Celebration Church, Inc. v. United National Insurance
Docket: CIVIL ACTION CASE NO. 14-1050
Court: District Court, E.D. Louisiana; December 22, 2015; Federal District Court
Celebration Church, Inc. owns a commercial property in Metairie, Louisiana, which was insured by United National Insurance Company (UNIC) from October 1, 2012, to October 1, 2013, under an all-risk property insurance policy. The policy covered direct physical loss unless specifically excluded. One key exclusion, the "Precious Metals Exclusion," denies coverage for theft or attempted theft of precious metals or alloys attached to buildings or structures.
Following Hurricane Katrina, Celebration Church installed seven rooftop air conditioning units, which were subsequently vandalized, leading to the theft of condensers believed to contain precious metals. The Church filed a claim with UNIC for $71,894.40 to cover the damages, but UNIC denied the claim based on the Precious Metals Exclusion.
Celebration Church initiated legal action in the 24th Judicial District Court on April 29, 2014, seeking damages, including exemplary damages and attorney’s fees, citing Louisiana statutes. UNIC removed the case to federal court, asserting diversity jurisdiction.
The Church filed a motion for partial summary judgment regarding coverage on March 7, 2015, while UNIC filed its own motion for summary judgment on March 17, 2015, contesting coverage and the Church's bad faith claims. On November 24, 2015, UNIC also made motions regarding bad faith claims and to exclude expert testimony.
Ultimately, the Court granted summary judgment in favor of UNIC on the coverage issue, rendering the subsequent motions unnecessary to address. The Church argued that the insurance policy included coverage for equipment breakdown, asserting that the Precious Metals Exclusion should not apply to liquid or equipment, but only to theft of precious metals.
Celebration Church asserts that the theft in March 2013 involved both liquid refrigerant from air conditioning condenser coils and the coils themselves, which were classified as "equipment" by mechanical contractors and an expert engineer. The value of the stolen refrigerant, R22, is estimated between $375 and $1,000 per unit, significantly exceeding the approximate $200 scrap value of copper from the coils. Witnesses noted that thieves left behind copper worth more than the scrap taken.
Celebration Church points out that UNIC’s claims administrator, Global Indemnity Group, employed Mariposa Ltd., who in turn hired adjuster Jonathan Kimball. Kimball's initial report did not confirm the coils' material composition and acknowledged the presence of refrigerant without reporting it as missing. He did not investigate whether the coils constituted "equipment" under the policy. Despite Kimball suggesting a "coverage issue," his report was later revised by Mariposa or UNIC to deny the claim based on the Precious Metals Exclusion, despite insufficient evidence regarding the coils' composition.
Celebration Church claims that UNIC later engaged expert Michael Kelly, who confirmed the coils contained refrigerant while stating they were made of copper and/or aluminum. Based on these undisputed facts and Louisiana insurance law, Celebration Church seeks summary judgment for coverage under the policy, arguing that the Precious Metals Exclusion does not apply to liquid refrigerant or equipment. Alternatively, they contend that the exclusion is ambiguous and should be interpreted in favor of coverage, asserting that insurance policies should be interpreted to provide coverage rather than deny it, placing the burden of proof on UNIC to demonstrate the Exclusion's applicability, which they claim UNIC has not done adequately due to a lack of investigation.
Celebration Church asserts that all deposed witnesses confirmed the theft of both condenser coils and the liquid refrigerant, arguing that the thieves targeted refrigerant due to its higher value compared to scrap metals like copper and aluminum. The Church claims that the theft involved "equipment," thereby negating the applicability of the Precious Metals Exclusion in its insurance policy. Two mechanical contractors and an expert concluded that the stolen coils qualify as "equipment" under the policy, while UNIC’s expert did not address this classification, which led UNIC’s adjuster, Kimball, to initially refrain from recommending coverage denial.
