Bangor-Brewer Bowling Lanes, Inc. v. Commercial Union-York Ins. Co.

STATE OF MAINE SUPERIOR COURT:

PENOBSCOT, SS. DocketNo Ste “99- er

FILED AND ENTERED

SUPERIOR COURT

Bangor-Brewer Bowling Lanes, Inc., : JUL 03 2001

Plaintiff,

PENOBSCOT COUNTY

v. ORDER ON MOTION TO

DISMISS AND MOTIONS

FOR SUMMARY JUDGMENT

Commercial Union-York Ins. Co. et al.,

Defendants

Pending before the court are defendant Commercial Union-York

Insurance Company's ("CU's") motion to dismiss counts 7 and 8 of the

plaintiff's amended complaint, its motion for summary judgment on each

count of the amended complaint, and defendant Varney Agency, Inc.'s

("Varney") motion for summary judgment on counts 7 and 8 of the

amended complaint.!

This action arises out of issues of insurance coverage for losses that

the plaintiff allegedly sustained as a result of the January 1998 ice storm.

During that period of time, the plaintiff owned a commercial account

insurance policy that had been issued by CU and sold to the plaintiff by

Varney. The plaintiff claims that its loss falls within the scope of coverage

1As the plaintiff has framed its claims, counts 1-6 and 9-10 purport to seek

relief against CU, and counts 7-8 seek relief against Varney. As is noted in this order

infra, dismissal of counts 7 and 8 as against CU is proper because of the plaintiff's

express direction of its claims.

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provided under that policy. The plaintiff also asserts companion theories

of coverage grounded principally on the law of contract, estoppel,

negligence and reformation. Further, in its complaint, the plaintiff seeks

relief for CU's treatment of its claim under the policy, based on statutes

governing the adjustment and payment of claims made under insurance

policies.

“A motion to dismiss tests the legal sufficiency of the complaint.”

McAfee v. Cole, 637 A.2d 463, 465 (Me. 1994). On a motion to dismiss, the

complaint must be examined "in the light most favorable to the plaintiff to

determine whether it sets forth elements of a cause of action or alleges

facts that would entitle the plaintiff to relief pursuant to some legal

theory.” Jd. A dismissal is proper “only when it appears beyond doubt

that a plaintiff is entitled to no relief under any set of facts that he might

prove in support of his claim.” Hall v. Board of Environmental Protection,

498 A.2d 260, 266 (Me. 1985). See also Heber v. Lucerne-in-Maine Village

Co., 2000 ME 137, J 7, 755 A.2d 1064, 1066.

Summary judgment is proper only if the record on summary

judgment shows that there are no genuine issues of material fact and that

the movant is entitled to judgment as a matter of law. See M.R.Civ.P. 56.

To survive a motion for a summary judgment, the opposing party must

produce evidence that, if produced at trial, would be sufficient to resist a

motion for a judgment as a matter of law; "[t]he plaintiff must establish a

prima facie case for each element of the cause of action." Rodrigue v.

Rodrigue, 1997 ME 99, 8, 694 A.2d 924, 926. The court cannot decide an

issue of fact even if the opposing party’s chances of prevailing at trial on

that issue are improbable. Cottle Enterprises, Inc. v. Town of Farmington,

1997 ME 78, { 11, 693 A.2d 330, 334.

Count 1 (account annexed

The statutory predicate for count | is 14 M.R.S.A. § 51. However, the

insured's rights in this statutory claim are determined on the basis of the

insurance policy itself. Oakes v. Franklin Fire Insurance Co., 122 Me. 361,

363-64 (1923). Therefore, CU's motion for summary judgment on count 1

is entirely a function of the analysis relevant to counts 2 and 3. Because

the court denies CU's motion for summary judgment on counts 2 and 3, its

motion for summary judgment on count | must be denied as well.

