EXECUTIVE SUMMARY: This
weekly newsletter covers:
Ohio Fed CT Finds Inability to Rule out Human Activity Does NOT Mean an Incendiary Fire
OHIO FED CT FINDS INABILITY TO RULE OUT HUMAN ACTIVITY DOES NOT MEAN AN INCENDIARY FIRE
In Rose v. State Farm, Case No. 2:10-cv-874, United States District Court, S.D. Ohio, Eastern Division (August 20, 2012),
http://www.leagle.com/xmlResult.aspx?xmldoc=In%20FDCO%2020120820C16.xml&docbase=CSLWAR3-2007-CURR, the matter was before the Court on the parties' cross-motions for summary judgment as to Plaintiff Richard K. Rose's claims against Defendant State Farm Fire & Casualty Company for breach of contract and denying benefits in bad faith These motions were fully briefed and ripe for review. For the following reasons, the Court DENIED Plaintiff's Motion for Summary Judgment and GRANTED Defendant's Motion for Summary Judgment.
This diversity action arises from Defendant's denial of insurance benefits following a fire at Plaintiff's property. Defendant issued a Homeowner's Insurance Policy to Plaintiff, effective June 13, 2008, to June 13, 2009 (the "Homeowner's Policy"). The Homeowner's Policy insured Plaintiff's residence located at 655 Green Valley Drive, Bidwell, Ohio (the "Property"). The Homeowner's Policy provided coverage for the dwelling with a policy limit of $533,000.00, dwelling extension of $53,300.00, and coverage for personal property with a policy limit of $399,750.00. Defendant also issued a Personal Articles Policy to Plaintiff, effective October 24, 2008, through October 24, 2009. The Personal Articles Policy provided coverage for two Rolex watches, with a coverage amount of $39,150. The Homeowner's Policy and the Personal Articles Policy will be collectively referred to as the "Policies."
During the morning of January 7, 2009, a fire destroyed the dwelling at the Property. Plaintiff, who was the only person on the property when the fire started, testified at his deposition about the morning of the fire. On that day, his wife left for work at her usual time, somewhere between 7:45am and 8:20am. Plaintiff remained in the home with his four dogs. As was his usual custom, Plaintiff believes he probably smoked a cigarette while drinking his coffee. At some point, he drove his SUV down his driveway to see if his neighbor was available to talk about some work the neighbor was supposed to perform on Plaintiff's property. The neighbor was not at his shop, and between five and ten minutes later, Plaintiff returned to his property. While he was in the front of the property, he noticed smoke coming out of the upstairs foyer window. Because his front door was locked, Plaintiff ran around to the unlocked backdoor where he saw smoke and flames through the double windows of his kitchen area. Plaintiff then ran to the sliding glass door at the back of the house where his dogs were sitting, "in a state of panic." (Rose Dep. at 95). He opened the door and let his dogs out; the oldest dog had to be pulled out from underneath the dining room table. At this point the dogs were about twelve feet from where Plaintiff had seen flames in the window. Shortly thereafter, the windows over the kitchen sink blew out. Plaintiff then called 911 and placed his dogs in his truck. He could not recall whether the dogs were covered in soot or smelled of smoke. Plaintiff's wife testified that the dogs smelled and required baths and that one dog was seen by the veterinarian.
Within hours of the occurrence of the fire, Plaintiff reported a fire loss at the Property to Defendant. Defendant provided an immediate $2,500 advance payment to Plaintiff. The next day, Defendant provided an additional advance payment of $25,000. Plaintiff ultimately claimed losses of $696,373.30 for damage to the dwelling, $512,765.57 for damage to personal property, $30,000 for additional living expenses, and $29,850 for one Rolex watch.
The claim was assigned to one of Defendant's adjusters, Scott Harris, who initiated an investigation of the fire. During the evening of January 7, 2009, Mr. Harris called Plaintiff's telephone number on file and left a voicemail message. Mr. Harris also dialed a telephone number associated with Plaintiff's 26-year-old non-resident daughter, but Plaintiff's ex-wife, Kim Jividen, answered the telephone. Ms. Jividen provided information to Mr. Harris regarding their divorce, custody and child support matters, and other financial matters concerning Plaintiff. Mr. Harris contacted Plaintiff's local insurance agent and discussed Plaintiff and the fire loss with him. A few days after the fire, Rob Raker, a Special Investigation Unit Claim Representative for Defendant, became responsible for the claim made by Plaintiff. Mr. Raker began his investigation of the claim by visiting the Property on January 12, 2009, and talking with Plaintiff.
As part of the investigation, Defendant retained Michael Linscott, a fire investigator with SEA, Ltd., to investigate the origin and cause of the fire. Mr. Linscott also arrived at the Property on January 12, 2009, to complete a scene inspection and a cause and origin investigation. Mr. Linscott reviewed the exterior and interior of the Property, documenting the extensive damage to the Property. He talked with Plaintiff to obtain any information he had about the fire. He also examined and analyzed burn patterns to determine where the fire started.
