Opinion
CIVIL ACTION NO. 1:21-cv-693-AT
2022-09-27
TPN PROPERTIES, LLC, Plaintiff, v. HOME-OWNERS INSURANCE COMPANY, Defendant.
ATTORNEYS FOR PLAINTIFF: Christopher Joseph Hoffman, Stephen Vincent Kern, Kitchens Kelley Gaynes, P.C., Atlanta, GA, John W. Clark, IV, Clark Law Firm, Birmingham, AL. ATTORNEYS FOR DEFENDANT: Michael C. Kendall, Michael C. Kendall, II, Kendall Mandell, LLC, Douglasville, GA.
ATTORNEYS FOR PLAINTIFF: Christopher Joseph Hoffman, Stephen Vincent Kern, Kitchens Kelley Gaynes, P.C., Atlanta, GA, John W. Clark, IV, Clark Law Firm, Birmingham, AL. ATTORNEYS FOR DEFENDANT: Michael C. Kendall, Michael C. Kendall, II, Kendall Mandell, LLC, Douglasville, GA. ORDER AMY TOTENBERG, UNITED STATES DISTRICT JUDGE
The present case arises from an insurance coverage dispute between Plaintiff TPN Properties, LLC ("TPN"), and its insurer, Home-Owners Insurance Company ("Home-Owners"). Currently pending before the Court are Home-Owners' Motion for Summary Judgment [Doc. 69] and TPN's Motion to Deny Objections [Doc. 85]. For the reasons that follow, Home-Owners' Motion for Summary Judgment is DENIED and TPN's Motion to Deny Objections is GRANTED IN PART and DENIED IN PART.
I. Background
A. TPN's Claim for Damages to the Property
TPN is the owner of property located at 1286 Milledge Street, East Point, Georgia 30344 ("the Property"). (Decl. of Christopher Nicholson "Nicholson Decl.," Doc. 79-1 ¶ 3.) TPN has owned the property since 2009 and started renting it out that same year to Nicholson Transfer & Storage, Inc. ("NTS"). (Id. ¶ 35.) TPN and NTS are owned and managed by the same family — the Nicholsons. (Id. ¶¶ 37-38.)
On or around January 30, 2019, an employee of NTS damaged a support column on the Property. (Id. ¶ 5.) Less than two weeks later, on February 12, 2019, the roof of the Property partially collapsed due to the prior damage to the support column and faulty repairs made by a third party. (Id. ¶ 6.) Shortly thereafter, TPN engaged Martin Shields of Shields Engineering Group to provide an estimate of the damages to the property and the cost of repairs. (Pl.'s Statement of Additional Facts, Doc. 78-2 ¶ 2.) Shields estimated that the repairs would cost $5,674,311.00 and take six months to complete. (Decl. of Martin Shields, Doc. 79-7 at 5.)
The repairs performed by the third party are the subject of a separate lawsuit in state court. (Nicholson Decl. ¶ 6.)
At the time of the loss, TPN was covered by an insurance policy with Home-Owners: Tailored Protection Insurance Policy, Policy No. 134618-80269024-18 ("the Policy"). (Def.'s Statement of Undisputed Material Facts "Def.'s SUMF," Doc. 69-7 ¶ 1.) The Policy had an effective start date of May 7, 2018 and an effective end date of May 7, 2019. (Id.)
The "Loss Payment" section of the Policy states,
4. Loss Payment
a. In the event of loss or damage covered by this Coverage Form, at our option, we will either:
(1) Pay the value of lost or damaged property;
(2) Pay the cost of repairing or replacing the lost or damaged property, subject to b. below;
(3) Take all or any part of the property at an agreed or appraised value; or
(4) Repair, rebuild or replace the property with other property of like
(Policy, Doc. 69-2 at 65-66.) It continues,kind and quality, subject to b. below.
We will determine the value of lost or damaged property, or the cost of its repair or replacement, in accordance with the applicable terms of the Valuation Condition in this Coverage Form or any applicable provision which amends or supersedes the Valuation Condition.(Id. at 66.) The Valuation Condition section referenced above provides,
7. Valuation
(Id. at 67.) However, the Policy also includes an optional coverages section stating that a replacement cost valuation applies instead of the actual cash value provision referenced above:We will determine the value of Covered Property in the event of loss or damage as follows:
a. At actual cash value as of the time of loss or damage, except as provided in b., c., d. and e. below.
3. Replacement Cost
(Id. at 69.) But that same section also states,a. Replacement Cost (without deduction for depreciation) replaces Actual Cash Value in the Valuation Loss Condition of this Coverage Form.
d. We will not pay on a replacement cost basis for any loss or damage:
(Id.)(1) Until the lost or damaged property is actually repaired or replaced; and
(2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.
Further complicating matters, the Policy also contains an endorsement provision, which states:
Under E. LOSS CONDITIONS, 4. Loss Payment, a. is deleted and replaced by the following:
a. In the event of loss or damage covered by this Coverage Form, at our option we will either:
(1) Repair, rebuild or replace the property with other property of like kind and quality, or pay the cost of such repair, rebuilding or replacement, as limited by paragraph b. of this Loss Payment Condition and any other applicable policy provisions such as the Limit of Insurance provision, the Valuation Condition or any provision which amends or supersedes the Valuation Condition; or
(2) Take all or any part of the property at an agreed or appraised value.
With respect to Paragraph a.(1), this policy covers only the cost of repair, rebuilding or replacement. Such cost does not include recovery of, and therefore this policy does not pay any compensation for, an actual or perceived reduction in the market value of any property. But if the property that has sustained loss or damage is subject to an endorsement which explicitly addresses market value, then that endorsement will apply to such property in accordance with its terms.
(Id. at 55.)
All other policy terms and conditions apply.