In an alternative argument, Celebration Church contends that the Precious Metals Exclusion is ambiguous and should favor coverage. The Church criticizes UNIC's interpretation as overly broad, which it claims would eliminate coverage for any machinery containing minor amounts of precious metals. Citing the Louisiana Supreme Court case Doerr v. Mobil Oil Corp., the Church argues that overbroad provisions risk absurd outcomes contrary to Louisiana insurance law, and thus, should be seen as ambiguous and interpreted in favor of coverage.
In response, UNIC claims no genuine material facts are in dispute and has filed for summary judgment to dismiss the Church's claims. UNIC argues that various individuals acknowledged the stolen coils contained copper or aluminum, reaffirming its position that the Precious Metals Exclusion is clear and unambiguous, necessitating enforcement as written.
UNIC asserts that it is undisputed that condenser coils were removed from the relevant air conditioning units, which contained copper and aluminum. UNIC argues that the Plaintiff's focus on the theft of liquid refrigerant and equipment is irrelevant, as the primary issue is whether the Precious Metals Exclusion in the insurance policy applies to the theft of copper and aluminum, which resulted in vandalism of the insured property. UNIC maintains that the thieves’ intent is immaterial because the theft involved at least 100 linear feet of copper. Even if the thieves aimed to steal refrigerant, the act of taking the condenser coils would still trigger the exclusion due to the theft of the metals involved.
UNIC counters Plaintiff's claims by noting that no evidence supports the assertion that the thieves intended to focus on freon. Testimony from a mechanical contractor indicated that once the coils were cut, any freon would have evaporated, suggesting that specialized equipment would have been necessary to extract the refrigerant, which UNIC argues the Plaintiff has failed to prove was the thieves’ intent. UNIC also dismisses the relevance of any copper left behind, stating that the theft of copper and aluminum does not require complete removal for it to be classified as theft.
Furthermore, UNIC challenges Plaintiff's interpretation of the Exclusion as overly narrow, arguing that it comprehensively excludes losses resulting from theft, not just those involving precious metals. UNIC contends that the Plaintiff's interpretation would absurdly imply coverage for complete destruction of equipment during the theft of precious metals, which contradicts the intent of the Exclusion.
In response, Celebration Church claims that UNIC has not met its burden to prove that the damage was due to the theft of metals, arguing instead that the loss resulted from the theft of refrigerant and equipment, which are not covered by the Exclusion. Celebration Church maintains that witnesses have confirmed the theft included liquid refrigerant, which was of greater value than the scrap metal taken.
Plaintiff argues UNIC's claim that refrigerant "may have evaporated into gas" is irrelevant, asserting that the missing items clearly included refrigerant, which is not covered by the Precious Metals Exclusion when considered in liquid or gas form. Plaintiff contends UNIC has not presented evidence disputing that the theft involved equipment, and that the Exclusion applies to stolen metal from equipment, not the equipment itself. Celebration Church supports this by noting that valuable scrap metal was left behind, indicating the loss likely stemmed from equipment theft rather than scrap metal theft.
Furthermore, Plaintiff claims UNIC has failed to prove the actual composition of the coils. An expert for UNIC, Kenny Peffer, suggested the coils likely contained copper or aluminum but was uncertain, and he challenged the reliability of manuals provided by another expert, Michael Kelly. Testimony from Rory Scallan about the coils being made of copper, aluminum, and/or steel lacked sufficient foundational support regarding his knowledge. Even if UNIC had met its burden, Plaintiff asserts that theft of refrigerant and/or equipment would still be covered under the Policy.
Plaintiff argues that without an anti-concurrent clause, which would exclude coverage regardless of other contributing causes, there could be both covered (refrigerant and equipment) and excluded (copper/aluminum) causes of loss, supporting the argument for coverage. Additionally, Plaintiff contends that the Exclusion's wording limits its application to thefts involving only precious or semi-precious metals.