Based on his initial investigation, Mr. Linscott decided that retaining the services of an electrical engineer was important in determining whether an electrical problem started the fire. Consequently, Jeff Lindsey, an electrical engineer and colleague of Mr. Linscott's at SEA, Ltd., assisted in the investigation. On January 14, 2009, Messrs. Lindsey and Linscott arrived at the Property to further investigate the fire. Although they were unable to define a specific point of origin, they agreed that the fire generally originated around the kitchen's island and cabinetry. They removed electrical items for further examination.
On January 20, 2009, Mr. Raker took a recorded statement of Plaintiff and Shelly Rose, Plaintiff's current wife. Mr. Raker also spoke with Plaintiff's ex-wife, Ms. Jividen, and gathered information by searching public records, such as court and real estate records. In pursuing court documents and additional information regarding Plaintiff, Mr. Raker requested the assistance of claim test managers in West Virginia and Virginia. Prior to having any information from his fire investigator about the cause of the fire, Mr. Raker sent an email to these claim test managers requesting that they gather information on various West Virginia and Virginia cases involving Mr. Rose, dating as far back as 1987. (Raker Dep. Ex. D&E). While recognizing that the cases had "some age to them," Mr. Raker noted that the information has "good impeachment value and will help establish a pattern." (Raker Dep., Ex. D and E).
On May 18, 2009, Messrs. Linscott and Lindsey issued their "Dwelling Fire Analysis" (the "Report"). (Linscott Decl., Ex. A). The investigators reached a number of conclusions regarding the origin and cause of the fire: The fire originated within an area in the kitchen that included the center island and extending north to the cabinets and the south end of the informal dining area.
Examination of all electrical items known to have been in the area of origin eliminated them as being the source of ignition.
Based on the statement by Mr. Rose, the insured, careless discarding of smoking materials in the trash container was eliminated as a potential source of ignition.
Based upon the statements by Mr. Rose and his wife, Shelly, cooking was eliminated as being the potential cause of the fire.
A non-reported human action cannot be eliminated as being causal to the ignition of this fire.
The last known person to have been in the kitchen and dining area, as well as on the property before the fire, was Mr. Rose.
(Id. at 1). In discussing the cause of the fire, the Report further states in part: The investigation analyzed all potential sources that were found in and near the area of the origin; however, the ignition source was not identified. This includes items and activities reported by the Roses. Clearly, the fire occurred and evolved. Considering that Mr. Rose was the last person known to have been inside the dwelling within approximately 30 minutes of the fire's discovery, an unreported human action cannot be eliminated.(Id. at 34). The report did not ultimately make any conclusion as to the cause of the fire.
At his deposition, which was held on August 18, 2011, Mr. Linscott stated that he did not know whether the fire was an accidental or incendiary fire because he did not have evidence that it was an incendiary fire. He further explained that, while he could identify the area where the fire originated, he could not identify the source of ignition even though "there had to be one." (Linscott Dep., at 79). Mr. Linscott evaluated "every potential source of ignition to this fire." (Id. at 78). Mr. Linscott eliminated electrical sources as a potential igniter to the fire, and he also did not find evidence of any other possible ignition source in the fire origin area, such as a candle or a candle warmer. Under these circumstances, Mr. Linscott resolved that "it's more probable than not that it's some human act" that caused the fire. (Id. at 80). Despite this assertion, Mr. Linscott was still unable to conclude that the fire was "incendiary." (Id). The State Fire Marshall also examined the Plaintiff's property, though no final conclusion on the cause of the fire has been made.
As part of the investigation, Defendant retained attorney Timothy J. Ryan to conduct examinations under oath of Plaintiff, his wife, and his ex-wife, as well as to provide a coverage opinion. At the conclusion of the investigation, Defendant denied Plaintiff's claims for insurance proceeds. Defendant could not identify the ignition source of the fire and claimed that Plaintiff violated "Intentional Acts" and "Concealment or Fraud" conditions of the insurance policy. Further, Defendant alleged that Plaintiff neglected to use all reasonable means to preserve the property at the time of the loss.
On September 1, 2010, Plaintiff filed a complaint for money damages in the Court of Common Pleas of Gallia County, Ohio, in which he asserted causes of action against Defendant for breach of insurance contract and a tort claim of bad faith. Defendant timely removed the action to this Court based on diversity of citizenship. On December 30, 2011, the parties filed motions for summary judgment (Docs. 53 and 57). These cross-motions were briefed and ripe for disposition.
