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Olga Despotis Trust v. The Cincinnati Insurance Co.

United States Court of Appeals, Eighth Circuit

August 16, 2017

Olga Despotis Trust Plaintiff- Appellant
The Cincinnati Insurance Company Defendant-Appellee

          Submitted: March 7, 2017

         Appeal from United States District Court for the Eastern District of Missouri - St. Louis

          Before RILEY, Chief Judge [1] GRUENDER, Circuit Judge, and GRITZNER, [2] District Judge.

          GRITZNER, District Judge.

         Olga Despotis Trust (the Trust) appeals the district court's[3] grant of summary judgment in favor of Cincinnati Insurance Company (CIC) on the Trust's claims for breach of contract, vexatious refusal, and declaratory judgment. We affirm.

         I. BACKGROUND

         On December 31, 2010, a tornado destroyed a building leased as a medical imaging facility located in Sunset Hills, Missouri, which was owned by the Trust and insured by CIC. On February 15, 2011, the trustee, Dr. George Despotis (Dr. Despotis), executed a proof of loss form to CIC, claiming a loss in excess of the policy's limits and alleging the actual cash value (ACV) of the building at the time of loss was $1, 400, 000. CIC, on the other hand, determined that at the time of the loss, the ACV of the building was $800, 000. Within fifteen days of the Trust's submission of its proof of loss, CIC presented the Trust with a check for $813, 931, which included the undisputed $800, 000 ACV amount. The Trust insisted that additional funds were due, and it disputed CIC's loss value determinations.

         Because the loss value was in dispute, on April 19, 2011, CIC sent the Trust's attorney a letter invoking the policy's appraisal provision, which allowed either party to request an appraisal in the event of a dispute regarding the amount of covered damages. The Trust responded to CIC's request, stating it deemed appraisal "unproductive" and proposing a settlement. J.A. at 166. CIC declined the settlement offer and again requested the Trust's cooperation with the appraisal. In reply, the Trust asked CIC for various assurances regarding the appraisal process, noting that appraisal would leave unresolved issues, and advising CIC it would be filing legal action within days. Addressing the Trust's request for assurances regarding the appraisal process, CIC advised that appraisal would be binding on both the insured and the insurer under the terms and conditions of the appraisal provision. CIC also informed the Trust that the purpose of the appraisal process was to resolve all disputes between the insured and the insurer regarding covered damages. One week later, the Trust filed a lawsuit in Missouri state court seeking damages for breach of contract and a declaratory judgment that the appraisal provision of the policy was unenforceable. CIC removed the case, but eighteen months later, the case was voluntarily dismissed without prejudice. The Trust then filed the present lawsuit in the Eastern District of Missouri, alleging the same breach of contract (count one) and declaratory judgment (count three) claims, and an additional claim for vexatious refusal (count two).

         CIC filed a motion for summary judgment on count three, asking the court to order appraisal. The court granted CIC's motion, ordered the parties to participate in appraisal, and stayed the case. Olga Despotis Tr. v. Cincinnati Ins. Co., No. 4:12-CV-2369 RLW, 2014 WL 5320260, at *2 (E.D. Mo. Oct. 17, 2014). On August 4, 2015, the appraisal panel issued its decision, declaring an ACV loss of $1, 056, 000; the panel also determined the total replacement cost to be $1, 500, 000, and lost rent to be $94, 000. As a result of the appraisal, CIC paid the Trust the remaining ACV ($256, 000) and an additional $22, 658.28 for lost rental income.

         The Trust insisted it was entitled to the building's replacement cost, rather than simply the ACV of the loss, and moved to amend its complaint to add allegations in its breach of contract claim that CIC failed to pay replacement cost and/or interfered with the Trust's ability to pursue the replacement cost provision of the policy. The policy's replacement cost provision stated replacement costs would be paid only if "the repairs or replacement have been completed or at least underway within 2 years following the date of the 'loss.'" J.A. at 175. The district court denied the motion to amend, concluding "the amended complaint would require additional discovery that would necessarily delay resolution of this already extremely protracted litigation" and that this "unexcused delay would unduly prejudice Defendant because of the advanced nature of this case." Olga Despotis Tr. v. Cincinnati Ins. Co., No. 4:12-CV-2369 RLW, 2015 WL 8481863, at *1 (E.D. Mo. Dec. 8, 2015).

