SUBSEQUENT HISTORY: Affirmed by Studio Frames v. Std. Fire Ins. Co., 2004 U.S. App. LEXIS 10070 (4th Cir. N.C., May 21, 2004)
PRIOR HISTORY: Studio Frames, Ltd. v. Vill. Ins. Agency, Inc., 2003 U.S. Dist. LEXIS 5450 (M.D.N.C., Mar. 31, 2003)
DISPOSITION: [*1] Plaintiff's motion for summary judgment denied. Defendant's motion for summary judgment granted.
COUNSEL: For Studio Frames Ltd, PLAINTIFF: Paul J Michaels, Jones Martin Parris & Tessener Law Offices, PLLC, Raleigh, NC USA. John Albert Michaels, Michaels & Oettinger, PA, Raleigh, NC USA.
For Village Insurance Agency, Inc, Business Insurers of the Carolinas, LLC, Philip D Pearsall, DEFENDANTS: Michael T Medford, Manning Fulton & Skinner, Raleigh, NC USA.
For Travelers Property Casualty Insurance Company, The, Standard Fire Insurance Company, DEFENDANTS: Eric P Stevens, Poyner & Spruill, LLP, Raleigh, NC USA.
JUDGES: N. Carlton Tilley, United States District Judge.
OPINION BY: N. Carlton Tilley
OPINION:
MEMORANDUM OPINION
TILLEY, Chief Judge
This matter is now before the court on Plaintiff Studio Frames' Motion for Summary Judgment [Doc. # 18], Defendant Standard Fire Insurance Company's Motion for Summary Judgment [Doc. # 23], and Standard Fire's Motion to Quash the Plaintiff's Jury Demand [Doc. # 34]. For the reasons set forth below, Studio Frames' Motion for Summary Judgment is DENIED, Standard Fire's Motion for [*2] Summary Judgment is GRANTED, and Standard Fire's Motion to Quash the Jury Demand is DENIED as MOOT.
I.
Plaintiff Studio Frames is an art gallery that leases space at the Eastgate Shopping Center in Chapel Hill, North Carolina. In September 1996, Studio Frames suffered flood damage as a result of Hurricane Fran. At the time, Studio Frames did not have flood insurance. To restore the business after the flood, Studio Frames obtained a disaster loan from the United States Small Business Administration ("SBA"). As a condition of the SBA loan, Studio Frames was required to purchase flood insurance in the amount of $ 194,700 to cover leasehold improvements and $ 287,200 to cover the contents of the gallery. In November 1996, Studio Frames purchased a Standard Flood Insurance Policy from Defendant Standard Fire Insurance Company in these amounts.
On July 23 and 24, 2000, Studio Frames suffered another flood loss. After Studio Frames contacted Standard Fire to report the loss, an adjuster arrived on behalf of Standard Fire to adjust the loss. The adjuster informed Studio Frames that it was not eligible to receive any money for damage suffered to the leasehold improvements under the Building [*3] Coverage portion of the flood insurance policy because Studio Frames was a lessee and did not own the gallery space. The adjuster explained that Studio Frames could make a claim for the leasehold improvements under the Contents Coverage portion of the policy in an amount equal to 10% of the contents coverage. On September 20, 2000, Studio Frames submitted a proof of loss to Standard Fire seeking $ 287,200, the policy limits, under the contents provision in the policy. This proof of loss did not contain a claim under the building coverage portion of the policy and included the following language: "We believed that we had additional coverages available pursuant to [the policy] for a flood loss such as the one we have experienced. However, we were advised by [an insurance company] representative that we have no coverage for flood losses under these policies. We reserve the right to make claims under these other policies, including the right to claim losses not paid under this Proof of Loss." [Doc. # 26, Proof of Loss, ex. 1, P 6.]. In December 2000, Studio Frames submitted a second proof of loss for $ 143,336.27, the amount approved by the Standard Fire adjuster. To date, Standard [*4] Fire has paid $ 143,336.27 to Studio Frames.