Following the loss, TPN timely submitted a claim for the damage to the property under the Policy, and Home-Owners paid TPN a total of $804,507.14 for the damages to the Property. (Nicholson Decl. ¶¶ 9, 11.) The payments came in two separate installments: a $359,895.90 payment on July 3, 2019 for temporary repairs and general clean up, and a $444,611.24 payment on March 10, 2020 for the property loss. (Pl.'s Resp. to Def.'s Statement of Undisputed Material Facts "Pl.'s RSUMF," Doc. 78-1 ¶ 21); (see Nicholson Decl. Ex. A, Doc. 79-2; Nicholson Decl. Ex. B, Doc. 79-3). Home-Owners' $444,611.24 payment was based on its expert's estimate of the Actual Cash Value ("ACV") of the damages to the property. (Nicholson Decl. ¶ 16); (see Nicholson Decl. Ex. B at 4) ("Enclosed is our estimate and a check in the amount of $444,611.24. This check represents our actual cash value payment for your Other damage less your policy deductible of $10,000."). Home-Owners' expert, John Mullen, performed his inspection of the Property on January 24, 2020 and entered his ACV estimate on January 28, 2020. (John Mullen's Expert Report "Mullen Report," Doc. 30-1 at 3.) Mullen arrived at the $444,611.24 ACV figure based on a Replacement Cost Value ("RCV") estimate of $664,076.63 minus depreciation. (Pl.'s RSUMF ¶ 6); (see Mullen Report at 44). Several months after entering his initial estimate, Mullen revised his ACV estimate to $548,376.01 (based on a revised RCV estimate of $800,871.05) following a reinspection of the Property on May 27, 2020. (John Mullen's Suppl. Expert Report, Doc. 44-1 at 137.) However, Home-Owners has not made any additional payments to TPN since it sent the $444,611.24 payment based on Mullen's initial estimate.
"ACV is calculated by taking the RCV, then applying a depreciation factor to the RCV to arrive at ACV." (Decl. of John C. Robison "Robison Decl.," Doc. 79-10 ¶ 7); (see also Nicholson Decl. Ex. B at 4) ("Actual Cash Value is calculated by subtracting depreciation from the replacement cost value."). The depreciation factor is "an amount reduced from the RCV based upon age, wear and tear, usage or any other instrument used to derive what an actual cash value is." (Dep. of John C. Robison "Robison Dep.," Doc. 69-6 at 51:4-7.)
TPN did not use the $444,611.24 payment to repair the Property because, in TPN's view, the payment was not sufficient to engage a contractor to perform meaningful repairs. (Nicholson Decl. ¶¶ 20-21.) In spite of the disagreement about the sufficiency of the payment, TPN deposited the check, spent approximately $100,000 to mitigate damages, and used the remainder of the funds to continue operating the business. (See Dep. of Christopher Nicholson "Nicholson Dep.," Doc. 69-6 at 32:21-34:7.) TPN still has not repaired the property. (Def.'s SUMF ¶ 22.)
TPN replaced part of the roof of the Property in 2003 but no other repairs have been made since that time. (Def.'s SUMF ¶ 22); (see Nicholson Dep. at 17:16-18:4).
TPN engaged its own expert, John C. Robison of The CSI Group, LLC, on February 26, 2021. (Nicholson Decl. ¶ 32.) According to Robison, he was retained for the purpose of inspecting the building and quantifying TPN's damages. (Robison Dep. at 29:23-25.) Robison visited the property for the first time sometime in April 2021, (id. at 30:10-14,) and provided his estimate on May 20, 2021, (John Robison's Expert Report "Robison Report," Doc. 69-5 at 2). To prepare his estimate, Robison relied on Shields's estimate for purposes of determining the scope of the repairs, (Robison Dep. at 53:6-14), and used a price list for labor and material costs as of May 2021, (Def.'s SUMF ¶ 18); (see Robison Report at 2). He estimated that the total value of the damage to the Property was $7,703,972.14. (Robison Report at 45.) Unlike Mullen's estimate, Robison's estimate was based on RCV instead of ACV. (Def.'s SUMF ¶ 10); (see Robison Dep. at 50:25-51:4).
After Home-Owners filed its Motion for Summary Judgment, Robison issued an updated expert report listing both the RCV and ACV for three different dates: the date of his initial estimate (May 2021), the date utilized by Home-Owners in Mullen's estimate (December 2019), and the date of the loss (February 2019). (Robison Decl. ¶ 10.) As he did in his original expert report, Robison relied on Shields's estimate for the scope of the repairs in his supplemental report. (Id. ¶ 14.) To determine the ACV for each of the three dates, Robison relied on the same depreciation factors applied by Mullen. (Id. ¶ 15.)
B. TPN's Loss of Business Income Claim
In addition to its claim for damages to the Property, TPN made a loss of business income claim on November 22, 2019 based on its inability to collect rent from the Property while it was in a state of disrepair. (Pl.'s Statement of Additional Facts ¶¶ 14, 17.)
The loss of business income provision of the Policy states,
We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration."(Policy at 71.) The definition of "Business Income" under the Policy includes
a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and(Id.) The "Rental Value" section of the Policy provides,
b. Continuing normal operating expenses incurred, including payroll.
If the necessary "suspension" of your "operations" produces a "Rental Value" loss payable under this policy, we will pay for the actual loss of "Rental Value" you incur during the period that:
(a) Begins on the date property is actually repaired, rebuilt or replaced and tenantability is restored; and
(b) Ends on the earlier of:
(Id. at 73.)1) The date you could restore tenant occupancy, with reasonable speed, to the level which would generate the "Rental Value" that would have existed if no direct physical loss or damage had occurred; or
2) 30 consecutive days after the date determined in (2)(a) above.
