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Welton Enterprises, Inc. v. The Cincinnati Ins. Co.

United States District Court, W.D. Wisconsin

September 16, 2015


         Decided September 15, 2015.

Page 828

          For Welton Enterprises, Inc., Welton Family Limited Partnerships, 3PP Plus Limited Partnership, Hy Cite/Welton, LLC, Plaintiffs: Anthony K. Murdock, LEAD ATTORNEY, Halloin & Murdock, S.C., Milwaukee, WI.

         For The Cincinnati Insurance Company, Defendant: Mark W. Rattan, LEAD ATTORNEY, Brendan Daniel Corcoran, Litchfield Cavo LLP, Brookfield, WI.

Page 829

          OPINION & ORDER

         WILLIAM M. CONLEY, District Judge.

         In April of 2011, a hailstorm dented the rooftops of numerous structures in Middleton, Wisconsin, giving rise to the usual insurance claims, sales of property, settlements and lawsuits. Many of the latter centered around whether the applicable commercial insurance policies provide coverage. Among those structures were commercial buildings owned by the plaintiffs, Welton Enterprises, Inc., Welton Family Limited Partnerships and 3PP Plus Limited Partnership (collectively, " Welton" ). More than four years later, Welton and the insurer of those buildings, The Cincinnati Insurance Company (" Cincinnati Insurance" ), continue to litigate this question.

         Cincinnati Insurance contends that because the denting is purely cosmetic and is not visible from the ground, it does not constitute " direct physical loss" under the

Page 830

applicable policy; it also asserts various coverage defenses, including non-cooperation. Welton, on the other hand, argues that the policy provides coverage regardless of the nature of the denting and maintains that Cincinnati Insurance's insistence to the contrary constitutes bad faith.

         Before this court is Cincinnati Insurance's motion for summary judgment (dkt. #95). For the reasons that follow, the court concludes that the denting to Welton's roofs constitutes " direct physical loss," whether cosmetic or not, and will deny Cincinnati Insurance's motion on that point. At the same time, Cincinnati Insurance is entitled to summary judgment on Welton's claim that its position on coverage constituted bad faith. Finally, the court will deny Cincinnati Insurance's motion as regards its newly-asserted coverage defenses.


         I. Hailstorm and Policy Language

         The April 3, 2011, hailstorm dented the roofs of twelve commercial buildings owned by Welton. At the time, those buildings were insured by a commercial policy that included the following " Coverage" language in Section A: " We will pay for direct physical 'loss' to Covered Property at the 'premises' caused by or resulting from any Covered Cause of Loss." (Aff. of Bruce P. Graham Ex. A (dkt. #98-1) Page 3 [hereinafter " Policy" ].)[1] The Policy defines " loss" as " accidental loss or damage," but does not define " direct" or " physical." ( See id. at 33-35 (" Definitions" ).)

         In the event of a covered loss, Cincinnati Insurance has four options under the terms of the Policy, two of which are relevant here: (1) " [p]ay the value of lost or damaged property" or (2) " [p]ay the cost of repairing or replacing the lost or damaged property." ( Id. at 28.) The Policy provides that Cincinnati Insurance will determine the value of covered property at " 'Actual Cash Value' as of the time of 'loss,'" subject to certain exceptions not relevant to this lawsuit. ( Id. at 30.) Actual Cash Value (" ACV" ) " means replacement cost less a deduction that reflects depreciation, age, condition and obsolescence." ( Id. at 33.) In contrast, " Replacement Cost" does not include a deduction for depreciation and replaces ACV if elected. ( Id. )

         Section D.3 of the Policy also imposes certain " Duties In The Event of Loss or Damage" on the insured, Welton, " in order for coverage to apply[.]" ( Id. at 27.) In relevant part, those duties include:

(2) Give us prompt notice of the " loss." Include a description of the property involved.
(3) As soon as possible, give us a description of how, when and where the " loss" occurred. . . .
(5) At our request, give us complete inventories of the damaged and undamaged property. Include quantities, costs, values and amount of " loss" claimed. . . .
(8) Cooperate with us in the investigation or settlement of the claim.

