Scottsdale Insurance v. Lynnhaven Inlet Fishing Pier Corp. , 113 F. App'x 526 ( 2004 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 03-2470
SCOTTSDALE INSURANCE COMPANY,
Plaintiff - Appellee,
and
CERTAIN UNDERWRITERS AT LLOYD’S, LONDON,
Third Party Plaintiff - Appellee,
versus
LYNNHAVEN INLET FISHING PIER CORPORATION;
C.D.C. ENTERPRISES, INC., t/a Lynnhaven Inlet
Fishing Pier Tackle Shop; KYRUS ENTERPRISES,
INC., d/b/a Lynnhaven Fish House,
Defendants - Appellants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. F. Bradford Stillman, Magistrate
Judge. (CA-02-238)
Argued: September 29, 2004 Decided: November 10, 2004
Before WILLIAMS, KING, and DUNCAN, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion. Judge
Duncan wrote a dissenting opinion.
ARGUED: C. Thomas Brown, SILVER & BROWN, Fairfax, Virginia, for
Appellants. Robert Tayloe Ross, MIDKIFF, MUNCIE & ROSS, P.C.,
Richmond, Virginia, for Appellee Scottsdale Insurance Company.
Jeffrey Allan Wothers, NILES, BARTON & WILMER, L.L.P., Baltimore,
Maryland, for Appellee Certain Underwriters at Lloyd’s, London. ON
BRIEF: Glenn H. Silver, SILVER & BROWN, Fairfax, Virginia, for
Appellants. Robert S. Reverski, Jr., LAW OFFICES OF MICHAEL T.
HURD, P.C., Deltaville, Virginia, for Appellee Certain Underwriters
at Lloyd’s, London.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIAM:
This appeal stems from an insurance coverage dispute resolved
on summary judgment in favor of two insurers. Lynnhaven Inlet
Fishing Pier Corporation and C.D.C. Enterprises, Inc., t/a
Lynnhaven Inlet Fishing Pier Tackle Shop (collectively
“Lynnhaven”), and their restaurant-operating tenant, Kyrus
Enterprises, Inc., d/b/a Lynnhaven Fish House (“Kyrus”), appeal the
court’s award of summary judgment in favor of Scottsdale Insurance
Company (“Scottsdale”) and Certain Underwriters at Lloyd’s, London
(“Lloyd’s”). Scottsdale initiated this declaratory judgment action
in the Eastern District of Virginia against Lynnhaven and Kyrus,
asserting that an insurance policy it had issued to Lynnhaven did
not provide coverage for damages suffered by the restaurant (the
“Fish House”). In turn, Lynnhaven and Kyrus counterclaimed against
Scottsdale and filed their own third-party complaint against
Lloyd’s, seeking declarations that insurance policies issued by
Scottsdale and Lloyd’s provided coverage for damages suffered at
the Fish House.
On cross-motions for summary judgment, the magistrate judge,
acting for the district court pursuant to 28 U.S.C. § 636(c), ruled
that the damages were not covered by the insurance policies. The
court accordingly awarded summary judgment to Scottsdale and
Lloyd’s. Scottsdale Ins. Co. v. Lynnhaven Inlet Fishing Pier
Corp., No. 2:02cv238 (E.D. Va. Oct 31, 2003) (the “Opinion”).
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Lynnhaven and Kyrus have appealed and, as explained below, we
reverse and remand.
I.
A.
Lynnhaven owns and operates a fishing pier in Virginia Beach,
Virginia, upon which certain enclosed structures, including the
Fish House, have been erected.1 The Fish House restaurant was
built on the deck of the pier, above ground. Access to the Fish
House, which is leased and operated by Kyrus, is available from
beneath the pier. Prior to this dispute, Lynnhaven, in an effort
to protect the Fish House’s plumbing from freezing, insulated and
covered the underside of the restaurant with plywood. The area
below the restaurant’s floor, consisting of this insulation,
plywood, and floor joists, constitutes the Fish House’s “subfloor.”
