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Hannan v. Auto-Owners Insurance Co.

United States District Court, E.D. Missouri, Eastern Division

July 25, 2014

PHYLLIS HANNAN, Plaintiff,
v.
AUTO-OWNERS INSURANCE COMPANY, Defendant.

MEMORANDUM AND ORDER

E. RICHARD WEBBER, Senior District Judge.

This matter comes before the Court on "Defendant's Motion in Limine Regarding Actual Cash Value and Replacement Cost" [ECF No. 42], "Defendant's Motion in Limine to Exclude Expert Testimony of Eric Baker" [ECF No. 43], "Defendant's Motions in Limine" [ECF No. 44], and "Plaintiff's Motions in Limine" [ECF No. 45].

Plaintiff Phyllis Hannan ("Plaintiff") filed a "Petition for Recovery Under a Property Insurance Policy" in the Circuit Court of Montgomery County, Missouri, on May 14, 2013, asserting claims for breach of contract and vexatious refusal to pay [ECF Nos. 1-1, 6]. On June 6, 2013, Defendant Auto-Owners Insurance Company ("Auto-Owners") filed a Notice of Removal, removing the cause to this Court on the basis of diversity jurisdiction, pursuant to 28 U.S.C. ยงยง 1332 and 1446 [ECF No. 1]. Auto-Owners filed its Answer to Plaintiff's Complaint on that same date, asserting the following affirmative defenses: 1) failure to state a claim upon which relief may be granted; 2) no coverage and bar from recovery, per terms of policy, for failure and refusal to allow Auto-Owners to inspect her roof; 3) no coverage and bar from recovery, per terms of policy, because damage to property was due to wear and tear, deterioration, or hidden or latent defects; 4) no coverage and bar from recovery, per terms of policy, because the damage to property was due to faulty, inadequate or defective design, workmanship, repair, construction, renovation, remodeling, maintenance, or was due to faulty, inadequate or defective materials used in repair, construction, renovation or remodeling; and 5) no coverage and bar from recovery, per terms of policy, because the damage claimed to the interior of the building was not a result of a covered cause of loss (citing specifically to an exclusion for interior damage resulting from, inter alia, rain, unless the building first sustained damage by a Covered Cause through which rain entered) [ECF No. 5].

The parties' good faith Alternative Dispute Resolution participation did not achieve a settlement [ECF No. 14]. Subsequently, the Court granted Auto-Owners leave to amend its Answer as to affirmative defenses, on the basis of information learned in Plaintiff's expert deposition [ECF Nos. 15-16].

Auto-Owners filed its Amended Answer on February 27, 2014, asserting the following affirmative defenses: 1) failure to state a claim upon which relief may be granted; 2) no coverage and bar from recovery, per terms of policy, for failure and refusal to allow Auto-Owners to inspect her roof; 3) no coverage and bar from recovery, per terms of policy, because damage to property was not caused by windstorm or hail, and as such, was not caused by a covered cause of loss under the policy; 4) no coverage and bar from recovery under policy of insurance because the damage claimed to the interior of the building was not a result of a covered cause of loss (citing Covered Causes of Loss clause definition for Windstorm or Hail, excluding coverage for interior damage caused by rain unless building first sustained wind or hail damages to the roof through which rain entered); 5) no entitlement to coverage under policy of insurance, because the cause of the alleged damage does not fall within the policy's specifically enumerated perils (fire; lightening; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; sprinkler leakage; sinkhole collapse; volcanic action; breakage of glass; falling objects; weight of snow, ice or sleet; and water damage, meaning accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam, other than an Automatic Sprinkler System); 6) no coverage and bar from recovery, as loss specifically excluded per policy terms, because the damage to property was due to surface water or water that backs up from a sewer or drain; and 7) no coverage and bar from recovery as loss specifically excluded per policy terms, because the damage to property was due to "fungi, " wet rot, dry rot and bacteria [ECF No. 17].

Plaintiff and Auto-Owners have submitted a joint Stipulation of Uncontested Facts [ECF No. 24]. As pertinent to the parties' motions in limine, the parties agree the following facts are uncontested. Auto-Owners issued a policy of insurance (bearing Policy No. 114605-75006856-11; hereinafter referred to as "Policy") to Plaintiff on property located at 680 S. Sturgeon Street, Montgomery City, Missouri 63361, for the period of November 11, 2011, through November 11, 2012. Plaintiff made a claim under her Policy for damage arising out of a July 2, 2012 storm.

After investigation into the claim, Auto-Owners determined the storm damage was Seventeen Thousand, Five Hundred, Sixty-Seven Dollars and Twenty-Five Cents ($17, 567.25). Auto-Owners applied a Five Thousand Dollars and No Cents ($5, 000.00) deductible to Plaintiff's claim, and then issued a check for Twelve Thousand, Five Hundred, Sixty-Seven Dollars and Twenty-Five Cents ($12, 567.25) on July 25, 2012 (with American Bank of Missouri named as mortgagee), and on August 14, 2012 (with People's Savings Bank named as mortgagee).

After the payment of the claim, Plaintiff filed a second notice of loss with Auto-Owners on September 11, 2011, claiming additional damage relating to the July 2, 2012 storm. Auto-Owners investigated the claim presented by Plaintiff. Based on its investigation, Auto-Owners has refused to pay any additional monies, as it is the company's position that the damage alleged by Plaintiff is not related to the July 2, 2012 storm.