A. Breach of Contract Claim
Plaintiff alleges that Defendant improperly failed to pay him under the Policy for his loss because no exclusion to coverage applies. Defendant argues that Plaintiff is not entitled to coverage under the Policy on two independent bases: 1) because he caused or procured the loss to his property, and 2) because he concealed or misrepresented material facts to obtain coverage. For the purpose of their respective summary judgment motions, the parties do not dispute that Ohio law governs the construction or interpretation of the Policy. An insurance policy is a contract between the insurer and the insured. Pilkington N. Am., Inc. v. Travelers Cas. & Sur. Co., 861 N.E.2d 121, 125 (Ohio 2006). Under Ohio law, "[t]he construction of written contracts. . . is a matter of law." Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, paragraph one of the syllabus (Ohio 1978). An insurer bears the burden of proving the applicability of an exclusion in its policy. Continental Ins. Co. v. Louis Marx Co., 415 N.E.2d 315, 317 (Ohio 1980).
1. Intentional Acts Exclusion
The Policies exclude loss caused or procured by intentional acts of an insured. The Policies both state in pertinent part:
Intentional Acts. If you [the named insured] or any person insured under this policy causes or procures a loss to property covered under this policy for the purpose of obtaining insurance benefits, then this policy is void and we will not pay you or any other insured for this loss. (Doc. 54-1 at 30; Doc. 54-2 at 11). Arson is an affirmative defense to a fire loss insurance claim. Attallah v. Midwestern Indem. Co., 551 N.E.2d 619, paragraph one of the syllabus (Ohio Ct. App. 1988). To prove the defense of arson, an insurer must demonstrate: (1) fire of an incendiary origin; (2) motive on the part of the insured; and (3) opportunity of the insured to cause the fire. Caserta v. Allstate Ins. Co., 470 N.E.2d 430, 433 (Ohio Ct. App. 1983). This defense must be established by a preponderance of evidence that the insured caused the fire loss to obtain insurance proceeds either by personally setting the fire or having someone else set it for him or her. Cody v. Allstate Indem. Co., No. 1:05-cv-579, 2007 WL 4460616, at *3 (S.D. Ohio, Dec. 14, 2007) (Barrett, J.) (citing Caserta, 470 N.E.2d at 435). The three requirements of the arson defense may be established by either direct or circumstantial evidence. See Caserta, at 435; see also Arms v. State Farm Fire & Cas. Co., 731 F.2d 1245, 1249 (6th Cir. 1984) (recognizing that arson can be established in civil cases by circumstantial evidence, and that it is rarely "possible to prove the actual lighting of the match").
While Plaintiff did not contest the element of opportunity (acknowledging that he was present at the time of the fire), he states that he "will fiercely contest the element of motive." (Doc. 68 at 6). Despite this assertion, Plaintiff did not explain his basis to contest the establishment of the motive element, which is clearly shown by the evidence of his significant financial problems at the time of the fire. Plaintiff had no reliable source of income to meet monthly obligations of $12,500.00 in mortgage and credit card payments. (Fox Decl. 2-4 at Doc. 60). His business ventures had sustained a cumulative loss of nearly 2 million dollars between 2005 and 2008. (Id). He was under a judgment in favor of Fifth Third Bank and carried a $1,000,000 debt for federal taxes and a $200,000 debt for state taxes. (Id). In response to these facts, the Plaintiff has simply stated that he was an entrepreneur "who was no stranger to financial risk" and who "did not believe himself to be in dire financial condition at the time of the fire, despite his debt." This bare assertion is insufficient to overcome Defendant's overwhelming evidence of Plaintiff's deteriorating financial condition. See e.g., Smith v. State Farm Fire & Cas. Co., No. 2:09-cv-780, 2010 U.S. Dist. LEXIS 134346 (S.D. Ohio Dec. 20, 2010) (Plaintiff's own belief that he was not in bad financial condition was insufficient to refute the insurer's evidence that plaintiff's expenses significantly exceeded his income). Accordingly, Defendant has amply demonstrated that Plaintiff had a motive for setting the fire. See e.g., Rainer v. Century Surety Ins. Co., No. 1565, 1990 Ohio App. LEXIS 2504 (Ohio Ct. App. June 22, 1990) (pressing financial conditions a motive for setting fire to insured).
Plaintiff also argued that there is insufficient evidence to establish that the fire was incendiary. An incendiary fire is a fire that is intentionally, not accidentally, set by one or more persons. See, e.g., Smith v. State Farm Fire & Cas. Co., No. 2:09-cv-780, 2010 WL 5393980, at *4 (S.D. Ohio Dec. 10, 2010) (Abel, M.J.). Defendant, on the other hand, argued that the evidence sufficiently establishes that a reasonable jury could only conclude that the fire was incendiary. In the alternative, Defendant asserts that at the very least, a question of fact remains as to whether the fire was incendiary.