In its motion for summary judgment, UNIC reiterates that undisputed facts demonstrate the theft of condenser coils is not covered by the Policy. UNIC also seeks dismissal of Plaintiff's claims for bad faith and fair dealing, arguing that under Louisiana law, an insured must prove satisfactory loss evidence was provided to the insurer to support claims for penalties and attorney fees, along with compliance with statutory timelines. UNIC cites Fifth Circuit rulings that suggest the relevant statutes are penal and should be strictly construed, and indicates that a reasonable basis for denying coverage precludes the invocation of these statutes.
UNIC contends that it did not receive satisfactory proof of loss as there is no covered loss under the Policy. Even if coverage existed, UNIC argues that a dispute regarding a clause excluding coverage prevents Plaintiff from claiming statutory penalties or attorney fees. UNIC asserts compliance with La. R.S. 22:1892, which mandates insurers to begin loss adjustment within fourteen days of notification, noting that the initial inspection occurred within five days. Consequently, UNIC seeks dismissal of all Plaintiff's claims, including breach of contract and bad faith.
In response, Plaintiff reiterates many arguments from its motion for partial summary judgment, asserting that UNIC incorrectly relied on Policy language not applicable to the Precious Metals Exclusion. Plaintiff claims that without the "directly/indirectly" and anti-concurrent clauses, UNIC cannot deny coverage, as the theft of refrigerant and/or equipment should be covered regardless of other exclusions. Additionally, Plaintiff argues that the Precious Metals Exclusion is ambiguous as it may not apply to refrigerant and/or equipment, thus should be interpreted in favor of coverage. Plaintiff also alleges bad faith on UNIC's part, citing an expert report that criticized UNIC for misinterpreting the Exclusion and mishandling the claim. Specific examples include the failure to report missing refrigerant and to investigate whether condenser coils constituted equipment under the Policy.
In its reply, UNIC acknowledges an initial error in referencing the "directly/indirectly" and "anti-concurrent clause," but maintains these mistakes are minor and do not affect the decision on the motions. UNIC clarifies that the mistakenly cited language was not relied upon in its memorandum supporting summary judgment and was only mentioned in response to Plaintiff’s claims regarding the applicability of the Exclusion.
UNIC asserts that the incorrect citation of "indirectly causing" from an irrelevant section of the Policy is inconsequential, as the Defendant has not argued "indirect" causation but rather that the Plaintiff's loss was directly due to the theft of copper and aluminum. UNIC claims that the Plaintiff has misrepresented the Policy language regarding whether the stolen condenser coils are considered "equipment," arguing that the Exclusion clearly applies to equipment and that the interpretation suggesting otherwise would undermine the vandalism clause. UNIC emphasizes that it is established from the Plaintiff's own witnesses that the stolen coils were made of copper or aluminum. The Defendant contests the Plaintiff's interpretation of Kenny Peffer's testimony, asserting that Peffer confirmed that the damaged units had condenser coils made of these metals. UNIC also points out that the Plaintiff selectively quoted from expert Michael Kelly’s report, omitting key portions that affirm the presence of copper and aluminum in the coils. UNIC maintains that the relevant Exclusion is unambiguous.
Regarding the legal standard for a motion for summary judgment, it is appropriate when the evidence shows that no genuine dispute exists over material facts, allowing the movant to claim judgment as a matter of law. The court must consider all evidence but cannot make credibility determinations or weigh the evidence. The non-moving party must present specific facts demonstrating a genuine issue for trial, rather than relying solely on pleadings. The burden is on the moving party to provide a basis for the motion and highlight parts of the record indicating the absence of genuine issues of material fact.
The nonmovant must demonstrate a genuine issue of material fact beyond mere speculation, conclusory allegations, or minimal evidence; a factual dispute requires sufficient evidence for a reasonable trier of fact to favor the nonmoving party. Hearsay and unsworn documents are inadmissible as competent evidence. In cross-motions for summary judgment, each motion is evaluated independently, with evidence viewed favorably for the nonmoving party. Summary judgment is not warranted by cross-motions alone unless one party is entitled to judgment on undisputed facts, though they may indicate a lack of factual dispute if there is agreement on legal theories and material facts.