During the relevant period, Lynnhaven maintained coverage
through an insurance policy issued by Scottsdale in Virginia,
specifically Policy No. CPS328957, effective from November 1999
through November 2000 (the “Scottsdale Policy”). Kyrus maintained
coverage through an insurance policy issued by Lloyd’s in Virginia,
specifically Policy No. ROC0443, effective from July 2000 through
1
Because this appeal is from an award of summary judgment,
we present the relevant facts in the light most favorable to
Lynnhaven and Kyrus, as the insureds and non-moving parties. See
Seabulk Offshore, Ltd. v. Am. Home Assurance Co., 377 F.3d 408, 418
(4th Cir. 2004).
4
July 2001 (the “Lloyd’s Policy”). The relevant terms of these
policies are identical. They are both so-called “all risks”
policies, covering all risks of direct physical loss unless
specifically excluded or limited by the policy terms. Among the
excluded causes of loss set forth in Section B(2) of the “Causes of
Loss - Special Form” of each policy are: “Collapse, except as
provided below in the Additional Coverage for Collapse [Section D].
. . .” The parties agree that the damage to the subfloor of the
Fish House would ordinarily be excluded from coverage under this
section.
Lynnhaven and Kyrus maintain, however, that they are entitled
to coverage under Section D, which provides, in pertinent part:
“[The insurer] will pay for direct physical loss or damage to
Covered Property, caused by the collapse of a building or any part
of a building insured under this Coverage Form, if the collapse is
caused by one or more of the following:” listing among other
causes, “hidden decay” or the “weight of people or personal
property.” Id. (emphasis added). Significantly, neither the
Scottsdale Policy nor the Lloyd’s Policy defines what it means by
the term “collapse.”
B.
In August 2000, Lynnhaven retained a structural engineering
firm to inspect the subfloor of the Fish House. As a result, that
firm prepared a report, entitled Pier and Pier Deck Structural
5
Evaluation (the “Report”), which concluded that the subfloor was
unsound in certain respects. The Report found that damage to the
subfloor had resulted from four causes: (1)condensation from
refrigeration units and piping; (2) plumbing leaks from
disconnected drainpipes; (3) seepage through the floor from the
food preparation area; and (4) moisture trapped by the insulation.
The Report also found that some locations of the subfloor were
“completely deteriorated,” and that “the floor beams are saturated
and the wood soft.” In October 2000, on the basis of this Report,
Lynnhaven filed a claim with its insurer, Scottsdale, seeking
coverage for the subfloor damage.
According to the kitchen manager at the Fish House, who is
also the restaurant’s chef, the floor became spongy and unstable
during the first two weeks of November 2000, and several of the
floor tiles cracked and popped off. He testified that, during that
time period, “the subfloor was like a sand base that was wet and
the wood beneath it was rotting.” Viewed from below, the subfloor
was visibly crumbling and falling apart. As a result, Lynnhaven
retained a contractor who temporarily repaired the subfloor in
November 2000. Lynnhaven notified Scottsdale that same month that
the subfloor of the Fish House had collapsed and that Lynnhaven was
proceeding with its claim under Section D of the “Causes of Loss -
Special Form” of the Scottsdale Policy.
6
In March 2001, an engineer engaged by Scottsdale prepared a
report on the subfloor problem, concluding that the subfloor had
decayed “to the point that it could be penetrated with a screw
driver.” In August 2001, a wheel on a piece of the Fish House’s
restaurant equipment, a cooler, sank into the floor, penetrating
the subfloor and requiring additional temporary repairs.
In late August 2001, Kyrus gave notice to its insurer,
Lloyd’s, of its claim under the Lloyd’s Policy for the damages
sustained by the Fish House’s subfloor in mid-November 2000. The
Fish House was closed for a short time following Kyrus’s notice,
and the problem areas of the subfloor were finally repaired on a
more permanent basis in September 2001. In October 2001, an
adjuster for Lloyd’s reported to that insurer’s London office that
he had found that “a portion of the building had collapsed, which
is contrary to what we had previously thought.”
