Court: District Court, M.D. Georgia; September 28, 2015; Federal District Court
Cross-motions for summary judgment have been filed by plaintiff Certain Underwriters at Lloyd’s London and defendant Bert Witham. Lloyd’s motion is partially granted and partially denied, while Witham's motion is wholly denied. The case centers on Lloyd’s obligations under an insurance policy for property at 551 Bethesda Avenue, Macon, Georgia, which was destroyed by fire on January 28, 2013. The policy listed Reaching Souls Cathedral of Praise as the insured, the Ross Family Partnership as the loss payee, and Witham as the mortgage holder.
Key facts include:
- In December 2003, Reaching Souls acquired the property and mortgaged it in 2006.
- Witham loaned money for a new sanctuary and later consolidated the loans and mortgage note into a single promissory note.
- An agreement required Reaching Souls to maintain property insurance, but financial difficulties arose following Pastor Onslow Ross's conviction and subsequent decline in church attendance.
- Witham sought to ensure property insurance after a policy was set to lapse, with conflicting testimonies regarding who initiated contact with the insurance agent, Bill Scarbrough.
- Scarbrough obtained insurance for Reaching Souls over several years, and despite Chubb Insurance Company canceling coverage in July 2012 due to non-payment, Witham continued to provide financial support for church renovations, leading to disputes over McGinn's involvement in securing new insurance.
The evidence includes various communications and depositions indicating the complexities surrounding the insurance procurement process and the obligations under the policy.
On July 9, 2012, Scarborough submitted an insurance application to Lloyd’s, seeking coverage for the actual cash value of a property. The application bore McGinn’s signature, but a dispute exists regarding its authenticity. Scarborough initially claimed McGinn signed it but later stated he signed her name without authorization; McGinn denied signing it. Scarborough's deposition revealed he based his answers on prior applications for Reaching Souls, which he received from Evelyn Ross. Both McGinn and Witham denied involvement in prior applications. Lloyd’s subsequently bound coverage from July 25, 2012, to July 25, 2013. After the policy issuance, Scarborough submitted a hazard report, signing Witham's name, which went unchallenged by Witham. On September 6, 2012, an inspection occurred with McGinn present, listed as the 'interview contact name' and 'Financier.' Following the inspection, McGinn questioned the insurance coverage limits and communicated with Scarborough about mandatory recommendations for fire extinguishers and alarm systems. Disputes arose over whether the alarm system was activated at the time of a fire on January 28, 2013, and whether McGinn's statements constituted material misrepresentations. On May 3, 2013, Witham submitted a proof of loss, declaring himself as the mortgage holder and asserting no other interests in the property, despite conflicting statements regarding the property's cash value and conditions of the loss. McGinn also underwent an examination under oath by Lloyd’s counsel.
Lloyd’s denied Witham’s insurance claim and subsequently initiated a lawsuit seeking rescission of the Policy against Reaching Souls, the Ross Family Partnership, and Witham. In response, Witham filed a counterclaim asserting his right to coverage under the Policy. On November 15, 2013, a default judgment was entered against Reaching Souls and the Ross Family Partnership, declaring the Policy rescinded and void ab initio for these defendants. Lloyd’s, in its motion for summary judgment, argues it is entitled to a declaration that: (1) the Policy can be rescinded due to material misrepresentations made by Witham’s agents; (2) alternatively, Witham’s misrepresentations on the sworn proof of loss void his coverage; (3) alternatively, the fire loss is not covered; and (4) alternatively, coverage is limited to the actual cash value of the damaged properties. Witham has filed a cross-motion for summary judgment, claiming entitlement to coverage as an innocent mortgage holder and seeking indemnity for the actual cash value of the destroyed properties, demolition costs, and prejudgment interest.
The standard for summary judgment requires the court to grant it when there is no genuine dispute of material fact, and the movant is entitled to judgment as a matter of law. The burden of proof lies with the moving party, which must provide credible evidence to show that no reasonable jury could find for the nonmoving party. The nonmoving party must then present significant evidence demonstrating a triable issue of fact. The court must view the evidence in favor of the nonmoving party and can only grant summary judgment if the record shows no genuine issue of material fact exists.