TPN had only one tenant at the time of the loss: NTS. (Def.'s SUMF ¶ 25.) TPN had leased a portion of the Property to NTS from the time it purchased the property in 2009 until the time it terminated the lease on March 19, 2020. (Nicholson Decl. ¶ 35.) The most recent version of NTS's lease had an effective start date of October 1, 2017. (Id. ¶ 36.) Under the terms of the lease, NTS's rent was $20,000 per month; however, NTS stopped paying rent approximately seven months prior to the date of the loss. (Def.'s SUMF ¶¶ 24, 26.)
NTS's default closely corresponded with the death of Thomas Nicholson, Sr., who was the former owner of TPN and had managed the operations of both TPN and NTS. (Nicholson Decl. ¶ 37.) Upon Mr. Nicholson's passing, his son Christopher "Chris" Nicholson took over as manager of TPN and his son Thomas "Tommy" Nicholson, Jr. took over as the manager of NTS. (Id. ¶ 38.) In a text exchange between the two sons on July 22, 2018, Tommy said to Chris, "[m]om and dad have been cooking the books for the company for awhile." (Def.'s SUMF ¶ 29) (citing Nicholson Dep. at 66:18-67:8). In another exchange on July 31, 2018, Chris said to Tommy, "[i]t was well known that [NTS] was about two years behind on rent." (Id. ¶ 30) (citing Nicholson Dep. at 65:24-66:10). Chris later clarified that he made the comment about NTS being two years behind on rent before he had investigated NTS's history of rent payments to TPN, and that his investigation revealed that prior to the default, NTS generally made steady rent payments as required by the lease. (Nicholson Decl. ¶¶ 41, 51); (see also Nicholson Dep. at 66:3-17). He also clarified that Tommy's comments about their parents "cooking the books" was a reference to NTS rather than TPN, but in any event, he believed that the statement was inaccurate. (Nicholson Decl. ¶¶ 46-47, 50.)
TPN terminated NTS's lease on March 19, 2020. (Id. ¶ 39.) Although NTS's lease has now been terminated, TPN has not replaced NTS with a new tenant because the Property still has not been repaired. (Id. ¶ 40.) TPN has indicated that it intends to make the repairs and that doing so will "allow TPN to re-lease the property to a new tenant." (Id. ¶ 22.) Assuming a $20,000 per month rental rate consistent with NTS's prior lease, TPN estimates that its loss of business income is approximately $480,000; however, TPN is only seeking $150,000 for the loss of business income claim because that is the applicable policy limit. (Id. ¶¶ 43-44.)
After TPN made its loss of business income claim, Home-Owners' forensic accounting experts, Jay Cardarette and Forest Warren, wrote a report analyzing TPN's loss of business income at the time of the loss, which was submitted to Home-Owners on February 5, 2020. (Def.'s SUMF ¶ 27); (see Buchanan Clarke Schlader LLP Accounting Report "Buchanan Report," Doc. 28-1). Home-Owners' accounting experts computed the loss of business income as $0 based on the fact that TPN was not collecting rent from its tenant at the time of the loss. (Def.'s SUMF ¶ 28); (see Buchanan Report at 4) ("Based upon our preliminary analysis of the available books, records, and information provided to-date, we compute a business income loss for the period February 2019 through January 2020 of $0, as shown on Schedule 1.").
Because by that point it still had not heard back from Home-Owners about its November 22, 2019 loss of business income claim, TPN followed up with Home-Owners about its claim on February 21, 2020 and then again on February 27, 2020. (Pl.'s Statement of Additional Facts ¶ 19.) TPN followed up with Home-Owners again on March 2, 2020 requesting a formal written coverage determination. (Id.) TPN did not receive a response from Home-Owners for several more months despite multiple additional inquiries. (Id. ¶¶ 20-21.) Then, on July 2, 2020, instead of providing TPN with a coverage determination, Home-Owners followed up with a letter requesting additional information — which TPN claims had already been provided — and demanding that a representative of TPN sit for an examination under oath. (Id. ¶ 22.) Home-Owners also asked TPN to complete a "proof of loss" form on September 8, 2020. (Id. ¶ 23.)
Home-Owners finally denied TPN's loss of business income claim on November 20, 2020, just under a year after TPN made its claim. (Id. ¶ 24.) According to its Rule 30(b)(6) deponent, Houston Mabray, Home-Owners' decision to deny TPN's loss of business income claim was based on the report from its accounting experts, which had been in Home-Owners' possession since February 5, 2020. (Id.); (see Dep. of Houston Mabray, Doc. 69-6 at 114:15-19) ("Q. On the business income claim, other than the report from the Buchanan accounting firm, was there anything else relied upon by Home-Owners in arriving at its coverage decision there? A. No.").
C. Procedural History
TPN filed its lawsuit against Home-Owners in the State Court of Fulton County on January 12, 2021, and Home-Owners removed the case to federal court shortly thereafter. (See Compl., Doc. 1-1); (Notice of Removal, Doc. 1). In the Complaint, TPN raises two breach of contract claims against Home-Owners, arguing that Home-Owners failed to cover the full amount of the damage to the Property (Count I) and denied TPN's loss of business income claim in violation of the Policy (Count II). (Compl. ¶¶ 28-42.) TPN also claims that Home-Owners' decision to deny the loss of business income claim was made in bad faith in violation of O.C.G.A. § 33-4-6 (Count III). (Id. ¶¶ 43-48.)