Counts 2 and 3 (declaratory judgment and breach of contract

The policy at issue is described as a "basic" commercial policy. CU

Statement of Undisputed Material Fact ("CUSUMEF") J 55. Under this type

of policy, coverage is provided for specific losses identified therein. Id. 1

56. In this way, a basic policy is distinguishable from an "all risk" policy

(also described in the parties’ submissions as a "special" form policy),

because the latter provides coverage for all losses not specifically excluded

by the policy's terms. Jd. { 58. The relevant coverage provision found in

the plaintiff's basic policy creates coverage for

Windstorm or Hail, but not including:

a. frost or cold weather

b. ice (other than hail), snow or sleet whether driven by wind or not;

or

c. loss or damage to the interior of any building or structure or the

property inside the building or structure, caused by rain, snow, sand

or dust, whether driven by wind or not, unless the building or

structure first sustained wind or hail damage to its roof or walls

through which the rain, snow, sand or dust enters.

Id. J 57. The question presented here is whether the record on summary

judgment raises a factual issue of whether the loss claimed by the plaintiff

falls within the basic grant of coverage ("Wwindstorm or hail"); the exclusion

to that grant of coverage noted in subsection (b); the exclusion to that

grant of coverage noted in subsection (c) (". . .but not including . . . loss or

damage to the interior of any building or structure or the property inside

the building or structure, caused by rain, snow, sand or dust, whether

driven by wind or not. . ."), or the exception to exclusion (c) (". . . unless

the building or structure first sustained wind or hail damage to its roof or

walls through which the rain, snow, sand or dust enters.").

The record on summary judgment supports factual contentions that

the ice storm was accompanied by heavy winds, e.g., Plaintiff's Statement

‘of Material Facts ("PSMF") J 26, 30 and 31; that during the storm the roof

dropped substantially, id. ¥ 23; that water entered the building through

the roof, id.; and that the combination of wind and snow could cause

deflection in the roof, CUSUMF J 63. From this factual predicate, there

exists an argument that the resulting loss is covered by the basic policy

that the plaintiff owned.

CU also argues that the pre-existing condition of the roof affects the

magnitude of any covered loss arising from the 1998 ice storm.? In 1969,

another winter storm of considerable magnitude caused damage to the

roof. CU contends that the amount of proceeds available under this policy

must take into account the condition of the roof prior to the 1998 storm,

because an insured is entitled to the "actual cash value as of the time of

loss or damage. . .," PSMF J 60, which the policy in turn defines as "the

2To the extent that the coverage issue is applicable to the claims against it,

Varney joins in this argument.

replacement cost at the time of the loss, less the value of physical

depreciation as to the damaged property." CUSUMF { 61. For the reasons

noted above, this record supports a factual argument that the plaintiff

sustained a covered loss as a result of the 1998 storm. None of the parties

has developed a factual record on this motion that allows a quantitative

ruling, as a matter of law, regarding the extent of the prior physical

depreciation. Thus, the court can indicate only that the measure of any

covered loss is controlled by the portion of the policy noted herein.

Finally, CU argues that the plaintiff failed to satisfy conditions

precedent to recovery under the policy and that its claim is therefore

barred.> The policy requires an insured to promptly provide certain

information about the nature of the loss. CU's rule 7(d) statement,

however, indicates that "a property loss notice was completed." CUSUMF {

21. Further, CU secured a property claims adjuster to inspect the building

after the plaintiff reported the loss, and that investigation continued for

several months. Id. [J 32, 34; see also PSMF JJ 49-50, 55.

The second aspect of CU's argument is that the plaintiff did not

submit loss-related information in a timely way. The record establishes

that the plaintiff did not provide CU with a sworn proof of loss until

October 1999. CUSUMEF { 53. This issue is whether this submission was

timely. The parties' rule 7(d) statements do not appear to set out the

provisions of the policy establishing the time requirements for such a

submission to the carrier. The court thus cannot rule on CU's claim that the

3The plaintiff responds in part that CU had not previously raised this issue.

However, CU's responsive pleading includes a specific affirmative defense that the

plaintiff failed to submit a proper and timely proof of loss.

5

plaintiff failed to comply with that contractual requirement.

Count 4 (estoppel)

In count 4 of the amended complaint, the plaintiff alleges that CU is

estopped from denying coverage under the policy.* As factual support for

this theory, the plaintiff alleges that from the time the plaintiff first

reported the loss occasioned by the 1998 ice storm until late May 1998, CU

advised the plaintiff that the loss was covered.°

"An insurer may be estopped from denying coverage when the party

claiming coverage has demonstrated (1) unreasonable conduct of the

insurer that misleads the insured concerning the scope of his coverage and

(2) justifiable and detrimental reliance by the insured upon the insurer's

conduct." Maine Mutual Fire Ins. Co. v. Grant, 674 A.2d 503, 504 (Me.