The Louisiana Supreme Court in Huggins v. Gerry Lane Enterprises, Inc. established that insurance policies are contracts interpreted under Civil Code principles, focusing on the parties’ common intent. Terms should be understood in their ordinary meaning unless technical definitions apply. Liability insurance policies are generally interpreted to provide coverage, with the insurer responsible for proving that a loss is excluded under the policy. Each clause must be interpreted in context with the entire contract, and ambiguous terms are construed against the insurer. The rule of strict construction applies only to provisions with multiple reasonable interpretations. Clear and unambiguous terms must be enforced as written, with clarity or ambiguity being a legal question.
Both Celebration Church and UNIC seek summary judgment, claiming no genuine issue of material fact exists and accusing each other of distracting the Court from the key issue of contractual interpretation. The Court will first evaluate the Plaintiff's motion for summary judgment, which argues for coverage and, alternatively, claims ambiguity in the contractual language that should favor coverage.
When the language of a contract is clear and unambiguous, its interpretation can be decided as a matter of law, allowing for summary judgment unless there are disputed facts. The Plaintiff argues that if the Court does not rule in its favor regarding insurance coverage for damage to air-conditioning units, it should declare the Precious Metals Exclusion ambiguous due to its multiple interpretations. The Plaintiff claims UNIC's interpretation is excessively broad, potentially denying coverage for any loss if there is evidence of attempted theft of minimal amounts of precious metals, such as copper. For instance, they suggest that in a hurricane, UNIC could deny coverage if a breaker box had a single copper wire, interpreting this as an "attempted theft."
In contrast, UNIC contends that a hurricane-related loss is distinct from theft, asserting that the Exclusion does not apply merely to the value of stolen metals but also to related damages. The Court agrees that it is unreasonable to interpret the Exclusion as excluding hurricane damage under the guise of attempted theft. Additionally, UNIC's argument that any theft involving copper would invoke the Exclusion, regardless of the thieves' intent, is also seen as overly expansive. The Court highlights that it is improbable for the Exclusion to cover thefts where the stolen metal constitutes a minor part of the targeted items.
Both parties hold extreme views on the Exclusion's meaning, but the Court notes that differing interpretations do not lead to ambiguity if the contract's language is clear. While provisions that restrict an insurer's obligations are strictly construed against them, this principle applies only when the provision is reasonably susceptible to multiple interpretations. Ultimately, the Court emphasizes its duty to ascertain the parties' common intent in interpreting insurance contracts.
An insurance policy must be interpreted reasonably, avoiding any strain on its terms that could lead to absurd conclusions. The Court will not consider alternative interpretations presented by the Plaintiff and Defendant that are deemed unreasonable. An ambiguity in contract language does not arise merely from a dispute over coverage after a claim has been made. If ambiguity persists after applying standard contract interpretation rules, the ambiguous language will be construed against the insurer. However, when the policy language is clear, it must be enforced as written.
In this case, the Court finds no ambiguity in the Exclusion regarding "loss or damage" from the theft or attempted theft of Excluded Metals connected to buildings or machinery. The Court rejects exaggerated claims from both sides that could lead to unreasonable conclusions about coverage for hurricane damage or theft of items with minimal traces of Excluded Metals. The Exclusion is deemed clear and unambiguous.
The Court then addresses the Plaintiff's argument that the Precious Metals Exclusion does not bar coverage for thefts involving liquid refrigerant and equipment. After establishing that the Exclusion is unambiguous, the Court must clarify what claims are excluded under the Policy. While the parties agree on the Policy's coverage, they dispute the application of the Precious Metals Exclusion to specific thefts. The definition of "theft" is not specified in the Policy but is defined legally as the felonious taking of another’s property with intent to deprive the owner.