In support of his position that the Defendant has failed to establish that the fire was incendiary, Plaintiff relied on fire classifications as designated by the National Fire Protection Association (NFPA). Plaintiff's expert, Harold Franck, P.E.,2 Defendant's expert, Michael Linscott, and State Farm all agree that fire investigations should be governed by referring to various guidelines published by the NFPA. According to NFPA 921, there are only four classifications of fire: "natural" (for example, lightning), "accidental" (for example, a piece of malfunctioning equipment triggers the fire), "incendiary" (purposefully caused) and "undetermined." Mr. Franck testified that NFPA 921 states that a fire should be classified as undetermined when there is insufficient information to conclude that the fire falls within any of the other categories. (Franck Dep at 46). Mr. Franck further testified that the statement in Mr. Linscott's report that "a non-reported human action cannot be eliminated as being causal to the ignition of the fire" is not a conclusion on the cause of fire. Specifically, Mr. Franck testified that the "fact that you can't rule out human activity doesn't mean that it's an incendiary fire. So it still must be classified from the example I gave you as undetermined." (Id at 56). At his deposition, Mr. Linscott asserted that he believed it was "more likely than not that something [Plaintiff] may have done is responsible for this fire," but he still could not conclude that the fire was "incendiary." (Linscott Dep at 73).
Defendant does not deny that the fire has never been classified as "incendiary." Nonetheless, Defendant argued that it has established an arson defense through circumstantial evidence. In support, Defendant cites to Randle v. Allstate Indemn. Co., 649 F.Supp.2d 675 (N.D. Ohio 2009). In Randle, the insurer denied coverage for a house fire based upon an arson defense. While the Randle court found that an arson defense can be premised on circumstantial evidence, is a key difference which distinguishes Randle from the instant case. In Randle, both parties agreed that the fire was incendiary. The defendant insurance company submitted expert reports concluding that the fire was incendiary and the plaintiff did not refute that evidence. In the instance case, however, Plaintiff adamantly denies that the fire was incendiary and Defendant's expert report does not specifically categorize the fire as incendiary. Even at his deposition, Defendant's expert remained unable to formally classify the fire as incendiary. Thus, Randle is unhelpful to Defendant.
The Court found better guidance in Smith v. State Farm Cas. Co., No. 2:09-cv-780, 2010 U.S. Dist. LEXIS 134346 (S.D. Ohio Dec. 20, 2010), in which the court concluded that there was a genuine issue of material fact regarding whether a fire was of an incendiary origin. In Smith, the insured sought coverage after a house fire and State Farm denied it based on an arson defense. The insured reported that he had turned on a small space heater and then left the premises, only to later receive a phone call from a neighbor indicating that the house was on fire. State Farm presented an expert report which concluded that there was no evidence of an electrical fire starting with the space heater. Furthermore, the report stated that because electrical fires are typically "smoldering" in nature, under the plaintiff's own time line of events, he could not reasonably have failed to notice the smoke prior to leaving the home. Finally, the expert report stated that an "intentional human act cannot be ruled out as to the cause of this fire." In response, the plaintiff asserted that genuine issues of material fact remained regarding the incendiary nature of the fire. Specifically, the plaintiff asserted that there was no evidence as to the amount of time the plaintiff remained in the house after turning on the space heater and more importantly, no evidence that the fire had "smoldered" at all, thereby refuting the expert's conclusion that plaintiff would have had to notice the fire. The plaintiff further pointed out that defendant's investigators found no evidence of accelerants and had never actually concluded that there was an incendiary origin to the fire. Faced with these competing facts as to whether the fire was in fact incendiary, the court refused to grant summary judgment.
The Court found that as in Smith, there are too many issues of material fact regarding whether the fire was incendiary, and thus, summary judgment based on the "intentional acts" clause is inappropriate. Defendant failed to identify the origin of the fire, failed to find accelerants, and failed to offer any expert report concluding that the fire was incendiary. Defendant offers its belief that Plaintiff's version of how he discovered the fire was unplausible, but that does not make it so. A reasonable jury could conclude that Plaintiff's version of events was plausible. The court also notes that Mr. Franck testified that he believes Mr. Linscott's determined "area of origin" was too small and therefore the investigation may have failed to identify an accidental cause for the fire. Accordingly, as the evidence is insufficient to establish that the fire was or was not incendiary, summary judgment in favor of either party on the Intentional Acts exclusion is not warranted.
However, the court later held the insured breached the concealment or fraud exclusion of the policy granting defendantís motion for summary judgment on that ground.
Mr. Lynch can be reached at Cozen and O'Connor, 501 West Broadway, Suite 1610,
San Diego, California 92101, 800-782-3366 (voice), 619-234-7831 (fax),
email@example.com (e-mail), http://www.cozen.com. Follow us on Twitter at @firesandrain.
Please direct comments, suggestions, stories, and other items to the author by
e-mail at firstname.lastname@example.org