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Seahorn Investments, LLC v. Federal Insurance Co.

United States District Court, S.D. Mississippi, Southern Division

September 23, 2014

SEAHORN INVESTMENTS, LLC, Plaintiff,
v.
FEDERAL INSURANCE COMPANY, MISSISSIPPI FARM BUREAU CASUALTY INSURANCE COMPANY, MAXUM INDEMNITY COMPANY, STEADFAST INSURANCE COMPANY, ALTERRA EXCESS & SURPLUS INSURANCE COMPANY, Defendants.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS FILED BY DEFENDANT STEADFAST INSURANCE COMPANY, GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS FILED BY DEFENDANT ALTERRA EXCESS & SURPLUS INSURANCE COMPANY, AND GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS FILED BY DEFENDANTS FEDERAL INSURANCE COMPANY AND MAXUM INDEMNITY COMPANY

HALIL SULEYMAN OZERDEN, District Judge.

BEFORE THE COURT are Motions to Dismiss filed by Defendant Steadfast Insurance Company [11], Defendant Alterra Excess & Surplus Insurance Company [16], and Defendants Federal Insurance Company and Maxum Indemnity Company [33]. Plaintiff Seahorn Investments, LLC has filed identical Responses in Opposition [29] [31] to the Motions filed by Defendants Steadfast Insurance Company and Alterra Excess & Surplus Insurance Company, and those Defendants have each filed a Rebuttal [38] [40]. Plaintiff has also filed a Response [44] to the Motion filed by Defendants Federal Insurance Company and Maxum Indemnity Company, and those Defendants have filed a Rebuttal [49]. Having considered the parties' submissions, the record, and relevant legal authority, the Court is of the opinion that the Motions [11] [16] [33] should be granted in part and denied in part.

I. BACKGROUND

A. Factual Background

On August 7, 2013, Plaintiff Seahorn Investments, LLC ("Plaintiff") filed the Complaint [1] against Federal Insurance Company ("Federal"), Mississippi Farm Bureau Casualty Insurance Company ("Mississippi Farm Bureau"), Maxum Indemnity Company ("Maxum"), Steadfast Insurance Company ("Steadfast"), and Alterra Excess & Surplus Insurance Company ("Alterra"). Plaintiff alleges that it owns property "located at 100 Waverly Place, Bay St. Louis, Mississippi, commonly referred to as the Waverly Apartments[, ]" which consists of sixteen residential apartment buildings containing one, two, and three bedroom apartments and one non-residential management building. Compl. 3-4 [1].

Plaintiff alleges it secured standard flood insurance for the Waverly Apartments from Mississippi Farm Bureau through the National Flood Insurance Program ("NFIP"). Id. Plaintiff also secured a "Master Primary Policy" with Federal which insured the Waverly Apartments against "all risks of physical damage" caused by flood or wind events "including increased costs for compliance with code and ordinance" up to $5, 000, 000.00 coverage under Federal's policy. Id. Maxum issued a second tier excess insurance policy insuring the Waverly Apartments per the terms of the Master Primary Policy up to $5, 000, 000.00 in excess of the first $5, 000, 000.00. Id. at 4. Steadfast and Alterra each issued third tier excess policies pursuant to the terms of Federal's Master Primary Policy with policy limits of $7, 500, 000.00 each. Id. Thus, the coverage afforded under the Steadfast and Alterra policies was excess to that offered by the Federal and Maxum policies. Id.

Plaintiff claims that on or about August 29, 2012, Hurricane Isaac made landfall, causing the Waverly Apartments to incur "over [$5, 000, 000.00] in flood damages" and "an unspecified amount of other reimbursable damages." Id. at 5. According to the Complaint, the damages caused by Hurricane Isaac, when taken together with preexisting damages related to Hurricane Katrina, rendered the Waverly Apartments in need of substantial improvements and repairs as required by City of Bay St. Louis Ordinance 521. Id. at 5-7. Plaintiff asserts that the necessary improvements and repair work are covered expenses under the terms of the Master Primary Policy issued by Federal, which terms also govern Maxum, Steadfast, and Alterra's excess coverage. Id. at 7-8. According to Plaintiff, it notified Mississippi Farm Bureau and Federal of its claim "shortly after" Hurricane Isaac, but both insurers performed untimely and inadequate investigations of Plaintiff's claim. Id. at 8-9. Plaintiff posits that Federal has "effectively den[ied] coverage" under the terms of the Master Primary Policy. Id. at 9. Plaintiff also claims it forwarded a formal proof of loss to Maxum, Steadfast, and Alterra on May 22, 2013, and that it has been forced to provide access "for the numerous representatives of Defendants to inspect and re-inspect the damages at the insured premises." Id. at 10.