1996). The conduct at issue must have justifiably misled the claimant into

believing that coverage would exist. Jd. Here, the plaintiff's factual

allegations supporting its estoppel claim are limited to the post-loss

conduct of the insurer. Therefore, that alleged conduct cannot have misled

the plaintiff into believing that it had coverage for the type of loss

involved here at a time when any such reliance causally resulted in the

4The plaintiff notes in his written argument on this motion that this theory is

an alternative to its claim that the loss is covered under the terms of the policy itself.

°This factual support is found in the allegations in the plaintiff's amended

complaint. In its written argument opposing the motions at bar, the plaintiff relies

on a completely distinct factual predicate: alleged representations by Varney (CU's

statutory agent, see 24-A M.R.S.A. § 2422) made prior to the 1998 loss that the coverage

provided under the policy would include the type of loss involved here. Much of the

authority cited by the plaintiff would have relevance only to this new factual theory

of liability. The court does not address this new factual theory because it was not

pleaded and because a very different and specific factual claim was affirmatively set

out in the amended complaint.

absence of such coverage. Because the record on summary judgment

establishes the absence of any reliance that would estop CU from denying

coverage, there is no need to consider the nature of the conduct attributed

to CU. CU is therefore entitled to judgment on count 4.

Counts 5 and 6 (late payment and unfair claims practices

In count 5, the plaintiff alleges that CU violated the provisions of

24-A M-R.S.A. § 2436, by failing to dispute or pay the claim within 30 days

after it received the plaintiff's proof of loss and ascertained that loss.

Section 2436 also permits the insurer to make a written request for

"reasonable additional information." See Chiapetta v. Lumbermens Mutual

Ins. Co., 583 A.2d 198, 200 (Me. 1990). The 30 day response period

recommences upon receipt of that information.

The 30 day period under section 2436 is triggered when the carrier

receives the "proof of loss." Because "section 2436 is penal in nature," it is

construed strictly. Marquis vy. Farm Family Mutual Ins. Co., 628 A.2d 644,

651 (Me. 1993). The record on summary judgment establishes that the

plaintiff "provided" CU with a "proof of loss" on approximately October 15,

1999. CUSUMEF J 53.© Because section 2436 is predicated on the

submission of a "proof of loss," October 15, 1999, is the controlling date to

determine the timeliness of CU's response. (The "property loss notice"

mentioned in CU's rule 7(d) statement cannot be viewed as the same

instrument, when section 2436 is construed strictly.)

In its rule 7(d) statement, CU asserts that it denied the claim on

November 5, 1999. Jd. ¥ 54. In response to this assertion, the plaintiff's

6In its responsive rule 7(d) statement, the plaintiff specifically disclaimed any

dispute with that factual assertion.

rule 7(d) statement refers to events occurring prior to October 1999. See

PSMF ff 68, 71 and 97. Because none of the events noted by the plaintiff

occurred more than 30 days after the approximate date of October 15,

1999, the present record establishes the absence of any factual contention

that CU violated section 2436. CU is entitled to summary judgment on

count 5.

Then, in count 6, the plaintiff claims a violation of 24-A M.R.S.A. §

2436-A because of CU's alleged failure "to pay or deny that claim within a

reasonable period of time following that notification" of the claim by the

plaintiff. This could be seen to invoke either section 2436-A(1)(B) or

section 2436-A(1)(D). In its motion, CU focuses only on the latter.

Section 2436-(A)(1)(D) requires a carrier to affirm or deny coverage

“within a reasonable time after having completed its investigation related

to a claim. . . ." Here, CU completed its investigation in May 1998. CUSUMF

{ 34. (The plaintiff expressly does not challenge this assertion.) In late

May or early June, the adjuster affiliated with CU advised the plaintiff's

principal that the carrier "might deny coverage." Id. J 45. By letter dated

June 4, 1998, CU notified the plaintiff that in fact it denied coverage under

the policy. 7d. (Again, the plaintiff does not contest these assertions.) As a

matter of law, the court cannot conclude -- and the plaintiff does not argue

-- that the short delay between the completion of the investigation and the

notification to the insured was an unreasonable delay. Thus, there is no

factual basis on which the plaintiff may pursue a claim under section

2436-(A)(1)(D).