On September 14, 2001, Studio Frames filed the current action alleging breach of contract and claiming $ 132,597.05 in leasehold improvements coverage and $ 172,083.73 in additional contents coverage. Both Studio Frames and Standard Fire have moved for summary judgment.
II.
Summary judgment is proper only when, viewing the facts in the light most favorable to the non-moving party, there is no genuine issue of any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Cox v. County of Prince William, 249 F.3d 295, 299 (4th Cir. 2001). An issue is genuine if a reasonable jury, based on the evidence, could find in favor of the non-moving party. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Cox, 249 F.3d at 299. The materiality of a fact depends on whether the existence of the fact could cause a jury to reach different outcomes. Anderson, 477 U.S. at 248; Cox, 249 F.3d at 299. [*5] Summary judgment requires a determination of the sufficiency of the evidence, not a weighing of the evidence. Anderson, 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). In essence, the analysis concerns "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." Id. at 251-52.
A.
The first issue before the court is whether Studio Frames can recover for loss suffered to its leasehold improvements as a result of the July 23-24, 2000 flooding. As described in detail in a recent Memorandum Opinion [Doc. # 41], all flood insurance policies are issued pursuant to the National Flood Insurance Program (NFIP). The flood insurance policies issued under the NFIP are called Standard Flood Insurance Policies ("SFIP"). An SFIP may be purchased directly from FEMA, see 44 C.F.R. § 62.3(c), or through a Write Your Own (WYO) carrier. See 44 C.F.R. § 61.13(f). The full text of the SFIP is located in the Code of Federal Regulations. See 44 C.F.R. Pt. 61, App. A(2). In order to recover a [*6] loss, the policy requires claimants to submit a signed and sworn proof of loss. [Doc. # 18, ex. 5, Art. 8(O)]. The policy further requires that the formal proof be submitted to the insurer within 60 days of the loss. Id.
Generally, in order to recover a loss pursuant to any federal insurance policy, an insured must comply strictly with the terms and conditions of the policy. See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-85, 92 L. Ed. 10, 68 S. Ct. 1 (1947). This strict compliance requirement is based on the fact that claims paid pursuant to federal insurance policies are charged against the federal treasury. Id. at 385. (explaining the "duty of all courts to observe the conditions defined by Congress for charging the public treasury"). Standard Fire asserts that Studio Frames has not submitted a proof of loss for leasehold improvements and thus has not strictly complied with the terms of the policy.
Studio Frames has not presented any evidence that a sworn proof of loss was submitted seeking recovery under the building coverage of the policy. In fact, in the Brief in Opposition to Defendant's Motion for Summary Judgment, Studio [*7] Frames' counsel admits, "the undersigned can unequivocally state that plaintiff did not file a specific proof of loss on the leasehold improvements claim." [Doc. # 25, at 9]. While conceding that a proof of loss for the leasehold improvements was never filed, Studio Frames asserts that it is entitled to payment under the building coverage portion of the policy because the proof of loss condition was excused when Standard Fire informed Studio Frames that it was ineligible for building coverage. The Fourth Circuit has explained the "prevention doctrine," as "a generally recognized principle of contract law according to which if a promisor prevents or hinders fulfillment of a condition to his performance, the condition may be waived or excused." See Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717, 725 (4th Cir. 2000). It is necessary to determine whether application of the prevention doctrine will excuse Studio Frames' noncompliance with the proof of loss requirement.
