Katopothis v. Windsor Mount Joy Mutual Insurance Company

Citations: 211 F. Supp. 3d 1; 2016 U.S. Dist. LEXIS 130907; 2016 WL 5374081Docket: Civil Action No. 2014-0380

Court: District Court, District of Columbia; September 26, 2016; Federal District Court

Original Court Document: View Document

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A plumbing accident at the Delaware vacation home of plaintiffs Francesca Dahlgren and Vasilli Katopothis, who reside in the District of Columbia, resulted in a pipe failure that caused significant flooding and mold infestation, leading to an estimated loss exceeding $800,000. Plaintiffs are suing two defendants: their home insurance provider, Windsor-Mount Joy Mutual Insurance Company, for breaching their insurance contract by denying coverage, and R.W. Home Services, Inc. (d/b/a Gale Force Cleaning and Restoration) for inadequate flood damage remediation, alleging breach of contract, negligence, negligent misrepresentation, and violations of the Delaware Consumer Protection Act. Windsor has filed a third-party complaint against Gale Force, seeking subrogation for any liability owed to the plaintiffs.

Currently, there are cross-motions for summary judgment from both plaintiffs and Windsor, with the plaintiffs seeking to establish coverage and Windsor asserting that policy exclusions negate coverage for the plaintiffs' loss. Gale Force has moved to dismiss all claims against it due to lack of personal jurisdiction and has also contested Windsor's subrogation claims for failing to state a valid claim. Both plaintiffs and Windsor oppose Gale Force's motion, requesting additional jurisdictional discovery and, if necessary, a transfer to Delaware.

The Court has determined that the insurance policy clearly excludes coverage for the plaintiffs' claims, resulting in the denial of the plaintiffs' motion for partial summary judgment and the granting of Windsor's motion. Additionally, the Court found it lacks personal jurisdiction over Gale Force regarding the plaintiffs' claims and deemed further jurisdictional discovery unnecessary, leading to the decision to transfer the case to the U.S. District Court for the District of Delaware under 28 U.S.C. § 1406(a).

In spring 2000, Plaintiffs acquired a second home in Rehoboth Beach, Delaware, and have utilized it for approximately 40% of the year, while spending the remainder of their time in Washington, D.C. A plumbing incident in February 2013 caused extensive damage to their Delaware residence. Plaintiffs have an annual insurance policy with Windsor, effective from June 15, 2000, with the current policy covering June 15, 2012, to June 15, 2013. The policy includes a twenty-seven-page “Special Form” and a one-page endorsement (ML-508D). The Special Form provides all-risk coverage for real property, covering direct physical damage unless specifically excluded, while personal property is covered only against named perils, including accidental water discharge from plumbing systems, subject to exclusions.

The policy outlines coverage for real property under Coverages A (the residence) and B (related structures), stating losses are covered unless excluded. For personal property (Coverage C), the policy covers losses caused by specified perils, barring exclusions. The Special Form contains three types of exclusions: those for real property only, those applicable to both categories with an anti-concurrent causation clause, and those that allow for coverage of ensuing losses. The key dispute between the parties centers on interpreting the ML-580D endorsement, which specifies additional exclusions for unoccupied residences, rather than any exclusions in the Special Form.

If the insured residence is vacant, unoccupied for over 72 hours, or under construction and unoccupied, specific actions must be taken to avoid coverage denial for water damage. The insured must either maintain heat and shut off the main water supply or completely drain all plumbing systems and appliances. Failure to comply with these requirements will result in no coverage for losses caused by freezing or leaks. This stipulation is part of the approved endorsement ML-508D, which emphasizes the importance of taking preventative measures against water damage. An accompanying notice (WB-27D) warns that not adhering to policy requirements could lead to significant financial loss. While Windsor included similar notices in prior years, the plaintiffs did not review the exclusion or notice until after filing a claim. On February 16, 2013, Francesca Dahlgren discovered extensive flooding in her home due to a failure in a pressurized water pipe.