On the other hand, section 2436-A(1)(B) requires an examination of

any delay between an insurer's receipt of a written notice of claim and the

insurer's ultimate action on that claim. Here, CU received a written notice

of the plaintiff's claim. CUSUMF J 23. That notice was prepared on

February 4, 1998. Jd. { 21. The record does not establish the date when

CU received the notice. One may reasonably infer that any delay after

February 4 was not significant. As is noted above in connection with count

5 of the amended complaint, CU advised the plaintiff of its denial of

coverage in early June.

The record establishes that during the interim, CU's adjuster

investigated the claim. However, the reasonableness of the delay between

early February and early June, particularly in light of CU's affirmative

representations of coverage, see PSMF {] 47, 56, is a factual issue.

Therefore, the motion for summary judgment on count 6 is denied to the

extent that count 6 states a claim for relief under section 2436-A(1)(B).

Count 7 and 8 (negligence and breach of contract)

Counts 7 and 8 of the amended complaint do not purport to state a

claim against CU. CU is therefore entitled to dismissal of count 7 and 8 as

to it.

Those counts state liability claims against Varney. In count 7, the

plaintiff alleges that Varney owed it (the plaintiff) a duty of care as the

plaintiff's agent and that Varney negligently failed to obtain special form

coverage for the plaintiff's bowling lane building. Count 8 sets out a claim

that Varney committed a breach of a contract to provide the plaintiff with

"adequate insurance coverage to meet Plaintiff's needs." Varney moves for

summary judgment on both counts on a number of grounds.

In order to make out a case under either theory, the plaintiff would

need to present some evidence to allow a finding that special form

coverage would have been available if Varney had fulfilled its alleged duty

of care to the plaintiff or if Varney had not allegedly breached a contract

to procure adequate insurance for the plaintiff. See Corey v. Norman,

Hanson & DeTroy, 1999 ME 196, Jf 13-14, 742 A.2d 933, 940 (in legal

malpractice claim, in order to prove proximate causation, plaintiff must

prove that proper legal representation would have resulted in more

favorable outcome). Authority from other jurisdictions, cited by Varney,

integrates this fundamental principle of tort and contract law into the

circumstances at issue here. See Bayly, Martin & Fay, Inc. v. Pete's Satire,

Inc. 739 P.2d 239, 244 (Co. 1987) ("We turn now to consider whether . . .

[the claimants] satisfied their burden or proof on the availability of other

insurance."); American Motorist Ins. Co. v. Salvatore 476 N.Y.S.2d 897, 900

(N.Y.Sup.Ct. 1984) (an insurance agent may be liable in tort or contract for

failing to procure insurance; "in order to support a recovery, it must be

demonstrated that coverage could have been procured prior to the

occurrence of the insured event."); State v. Warren Star Theater, 616 N.E.2d

1192, 1196-97 (Ct.App.Oh. 1992). Indeed, the "majority rule" holds that

the alleged insureds bear the burden of proving that coverage was

available for the sustained loss. Johnson & Higgins of Alaska, Inc. v.

Blomfield, 907 P.2d 1371, 1374 (Al. 1995). See generally Robin Cheryl

Miller, Annotation, Liability of Insurance Agent or Broker on Ground of

Inadequacy of Liability-Insurance Coverage Procured, 60 A.L.R.5th 165, §

5 (1998).?

