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Southern Insurance Co. v. Affiliated FM Insurance Co.

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

April 13, 2015

SOUTHERN INSURANCE COMPANY, Plaintiff,
v.
AFFILIATED FM INSURANCE COMPANY, AND UNIVERSITY OF SOUTHERN MISSISSIPPI ALUMNI ASSOCIATION, Defendants.

MEMORANDUM OPINION AND ORDER

KEITH STARRETT, District Judge.

This matter is before the Court on the Plaintiff Southern Insurance Company's Motion for Entry of Final Declaratory Judgment and/or Summary Judgment Against Affiliated FM Insurance Company ("Motion for Summary Judgment") [96] and Combined Supplement to Motion for Final Declaratory Judgment and/or Summary Judgment as to Defendants University of Southern Mississippi Alumni Association and Affiliated FM Insurance Company, which was docketed as a Supplemental Motion ("Supplemental Motion for Summary Judgment") [116]. Also before the Court is the Motion for Entry of Final Declaratory Judgment and/or Summary Judgment Against Southern Insurance Company ("Motion for Summary Judgment") [114] of the Defendants Affiliated FM Insurance Company ("Affiliated") and University of Southern Mississippi Alumni Association ("USMAA"). Having considered the submissions of the parties, the record, and the applicable law, the Court finds that:

1) Plaintiff's Motion for Summary Judgment [96] should be denied;
2) Plaintiff's Supplemental Motion for Summary Judgment [116] should be denied; and
3) Affiliated and USMAA's Motion for Summary Judgment [114] should be granted in part and denied in part.

BACKGROUND

This declaratory judgment action concerns insurance coverage for damage to the Ogletree House at the University of Southern Mississippi resulting from a February 10, 2013 tornado. There are two insurance policies potentially providing coverage for the damage. Southern Insurance Company ("Southern") issued policy number CMP 5503932 03 (the "Southern Policy") [34], including a building coverage limit of $4, 112, 000, to USMAA. Affiliated issued policy number GL069 (the "Affiliated Policy") [114-3], including a total limit of liability of $500, 000, 000, to the University of Southern Mississippi (the "University"). The Ogletree House, which is a building on the campus of the University, is the insured premises under the Southern Policy. All University buildings, including the Ogletree House, are listed as covered properties under the Affiliated Policy.

The University owned the Ogletree House and leased it to USMAA, a Mississippi non-profit corporation, at all times relevant to the Complaint. ( See Lease [114-4].) The Lease contains the following terms regarding property insurance:

USM [the University] is the sole owner of The Ogletree House, however, the Alumni Association [USMAA] shall insure The Ogletree House for any and all perils, including, but not limited to, fire, etc. USM shall be listed as an additional insured party under any such policy. Certificates of all policies of insurance shall be delivered to USM upon written request, and the Alumni Association shall provide a 30 day written notification to USM prior to the cancellation thereof.

(Lease [114-4] at § 10.) The University is not listed as an additional insured under the Southern Policy; only USMAA is a named insured. ( See Southern Policy [34 at ECF p. 16].) Further, USMAA does not appear to be a named insured under the Affiliated Policy.[1]

Southern and Affiliated exchanged several communications regarding coverage for the damage to the Ogletree House in the months following the loss. Generally, Southern proposed that both insurers pay and adjust the loss on a pro rata basis, while reserving all rights to negotiate or litigate the amounts owed for the claim. ( See Doc. Nos. [1-7], [1-8].) Affiliated rejected this proposal on the bases that the Lease requires USMAA to obtain insurance for the subject premises and USMAA is not insured by Affiliated. ( See Doc. Nos. [1-10], [1-11].) Also during this time period, the University contracted with various construction companies, such as Defendant Rolyn Companies, Inc. ("Rolyn"), to repair buildings damaged by the tornado, including the Ogletree House. ( See Doc. Nos. [1-12], [1-14], [1-15].) Rolyn was initially paid for its work on the campus, excluding work performed to repair the Ogletree House, from insurance proceeds afforded by the Affiliated Policy. ( See Martinez Aff. [114-5] at ¶ 3.)[2] On June 9, 2013, Rolyn sought payment from Southern in the amount of $837, 187 for its construction services pertaining to the Ogletree House. ( See Doc. No. [1-13]; Final Declaratory Judgment as to Rolyn [75] at ¶ 8.) Southern never paid this sum to Rolyn.