B. Procedural History

Based on the foregoing allegations, Plaintiff filed the Complaint [1] in this case on August 7, 2013, advancing a claim for breach of contract against all Defendants. Id. at 11-12. Plaintiff seeks extra-contractual damages from all Defendants, claiming that "Defendants caused [P]laintiff to incur... economic damages because of their unreasonable refusal to pay insurance benefits...." Id. at 12. Plaintiff also demands an award of punitive damages against all Defendants on grounds that "Defendants' conduct constitutes malice and gross negligence evidencing a willful, wanton, and reckless disregard for [P]laintiff's rights...." Id. at 13.

Steadfast now moves to dismiss Plaintiff's claims for extra-contractual and punitive damages, arguing that Plaintiff has failed to plead sufficient facts to support such claims.[1] Steadfast's Mem. in Supp. of Mot. to Dismiss 1-2 [13]. Steadfast also contends that Plaintiff's factual allegations reveal that Steadfast is currently engaged in a prompt, ongoing investigation of Plaintiff's insurance claims which undermines any claim for extra-contractual or punitive damages. Id. at 3. Steadfast reasons that Plaintiff is attempting to "create a cause of action for anticipatory bad faith." Id. at 6-7; Steadfast's Reply 1 [38]. Steadfast also seeks an award of attorneys' fees and expenses pursuant to the Mississippi Litigation Accountability Act ("MLAA"), Miss. Code Ann. ยงยง 11-55-1 to -15. Steadfast's Mem. in Supp. of Mot. to Dismiss 7-8 [13].

In filing identical Responses [29] [31] to Steadfast and Alterra's Motions [11] [16], Plaintiff argues that its allegations regarding the numerous inspections demanded by Steadfast and Alterra are sufficient to support awards of extra-contractual and punitive damages against those Defendants because the allegations indicate that Steadfast and Alterra have unreasonably delayed paying Plaintiff's insurance claim. Mem. in Opp'n to Mot. to Dismiss 7-8 [30]. Plaintiff contends that even if Steadfast and Alterra's Motions to Dismiss are granted, the dismissal should be without prejudice. Id. at 9-10. Plaintiff maintains that Steadfast and Alterra's request for an award of fees under the MLAA should be denied because Plaintiff's claims for extra-contractual and punitive damages are sufficiently supported by the facts of this case. Id. at 10-11.

Federal and Maxum also seek dismissal of Plaintiff's claims for punitive and extra-contractual damages. Mem. in Supp. of Mot. to Dismiss 13 [34]. Federal and Maxum argue that Plaintiff has no claim for punitive or extra-contractual damages under Mississippi law because both Defendants' policies only provide coverage that is excess to the underlying Mississippi Farm Bureau flood policy, which the Complaint indicates has not been exhausted.[2] Id. at 7-11; Reply 3 n.5 [49]. According to Federal and Maxum, the fact that the primary policy issued by Mississippi Farm Bureau has not been exhausted constitutes an arguable reason for having not paid Plaintiff's claim. Id. at 11-13; Reply 3-4 [49]. Federal and Maxum contend that they also cannot be liable for punitive or extra-contractual damages because Plaintiff has not pleaded sufficient facts indicating that either insurer owes coverage. Mem. in Supp. of Mot. to Dismiss 7-11 [34].

Plaintiff responds that the terms of the Master Primary Policy do not require exhaustion of the flood insurance coverage afforded by the Mississippi Farm Bureau flood policy. Resp. in Opp'n 9 [45]. Plaintiff emphasizes its allegations that Federal has delayed taking any action "for several months[, ]" has requested numerous re-inspections, and has failed to provide "any report, finding, or analysis" justifying the ongoing refusal to pay amounts due under the Master Primary Policy. Id. at 8-9. Plaintiff argues that the delay and failure to provide information are without legitimate basis and constitute malice, gross negligence, or reckless disregard for Plaintiff's rights. Id. at 9. Plaintiff further contends that ...


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