When the nonmoving party bears the burden of proof at trial, the moving party does not need to provide evidence negating the opponent's claim; rather, it can demonstrate a lack of evidence supporting the nonmoving party's case. If the moving party meets its burden, the nonmoving party must then establish a genuine dispute on any issues for which it will bear the burden at trial. The standards for reviewing cross-motions for summary judgment are the same as for a single motion, and such motions will not result in summary judgment unless one party is entitled to it based on undisputed facts. Each motion is evaluated separately, with all reasonable inferences drawn against the party whose motion is under review.
In the case concerning Witham's status as an innocent mortgage holder, Lloyd’s argues he is not innocent, while Witham asserts he is. The policy's mortgageholder clause protects the mortgagee under Georgia law, even if the insured acts to invalidate the mortgage. However, the mortgage holder's own actions could void coverage under this clause. There is agreement that Scarbrough obtained insurance for Reaching Souls's property with alleged material misrepresentations. The crux of the issue is whether Scarbrough acted as Witham's agent or as Reaching Souls's agent. If he was Witham's agent, the misrepresentations would be imputed to Witham. Agency can arise through express authorization or ratification, and its existence can be inferred from the parties' conduct. If an agency relationship exists, the principal is attributed with the agent's knowledge. There are genuine disputes of fact regarding whether Scarbrough was acting as Witham’s agent, which affects Witham's claim to being an innocent mortgage holder.
Scarbrough asserted he had the authority to procure insurance, citing payments received for coverage initiation. Witham confirmed he made these payments, including broker fees. Communication regarding insurance issues occurred between Scarbrough, Witham, and McGinn before and after the issuance of the Policy by Lloyd's. Scarbrough requested McGinn's assistance to reinstate coverage under the Chubb policy via email. McGinn identified Scarbrough as "our agent," indicating he would handle the insurance matters. Scarbrough signed Witham's name on a hazard report post-coverage binding without objection from Witham or McGinn. However, Witham and McGinn argue their communications with Scarbrough were solely to protect Witham's interests as a mortgage holder and did not authorize him as their agent for insurance procurement. Scarbrough claimed only Reaching Souls, the insured party, could instruct him on the insurance application, using prior applications for information, and indicated that McGinn signed the application as Witham's authorized representative. However, Scarbrough later contradicted this by stating he signed McGinn's name to the application, creating a dispute over whether McGinn actually signed it. This raises questions about Scarbrough’s agency status and whether McGinn signed the application, impacting Witham's claim of being an innocent mortgage holder.
Lloyd's contends it is entitled to summary judgment based on alleged material misrepresentations by Witham in the proof of loss, which could void coverage. Witham counters that there is no factual basis for claims of intentional misrepresentation. Under Georgia law, misrepresentations must be material and made with intent to defraud to negate coverage. Determining materiality can be a legal question, while intent is generally a factual issue for the jury to decide.
Where there is no evidence of fraudulent misstatements in a proof of loss, an insurer cannot void coverage based on those misstatements. Lloyd’s claims Witham made three intentional material misrepresentations. First, Lloyd’s asserts Witham misrepresented that he alone had an insurable interest in the property, despite Witham stating that both he and Reaching Souls had such an interest. Lloyd’s knowledge of Reaching Souls’ potential interest negates its claim for summary judgment on this point.
Second, Lloyd’s contends Witham misrepresented the loss amount. While Witham does not dispute the materiality of the alleged misrepresentation, he claims there is no evidence of intent to defraud. The proof of loss included a claimed value of $995,000 based on a prior appraisal of $1,222,816.19. Witham believed this amount was calculated from the policy's face value less a deduction. McGinn's prior statement indicated doubt about the $1,000,000 valuation, but she claimed a lack of actual knowledge regarding the property's value. The conflicting evidence leaves a genuine dispute about whether Witham’s estimate was made with fraudulent intent, thus precluding summary judgment.
Finally, Lloyd’s argues Witham misrepresented that the loss did not originate from the insured's actions, citing circumstantial evidence indicating potential involvement by agents of Reaching Souls. McGinn's affidavit mentioned federal agents suspecting the Ross family of causing the fire for financial gain.