On November 1, 2013, USMAA submitted sworn proofs of loss to Southern in support of its claims for coverage. ( See Doc. Nos. [1-17], [1-18], [1-19].) Southern sought $3, 246, 121 in repair or replacement costs under the building coverage portion of the Southern Policy and $79, 153.14 in replacement costs as to personal property. On November 26, 2013, Southern submitted its written response to USMAA's proofs of loss. ( See Doc. No. [1-21].) Southern rejected the proof of loss relating to USMAA's request for $3, 246, 121 in building coverage for a host of reasons, including, but not limited to, the "Sworn Statement in Proof of Loss contains incomplete and/or inaccurate statements regarding the amount of other insurance." (Doc. No. [1-21] at p. 6.) However, Southern accepted USMAA's $79, 153.14 lost property claim. A check in this amount was enclosed with Southern's letter. ( See Doc. No. [1-22].)

On December 2, 2013, Southern filed its Complaint for Declaratory Relief ("Complaint") [1] in this Court pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57. The Complaint names Affiliated, Rolyn, and USMAA as Defendants. Subject matter jurisdiction is asserted under Title 28 U.S.C. § 1332 (diversity of citizenship). Southern principally requests that the Court declare it has no obligation under the Southern Policy to pay for any repairs or damage to the Ogletree House. In the alternative, Southern asks that the Court find that the most it can be required to pay for the building claim is a pro rata share based on a comparison of the $4, 112, 000 limit of the Southern Policy and the $500, 000, 000 blanket limit of the Affiliated Policy, and that in no event can Southern's share exceed USMAA's proven financial interest in the Ogletree House. The Complaint contains numerous other requested judicial declarations, ranging from "Southern Insurance owes no obligation to pay to Defendant Rolyn any sum for work Rolyn has or will perform on the Ogletree House with respect to the subject tornado damage, " to "USMAA has no claim for personal property of others nor any other claim under the Southern Policy or otherwise." (Compl. [1] at pp. 26, 27.)

Both Affiliated and USMAA (collectively referred to as "Defendants") have answered the Complaint and asserted a counterclaim seeking the following declaratory judgment: "Based on the terms of the Affiliated Policy, any coverage provided by the Southern Policy for the damage to The Ogletree is primary, and the coverage provided by the Affiliated Policy is secondary." (Answer [4] at ¶ 29; Answer [53] at ¶ 28.)[3] Rolyn has not answered the Complaint. Nonetheless, it agreed to the entry of a Final Declaratory Judgment [75] providing, inter alia, that Southern neither owes nor has ever owed any obligation to pay Rolyn for the repair of the Ogletree House and that Rolyn should be dismissed from the lawsuit. As a result, Rolyn is no longer a party to this action. ( See Final Judgment Pursuant to Rule 54(b) [76].)

At some point after Southern's rejection of USMAA's building coverage claim and the filing of the Complaint [1], the University requested that the damages to the Ogletree House be paid by Affiliated pursuant to the University's overall claim for insurance benefits under the Affiliated Policy. ( See Martinez Aff. [114-5] at ¶ 5.) Affiliated issued payments for repair costs to the University totaling $3, 080, 932.36 pursuant to this request. ( See Martinez Aff. [114-5] at ¶¶ 7-8.) In July of 2014, USMAA and Affiliated entered into an Assumption of Defense Agreement and Waiver ("Assumption Agreement") [96-5] in light of Affiliated advancing the costs of the repairs to the Ogletree House. The Assumption Agreement provides in part that USMAA "hereby assigns all rights it has in connection with this claim against its insurer Southern... and agrees to remain a party to enforce its rights, whether in contract, tort or in the Declaratory Judgment action...." (Assumption Agreement [96-5] at ¶ 6.)