Plaintiff claims there is additional damage to her roof due to the July 2, 2012 storm, and contends she is entitled to recover additional insurance proceeds under the Policy. Plaintiff also contends Auto-Owner's refusal to pay her claim is without reasonable cause or excuse and she asserts she is entitled to recover an additional statutory penalty as a result.

On July 23, 2014, the Court conducted a pretrial conference to hear arguments of the parties' pretrial motions [ECF No. 55]. At the conclusion of the proceedings, the Court took the motions under submission. After review of the parties' motions, supporting exhibits and memoranda, and consideration of the parties' arguments, the Court rules as follows.

I. PLAINTIFF'S MOTIONS IN LIMINE [ECF NO. 45]

In her Motions in Limine, Plaintiff asks the Court to enter an Order instructing Auto-Owners "to refrain from mentioning or interrogating directly or indirectly in any manner whatsoever, including the offering of documentary evidence during voir dire, opening statements, direct or cross-examination, closing arguments, or otherwise providing to the jury regarding the following matters:" 1) affirmative defenses asserted in Auto-Owners's Amended Answer that were not included in Auto-Owner's October 29, 2012 denial letter; and 2) "Exclusions" contained within the Policy's "Causes of Loss - Special Form (54082) [see ECF No. 45-1 at 8-9]. Auto-Owners has filed its "Objection to Plaintiff's Motion in Limine" [ECF No. 49].

Plaintiff claims Auto-Owners amended its Answer to include a number of affirmative defenses that were not present in any previous denial of benefits by Auto-Owners, and contends Missouri case law clearly prohibits "such retrospective supplementation" by an insurer denying benefits under a policy of insurance. As to Plaintiff's Motion in Limine to exclude certain affirmative defenses, Auto-Owners contends the motion is an improper, untimely motion to strike

In Missouri, the general rule is that "an insurer, having denied liability on a specified ground, may not thereafter deny liability on a different ground." Brown v. State Farm Mut. Auto. Ins. Co., 776 S.W.2d 384, 386 (Mo. 1989). In Brown, the Missouri Supreme Court granted transfer "to consider whether an insured must show prejudice from asserting a subsequently offered, more specific defense." Id. Before reaching its conclusion, the Brown court examined the doctrines of waiver and estoppel, noting confusion between cases employing the different legal doctrines. Id. at 386-89. The court noted estoppel requires "(1) an admission, statement or act inconsistent with the claim afterwards asserted and sued upon, (2) action by the other party on the faith of such admission, statement or act, and (3) injury to such other party, resulting from allowing the first party to contradict or repudiate the admission, statement or act." Id. at 388. Waiver is "the voluntary relinquishment of the right to rely on the contractual provision which forms the basis of waiver[";] accordingly, the Court found this defense did not require a showing of prejudice to an insured. Id. at 388.

However, the court's examination of case law led it to adopt a preference as to the doctrine of estoppel: "[I]n the absence of either (1) an express waiver by the insurer or (2) conduct which clearly and unequivocally shows a purpose by the insurer to relinquish a contractual right, the insured must show prejudice before the rule may be invoked."

In an October 29, 2012 letter denying Plaintiff's claim for additional damages caused by roof leaking, Auto-Owners stated that the damage to Plaintiff's property was determined to be:

due to faulty or inadequate construction or maintenance. It appears the installation of the EPDM roof membrane over the prior roofing system and the possibility of improper installation of this roof, prevented proper attachment and probably affected the slope of the roof. As the damage that occurred from the 7-2-2-12 claim was repaired and there was no other covered damage found to the roof, we regretfully deny your claim for the replacement of the roof.
The determination that there is no coverage for the claim submitted is based on our investigation, the policy(ies) identified and information provided.

[ECF No. 45-1 at 10].

When Auto-Owners filed its original Answer to Plaintiff's Complaint, it asserted affirmative defenses that were consistent with the reason stated for its loss determination in the October 29, 2012 denial letter. An examination of Auto-Owners's Amended Answer reveals that several of Auto-Owners's asserted defenses are likewise consistent with the denial letter. However, the Court finds that Auto-Owners's sixth and seventh affirmative defenses raise entirely new grounds for its refusal to pay Plaintiff's claim. The Court finds no waiver by Auto-Owners; however, the Court concludes these defenses are inconsistent with the specific defense announced in the denial letter. Nevertheless, Plaintiff has not shown the required prejudice before estoppel may be invoked. Accordingly, the Court will deny Plaintiff's request to exclude affirmative defenses asserted in Auto-Owners's Amended Answer that were not included in Auto-Owners's October 29, 2012 denial letter.

Plaintiff also contends the doctrines of estoppel and waiver preclude Auto-Owners from enforcing the "Exclusions" clause contained in the Policy's "Causes of Loss - Special Form (54082), because Auto-Owners considered her roof to be in "good" and insurable shape during the Policy's effective dates, November 11, 2011 through November 11, 2012.

For its Objection, Auto-Owners also claims it had no duty to re-inspect the roof after it issued the Policy, and it asserts any failure to inspect the roof would not waive any coverage or defenses. Auto-Owners further states Plaintiff's waiver argument has not been properly pleaded. Auto-Owners claims Plaintiff's first notice that she was going to assert waiver was in her Trial Brief, submitted only twenty days prior to the scheduled trial date. Auto-Owners claims Plaintiff has improperly raised this issue on the eve of trial, causing it severe prejudice. Auto-Owners further argues any use of the waiver defense in this situation would be improper under Missouri law, as Plaintiff is attempting to rewrite the policy of insurance, and to create coverage where none previously existed. Auto-Owners contends that, even if such defenses were proper, these ...


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