No evidence exists indicating any member of the Ross family or Reaching Souls' agents were indicted or convicted for arson. Lloyd's has not demonstrated that Witham or McGinn knew of any arson by Reaching Souls that would obligate them to assert that the loss was caused by an act of the insured. Mere suspicion does not establish a material misrepresentation intended to defraud Lloyd's, thus summary judgment for Lloyd's on this matter is denied.
Regarding coverage under the policy, Lloyd's claims that, due to the mortgage clause, Witham can only recover under the Buildings and Structures Coverage. In contrast, Witham argues that he is also entitled to recover under the Business Personal Property Coverage. The mortgage clause specifies that loss payments for buildings and structures will be made to mortgageholders, and if a claim is denied due to the insured's actions, the mortgageholder retains the right to receive payment under specific conditions. Witham contends that the clause's 'all-terms' paragraph allows him to access provisions that generally apply only to the insured.
Lloyd's asserts that section 2.b. limits the mortgageholder's coverage to the actual cash value of the buildings and structures. Under Georgia law, insurance policy interpretation, including resolving ambiguities, is a legal question for the court. Insurance contracts are interpreted based on the intent of the parties and must be viewed as a whole. The mortgage clause in question is a New York standard clause that establishes a separate contract between the insurer and the mortgageholder. Courts interpreting similar clauses have concluded that this standard mortgage clause allows the mortgageholder to recover as permitted under its terms.
The mortgage holder’s coverage is explicitly defined by the standard mortgage clause, which limits recovery to losses related to buildings and structures. Section 2.b. specifies that payment is made for covered loss to the identified mortgageholders. Section 2.d. allows the mortgage holder to recover losses even if the insured is denied coverage due to their own actions. The court interprets the mortgage clause to mean that Witham’s recovery is confined to losses associated with buildings and structures, not extending to business personal property. Witham's argument for recovery of contents based on his security interest is rejected, as coverage is dictated by the contractual terms with the insurer, not external agreements. The court emphasizes that the insurer's liability under the mortgage clause does not align with the mortgage holder’s broader security interests. Lloyd's is granted partial summary judgment on this matter, while Witham's motion for summary judgment is denied. Additionally, although Witham contests the characterization of McGinn's role as his agent, he does not substantively dispute her agency during relevant events. Lloyd’s objection to certain statements in McGinn's affidavit is overruled, as the court does not rely on those specific statements.
Lloyd’s has filed a motion to strike statements in paragraph 22 of McGinn’s affidavit, claiming they are speculative. The Court has not relied on these statements. Lloyd’s intends to use McGinn’s examination under oath (EUO) testimony to assert that Scarbrough was Witham’s agent. They argue McGinn's affidavit is a sham because her assertion that Scarbrough was not acting as Witham's agent contradicts her earlier EUO testimony. The sham affidavit rule prevents a party from creating a genuine issue of material fact through an affidavit that contradicts prior clear testimony without explanation. The Court notes that an EUO and a deposition have procedural differences, making it unclear if an EUO can fully substitute for a deposition. However, Lloyd’s has not demonstrated sufficient grounds to strike the affidavit under the sham rule, as McGinn has provided explanations for the discrepancies, which only raise credibility issues rather than factual contradictions. Consequently, Lloyd’s motion to strike is denied.
Additionally, Lloyd’s has challenged certain statements in McGinn’s affidavit as inadmissible hearsay or speculation and claims the affidavit is prejudicial. The Court has not relied on these statements and does not find the affidavit prejudicial. Witham objected to the filing of McGinn’s EUO transcript, but the Court, acknowledging McGinn's role as Witham's agent, overruled this objection, determining the EUO likely qualifies as an admission by a party opponent under the Federal Rules of Evidence.
Lloyd’s also sought discovery sanctions against Witham for failing to admit that McGinn had counsel during her EUO. The Court found Witham had reasonable grounds for his denial, thus denying the motion for sanctions. The Court is concerned about changes in Scarbrough's testimony but declined to strike his affidavit. Whether Scarbrough will be credible at trial remains unsettled. Witham plans to support his claim that McGinn did not sign insurance application documents with testimony from handwriting expert Arthur Anthony.