The Court notes that a reasonable interpretation of the Exclusion suggests it does not apply broadly to any personal property containing some Excluded Metal. Each provision of the insurance policy should be interpreted in conjunction with others to ensure effectiveness. The term "attempted theft" must be limited to attempts to steal specific items, such as Excluded Metals, rather than encompassing all personal property with negligible traces of such materials. Thus, the Court concludes that the Exclusion applies specifically to thefts involving Excluded Metals.
The court outlines that coverage exclusions for theft must be limited to instances where the theft is directed at obtaining precious or semi-precious metals, rather than incidental acquisitions. The plaintiff argues that without an anti-concurrent clause, UNIC should cover costs related to lost refrigerant, asserting that such losses are not specifically related to the theft of Excluded Metals. However, the court finds that this interpretation would undermine the purpose of the Precious Metals Exclusion, which explicitly encompasses losses from the theft or attempted theft of Excluded Metals, including those that are part of machinery or equipment. Accepting the plaintiff's view would render the vandalism and machinery-related provisions meaningless, as theft of Excluded Metals often necessitates vandalism of equipment. Moreover, the court refutes the plaintiff's claim that the theft of liquid refrigerant and equipment cannot invoke the Precious Metals Exclusion, emphasizing that if theft or vandalism of Excluded Metals causes other damages, coverage is barred. Citing a precedent from the Fifth Circuit, the court concludes that damages resulting from the theft of Excluded Metals fall under the exclusion, irrespective of the total damage value compared to the value of the metals stolen. Consequently, the court denies the plaintiff's motion for summary judgment and will assess whether the plaintiff has presented sufficient evidence to challenge UNIC’s motion for summary judgment.
The Plaintiff does not significantly challenge the composition of the stolen coils in its motion for summary judgment but argues against UNIC’s motion by asserting that UNIC has failed to prove that the coils were definitively made of copper and/or aluminum. UNIC acknowledges its burden to demonstrate that the loss falls under a policy exclusion and asserts that it is undisputed the condenser coils taken from the air conditioning units contained these materials. UNIC supports its position by referencing four witnesses: Elizabeth Walker (investigating officer), Rory Scallan (mechanical contractor), Kenny Peffer (owner of a repair company), and Michael A. Kelly (expert in air conditioning). The Court determines that these witnesses sufficiently meet UNIC’s initial burden of proving no genuine issue of material fact regarding the coils' composition.
In response, Celebration Church attempts to discredit the testimony of UNIC’s witnesses. For instance, Peffer stated that while the coils were likely copper or aluminum, he could not confirm their exact composition. Additionally, Celebration Church claims that although Kelly referenced manuals indicating the coils' composition, Peffer suggested these manuals might pertain to newer replacement units rather than the older units in question. The Court concludes that, despite drawing reasonable inferences for the non-moving party and avoiding credibility judgments, Celebration Church's arguments create mere "metaphysical doubt" and do not suffice to demonstrate a genuine issue of material fact, as they only present a minimal amount of evidence.
Peffer, the Plaintiff's mechanical contractor, expressed uncertainty regarding the composition of the air conditioning coils, stating they could be either copper or aluminum, as he was not an expert on that specific model. He emphasized that it must be one of the two metals, acknowledging he could not identify which. Despite the Plaintiff's attempts to create doubt, Peffer's statements confirm that the coils fell under the Precious Metals Exclusion due to their possible compositions. Celebration Church's argument, suggesting UNIC’s expert may have referenced the wrong model, did not raise a genuine issue of material fact about whether the stolen coils were made from an Excluded Metal. UNIC provided substantial evidence supporting that the coils were made of either copper or aluminum, while the Plaintiff failed to present any contrary evidence or alternative material. The Court noted that the Plaintiff's expert affirmed that copper and aluminum are commonly used in such systems due to their cost-effectiveness and heat transfer efficiency. To avoid summary judgment, the Plaintiff needed to show a genuine issue of material fact, which they did not accomplish through mere speculation or unsubstantiated claims. Additionally, the Plaintiff argued that the thieves targeted refrigerant rather than precious metals, asserting that the witnesses confirmed both the missing condenser coils and the refrigerant. However, this argument does not affect the composition determination necessary for summary judgment regarding the Precious Metals Exclusion.