( Id. )

         II. Past Litigation

         In Advance Cable Company, LLC v. Cincinnati Insurance Company, No. 13-cv-229-wmc, 2014 WL 975580 (W.D. Wis. Mar. 12, 2014), a companion federal case to this one, this court concluded on summary judgment that that the " direct physical

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'loss'" language established coverage even for non-structural, non-visible denting to metal roof panels. See Id. at *7-12. The court also held, however, that Cincinnati Insurance's position was fairly debatable, and granted Cincinnati Insurance summary judgment on that claim. Id. at *12-15; see also Advance Cable Co., LLC v. Cincinnati Ins. Co., No. 13-cv-229-wmc, 2014 WL 2808628, at *7 (W.D. Wis. June 20, 2014) (denying reconsideration on bad faith claim). The Seventh Circuit affirmed both conclusions on appeal. See Advance Cable Co., LLC v. Cincinnati Ins. Co., 788 F.3d 743, 746-49 (7th Cir. 2015). The Advance Cable case did not, however, involve any additional coverage defenses, such as non-cooperation.

         In addition, plaintiffs would make much of Cincinnati Insurance losing a similar construction argument over the phrase " direct physical loss" in a separate lawsuit brought against it by Hy Cite/Welton, LLC, in the Circuit Court for Dane County, Wisconsin, although that decision amounts to a one-page order issued in April of 2015, which denied Cincinnati Insurance's motion for summary judgment " for reasons set forth on the record during the hearing." Not only does it appear no transcript was ever requested for that hearing, preventing this court from determining the basis for the order, but a final judgment has yet to be entered by the circuit court. See Hy Cite/Welton, LLC v. Cincinnati Insurance Company, No. 2013CV002123 (Wis. Cir. Ct. Dane County Apr. 27, 2015).

         III. Facts Related to Investigation and Claims Procedure

         On this record, exactly when Welton first discovered the denting to its roof remains unclear. Welton's brief states that it first discovered the damage in the summer of 2011, when Scott Martin of Great Lakes Roofing inspected them, but its citation to Martin's affidavit in support is flawed in two respects. First, Martin does not say he inspected the roofs in summer; he says only that he went on the roofs " after the April 3, 2011 hail storm." (Aff. of Scott A. Martin (dkt. #115-1) ¶ 4.) Second, Martin's affidavit describes his inspection of property located at 2113 Eagle Drive in Middleton -- property that was a part of Advance Cable case, but does not appear to be part of the present case.

         There is evidence that on September 27, 2011, Joanna Burish, Welton's CEO, sent an e-mail to agents Robyn Henslin and Steve Squires at Hausmann-Johnson Insurance (" Hausmann" ) asking how to arrange for the inspection of certain properties for hail damage.[2] (Aff. of Timothy J. Casper Ex. H (dkt. #115-8).) Henslin responded the next day, indicating that she had forwarded the list of buildings to Hausmann's in-house claims person, Nick Veech. Veech e-mailed Burish on September 28, providing the names of roofing contractors to whom he had sent the addresses to be inspected. (Decl. of Mark W. Rattan Ex. C (dkt. #97-3).) Veech also wrote that once they had determined " the extent of the damage to the buildings," Burish should inform him so he could " get the claim information put together and sent in to Cincinnati." ( Id. )

         On November 18, Burish e-mailed Henslin and Squires indicating that the roofers Veech had recommended had not worked out and that they had retained Great Lakes Roofing to inspect the roofs. (Decl. of Mark W. Rattan Ex. E (dkt. #97-5).) Squires responded asking Burish to " send a list of the properties you want to make a

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claim on along with any reports that you have." (Aff. of Timothy J. Casper Ex. G (dkt. #115-7).) Squires further copied Veech and Curt Jorgenson, Cincinnati Insurance's claims ...

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