Lloyd’s seeks to exclude Anthony's expert testimony as irrelevant under Fed. R. Evid. 402, arguing that the signature on the application is irrelevant because Scarbrough was Witham’s legal agent. However, since Lloyd’s has not established that Scarbrough was indeed Witham’s agent, the signature matter remains relevant to determining Witham’s status as an innocent mortgage holder. Lloyd’s also challenges Anthony’s testimony under Fed. R. Evid. 702, claiming it is unreliable due to insufficient methodological explanation and the use of copies of electronically stored signatures instead of originals. The Court finds Anthony's methodology sufficiently reliable, noting his detailed explanation of the document evaluation process and that the use of copies affects the weight of his testimony but does not preclude its admission. Consequently, Lloyd’s motion to exclude Anthony's testimony is denied.
Additionally, Lloyd’s contends that McGinn made significant misrepresentations concerning the activation of the central alarm system, which she acknowledged she had not activated before the fire. While Lloyd’s asserts that this misrepresentation is material and could influence premium rates, Witham counters that McGinn had no obligation to activate the system, there is no evidence it was inactive at the time of the fire, and any failure to activate was the insured's responsibility. The Court identifies a genuine factual dispute regarding the alleged misrepresentation, ruling that Lloyd’s is not entitled to summary judgment on this issue. Lastly, Lloyd’s argues that Witham cannot recover under the Policy due to material misrepresentations in the proof of loss and an exclusion for criminal or dishonest acts. The Court addresses the proof of loss argument separately but acknowledges the relevance of the exclusion in this context.
Lloyd’s contends that Witham's intentional concealment and misrepresentations in the proof of loss breach the Policy's "Concealment, Misrepresentation or Fraud" condition, which voids coverage for intentional misrepresentation of material facts. Witham argues that this condition does not apply to him as the mortgage holder, citing the mortgage clause that specifies coverage terms apply directly to the mortgage holder only if Lloyd’s denies coverage to the insured, Reaching Souls. The Court agrees with Witham, noting that coverage had not been denied at the time the proof of loss was submitted. However, the Court acknowledges that intentional misrepresentation can void coverage regardless of the specific condition. It indicates that the determination of whether Witham's coverage is void will consider his intent and the materiality of the alleged misrepresentations, but does not interpret Witham's motion as a request for summary judgment on this matter. The Court finds that the acknowledgment of Reaching Souls's insurable interest makes it unlikely the issue will proceed to a jury. Lloyd’s citation of Woods v. Independent Fire Insurance Co. is deemed almost frivolous, as the circumstances differ significantly; Witham had an established insurable interest.
Regarding the valuation of the destroyed properties, the actual cash value, which Lloyd’s does not dispute, will be calculated based on replacement cost value. Lloyd’s motion to preclude expert testimony from Shawn Stafford on this matter is denied, as Stafford's methodology aligns with what Lloyd’s recognizes as appropriate. Additionally, Lloyd’s attempts to strike parts of McGinn’s affidavit are noted, but the Court does not rely on those statements. Lastly, Lloyd’s claims it has established a prima facie case for arson and argues it has no obligation to Witham because losses from arson are not covered under the Policy’s Criminal Acts Exclusion. The Court finds this argument unpersuasive.
The Policy’s Criminal Acts Exclusion does not preclude coverage for an innocent mortgage holder under a standard mortgage clause, which ensures that the mortgage holder's right to coverage remains intact regardless of the insured's actions. This principle is supported by the case Waterstone Bank, SSB v. Am. Family Mut. Ins. Co., which confirms that a mortgageholder clause preserves coverage when the property owner's actions breach the insurance contract. Similarly, in Iron Horse Auto, Inc. v. Lititz Mut. Ins. Co., the Supreme Court of Kansas rejected the insurer's claim that it was not obligated to indemnify the mortgage holder due to a criminal acts exclusion, affirming that the policy clearly states the mortgagee is entitled to payment even if the insured commits arson. Consequently, the court concludes that Lloyd's is not entitled to summary judgment based on the argument that the fire loss was not covered due to the insured's alleged arson. Additionally, since the Policy limits coverage for the mortgage holder to the actual cash value of the buildings and structures, Lloyd's motion to exclude testimony from Jerry Straughan, Jr. and John Bechler regarding the value of business personal property is deemed moot.