Flooding led to mold proliferation, prompting the Plaintiffs to demolish their residence and construct a new home around May 2013 due to water damage and mold infestation. No one was present at the property for six days before February 16, 2013, with the last visit being by a friend on February 10, who did not enter the house. The Plaintiffs' last presence was on February 6, 2013, while their belongings remained inside. Although they left the heating system on, they did not shut off the main water supply, as there was no valve on it. The only preventive actions taken by the Plaintiffs involved shutting off water to the outside shower and hose. They had the option to either request the city to turn off the water supply or hire a plumber to install a valve but did neither. Plaintiffs believed they had secured the house adequately before their departure.

After filing a claim with Windsor Insurance, a third-party adjuster, Tim Stapf, investigated the claim and noted that the absence of a shutoff valve impeded compliance with insurance requirements. Stapf recommended approval of the claim, stating it was unreasonable to expect the insured to shut off a non-existent valve. He acknowledged that Plaintiffs could have contacted the water company to shut off the supply. However, Stapf was not informed about the option to install a shutoff valve. Following his report, Windsor’s claims manager, Ed Campbell, instructed Stapf to revise his recommendation to align with the insurer’s policy interpretation, which disallowed coverage for losses when the insured could not shut off the water supply, regardless of circumstances.

Plaintiffs were advised of their obligation to modify their situation to comply with Windsor’s requirements and to seek a qualified plumber if needed. Despite not agreeing with Windsor's stance, Campbell stated he was following directives, clarifying that his comments were not about policy interpretation but rather about Windsor's practice of selling policies with the ML-508D exclusion. Subsequently, Stapf altered his report to indicate Windsor could choose to grant or deny coverage. Ackley, upon returning from vacation, expressed uncertainty about the claim's status and noted the insured's inability to turn off the water, ultimately documenting a denial based on Campbell's resolution and a directive from management. Windsor formally denied the claim on March 11, 2013, citing the ML-508D exclusion while reserving the right to invoke other policy provisions.

The Plaintiffs hired Gale Force, a Delaware corporation, to address water damage from a burst pipe. Gale Force does not operate in the District of Columbia and conducted all services exclusively in Delaware. Dahlgren first contacted Gale Force by phone regarding remediation on February 20, 2013, while at her Delaware property, leading to a service contract that listed the Delaware property as the service address and the Plaintiffs’ D.C. home as the billing address. Gale Force operates under a licensing model with 1-800-BoardUp, which refers calls to contractors based on geographic territories. At the time, calls from the District of Columbia would not have been directed to Gale Force. Nonetheless, from February 20 to April 30, 2013, Dahlgren had nine phone conversations with Gale Force employees while in D.C., totaling forty-four minutes, with Gale Force initiating four of those calls, according to Windsor's analysis of the phone records.

Gale Force engaged in two email communications with Dahlgren regarding a cost estimate for remediation efforts related to water damage. Despite these exchanges, both Windsor and the Plaintiffs allege that Gale Force inadequately addressed the water damage, claiming that the only actions taken were the installation of three dehumidifiers left on-site for over two months, which resulted in mold growth that necessitated the house's demolition.

The document outlines two legal standards for the court’s review of pending motions: the Plaintiffs' motion for partial summary judgment and Windsor's cross-motion for summary judgment. Summary judgment is appropriate when there is no genuine dispute on any material fact, and the moving party is entitled to judgment as a matter of law. A material fact affects the litigation outcome, while a genuine dispute exists if reasonable evidence could support a verdict for the non-moving party. The party seeking summary judgment carries a heavy burden to demonstrate the clarity of their case, and the non-moving party must provide substantial evidence beyond mere allegations to establish a genuine issue for trial.

Additionally, Gale Force has filed a motion to dismiss for lack of personal jurisdiction, placing the burden on the Plaintiffs to demonstrate specific acts connecting Gale Force to the jurisdiction, rather than relying on general claims. The court may evaluate evidence beyond the complaint's allegations to ascertain jurisdictional facts.