Via its summary judgment motions, Southern seeks a declaratory judgment decreeing that USMAA has no claim against it under the Southern Policy, and that Southern has no obligation to make any further payments to USMAA or to repay Affiliated. Defendants' summary judgment motion requests that the Court declare that Southern is obligated to pay USMAA for the damages to the Ogletree House, or, in the alternative, that the damages are to be paid by Southern and Affiliated on a pro rata basis taking into account the $3, 962, 662 scheduled value of the Ogletree House and not the total limit of $500, 000, 000 under the Affiliated Policy. The Court has fully considered the parties' competing positions and is ready to rule.

DISCUSSION

I. Southern's Motions for Summary Judgment [96], [116][4]

A. Legal Standards

Federal Rule of Civil Procedure 56 provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).[5] Initially, the movant has "the burden of demonstrating the absence of a genuine issue of material fact." Cannata v. Catholic Diocese of Austin, 700 F.3d 169, 172 (5th Cir. 2012) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). If the movant meets this burden, the nonmovant must go beyond the pleadings and point out specific facts showing the existence of a genuine issue for trial. Id. "An issue is material if its resolution could affect the outcome of the action." Sierra Club, Inc. v. Sandy Creek Energy Assocs., L.P., 627 F.3d 134, 138 (5th Cir. 2010) (quoting Daniels v. City of Arlington, Tex., 246 F.3d 500, 502 (5th Cir. 2001)). "An issue is genuine' if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party." Cuadra v. Houston Indep. Sch. Dist., 626 F.3d 808, 812 (5th Cir. 2010) (citation omitted).

The Court is not permitted to make credibility determinations or weigh the evidence. Deville v. Marcantel, 567 F.3d 156, 164 (5th Cir. 2009) (quoting Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007)). When deciding whether a genuine fact issue exists, "the court must view the facts and the inferences to be drawn therefrom in the light most favorable to the nonmoving party." Sierra Club, Inc., 627 F.3d at 138. However, "[c]onclusional allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation do not adequately substitute for specific facts showing a genuine issue for trial." Oliver v. Scott, 276 F.3d 736, 744 (5th Cir. 2002) (citation omitted). Summary Judgment is mandatory "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Brown v. Offshore Specialty Fabricators, Inc., 663 F.3d 759, 766 (5th Cir. 2011) (quoting Celotex Corp., 477 U.S. at 322).

The substantive law of Mississippi applies in this diversity case. See Barden Miss. Gaming Ltd. Liab. Corp. v. Great N. Ins. Co., 638 F.3d 476, 478 (5th Cir. 2011). The Mississippi Supreme Court has set forth the following principles of substantive contract law applying to the interpretation of insurance contracts:

[I]f a contract is clear and unambiguous, then it must be interpreted as written. A policy must be considered as a whole, with all relevant clauses together. If a contract contains ambiguous or unclear language, then ambiguities must be resolved in favor of the non-drafting party. Ambiguities exist when a policy can be logically interpreted in two or more ways, where one logical interpretation provides for coverage. However, ambiguities do not exist simply because two parties disagree over the interpretation of a policy. Exclusions and limitations on coverage are also construed in favor of the insured. Language in exclusionary clauses must be "clear and unmistakable, " as those clauses are strictly interpreted. Nevertheless, "a court must refrain from altering or changing a policy where terms are unambiguous, despite resulting hardship on the insured."

U.S. Fid. & Guar. Co. of Miss. v. Martin, 998 So.2d 956, 963 (¶ 13) (Miss. 2008) (citations omitted).

B. Whether USMAA's Claim for $3, 246, 121 in Insurance Proceeds Is Excluded Under the Southern Policy as a Matter of Law Due to Affiliated Paying for the Damage to the Ogletree House After Southern Rejected the Claim

Southern relies upon the following portions of its policy in arguing that it has no obligation to make any further payments to USMAA:

4. Loss Payment

a. In the event of loss or damage covered by this Coverage Form, at our ...

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