Plaintiff asserts that the refrigerant, valued between $375 and $1,000 depending on the unit size, was the primary target of the theft, as it is significantly more valuable than the estimated $200 worth of copper scrap taken from the units. Celebration Church counters that the evidence does not support this claim, arguing that no witnesses confirmed that the thieves intended to steal refrigerant. Instead, they only acknowledged that some refrigerant was present in the stolen coils. A mechanical contractor testified that refrigerant would have evaporated and could not have been stolen with the coils, a claim Plaintiff does not effectively rebut. Plaintiff's expert speculated on the possibility of a method to extract refrigerant, but failed to provide evidence that such a method was utilized during the theft. The court emphasizes that unsupported allegations are insufficient to resist a summary judgment motion. It concludes that while some refrigerant was part of the loss, the evidence strongly indicates that the theft primarily involved Excluded Metals, which are not covered under UNIC’s policy. The Precious Metals Exclusion does not apply to liquid or gas, but the court finds that the focus of the theft was on materials specifically excluded from coverage.
Plaintiff's argument that the theft's aim was the liquid refrigerant, due to its higher value than the copper stolen, lacks supporting evidence beyond its price. The Plaintiff contends that whether the refrigerant was actually taken is irrelevant, focusing instead on its loss. This interpretation contradicts the insurance policy's intent to cover significant damage to machinery or equipment resulting from theft, not merely the value of stolen scrap metal. The Court rejects Celebration Church's claims regarding the Precious Metals Exclusion, stating that the exclusion applies to any theft or attempted theft of excluded metals, irrespective of the total amount taken or left behind. The Court highlights that the exclusion encompasses losses related to "equipment" and specifies that damage from the theft of excluded metals in machinery or equipment connected to buildings is not covered. Celebration Church failed to provide evidence to contest UNIC's assertions regarding the theft of excluded metals. Consequently, the Court concludes that the Plaintiff did not demonstrate any ambiguity in the policy language that would require coverage for the lost refrigerant or related damages. As a result, UNIC's Motion for Summary Judgment is granted, and Celebration Church's Motion for Partial Summary Judgment on Coverage is denied.
Doc. 35 has requested the dismissal of the Plaintiffs' bad faith claims against it, as referenced in multiple record documents. The excerpt cites various legal precedents and principles, including relevant cases such as Breland v. Schilling and Doerr v. Mobil Oil Corp., emphasizing the standards for evaluating bad faith claims under Louisiana law. It incorporates references to Federal Rules of Civil Procedure and pertinent case law from the Fifth Circuit, highlighting the necessity for claims to meet specific criteria to avoid dismissal. It further discusses the interpretation of insurance contracts, asserting that they should be construed according to their entirety, including any riders or endorsements. The summary includes citations from Louisiana Civil Code articles and specific case law that clarify the obligations of insurers and the legal framework surrounding bad faith claims.
In Cadwallader v. Allstate Ins. Co., the court addressed the interpretation of insurance contracts, emphasizing that such contracts must be construed in their entirety, including any attached riders, endorsements, or applications (La. Civ. Code art. 2049). The case cited various precedents, including Carrier v. Reliance Ins. Co. and the Succession of Fannaly v. Lafayette Ins. Co., to support this principle. Testimonies revealed that air conditioning units had been tampered with, including the unbolting of fans and cutting of copper tubing, which suggested a theft. Investigating officers and church representatives provided affidavits confirming the theft and the absence of refrigerant in the units due to the removal of condenser coils. Witnesses stated that to extract refrigerant, specific equipment would be necessary, indicating a planned theft rather than a spontaneous act. The court also noted that since UNIC was not obliged to provide coverage under the policy, it did not need to consider claims of "bad faith" against it.