The analysis section indicates that the cross-motions for summary judgment focus on the interpretation of form ML-508D, which outlines “Additional Exclusions for Unoccupied Residences,” and whether its language is ambiguous.

Windsor contends that the insurance policy language clearly indicates that the Plaintiffs' losses are not covered, based on undisputed facts. In contrast, Plaintiffs identify ambiguities in three aspects of form ML-508D: the definition of "unoccupied," the requirement for shutting off the water supply, and the scope of the ML-508D exclusion, including whether it pertains to specific property types, excludes "ensuing losses," and applies the "efficient proximate cause" standard. 

The parties also dispute which jurisdiction's law should apply for interpreting the policy, with Windsor advocating for D.C. law and Plaintiffs favoring Delaware law, while asserting both laws yield identical results. The Court applies D.C.'s choice-of-law rules, determining that even if there are non-identical aspects, the outcomes are the same in this case, thus allowing for the application of both jurisdictions' laws.

Both Delaware and D.C. courts utilize a two-step analysis for ambiguities in insurance contracts. The first step involves assessing if the contract language is ambiguous, which is a legal question. An ambiguity exists if the language can reasonably have multiple meanings. Courts aim to uphold the parties' intent without altering clear policy terms. If the language is deemed unambiguous, the contract is interpreted based on its ordinary meaning, concluding the analysis.

Ambiguity in contractual language necessitates the application of interpretive rules favoring the insured in Delaware and D.C. courts. Specifically, the doctrine of contra proferentem dictates that ambiguous insurance policy language should be interpreted against the insurer. Additionally, policies must align with the reasonable expectations of the insured. However, the court determined that the language in question was unambiguous, thus avoiding the need to further explore the application of these doctrines or consider extrinsic evidence.

The primary dispute revolves around the term "unoccupied" as defined in the ML-508D exclusion. The plaintiffs contend that their residence was not “unoccupied” because they had belongings in the house and intended to return, arguing for a dictionary interpretation of “unoccupied” as “vacant” or “empty.” The court rejected this view, clarifying that the exclusion explicitly states “unoccupied” refers to a lack of people for 72 hours, not the presence of personal items. The court emphasized that interpreting “unoccupied” to mean “not empty” would render the term redundant given the separate mention of “vacant.” It concluded that each term must hold distinct meaning to avoid surplusage, with “vacant” indicating a prolonged state of disuse, thereby affirming the clarity of the contractual language.

"Vacant" refers to a property being entirely empty of objects, while "unoccupied" indicates the absence of human presence, as established by various courts. Webster’s Third New International Dictionary defines "unoccupied" as premises not inhabited, even if furniture remains. The court concludes that "unoccupied" means a property must be devoid of people for over seventy-two hours. The cases cited by Plaintiffs do not contradict this interpretation. In Chowdhury v. LMI Insurance Co., the term "unoccupied" lacked a specific definition under Pennsylvania law, while Windsor-Mount Joy Mutual Insurance Co. v. Jones clarified that a lack of day-to-day residents renders a property vacant, regardless of household contents. The Delaware court distinguished Chowdhury and emphasized that the contract's purpose is to protect the insurer from risks associated with unoccupied properties. Thus, a furnished house without occupants is not deemed vacant or unoccupied. Plaintiffs' reliance on the "reasonable expectations" doctrine fails, as it applies only when a contract is ambiguous, which is not the case here. The contract's clear definition necessitates applying its plain language, confirming that the property was unoccupied from February 10 to February 16, 2013. Additionally, Plaintiffs question the ambiguity of a requirement to shut off the water supply entering the residence.