7The plaintiff has not attempted to argue that the record on summary

judgment supports a prima facie case that it could have obtained special form

coverage. Indeed, in its written argument on this motion, the plaintiff contends that

the defendant shoulders the burden of proving that coverage with appropriate terms

could not have been procured. "Memorandum of Law in Opposition to Defendant

10

Here, if the record on summary judgment represented the trial

record, a factfinder would be required to engage in speculation in order to

conclude that the plaintiff could have obtained special form coverage for

the bowling lane building. The record on summary judgment establishes

that "'[s]pecial’ form coverage was not available from Commercial Union

because of the pre-existing condition” to the roof of the bowling lane

building. Varney Statement of Material Fact ("VSMF") § 20. The plaintiff

expressly agreed with this assertion. See also CUSUMF J 17 ("If Varney

had requested special coverage from Commercial Union for the bowling

lanes building, that request would have been denied.") (The plaintiff did

not dispute this portion of CU's rule 7(d) statement.)

The parties’ rule 7(d) statements also address the question of

whether such coverage could have been procured from another insurer.

See VSMS { 21; PSMF { 75-76. See also CUSUMF { 19 ("In approximately

1995, Varney Agency attempted to obtain coverage on the bowling lanes

building from other companies but were not able to obtain any quotes.").

(The plaintiff did not dispute this portion of CU's rule 7(d) statement.)

Review of those portions of the record to which the rule 7(d) statement

refers reveals evidence that Varney's efforts to obtain premium cost

information from other carriers were unsuccessful because "other

companies declined to cover it [the bowling lanes building]." Deposition

(September 20, 2000) of William Varney at 16. Regardless of the reasons

for those declinations, the record still fails to show that the plaintiff could

Varney Agency, Inc's Motion for Summary Judgment". at 10. Because the plaintiff

must prove causation, the plaintiff at bar must present evidence that it could have

obtained special form coverage.

11

have obtained the coverage the it claims Varney should have provided.’

When "the factfinder would be compelled to speculate as to

proximate causation, and at a trial . . . [The defendant] would be entitled to

a judgment as a matter of law,’

against the claimant. Corey, 1999 ME 196, J 14, 742 A.2d at 940. If

then summary judgment must be entered

presented with the present record, a factfinder would be deprived of a

proper basis to conclude that the plaintiff had proven either of its claims

against Varney. Varney is therefore entitled to summary judgment on

counts 7 and 8.

The court need not and does not: consider Varney's remaining

arguments regarding counts 7 and 8.

Count 9 (implied contract

The plaintiff has not offered any argument in opposition to CU's

motion for summary judgment on this count. Accordingly, summary

judgment will be granted for CU on count 9.

Further, on its merits, CU is entitled to summary judgment on this

claim. Recovery against an insurer on a theory of implied contract is

predicated on proof that, among other things, "it is certain that the insurer

would have accepted the risk had it received a proper request."

Attleborough Mutual Ins. Co. v. Grange Mutual Ins. Co., 611 A.2d 76, 78

(Me. 1992) (emphasis in original). Here, as is noted above, the present

record establishes that CU would not have accepted the risk associated

8In some circumstances, evidence that a particular form or level of coverage

is "generally available" is sufficient proof of causation. Bayly, Martin & Fay, 739 P.2d

at 244-45. The present record does not contain such evidence. In fact, that record

demonstrates the contrary. In Bayly, Martin & Fay, the alleged insured proved this

point with evidence that, prior to the loss, it had the type of coverage that it claimed

was wrongfully denied at the time of the loss. Additionally, the claimant presented

evidence that the coverage at issue was generally available. Jd. at 245.

12

with special form coverage.

Count 10 (reformation

In its final count, the plaintiff alleges that it and Varney both

believed that the policy would provide "special" coverage and that, on this

basis, the policy that CU actually issued (which provided more limited

"basic" coverage) should be reformed to reflect that expectation.

An insurance policy is subject to equitable reformation if it fails to

cover an interest or loss other that the parties intended to cover. Yaffie v.

Lawyers Title Ins. Corp., 1998 ME 77, J] 9 n.10, 710 A.2d 886, 889. Such a

mistake, to be actionable, must be mutual, "common to both parties," and

material. Jd., J 8, 710 A.2d at 888.

Here, the record on summary judgment clearly shows that CU never

understood that the policy it issued to the plaintiff provided special form

coverage. Thus, the claim for reformation could not be pursued against CU

based on CU's own intentions.

However, by operation of statute, Varney is deemed to be CU's agent

for all matters relating to insurance and resulting coverage. 24-A M.R.S.A.