On February 28, 2022, Home-Owners moved for summary judgment on all three of TPN's claims. (Doc. 69.) TPN opposed Home-Owners' Motion and included additional evidence in its response, including the supplemental expert report from John Robison referenced above and a declaration from Chris Nicholson. (See Docs. 78, 79.) Afterwards, Home-Owners filed a "Notice of Objection" to Robison's supplemental expert report on timeliness grounds, and a second notice objecting to Nicholson's declaration to the extent TPN sought to offer the declaration as expert testimony. (Docs. 83, 84.) TPN subsequently filed a "Motion to Deny" each of the two objections. (Doc. 85.)
II. Legal Standard
The Court may grant summary judgment only if the record shows "that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A factual dispute is genuine if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is material if resolving the factual issue might change the suit's outcome under the governing law. Id. The motion should be granted only if no rational fact finder could return a verdict in favor of the non-moving party. Id. at 249, 106 S.Ct. 2505.
When ruling on the motion, the Court must view all the evidence in the record in the light most favorable to the non-moving party and resolve all factual disputes in the non-moving party's favor. See Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). The moving party need not positively disprove the opponent's case; rather, the moving party must establish the lack of evidentiary support for the non-moving party's position. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets this initial burden, in order to survive summary judgment, the non-moving party must then present competent evidence beyond the pleadings to show that there is a genuine issue for trial. Id. at 324-26, 106 S.Ct. 2548. The essential question is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505.
III. Discussion
A. TPN's Motions to Deny Objections
1. Home-Owners' Objections to Robison's Supplemental Expert Report
The Court begins by addressing Home-Owners' objections to Robison's supplemental expert report. In its Motion for Summary Judgment, Home-Owners argues that because he relied on labor costs as of May 2019, Robison failed to provide an estimate "as of the time of the loss" as required by the Valuation Condition section on page 67 of the Policy. In response to this point, TPN notes that Home-Owners' own estimate failed to comply with that standard because Mullen's estimate was based on labor costs as of December 2019 instead of the February 2019 date of the loss. Nevertheless, TPN adds that it provided the supplemental report "out of an abundance of caution" to correct that potential deficiency by providing labor costs for both the date of the loss and the date utilized by Mullen, in addition to the May 2019 date utilized in the original report. In response to Home-Owners' criticism that he improperly based his estimate on RCV instead of ACV, Robison also provided calculations for both RCV and ACV for all three dates.
In its Notice of Objections, Home-Owners contends that the supplemental report should not be considered because discovery has closed and TPN did not provide the report to Home-Owners until after Home-Owners had filed its Motion for Summary Judgment. Home-Owners also argues that Robison now purports to calculate the costs of repairs using ACV when he previously testified under oath that he did not do that. For that reason, Home-Owners argues that it would be prejudiced if the Court were to consider the report because Home-Owners has not had an opportunity to cross-examine Robison about any of these calculations.
Discovery closed on December 22, 2021, and TPN did not disclose the report until April 4, 2022 — more than a month after Home-Owners filed its Motion for Summary Judgment on February 28 of that year.
In its Motion to Deny Objections, TPN argues that Robison utilized the same methodologies in the supplemental report that he had previously used in his original report, which Home-Owners already had an opportunity to cross-examine him about in his deposition. In addition, TPN claims that Robison reached the RCV for each date by simply applying the same methodologies he used in his initial estimate to different dates, and that to determine the ACVs he simply applied Mullen's depreciation factors to the RCVs for the three different dates. Thus, in TPN's view, Robison did not offer new opinions or methodologies but simply applied the same methodologies he had used before to different dates. TPN further argues that Home-Owners has not been prejudiced by the late disclosure because Home-Owners already had an opportunity to cross-examine Robison about these same methodologies. TPN also notes that nothing about the supplemental report contradicts Robison's prior testimony. Finally, as an alternative to excluding the report, TPN proposes that Home-Owners be given an opportunity to resume Robison's deposition.
Though the Court takes TPN's points, the Court agrees with Home-Owners that the delayed expert report should not be considered for purposes of summary judgment given that it was not provided to Home-Owners until after the conclusion of discovery (and after Home-Owners had already filed its Motion for Summary Judgment). Robison's supplemental report may not contradict his prior testimony, but the scope of his supplemental report still extends well beyond the scope of his testimony in his original report now that it includes six different estimates instead of one. The Court will therefore deny TPN's Motion to Deny Objections as to Robison's supplemental report insofar as this pertains to the instant summary judgment proceeding. That being said, the Court is willing to consider the supplemental report for purposes of trial, and Home-Owners may seek to resume Robison's deposition before trial for that purpose, if it so chooses.
For example, Robison's new RCV estimate based on May 2019 labor costs remains the same as in his original report — $7,703,972.14.
2. Home-Owners' Objections to Chris Nicholson's Declaration
Home-Owners also objects to portions of a declaration from Chris Nicholson that TPN included with its Opposition. In the declaration, Nicholson states, among other things, that the $20,000 per month rent that NTS was paying was below market rate and that TPN's inability to collect rent payments since February 2019 has resulted in a loss of income of approximately $480,000. Home-Owners asserts that Nicholson's testimony about the rental value of the Property constitutes expert testimony with no justification for late disclosure. Home-Owners therefore argues that Nicholson's declaration should not be considered to the extent TPN is offering it as expert testimony.
As previously noted, the loss of income provision of the Policy contains a $150,000 policy limit, so TPN is only seeking to recover that $150,000 limit through its breach of contract claim.
TPN counters that none of Nicholson's statements constitute expert testimony and that he can permissibly testify about the value of the property in his capacity as the property owner. Relying on Talmadge v. Elson Properties, 279 Ga. 268, 612 S.E.2d 780 (2005) and Department of Transportation v. Into, 219 Ga.App. 311, 464 S.E.2d 886 (1995), TPN argues that under Georgia law a property owner may provide opinion testimony about a property's value without being qualified as an expert. Additionally, because Home-Owners has already had an opportunity to cross examine Nicholson about his knowledge, experience, and familiarity with the property, TPN argues that Home-Owners would not be prejudiced by the inclusion of the disputed testimony.