Plaintiffs assert ambiguity in a contractual clause regarding whether it applies to residences without “shut off valve[s] at the water supply entry point. They cite conflicting opinions from Windsor’s agents as evidence of this ambiguity, arguing such disagreements must be resolved in favor of the insured. However, the Court finds this argument unconvincing, stating that Delaware law dictates that ambiguity must be assessed solely based on the contract's language, without reliance on extrinsic evidence. D.C. law similarly prohibits using subjective intent or disagreements among parties to establish ambiguity. The Court acknowledges that while Plaintiffs credit their interpretation of the facts for summary judgment, Windsor’s employees' opinions are irrelevant unless a genuine ambiguity exists. Ultimately, the Court will determine if the phrase “shut off the water supply where it enters the residence” is ambiguous, starting with its dictionary definition, given that the policy does not define "shut off." According to the dictionary, "to shut off" means "to cut off" or "to stop."

Coverage under the policy is contingent upon the nonoccurrence of certain events, specifically that no water flows into the residence. The Court must adhere to a plain reading of the exclusion, rejecting arguments that extrinsic evidence of latent ambiguities should inform its interpretation, as Delaware law allows but the District of Columbia does not. The Court finds the language of the policy clear, stating that the requirement is solely to "shut off" the water supply, without needing to stipulate how that is achieved, such as through a shutoff valve. Plaintiffs fail to present a reasonable alternative interpretation of the policy that would indicate ambiguity. Although they assert they fulfilled their obligations under the ML-508D endorsement by not having a shutoff valve, the Court concludes that they did not meet the exclusion requirements because the residence was unoccupied for over 72 hours without a proper water supply shutoff. Furthermore, it is established that Plaintiffs had the option to hire a plumber to install a shutoff valve, which was not executed despite the exclusion being in effect for over six years prior to the incident. The policy explicitly requires the homeowner to take action to shut off the water supply, a task that could have been accomplished through various means, not limited to the installation of a shutoff valve.

The exclusion in question does not require the homeowner to shut off the water supply to maintain coverage for damage from a leaking or broken pipe, as arrangements like hiring a house sitter for absences over seventy-two hours can suffice. This presents homeowners with a choice: take preventive measures or risk significant water damage. The Plaintiffs' briefs reference contract law concepts, such as the potential excusal or waiver of the shutoff requirement and claims of unreasonableness; however, they fail to substantiate these claims with legal arguments or authority, leading the Court to conclude that the shutoff requirement is unambiguous. There is no necessity to examine extrinsic evidence of intent or apply rules favoring the insured due to ambiguities.

Regarding the scope of the ML-508D exclusion, the Court finds it unambiguously excludes coverage for damage to both real and personal property if the homeowner leaves the residence unoccupied for over seventy-two hours without shutting off the water. The Plaintiffs argue that the lack of specific language in the ML-508D exclusion creates ambiguity compared to other exclusions in the policy, which clearly delineate coverage for real versus personal property. However, the Court determines that the language in ML-508D unequivocally states that Windsor will not pay for losses caused by plumbing overflow under the specified conditions, thus rejecting any claim of ambiguity on this point.

The absence of specific limitations in the exclusion does not indicate ambiguity but rather signifies a comprehensive application. For example, an exclusion for "cars" is clear regardless of color distinctions. Similarly, form ML-508D aligns with broader exclusions in the policy and does not create ambiguity by failing to specify whether it applies to real or personal property losses. The Court determines that ML-508D does not include exceptions for "ensuing losses," contrasting with other exclusions that do provide such exceptions. Consequently, losses caused by overflow from plumbing are not covered under ML-508D, which lacks an "ensuing loss" clause. 

Regarding the interpretation of "cause," the Court finds no ambiguity. Plaintiffs argue that the exclusion is unclear in cases of multiple causation and seek to invoke the doctrine of "efficient proximate cause," which considers the dominant cause of the loss. Plaintiffs outline a causal sequence involving a broken pipe, water damage, and mold proliferation, but the Court views the first two events as a single peril. Additionally, Plaintiffs fail to include factors such as alleged negligence by Gale Force and their own actions in demolishing the house in their causal analysis.