§ 2422; County Forest Products, Inc. v. Green Mountain Agency, Inc., 2000

ME 161, { 24, 758 A.2d 59, 65. While the record contains evidence that

Varney knew that the plaintiff's coverage was limited to a basic policy and

that Varney advised the plaintiff of that limitation, see CUSUMF J 9, 11,

the record also contains evidence that Varney representatives told the

plaintiff's representatives that the scope of coverage was greater than

what would be covered under a basic policy. See PSMF JJ 17. This

generates a factual question of Varney's understanding of the terms of the

policy issued to the plaintiff. Even when the heightened burden of proof is

13

considered, Yaffie, 1998 ME 77, J 8, 710 A.2d at 888 (basis for reformation

must be established by clear and convincing evidence), the record does not

preclude a genuine factual dispute to support the plaintiff's claim for

reformation.

The entry shall be:

For the reasons set out in the order dated July 3, 2001, defendant

Commercial Union's motion for summary judgment is granted in part and

denied in part. On its motion, summary judgment is granted for CU on

counts 4 (estoppel), 5 (late payment) and 9 (implied contract). CU's motion

to dismiss is granted. Counts 7 (negligence) and 8 (breach of contract) are

dismissed as to CU. In all other respects, CU's motion for summary

judgment is denied.

Defendant Varney's motion for summary judgment is granted.

Summary judgment is granted for Varney on all counts against Varney

(namely, count 7 (negligence) and 8 (breach of contract)).

Dated: July 3, 2001

Mi May

Justice’ Maine popstar Court

Jeffrey L. Hjel

14

. Date Filed 12/27/99 PENOBSCOT

Docket No. CV-99-259

County

Action __ CONTRACT

ASSIGNED TO JUSTICE HJELM

BANGOR-BREWER BOWLING LANES, INC.

COMMERCIAL UNION-YORK INS. CO. and

VARNEY AGENCY, INC.

Plaintiff's Attorney

GILBERT LAW OFFICES

P O BOX 2339 - 82 Columbia Street

BANGOR ME 04402-2339

BY: Charles Gilbert, Esq.

Defendant’s Attorney

Rudman & Winchell

84 Harlow Street - PO Box 1401

Bangor, Maine 04402-1401

BY: John McCarthy, Esq. FOR: Commercial

Union-York Ins. Co.

RICHARDSON WHITMAN LARGE & BADGER

P O BOX 2429, BANGOR ME 04402-2429

BY: John B. Lucy, Esq.

Date of FOR: Varney Agency, Inc.

Entry

12/27/99 Complaint filed - Exhibit A attached.

12/28/99 Case File Notice Postcard forwarded to Plaintiff's counsel.

1/6/00 Acceptance of Service on behalf of Defendant Commercial Union York

Insurance Co. by John McCarthy, Esq. filed (s.d. 1/3/2000)

1/10/00 Defenses and Answer of Defendant Commercial Union York Insurance Company

Filed.

1/19/00 Notification of Discovery Service filed by Plaintiff, First Request for

Production of Documents to Defendant Varney Agency, Inc.

1/21/00 Notification of Discovery Service filed by Defendant Varney, Objections

to Plaintiff's First Request for Production of Documents.

1/21/00 Answer of Defendant Varney Agency, Inc. filed.

1/24/00 Scheduling Order (M.R.Civ.P. 16(a)) filed. The entry will be: Scheduling

Order filed. Discovery deadline is October 1, 2000. (Hjelm, J)

Copy forwarded to attorneys of record.

1/28/00 Notification of Discovery Service filed by Defendant Varney Agency,

First Request for Production of Documents and First Set of Interrogatories

to Plaintiff.

1/31/00 Acceptance of Service by John B. Lucy, Esq. on behalf of the Defendant

Varney Agency, Inc. filed. (s.d. 1/19/00)

2/10/00 Jury Trial fee of $300.00 paid by Plaintiff.

3/3/00 Notification of Discovery Service Filed by Plaintiff; Plaintiff's

First Request for Production of Documents Propounded to Defendant

Commercial Union-York Ins. Co.; Interrogatories Propounded by

Plaintiff to Defendant Commercial Union-York Ins. Co.