The Court agrees with TPN that Nicholson is not offering expert testimony and that his declaration may be considered for purposes of summary judgment. The Court will therefore grant TPN's Motion to Deny Objections as to Mr. Nicholson's declaration.
B. Home-Owners' Motion for Summary Judgment
1. Breach of Contract: Coverage for Damage to the Property (Count I)
The Court now turns to TPN's breach of contract claims. Regarding the cost to cover the repairs, the Court begins by noting that the parties disagree about whether the cost should be based on ACV or RCV. TPN argues that the cost of repairs should be based on RCV and Home-Owners argues that it should be based on ACV. Unlike the RCV calculation, the ACV calculation applies a discount to the cost of repairs based on depreciation, resulting in a lower overall cost.
In support of its argument that ACV is the appropriate measure of costs, Home-Owners points to the "Loss Payment" provision of the policy, copied below:
4. Loss Payment
a. In the event of loss or damage covered by this Coverage Form, at our option, we will either:
(1) Pay the value of lost or damaged property;
(2) Pay the cost of repairing or replacing the lost or damaged property, subject to b. below;
(3) Take all or any part of the property at an agreed or appraised value; or
(4) Repair, rebuild or replace the property with other property of like kind and quality, subject to b. below.
(Policy at 65-66.) As previously noted, the "Valuation Condition" referenced above states, "We will determine the value of Covered Property in the event of loss or damage as follows: a. At actual cash value as of the time of loss or damage, except as provided in b., c., d. and e. below." (Id. at 67) (emphasis added).We will determine the value of lost or damaged property, or the cost of its repair or replacement, in accordance with the applicable terms of the Valuation Condition in this Coverage Form or any applicable provision which amends or supersedes the Valuation Condition.
However, the Policy also includes an optional coverages section for replacement costs, which states, "Replacement Cost (without deduction for depreciation) replaces Actual Cash Value in the Valuation Loss Condition of this Coverage Form." (Id. at 69.) But as Home-Owners notes, the same section also says,
d. We will not pay on a replacement cost basis for any loss or damage:
(Id.) Relying on Marchman v. Grange Mutual Insurance Co., 232 Ga.App. 481, 500 S.E.2d 659 (1998), Home-Owners argues that the requirement to repair or replace the damaged property is a condition precedent that TPN must satisfy before it can recover replacement costs. And because TPN still has not repaired or replaced the roof, Home-Owners contends that ACV is the proper measure of costs.(1) Until the lost or damaged property is actually repaired or replaced; and
(2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.
TPN counters that the "Loss Payment" language Home-Owners relies on was modified by an endorsement in a separate section of the agreement, which states:
Under E. LOSS CONDITIONS, 4. Loss Payment, a. is deleted and replaced by the following:
a. In the event of loss or damage covered by this Coverage Form, at our option we will either:
(1) Repair, rebuild or replace the property with other property of like kind and quality, or pay the cost of such repair, rebuilding or replacement, as limited by paragraph b. of this Loss Payment Condition and any other applicable policy provisions such as the Limit of Insurance provision, the Valuation Condition or any provision which amends or supersedes the Valuation Condition; or
(2) Take all or any part of the property at an agreed or appraised value.
With respect to Paragraph a.(1), this policy covers only the cost of repair, rebuilding or replacement. Such cost does not include recovery of, and therefore this policy does not pay any compensation for, an actual or perceived reduction in the market value of any property. But if the property that has sustained loss or damage is subject to an endorsement which explicitly addresses market value, then that endorsement will apply to such property in accordance with its terms.
(Id. at 55.) TPN emphasizes that the endorsement eliminates the option to "Pay the value of lost or damaged Property," (id. at 65.), which TPN reads as essentially eliminating the option for Home-Owners to pay ACV.
All other policy terms and conditions apply.
On the other hand, as Home-Owners points out, even though the endorsement on page 55 eliminates the option to "Pay the value of lost or damaged Property" it also says that "All other policy terms and conditions apply." (Id. at 55.) Presumably, that would include the requirement that TPN repair or replace the property as a prerequisite for receiving replacement costs. In response, TPN argues that there is still an ambiguity in the Policy with regard to who is actually responsible for performing the repairs. Based on that supposed ambiguity, TPN argues that the onus should be placed on Home-Owners to perform the repairs instead of TPN on the theory that ambiguous policies should be construed against the insurance company. (See Pl.'s Opp'n, Doc. 78 at 12) ("Where a term of a policy of insurance is susceptible to two or more reasonable constructions, and the resulting ambiguity cannot be resolved, the term will be strictly construed against the insurer as the drafter and in favor of the insured." (quoting Murphy v. Ticor Title Ins. Co., 316 Ga.App. 97, 729 S.E.2d 21, 24 (2012))).
But as Home-Owners points out, there is a well-established line of cases in Georgia standing for the opposite proposition that the insured party must be the one to perform the repairs. See, e.g., Marchman, 500 S.E.2d at 661 ("When a plaintiff's right to recover on a contract depends upon a condition precedent to be performed by him, he must allege and prove the performance of such condition precedent, or allege a sufficient legal excuse for its nonperformance." (quoting Wolverine Ins. Co. v. Sorrough, 122 Ga.App. 556, 177 S.E.2d 819, 822 (1970))). Notably, TPN does not cite to any cases where a court shifted the burden to the insurance company to perform the repairs before the insured could recover replacement costs. Indeed, it is well recognized that under Georgia contract law "[a] condition precedent requires an occurrence or performance by one party before the other party will be bound to perform." John K. Larkins, Jr. & Hon. John K. Larkins III, Georgia Contracts: Law and Litigation § 5:4 (2d ed.) (emphasis added) (collecting cases). And in this particular context there is good reason for placing the burden of performing the two separate obligations on different parties. Practically speaking, it would make little sense to place the burden of performing the condition precedent for RCV coverage on the insurance company rather than the insured because, if that were so, the insurance company could simply delay performing repairs to ensure that the requirement to make the repairs "as soon as reasonably possible after the loss or damage" is not timely satisfied, and that its own obligation to pay RCV is never triggered. The more reasonable interpretation under the circumstances is that the obligation to perform the repairs should be placed with the insured rather than the insurance company to avoid the potential for such gamesmanship.