Plaintiffs did not raise certain events as reasons for exclusion under ML-508D, leading the Court to disregard them. Assuming the “efficient proximate cause” doctrine applies, it is undisputed that the broken pipe was the primary cause of the loss, as Plaintiffs themselves stated that the failure of the hot water supply pipe allowed water and steam to enter their home, resulting in a total loss. Plaintiffs acknowledged that the damage was caused by the separation of a plumbing fixture. There is no genuine dispute that the broken pipe and subsequent overflow are perils excluded under ML-508D, which clearly states that Windsor does not cover losses caused by discharge, leakage, or overflow from plumbing systems.

Plaintiffs argue that ML-508D does not explicitly exclude damage from pipe separation or resulting mold; however, the Court finds this unpersuasive. Even if mold were a covered peril, the broken pipe's status as the efficient proximate cause dictates the coverage outcome. Since the broken pipe is excluded under ML-508D, the entire loss is also excluded. Plaintiffs’ assertion that ML-508D should only exclude damage to the pipe itself, not from the resulting flood or mold, contradicts the exclusion's language and the efficient proximate cause doctrine.

Furthermore, the Court notes that the residence was unoccupied during the incident, and Plaintiffs failed to shut off the water supply before leaving. Based on these facts, ML-508D excludes coverage for any loss to Plaintiffs’ property. Consequently, the Court denies Plaintiffs’ motion for partial summary judgment and grants summary judgment in favor of Windsor. 

Additionally, Plaintiffs have filed claims against Gale Force for breach of contract, negligent misrepresentation, negligence, and violation of the Delaware Consumer Protection Act, alleging that Gale Force failed to remediate water damage. Gale Force has moved to dismiss the amended complaint for lack of personal jurisdiction.

The Court lacks personal jurisdiction over the Plaintiffs’ claims against Gale Force, following a two-part inquiry essential for establishing personal jurisdiction over a non-resident. This inquiry requires assessing jurisdiction under the state’s long-arm statute and ensuring compliance with constitutional due process. Personal jurisdiction is classified into general and specific jurisdiction, with the Plaintiffs asserting only specific jurisdiction. Specific jurisdiction is established when the claims arise from the defendant's contacts with the forum, as outlined in D.C. law, which necessitates that the claim arises from the defendant's business transactions or tortious injuries in the District.

To determine if Gale Force has "purposefully established minimum contacts" with D.C., the Court considers whether Gale Force availed itself of conducting activities within the District. The Plaintiffs argue that Gale Force’s contacts—contracting with D.C. residents, communication regarding the contract while in D.C., and a marketing presence through a franchise—constitute sufficient grounds for jurisdiction. However, the Court finds these contacts inadequate, noting that merely entering into a contract or communicating does not meet the standard of “purposeful availment” necessary for jurisdiction, as established in prior case law. Thus, the Court concludes that there is insufficient basis for specific personal jurisdiction over Gale Force.

In Helmer v. Doletskaya, the court assessed whether a contract established personal jurisdiction over a non-resident defendant based on its connection to the District of Columbia. The court emphasized that a contract must have a “substantial connection” to the forum, which is evaluated through prior negotiations, future consequences, contract terms, and the parties' course of dealing (McGee v. Int’l Life Ins. Co.; Burger King). In this case, the contract between Gale Force and the plaintiffs was formed and executed in Delaware, with all performance occurring there. Gale Force's agents did not operate in D.C., and the only connection to D.C. was the plaintiffs' billing address, insufficient for jurisdiction.

The court noted that mere communication, such as telephone calls and emails exchanged between Gale Force and a plaintiff residing in D.C., does not equate to "transacting business" in the district. Such communications, which were minimal, were incidental to the contract and did not reflect an intention to conduct business in D.C. The court concluded that these contacts did not demonstrate the requisite minimum contacts necessary to establish personal jurisdiction, reiterating that a contract with a forum resident alone does not suffice to create such jurisdiction.

