Kinsale Insurance Co. v. Sky High Sports Concord LLC

Citations: 254 F. Supp. 3d 1234; 2017 WL 2289385; 2017 U.S. Dist. LEXIS 80655Docket: No. 2:14-cv-02086-MCE-DB

Court: District Court, E.D. California; May 25, 2017; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Kinsale Insurance Company (Plaintiff) is seeking recovery of unpaid insurance premiums and unreimbursed deductibles from Sky High Sports Opportunities LLC and three franchisees (collectively, Defendants). The lawsuit arises from Defendants' refusal to provide financial records necessary for determining final insurance premiums owed under two insurance contracts issued between 2011 and 2013. Plaintiff had previously filed a motion for summary judgment regarding a breach of audit provisions, which the Court granted in part, ordering an audit of Defendants' finances.

The audit revealed that Ownership Companies owe $777,372 in final premiums and $96,211.76 in unreimbursed deductibles, while Opportunities owes $350,376 in final premiums and $69,822.76 in unreimbursed deductibles. Plaintiff's current motion for summary judgment seeks a legal determination of Defendants' liability based on the audit findings. Defendants have acknowledged the obligation to reimburse deductible payments but dispute the premium amounts claimed by Plaintiff. The Court has granted in part and denied in part Plaintiff's motion.

Summary judgment is governed by the Federal Rules of Civil Procedure, specifically Rule 56(a), which allows a party to seek judgment when there is no genuine dispute regarding material facts, thus entitling the movant to judgment as a matter of law. The primary function of Rule 56 is to eliminate claims or defenses that lack factual support. A party can seek partial summary judgment on specific claims or defenses, with the same standard applying as for full summary judgment. The moving party must initially inform the court of the grounds for the motion and identify the parts of the record that demonstrate a lack of genuine factual disputes. If the moving party meets this burden, the opposing party must then show that a genuine issue of material fact exists, which could affect the outcome of the case under applicable law. This requires presenting evidence such as documents or affidavits to support their claim. The opposing party must also demonstrate that the dispute is genuine, meaning a reasonable jury could find for them. Ultimately, the judge must assess whether the evidence could lead a rational jury to rule for the nonmoving party. If the evidence does not support such an outcome, summary judgment is appropriate. In resolving these motions, the court must accept the evidence presented by the opposing party as true and draw all reasonable inferences in their favor.

Inferences in legal matters must be based on factual predicates provided by the opposing party, as established in Richards v. Nielsen Freight Lines. The plaintiff asserts four claims against the defendants: (1) Breach of Contract for failing to pay deductibles and premiums; (2) Money Due for Unpaid Insurance Premiums, including a request for 10% annual interest on the unpaid amount; (3) Open Book Account for reimbursement of deductibles paid on behalf of the defendants; and (4) Money Had and Received, Quantum Valebant, also seeking 10% annual interest for unreimbursed deductibles. 

In their opposition, the defendants raise two main points: they argue that franchise fee payments (Royalties) were improperly included in the gross sales calculations for determining insurance premiums, as the Insurance Contracts suggest these should be excluded. They also contest the classification of Opportunities as an "Amusement Center," claiming this misclassification has led to inflated premiums. They do concede that the plaintiff is entitled to judgment regarding unreimbursed deductible payments.

The court grants the plaintiff's motion concerning the liability for unreimbursed deductibles and finds the Ownership Companies liable for unpaid premiums. It identifies two remaining issues: whether the Royalties should be excluded from gross sales and whether Opportunities was misclassified as an "Amusement Center" in the relevant Insurance Contract. The court concludes that both contentions are unfounded, affirming that the franchise fee payments are properly included in gross sales and that the defendants failed to provide sufficient evidence for reformation of the contract.

Furthermore, the court clarifies that Opportunities' Royalty income does not derive from copyrighted material and is thus validly included in gross sales, as defined by the Insurance Contracts. Opportunities argues that as a franchisor, it licenses its proprietary assets to franchisees, which generates Royalty fees based on the franchisee's gross revenue.

Opportunities argues that royalty payments should not be classified as "product sales" when calculating gross sales. The Plaintiff asserts that Defendants have failed to identify any specific copyrighted materials that were licensed to franchisees. The Court agrees, stating that copyright protection does not extend to general ideas or methods and that Defendants have not demonstrated that the royalty payments came from original works of authorship as defined by 17 U.S.C. 102. The Court concludes that franchise fee payments should be included in gross sales for determining insurance premiums under the 2011-2012 Insurance Contract.

Defendants' second argument seeks to reform the insurance contract by changing the classification code from "Amusement Centers" to one for "Buildings or Premises, Office," arguing that Opportunities operates as a management company unrelated to the amusement centers and thus poses no insured risk. However, the Court finds this request for reformation unpersuasive, noting that it has already ruled on how premiums should be calculated based on gross sales for the amusement center classification. The Court also highlights that Defendants' argument may be barred by collateral estoppel since the issue has been previously settled and that no claim for reformation was raised in earlier pleadings, including prior summary judgment motions.

To justify reformation of the contract, Defendants must provide clear and convincing evidence that the classification codes in Opportunities’ Declarations Page did not reflect the mutual intent of both parties prior to the contract's formation. A court cannot reform a contract without established common intent. In this case, no evidence shows that Opportunities requested premium calculations based on square footage or that such an agreement was made with the Plaintiff. Opportunities' claim that a uniform premium formula based on gross sales is unfair does not warrant reformation.

Despite Defendants being liable for breach of the Insurance Contracts, the Court cannot ascertain the specific amounts owed by each Defendant without further details. Plaintiffs assert total liabilities of $969,984.96 for unpaid premiums and deductibles, with specific amounts attributed to different parties, but inconsistencies exist, such as the contradictory claims regarding Sky High Sports Ontario LLC's liability. Additionally, Sky High Sports Concord LLC is omitted from the liability list, complicating the assessment of total unpaid amounts.

Plaintiff also seeks prejudgment interest but has not specified when it should commence. Consequently, the Court grants Plaintiffs Motion regarding Defendants' culpability for breach of contract but denies it concerning the exact amounts owed and prejudgment interest due to unclear calculations. A prove-up hearing is ordered to determine the specific liabilities of each Defendant and address the issue of prejudgment interest. The Court grants in part and denies in part Plaintiffs Motion for Summary Judgment, acknowledging Defendants' liability while requiring further proceedings to clarify the amounts owed.

Plaintiff's First Amended Complaint (FAC) includes additional defendants, Sky High Sports Nashville LLC and Sky High Sports Ontario LLC, but Plaintiff now acknowledges these defendants do not owe any insurance premiums or deductibles related to the disputed insurance contracts. Consequently, Plaintiff intends to file for a Stipulation to Dismiss these defendants from the case. The Court decided the matter based on submitted briefs instead of oral arguments, finding no material assistance from the latter. Plaintiff submitted a Statement of Undisputed Material Facts (SUMF), which Defendants responded to, and Plaintiff then filed a reply. In disputes of fact, the Court adheres to Defendants' version for summary judgment purposes but primarily references Plaintiff's Reply. The Court noted that Defendants cannot argue that the Opportunities policy requires rewriting based on the clear language of the 2011-12 Declarations Page. Additionally, due to the unclear amounts owed by Defendants, any decision regarding prejudgment interest on these amounts is premature, leading to a denial of that portion of Plaintiff’s Motion without prejudice.