On the other hand, the Court acknowledges that there is at least some language in the endorsement that appears to contemplate Home-Owners being the one to make the repairs rather than TPN, notwithstanding the fact that the Policy makes the timely performance of the repairs a prerequisite for the recovery of replacement costs. As TPN notes, the language of the endorsement provides Home-Owners with two options in the event of a loss. Home-Owners has not exercised the option in subsection (2) of the endorsement to "Take all or any part of the property at an agreed or appraised value." (Policy at 55.) That leaves option (1), which says, "we will either . . . [r]epair, rebuild or replace the property with other property of like kind and quality, or pay the cost of such repair, rebuilding or replacement, . . ." (Id.) (emphasis added). Though the language stating "we" will repair, rebuild, or replace the property appears to suggest that Home-Owners would be the one performing the repairs, the endorsement also gives Home-Owners the option to simply pay TPN the cost of doing so, i.e., to pay TPN on the back end as a reimbursement for performing its own repairs. In other words, the endorsement still gives Home-Owners the option to pay the value of the repairs rather than performing the repairs itself, which is precisely what happened here. And because the repairs still have not yet been performed by either party, Home-Owners' obligation to reimburse TPN based on RCV has not been triggered; thus, Home-Owners may exercise the option to simply reimburse TPN for performing its own repairs and reimburse TPN for those repairs based on ACV instead of RCV.
The Court notes that TPN would have been entitled to a reimbursement from Home-Owners based on RCV if TPN had performed the repairs on its own within a reasonable time. Of course, as a practical matter, that would have required TPN to assume the risk that the cost of performing those repairs would be fully reimbursable, and that any dispute about the cost of the repairs would be resolved in its own favor. Although this reading certainly does not inure to the benefit of the insured, the Court finds that it is still the most logical reading for purposes of reconciling the various competing provisions in the Policy, though this construction is one where the insurer effectively designed the least favorable option for the insured. See O.C.G.A. § 13-2-2(4) ("The construction which will uphold a contract in whole and in every part is to be preferred, and the whole contract should be looked to in arriving at the construction of any part."). The Court therefore finds that ACV is the appropriate measure of costs in this case.
Even though the Court finds that ACV is the appropriate measure of costs in these circumstances, that does not mean that Home-Owners is entitled to summary judgment on Count I. On the contrary, there is still a dispute about the scope of the repairs required, which in turn effects the amount Home-Owners potentially owes TPN for the repairs based on ACV. As TPN points out, "The scope of repairs provided by SEG and Mr. Shields differs dramatically from the scope set forth by Home-Owners." (Pl.'s Opp'n at 16-17.) In a declaration submitted along with TPN's Opposition, Shields stated that he believes Home-Owners' estimate significantly underestimates the scope of the repairs that are needed because Home-Owners proposes to replace only a small section of the roof. (Decl. of Martin Shields, Doc. 79-5 ¶¶ 9-10.) Shields claims that in his view more extensive repairs are necessary because the collapse created a "shockwave" that expanded beyond the portion of the roof upon which Home-Owners focuses. (Id. ¶ 10.)
Although the difference between Mullen's $548,376.01 revised estimate and Robison's $7,703,972.14 estimate is partially attributable to the fact that Mullen used ACV to calculate his estimate whereas Robison used RCV, that does not fully account for the wide gap between the two estimates. Based on the scope of the repairs upon which Mullen and Home-Owners relied, the RCV would have been $800,871.05, which is well below the $7,703,972.14 RCV estimate that Robison prepared based on Shields's estimate with a more extensive scope of the repairs. Accordingly, the Court finds that there is a genuine dispute of material fact as to the scope of the repairs that need to be made to the Property, which will ultimately affect the cost of the repairs that TPN is entitled to recover under the Policy. The Court will therefore deny Home-Owners' Motion for Summary Judgment as to Count I.
2. Breach of Contract: Loss of Business Income (Count II)
Next, the Court addresses TPN's loss of business income claim. Home-Owners argues that TPN cannot recover rent as a loss of business income because it was not receiving any rent payments from NTS at the time of the loss. Home-Owners emphasizes that under the Loss of Income provision of the Policy there has to be an "actual loss" that was "sustain[ed]" during the suspension of operations as a consequence of the property damage. (See Policy at 71) ("We will pay for the actual loss of Business Income you sustain due to the necessary 'suspension' of your 'operations' during the 'period of restoration.' "). And because TPN had not collected rent from NTS for at least seven months prior to the loss, Home-Owners argues, "[t]he rent still would not have been earned if no physical loss or damage had occurred." (Def.'s Mot. for Summ. J., Doc. 69-1 at 21.) Therefore, in Home-Owners' view, TPN did not in fact suffer an "actual loss" of business income.