Communications deemed insufficient for establishing specific personal jurisdiction include various cases where a limited number of faxes, calls, or correspondences failed to meet the threshold. Gale Force’s relationship with BoardUp does not create specific personal jurisdiction. Randy McCreary, owner of Gale Force, stated that Gale Force operates under the BoardUp brand in a purchased territory that excludes the District of Columbia. Calls intended for projects within the District are directed to a different BoardUp franchisee. Plaintiffs argue that Gale Force has a business presence in D.C. through BoardUp, citing contractual references and employee testimonies suggesting a closer relationship between the two entities. However, the court assumes the facts are disputed but emphasizes that even if BoardUp's contacts could be attributed to Gale Force, they do not establish specific personal jurisdiction because the plaintiffs contacted Gale Force directly in Delaware, with no involvement of BoardUp in the transaction. Additionally, there is no evidence connecting BoardUp's alleged contacts with the District to the specific transaction in question. The court concludes that Gale Force was not "transacting business" in the District as defined by D.C. law. Plaintiffs also claim specific personal jurisdiction based on tortious acts and injuries in D.C. under D.C. Code section 13-423(a)(3).

Section 13-423(a)(3) of the D.C. Code allows for the exercise of personal jurisdiction over defendants who cause tortious injury in the District of Columbia through acts or omissions within the District. Unlike broader jurisdictional tests, this provision is narrowly defined and requires both the act and the injury to occur in the District. The Court finds that the Plaintiffs' claims do not meet this standard. Specifically, the alleged misrepresentation is deemed to have occurred primarily in Delaware, where the relevant events, such as the location of the flooded residence and the agreement with Gale Force, took place. No Gale Force employees entered the District for this case, and the only actions that could be considered as occurring in D.C. are phone calls made from Delaware, which do not establish jurisdiction according to precedent. Additionally, the injury claimed by the Plaintiffs, related to damage to their Delaware home, did not occur in the District. Economic injury cannot be attributed to the plaintiff's domicile for jurisdictional purposes. As such, the Court concludes that D.C. Code section 13-423(a)(3) does not permit personal jurisdiction over Gale Force in this case.

The Court denies the Plaintiffs' request for further jurisdictional discovery, stating that such requests require a good faith belief that discovery will help establish personal jurisdiction over the defendant, rather than mere conjecture. Plaintiffs have already conducted substantial discovery, including depositions of Gale Force employees, and possess personal knowledge of relevant jurisdictional facts. The Court notes that the Plaintiffs did not claim that their injuries included a fraudulently induced payment to Gale Force, nor did they provide evidence of any unknown jurisdictional facts that could influence the Court's decision. For example, the proposed deposition of McCreary regarding Gale Force's relationship with BoardUp would not establish specific jurisdiction, and inquiries into alleged misrepresentations to Dahlgren are deemed irrelevant. Additionally, any discovery related to telephone and email communications is unnecessary as Dahlgren was privy to these conversations and could have supplied pertinent information. Consequently, the Court denies the request for additional jurisdictional discovery and concludes that it lacks personal jurisdiction over Gale Force. It then considers transferring the case to a proper venue, specifically the District of Delaware, as permitted under 28 U.S.C. § 1406(a), emphasizing the congressional intent to facilitate efficient adjudication of cases.

The Court identified a lack of personal jurisdiction as a procedural obstacle, warranting the transfer of the case to the U.S. District Court for the District of Delaware. The transfer is necessary to prevent the potential barring of Plaintiffs’ claims by the three-year statute of limitations under Delaware law for breach of contract, negligence, negligent misrepresentation, and consumer protection violations, given that the relevant events occurred in early 2013. The transfer is also expected to establish personal jurisdiction over Gale Force, whose President confirmed that the company is incorporated and has its principal place of business in Delaware. Consequently, the transfer will allow for an adjudication of the merits of Plaintiffs’ claims. Additionally, the Court denied Plaintiffs’ motion for partial summary judgment and granted Windsor’s motion for summary judgment. The case will be transferred under 28 U.S.C. § 1406(a) due to the lack of personal jurisdiction over Gale Force. A separate order will follow.