter is “so one-sided that [the proponent] must prevail as a matter of law,” id. at 252, 106 S.Ct. 2505, or (2) the opponent fails to present evidence which is “sufficient to establish the existence of an element essential to its case, and on which it will bear the burden of proof at trial.” Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548. Importantly, the presentation of a mere scintilla of supporting evidence is insufficient. See Anderson, 477 U.S. at 252, 106 S.Ct. 2505 quoted in Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir.1989).

Inasmuch as this is a diversity case, the Court must apply the law of Michigan on the basis of the Erie doctrine. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Thus, the Court is obliged to apply the law in accordance with the decisions of the Michigan Supreme Court. See Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir.1999). In those situations in which the Michigan Supreme Court has not addressed an issue, a decision by a Michigan appellate court binds this Court “absent a strong showing that the [Michigan Supreme Court] would decide the issue differently.” See Kurczi v. Eli Lilly & Co., 113 F.3d 1426, 1429 (6th Cir.1997).

Michigan courts apply general rules of contract construction when interpreting insurance policies. South Macomb Disposal Auth. v. American Ins. Co., 225 Mich.App. 635, 653, 572 N.W.2d 686 (1997). When construing a policy, a court must seek to determine if its language is clear and unambiguous on its face. Therefore, if the language within the policy is clear and unambiguous, its terms and words should be enforced by utilizing their plain and commonly understood meaning. Royal Prop. Group, LLC v. Prime Ins. Syndicate, Inc., 267 Mich.App. 708, 714, 706 N.W.2d 426 (2005); Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 206, 476 N.W.2d 392 (1991). Moreover, a court may not create an ambiguity where none exists. Fire Ins. Exchange v. Diehl, 450 Mich. 678, 687, 545 N.W.2d 602 (1996).

II.

As a television production firm, Universal works with advertising agencies, editorial houses, and other companies to provide visual effects and production support for their respective endeavors. From 1989 through September of 2002, Universal operated its business on the second and third floors of a three-story commercial building in Southfield, Michigan (“the Building”). Prior to its occupancy, Universal had entered into several agreements with the owner of the Building (“the Landlord”), all of which were memorialized in two freestanding leases with six amendments. Most relevant to this case is a lease which bore the date of May 6, 1997 (“the Lease”) that required Universal to insure its own property.² Although Universal occupied portions of the first floor of the Building since February of 2001,³ it had planned to expand this space for business purposes, as reflected in its “ Sixth Amendment to Lease Agreement ” (“the Sixth Amendment”) which became effective on August 7, 2002. In support of its claims in this lawsuit, Universal contends that (1) the projected expansion on the first floor was critical to its growth, and (2) in relying upon the terms under the Sixth Amendment, it had planned to occupy this expanded area on September 1, 2002.

Universal claims that during the second week of August in 2002, and following a very heavy rainfall,⁴ a foul odor began to permeate the entire first floor of the Building. When an employee complained about the presence of the odor, Universal's Senior Vice President Patricia Dial confirmed the problem and immediately scheduled air quality testing. On August 20th, she enlisted the aid of Jon Dattilo, a representative from an independent air quality agency, who observed mold and bulkwater inside the duct work of the Building. Thereafter, he characterized the ventilation system as being hazardous and recommended its immediate shutdown. Four days later, Dattilo confirmed the presence of (1) bacterial contamination in the air and (2) water inside the duct work.

Further testing of those areas on the first floor that were occupied by Universal revealed high levels of bacteria in the premises. In response, the Landlord shut down the air handling system, sealed off the air ducts, installed temporary cooling units, and cleaned portions of the ventilation system on the first floor. Notwithstanding these efforts by the Landlord to correct the situation, Universal contends that this cleansing process caused it to suffer a major disruption in its business activities. In its view, these efforts to correct the ventilation system produced an excessive amount of heat, which, in turn, endangered the health and welfare of the employees and adversely affected the operation of its business equipment. On the basis of a laboratory analysis in November 2002 which revealed the continuing presence of bacteria within the Building and acting upon the belief that its property would never be fully restored to its original condition, Universal moved its business to a new and permanent location in March of 2003.

III.

A.

Under its insurance contract with Universal, Federal agreed to pay for “direct physical loss or damage to building or personal property caused by or resulting from a peril not otherwise excluded.” ⁵ This is an “all-risk” style of insurance coverage, which means the insured can recover for damage to the insured property regardless of the peril that caused the harm unless a particular peril is specifically excluded. See generally, Tower Automotive Inc. v. American Protection Ins. Co., 266 F.Supp.2d 664, 667-68 (W.D.Mich.2003). Universal bears the burden of demonstrating that its loss is covered by the Policy. See generally, Clark v. Hacker, 345 Mich. 751, 756, 76 N.W.2d 806 (1956).

Here, Universal argues that a covered peril-namely, water seepage into the Building-caused it to suffer a direct physical loss in the form of pervasive odor, mold and bacterial contamination (both visual and aerosolized), as well as water damage. Although the term “direct physical loss” is not defined in the Policy, at least one Michigan court has examined the causation aspect of this phrase in the context of an insurance contract. See Acorn Inv. Co. v. Michigan Basic Property Ins. Assn., No. 284234, 2009 WL 2952677 at *2 (Mich.App. Sept. 15, 2009) (unpublished) (opining that the word “direct” signals immediate or proximate cause, as distinct from one that is remote or incidental, and concluding in part that extensive flooding caused by acts of vandalism in the removal of piping amounted to a direct physical loss). According to Merriam Webster's Online Dictionary, the term “physical” is defined as something which has a “material existence: perceptible especially through the senses and subject to the laws of nature.” Merriam-Webster, available at http:// www. merriam- webster. com/ (last visited March 26, 2010).

Federal, in challenging this claim by Universal, argues that neither mold contamination nor the...