In support of this argument, Home-Owners analogizes this case to Auto-Owners Ins. Co. v. Neisler, 334 Ga.App. 284, 779 S.E.2d 55 (2015). In Neisler, the Georgia Court of Appeals held that a landowner could not recover loss of income for its inability to rent out a burglarized property because the property in question did not have a tenant at the time that the property was burglarized. Id. at 61. The policy at issue in Neisler provided,
If a covered loss makes the described premises unfit to live in, we will pay for your loss of normal rents resulting from such covered loss while the described premises is unfit to live in. We will not pay charges and expenses which do not continue during that time. We will pay this loss of normal rents only for the shortest time needed to make the rented part fit to live in.Id. at 58 (emphasis added). Although it was unclear what qualified as "normal rent" under the applicable policy, the court concluded that, based on the reference to "the rented part" of the property, the policy "unambiguously requires that the property actually have a tenant at the time of loss" as a prerequisite for recovering rent as a loss of business income. Id. at 61.
In response, TPN argues that Neisler is distinguishable because unlike the landowner in Neisler, TPN actually had a tenant. And even though NTS was in default at the time of the loss, the Policy does not require that the tenant actually be current on its rent payments as a prerequisite for coverage under the loss of business income provision.
Home-Owners also cites Finger Furniture Co. v. Commonwealth Insurance Co., 404 F.3d 312 (5th Cir. 2005) for the proposition that "[t]he strongest and most reliable evidence of what a business would have done had the catastrophe not occurred is what it had been doing in the period just before the interruption." Id. at 314. On Home-Owners' theory, the fact that TPN was not collecting rent payments in the months immediately leading up to the loss suggests that absent the loss TPN would not have collected rent payments after February 2019 either. But as TPN points out, the court in Finger Furniture also stated that "[h]istorical sales figures reflect a business's experience before the date of the damage or destruction and predict a company's probable experience had the loss not occurred." Id. And as TPN notes in its Opposition, TPN has provided evidence that its historical figures reflect nearly a decade of steady rent payments from NTS to TPN prior to the date of the default — with the exception of the months immediately preceding the loss.
Although Home-Owners identifies text messages suggesting that the Nicholsons had been "cooking the books" and that NTS was in fact two years behind on its rent payments, Chris Nicholson provided a declaration stating that both of those statements were incorrect, (Nicholson Decl. ¶¶ 45-47), which is sufficient to raise a factual dispute with respect to the regularity of rent payments. Nicholson also clarified that the timing of the default closely corresponded with the death of his father, which, at least when read in the light most favorable to TPN, suggests that the default may have simply been an aberration in an otherwise steady stream of rent payments.
At this stage, the Court finds that there is at the very least a genuine dispute of material fact as to whether TPN's status as a landlord with a nonpaying tenant was the equivalent to having no tenant at all, such that TPN would not have received rental payments even in the absence of the damages to the Property. Without resolving that factual dispute, the Court cannot conclude as a matter of law that TPN had no "actual loss" of business income during its suspension of operations as a consequence of the loss. The Court will therefore deny Home-Owners' Motion for Summary Judgment as to Count II.
As TPN points out, "Home-Owners concedes that, as to the business loss claim, there is no condition or obligation under the Policy which TPN did not meet" other than proving that there was an actual loss, and so therefore, "[t]he only issue" for purposes of TPN's loss of business income claim "is whether there is an actual loss of income." (Pl.'s Opp'n at 19); (see Dep. of Houston Mabray, Doc. 79-17 at 83:13-17) ("But putting that aside, is there any - is there any other condition or obligation or duty that's on TPN in the policy or the business income coverage that it failed to meet? A. Not that I'm aware of.").
3. Denial of Coverage in Bad Faith (Count III)
In the final Count of the Complaint, TPN argues that Home-Owners denied its loss of business income claim in bad faith in violation of O.C.G.A. § 33-4-6. To establish a bad faith denial of coverage under that statute, TPN "must prove (1) that the claim is covered under the policy, (2) that a demand for payment was made against the insurer within 60 days prior to filing suit, and (3) that the insurer's failure to pay was motivated by bad faith." Neisler, 779 S.E.2d at 61-62 (internal quotations and citations omitted). With respect to the third element, Georgia courts have found that "a complete failure to prove any defense to an action on the policy is 'evidence of the bad faith contemplated by [OCGA § 33-4-6], and subjects the insurer to a verdict for the statutory penalty and attorney's fees.' " Id. at 62 (collecting cases). However, "penalties for bad faith are not authorized where the insurance company has any reasonable ground to contest the claim and where there is a disputed question of fact." Id. (internal quotation marks and citations omitted); see Grange Mut. Cas. Co. v. Law, 223 Ga.App. 748, 479 S.E.2d 357, 359 (1996) ("Where the question of liability is close and the facts are disputed so that the insurer has reasonable grounds to contest the claim, no penalty should be permitted." (quoting Mass. Bay Ins. Co. v. Hall, 196 Ga.App. 349, 395 S.E.2d 851, 857 (1990))).
The Court has already addressed the first element in the context of Count II, and Home-Owners does not contend that TPN failed to make a timely demand for payment. For that reason, the Court primarily focuses on the third element for purposes of Count III.
In its Motion for Summary Judgment, Home-Owners argues that, in making the decision to deny TPN's claim, Home-Owners was reasonably relying on its accounting experts who had determined that TPN's loss of business income was $0. Home-Owners primarily relies on Mock v. Central Mutual Insurance Co., 158 F. Supp. 3d 1332 (S.D. Ga. 2016) for the proposition that an insurer cannot be held liable for denying coverage in bad faith when it was reasonably relying on an expert in making that determination. In Mock, the court denied the plaintiff's bad faith claim for failure to cover rain water damage when there was a genuine dispute of material fact about the cause of the rainwater damage, and the insurance company had reasonably relied on its expert's determination that the rainwater damage had been caused by shoddy workmanship on the roof. Id. at 1348-49; see id. at 1349 (finding that "it was reasonable for Defendant to rely on [its expert's] opinion or draw this conclusion itself from his findings that the repairs caused the openings and that the water had leaked through those openings into the interior").