The Fourth Circuit has recently considered the issue of whether the 60 day proof of loss requirement may be waived through conduct of the insurer. See Dawkins v. Witt, 318 F.3d 606 (4th Cir. 2003). [*8] The district court for the Eastern District of North Carolina rejected the insured's argument that the insurer had waived the 60 day proof of loss requirement, and the court granted summary judgment in favor of the insurer n1 because the insured did not file a proof of loss for the damages sought within 60 days. n2 On appeal, the Fourth Circuit affirmed the district court's grant of summary judgment. The Fourth Circuit emphasized the fact that the policy expressly provided for the manner in which the 60 day requirement could be waived and also included an explicit provision that no conduct on the part of the insurer could constitute a waiver of any provision in the policy. Id. at 610-11. In addition, the Dawkins court rejected the plaintiff's estoppel argument: "The Supreme Court has consistently denied efforts by litigants to estop the government from raising defenses based on claimants' failures to comply with governmental procedures." Id. at 611 (citing Office of Personnel Management v. Richmond, 496 U.S. 414, 434, 110 L. Ed. 2d 387, 110 S. Ct. 2465 (1990)).
n1 The flood insurance policy had been issued directly by FEMA.
[*9]
n2 In Dawkins, the insured had filed a proof of loss within 60 days and was paid for that claim in the amount of $ 6,965.28. In the midst of repairing the property several months after the flood, the insured discovered that the home had suffered extensive structural damage, which was not included in the original proof of loss. The insured contacted FEMA and asked that its case be reopened. FEMA denied the request. Although several bases for the denial were given, FEMA ultimately denied the request to reopen the case on the ground that because repairs to the home had already been completed, FEMA was unable to determine whether the damage was in fact caused by flood waters. It was not until FEMA filed a motion to dismiss or for summary judgment that it raised the issue of the 60 day proof of loss requirement. Dawkins, 318 F.3d at 610.
Because flood insurance policies are uniform, the policy language in this case is identical to the policy language considered by the Fourth Circuit in Dawkins. The standard flood insurance policy contains two explicit provisions regarding [*10] waiver of any provisions of the policy. First, the general policy provision on amendments and waiver provides that the policy "cannot be amended nor can any of its provisions be waived without the express written consent of the Federal Insurance Administrator." [Doc. # 18, ex. 5, Article 8, P D]. Second, the specific proof of loss provision of the policy provides that the insurer may waive the requirement for a complete proof of loss if the insured swears to an adjuster's report that contains the information the insurer needs to adjust the claim. [Doc. # 18, ex. 5, Article 8, P O(6)]. Thus, the policy clearly provides for the manner in which the 60 day proof of loss requirement can be waived, and Studio Frames presents no evidence that either of these explicit waiver provisions has been satisfied.
Furthermore, the policy explicitly provides that "no action the Insurer takes under the terms of this policy can constitute waiver of any of its rights." [Doc. # 18, ex. 5, Article 8, P D]. In order to recover any loss to leasehold improvements under the building coverage portion of the policy, Studio Frames must satisfy the 60 day proof of loss requirement. Studio Frames has admitted [*11] that it never filed a proof of loss for damage to leasehold improvements. Thus, with respect to a claim for leasehold improvements, Studio Frames' motion for summary judgment is denied, and Standard Fire's motion for summary judgment is granted.
B.
The second issue for consideration is whether Studio Frames' claim for "marketing materials" was properly denied pursuant to the "valuable papers" exclusion in the policy. As on the first issue, Standard Fire asserts that Studio Frames is not entitled to recover damages for the marketing materials because Studio Frames has not satisfied the proof of loss requirement. Specifically, Standard Fire asserts that the initial proof of loss, although timely filed in September 2000, did not satisfy the policy requirements because Studio Frames stated that it was seeking "policy limits" rather than complying with the policy language which required both a statement of policy limits and a statement of the actual losses suffered by the insured. n3 As noted above, proof of loss requirements in flood insurance cases must be strictly enforced.
n3 The proof of loss provision in its entirety is as follows:
Within 60 days after the loss, send the Insurer a proof of loss, which is the Insured's statement as to the amount it is claiming under the policy signed and sworn to by the Insured and furnishing the following information:
a. The date and time of the loss;
b. A brief explanation of how the loss happened;
c. The Insured's interest in the property damaged (for example, "owner") and the interests, if any, of others in the damaged property;
d. The actual cash value of each damaged item of insured property and the amount of damages sustained;
e. The names of mortgagees or anyone else having a lien, charge or claim against the insured property;
f. Details as to any other contracts of insurance covering the property, whether valid or not;
g. Details of any changes in ownership, use, occupancy, location or possession of the insured property since the policy was issued;
h. Details as to who occupied any insured building at the time of loss and for what purpose; and
i. The amount the Insured claims is due under this policy to cover the loss, including statements concerning:
(i) The limits of coverage stated in the policy; and
(ii) The cost to repair or replace the damaged property (whichever costs less).