         The parties filed cross-motions for summary judgment on the remaining counts one and two, and the district court granted summary judgment in CIC's favor. Regarding the Trust's claim that CIC breached the contract by making a loss payment based on a flawed calculation of the ACV, the district court reasoned, "The Trust cannot maintain a claim for breach of contract based upon a payment that occurred in March 2011, prior to when the parties fully engaged in the appraisal process provided for in the Policy, " which was not completed until August 2015. Olga Despotis Tr. v. Cincinnati Ins. Co., No. 4:12-CV-2369 RLW, 2016 WL 831933, at *3 (E.D. Mo. Feb. 29, 2016). The district court also reasoned CIC could not have breached the contract by not paying the replacement cost because the Trust failed to replace the damaged property within two years of the date of loss, as the provision required. Id. The court further found a vexatious refusal claim could not be maintained based on conduct that occurred prior to the completion of the appraisal process, reasoning that such a holding would subvert the appraisal process. Id. at *5.

         The Trust appeals the grant of summary judgment, arguing genuine issues of material fact preclude summary judgment as to whether CIC waived its right to invoke the appraisal provision and whether CIC breached the policy by refusing to pay the Trust the replacement cost.


         We review the district court's grant of summary judgment and its interpretation of the insurance policy de novo. Gohagan v. Cincinnati Ins. Co., 809 F.3d 1012, 1015 (8th Cir. 2016). "Summary judgment is appropriate only when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law." Id. (internal citations and quotation marks omitted). "When, as here, federal jurisdiction is based on diversity of citizenship, '[s]tate law governs the interpretation of insurance policies.'" Burger v. Allied Prop. & Cas. Ins. Co., 822 F.3d 445, 447 (8th Cir. 2016) (alteration in original) (quoting Secura Ins. v. Horizon Plumbing, Inc., 670 F.3d 857, 861 (8th Cir. 2012)). It is undisputed that Missouri law applies to the claims in this case. Thus, "we are bound by the Supreme Court of Missouri's decisions." W. Heritage Ins. Co. v. Asphalt Wizards, 795 F.3d 832, 837 (8th Cir. 2015).

         A. Enforcement of the Appraisal Provision

         The Trust argues the district court erred by concluding CIC had not waived its right to invoke the appraisal provision and then by enforcing the provision. The Trust argues waiver occurred because CIC did not identify an appraiser within twenty days of the written demand for appraisal as required by the provision. The Trust asserts the district court failed to view the evidence in the light most favorable to the Trust and failed to allow an inference that the Trust was not reluctant to engage in the appraisal process but was merely seeking confirmation that CIC would be bound by the outcome of the appraisal. Citing "entrenched principles of insurance law, " Appellant's Br. 34, the Trust further argues that by recognizing the existence of an arbitrable dispute, CIC impliedly waived its right to arbitrate, which the Trust equates with CIC's appraisal right. The Trust's final assertion is that CIC only invoked the appraisal provision for the disputed actual cash value whereas the district court erred by sending the entire case, including replacement cost, for appraisal.

         1. Appraisal Provision

         The policy's Appraisal Provision[4] states as follows:

If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser and notify the other of the appraiser selected within 20 days of the written demand for appraisal. The two appraisers will select an umpire. If they cannot agree upon an umpire within 15 days, we or you may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. The umpire shall make an award within 30 days after the umpire receives the appraisers' submissions of their differences. A decision agreed to by any two will be binding. Each party will
a. Pay its chosen appraiser; and
b Bear the other expenses of the appraisal and umpire equally.

         If there is an appraisal, we will still retain our right to deny the claim. J.A. at 176.

         2.Enforceabi ...

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