As an initial matter, the opinion of an expert is not a sufficient ground to grant summary judgment to Home-Owners standing on its own, as TPN notes in its Opposition. See Ginn v. Morgan, 225 Ga. 192, 167 S.E.2d 393, 394 (1969) (noting that "opinion testimony is never so authoritative that the jury is bound to be governed by it"). Further, the question of whether it was "reasonable for [Home-Owners] to rely" on its accounting experts' opinion that the loss of business income was $0, or else "draw this conclusion itself," Mock, 158 F. Supp. 3d at 1350, is itself a factual question. Although Home-Owners contends that the presence of a "disputed question of fact" is by itself sufficient grounds for denying a claim of bad faith, Neisler, 779 S.E.2d at 62, the factual circumstances presented here suggest that Home-Owners may not have had a "reasonable ground to contest the claim," id., notwithstanding the conclusion of its experts.
For one thing, it is far from clear that $0 is a reasonable estimate of TPN's loss of business income given TPN's long history of collecting rental payments on the Property, coupled with the fact that it has now terminated NTS's lease such that it could lease the Property to a new tenant if the Property were repaired. On top of that, by Home-Owners' own admission, the decision to deny coverage was based on a report that Home-Owners had received from its accounting experts on February 5, 2020. Yet even though Home-Owners knew by then that it was going to deny the claim, TPN claims that Home-Owners continued to give it the run around for a number of additional months before officially denying the claim on November 20, 2020 — almost exactly a year after TPN made its demand for loss of business income payments. Given that Home-Owners had apparently made up its mind to deny TPN's loss of business income claim — or at least possessed all of the information it needed to make that decision — over nine months before that date, Home-Owners' delay in making that determination could be suggestive of bad faith.
TPN terminated NTS's lease on March 19, 2020. Although that was after Home-Owners' accounting experts issued their February 5, 2020 report, it was over 8 months before Home-Owners officially denied TPN's claim on November 20 of that year. It is not clear from the record whether TPN communicated its termination of the lease to Home-Owners before Home-Owners made its coverage determination.
Home-Owners argues that the Court should disregard a number of TPN's arguments pertaining to its bad faith claim because TPN's Opposition brief exceeded the 25-page limit in violation of the Court's Local Rules. The brief was 31 pages in length, which was somewhat above the 25-page limit. However, the Court finds the additional points raised in the page-limit exceeding portion of TPN's brief to be helpful. The Court will therefore exercise its discretion to consider the arguments raised in the page-limit exceeding portion of TPN's Opposition brief. That being said, the Court will strictly enforce the page limits in the future if TPN subsequently files a page-limit exceeding brief without first seeking leave from the Court to include the additional pages.
As a fallback, Home-Owners argues that TPN failed to mail a copy of the demand and Complaint to the Commissioner of Insurance, which is a statutory prerequisite for maintaining an action for bad faith under O.C.G.A. § 33-4-6(b). In its Opposition, TPN argues that this statutory notice requirement can be cured at a later date and that it has now mailed the relevant documents to the Commissioner of Insurance to cure the deficiency. As proof of its compliance, TPN included a declaration from one of its attorneys, Stephen V. Kern, indicating that the relevant documents had been sent to the Commissioner of Insurance on April 1, 2022. (See Decl. of Stephen V. Kern, Doc. 79-15 ¶ 3); (Decl. of Stephen V. Kern, Ex. A, Doc. 79-16). Based on this evidence, the Court finds that TPN has now cured its failure to comply with the statutory notice requirement. The Court will therefore deny Home-Owners' Motion for Summary Judgment on Count III.
IV. Conclusion
To summarize, Home-Owners' Motion to Deny Objections [Doc. 85] is GRANTED IN PART and DENIED IN PART. The Court declines to strike or disregard Chris Nicholson's declaration because TPN was not offering Nicholson's statements about rental value as expert testimony. However, the Court declines to consider Robison's supplemental expert report for purposes of summary judgment. Robison's supplemental report — which includes both RCV and ACV calculations for three different time periods — goes well beyond the scope of his original report and deposition testimony, which were limited to his RCV calculations for May 2021.
With respect to TPN's substantive claims, the Court DENIES Home-Owners' Motion for Summary Judgment [Doc. 69] as to all three Counts. Although the Court finds that ACV is the correct measure of damages in this case for purposes of Count I, there is still a factual dispute regarding the proper scope of repairs, which in turn creates a genuine dispute of material fact as to whether Home-Owners made sufficient payments to TPN to cover the damage to the Property. As for Count II, the Court finds that there is a genuine dispute of material fact as to whether Home-Owners breached the policy agreement by refusing to make payments to TPN for loss of business income. There is at the very least a genuine dispute of material fact about whether TPN should be precluded from recovering a loss of business income based on NTS's failure to make rental payments, i.e., whether having an unpaying tenant was the equivalent to having no tenant at all. Relatedly, for purposes of Count III, there is a genuine dispute of material fact as to whether Home-Owners reasonably relied on its accounting experts' determination that TPN's loss of business income was $0 in making the decision to deny the loss of business income claim, or, alternatively, whether Home-Owners knowingly denied TPN's claim in bad faith.
The Court believes that this matter could be resolved through mediation now that the parties have proceeded past summary judgment. The parties are therefore DIRECTED to select a private mediator for the purpose of conducting mediation. If the parties cannot agree on a mediator, or if TPN cannot afford to pay for its share of the mediation fees, the parties should notify the Court within 15 days of the date of this Order, in which case, the Court will refer this matter to the next available magistrate judge. Counsel are DIRECTED to advise the Court no later than five days from the date of the conclusion of the mediation whether the case has been settled.
IT IS SO ORDERED this 27th day of September, 2022.