[*12]
In this case, the evidence presented demonstrates that Studio Frames satisfied the proof of loss requirements in its initial proof of loss for contents coverage. Studio Frames' September 2000 proof of loss consisted of a cover letter and a three ring binder. The cover letter at the front of the binder satisfies every element of the proof of loss required by the policy language with the exception of the actual cost of repair and replacement component. However, receipts, estimates, and other information contained in the three ring binder, particularly the Table of Contents that summarizes the losses and damages to the contents of the gallery, more than satisfies the proof of loss requirement that the insured list "the cost to repair or replace the damaged property." With respect to the marketing materials, Studio Frames included an estimate for the photography costs that would be incurred to replace the art cards, transparencies, and slides. n4 Because Studio Frames has submitted a proper proof of loss to recover for the marketing materials, it is necessary to determine whether the claim for these materials was properly denied pursuant to the "valuable papers" exclusion.
n4 The estimated cost of photography alone was $ 191,340. This estimate did not include the cost of film, paper, or other raw materials. However, Standard Fire offered to pay for the raw materials rather than replacing the marketing materials so it is not necessary to consider specifically the question of whether a proof of loss was filed for those raw materials.
[*13]
It is well-settled that federal common law, applying general insurance principles, governs the construction of flood insurances policies. Battle v. Seibels Bruce Ins. Co., 288 F.3d 596, 607 (4th Cir. 2002). In Hanover Building Materials, Inc. v. Guiffrida, 748 F.2d 1011 (5th Cir. 1984), the Fifth Circuit Court of Appeals identified several "standard insurance law principles" that were applied in interpreting a flood insurance policy: (1) "if the language of a policy is clear and unambiguous, it should be accorded its natural meaning"; (2) In determining whether an ambiguity exists, the contract should be "reasonably construed consonant with the apparent objective and intent of the parties"; (3) "in deciding what a reasonable construction of the contested provisions is, the material we may draw from consists of those provisions, the policy as a whole, and the apparent objectives of the parties in establishing this kind of contractual relationship"; and (4) "if the meaning of the policy terms remains in the end unclear, the policy is generally construed in favor of the insured in order to promote the policy's objective of providing coverage." Id. at 1013 [*14] (internal citations omitted).
In deciding whether the "valuable papers" exclusion could be construed to cover the materials at issue in this case, it is necessary to consider the nature of these materials. The items Studio Frames has described as "marketing materials" include printed art cards, transparencies, and photographic slides all depicting pieces of art that have been exhibited at the gallery. In order to promote artist exhibitions, Studio Frames has art cards printed that are used as invitations and as handouts to provide information to prospective purchasers. The art cards are made from large format transparencies. As a result of the flood, Studio frames lost approximately 172 sets of cards and transparencies. In addition, Studio Frames lost approximately 4800 slides of artwork. [See Doc. # 20, ex. 3, Joseph Rowland Aff.].
Article 6 of the policy, entitled Property Not Covered, contains the valuable papers exclusion, which provides in pertinent part as follows:
This policy shall not cover any of the following:
A. Valuables and commercial property, meaning:
1. Accounts, bills, currency, deeds, evidence of debt, money, coins, medals, postage stamps, securities, [*15] bullion, manuscripts, other valuable papers or records, and personal property used in a business.
2. Personal property used in connection with any incidental commercial occupancy or use of the building.
In describing what types of materials are excluded from coverage, the policy does not specifically list marketing materials, art cards, transparencies, or photographic slides as items excluded from coverage. Therefore, the policy does not explicitly exclude the materials at issue.
Neither the policy nor any applicable flood insurance statutes or regulations, contain a definition of the term "valuable papers." In such cases, it is appropriate to consider dictionary definitions of a term. The American Heritage Dictionary defines valuable as, "having considerable monetary or material value for use or exchange; of great importance, use, or service; valuable information." (4th ed. 2000). As Studio Frames has described these materials, the art cards, transparencies, and slides certainly have "value for use" and contain valuable information necessary for Studio Frames to conduct its business. Pursuant to this definition of the term "valuable," the marketing materials could logically [*16] be considered "valuable papers" as listed in the policy and would support Standard Fire's determination that the cost to replace these materials would be excluded. n5
n5 This reading of the policy is consistent with Standard Fire's interpretation of the valuable papers exclusion. Standard Fire has offered to pay for the raw materials used in creating the marketing materials that were excluded from the claim; the raw materials would consist of "the paper, film, and development of the film for the marketing materials." However, Standard Fire refused to pay for "the inherent value of the marketing materials or other costs associated with their creation." [Doc. # 18, ex. 17].
Furthermore, an additional construction doctrine requires the conclusion that the policy unambiguously excludes coverage for Studio Frames' marketing materials. Under the construction principle ejusdem generis, "when a general term follows a specific one, the general term should be understood as a reference to subjects akin to the one with [*17] specific enumeration." Norfolk & Western Rwy. Co. v. American Train Dispatchers Ass'n, 499 U.S. 117, 129, 113 L. Ed. 2d 95, 111 S. Ct. 1156 (1991). When a general term such as "valuable papers" follows an enumeration of things that have particular and specific meaning, the general words should not be given their broadest application but should be limited in their construction to apply only to things of the same general kind or class as those specifically mentioned. In this case, the term "valuable papers" would be a general term following a specific list of items. Thus, the term "valuable papers" should not be construed to the broadest extent possible so as include any item constructed of paper that might have some value. Rather, the "valuable papers" excluded from coverage must be similar to things in the preceding list. The preceding list of specific items includes "accounts, bills, currency, deeds, evidence of debt, money, coins, medals, postage stamps, securities, bullion, and manuscripts."
The marketing materials in this case are similar to manuscripts listed in the policy. While a manuscript may not have an easily ascertainable market value such as the bills, [*18] currency, or securities also listed in the policy, a manuscript has an inherent value to its creator or owner, a value above and beyond the paper on which the manuscript is printed. A manuscript represents ideas and thoughts that, if lost, may not be reproduced easily. Similarly, the marketing materials here have significant value to Studio Frames, above and beyond the paper on which the art cards are printed. The art cards, transparencies, and slides represent the history of Studio Frames. The materials here, as with the value of a manuscript to its owner or creator, obtain their value through their relationship to the business of the gallery and the history of the gallery that these items represent. It is the cost to replace this inherent value, and thus the cost to replace the cards, transparencies, and slides, that the policy excludes. The "valuable papers" exclusion is not ambiguous and clearly applies to the cost to replace Studio Frames' marketing materials. Studio Frames' motion for summary judgment is denied, and Standard Fire's motion for summary judgment is granted.
III.
Studio Frames' Motion for Summary Judgment is DENIED, Standard Fire's Motion for Summary Judgment is [*19] GRANTED, and Standard Fire's Motion to Quash the Jury Demand is DENIED as MOOT.
This, the 2nd day of April, 2003.
N. Carlton Tilley
United States District Judge
JUDGMENT
TILLEY, Chief Judge
For the reasons stated in a contemporaneously filed Memorandum Opinion, Studio Frames' Motion for Summary Judgment [Doc. # 18] is DENIED, Standard Fire's Motion for Summary Judgment [Doc. # 23] is GRANTED, and Standard Fire's Motion to Quash the Jury Demand [Doc. # 34] is DENIED as MOOT.
This, the 2nd day of April, 2003.
N. Carltan Tilley
United States District Judge