In the summary judgment proceedings, Lynnhaven and Kyrus
presented two experts who concluded that the subfloor had
“collapsed.” One of those experts, a structural engineer who had
prepared the Report, stated by affidavit that, as his expert
litigation report spelled out, the Fish House subfloor had in fact
collapsed, in that the subfloor had broken down, fallen apart in a
disorganized fashion, or disintegrated. In addition, an insurance
claims expert opined by affidavit that the restaurant’s “subfloor
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had collapsed.” Lynnhaven and Kyrus also proffered nearly 100
photographs to show the damage sustained by the subfloor.
C.
At the close of discovery in 2002, the parties filed cross-
motions for summary judgment. In ruling in favor of Scottsdale and
Lloyd’s, the district court concluded that summary judgment was
appropriate because, applying Virginia law, there was “no evidence
that the subfloor broke down completely, fell apart in confused
disorganization, or disintegrated.” Opinion at 17. According to
the court, Lynnhaven and Kyrus failed to present sufficient
evidence to demonstrate that a “collapse” had occurred. Opinion at
19. Lynnhaven and Kyrus have appealed, and we possess jurisdiction
pursuant to 28 U.S.C. § 1291.
II.
We review de novo a district court’s award of summary
judgment, viewing the facts and inferences drawn therefrom in the
light most favorable to the non-moving party. Seabulk Offshore,
Ltd. v. Am. Home Assurance Co., 377 F.3d 408, 418 (4th Cir. 2004).
An award of summary judgment is appropriate only “if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). A
genuine issue of material fact is one “that might affect the
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outcome of the suit under the governing law . . . .” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute presents
a genuine issue of material fact “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.”
Id.III.
Lynnhaven and Kyrus contend that the district court erred in
awarding summary judgment to Scottsdale and Lloyd’s because there
is, under the evidence in the summary judgment record, a genuine
issue of material fact as to whether a “collapse” of the subfloor
occurred. Scottsdale and Lloyd’s, by contrast, maintain that the
evidence presented by Lynnhaven and Kyrus does not establish any
such “collapse” and that summary judgment was appropriate.
A.
Significantly, the Supreme Court of Virginia has recently
interpreted policy language identical to that found in the
Scottsdale and Lloyd’s policies in addressing an insurance coverage
dispute where “collapse” was an undefined policy term.2 Lower
Chesapeake Assocs. v. Valley Forge Ins. Co., 532 S.E.2d 325, 330
(Va. 2000). In Lower Chesapeake, the court accorded the term
2
In this matter, as found by the magistrate judge, Virginia
appears to be the place where the policy was formed, and neither
party has contested the application of Virginia law. Consequently,
we are obliged, as was the district court, to apply the substantive
law of Virginia in our resolution of this dispute. See Seabulk,
377 F.3d at 418-19.
9
“collapse” one of its ordinary and accepted meanings, that is: “‘to
break down completely: fall apart in confused disorganization: . .
. disintegrate.’” Id. (quoting Webster’s Third New International
Dictionary 443 (1993)), cited with approval in Transcont’l Ins. Co.
v. RBMW, Inc., 551 S.E.2d 313, 317 (Va. 2001). Scottsdale and
Lloyd’s rely on this definition of “collapse” to support their
contention that Lynnhaven and Kyrus failed to produce sufficient
evidence to satisfy their burden in opposing summary judgment.
This contention, however, overlooks a key and distinguishing
aspect of the Lower Chesapeake decision. In that dispute, the
Supreme Court of Virginia was able to rely on the trial court’s
factual findings, made by the lower court after a bench trial. 532
S.E.2d at 330-31 (“The [trial] court’s factual finding . . . is
central to the resolution of this appeal.”).3 And, according to
the Supreme Court of Virginia, whether a “collapse” has occurred,
in the context of such a coverage issue, is a question of fact.
Id.
3
In Lower Chesapeake, the Supreme Court of Virginia assessed
the trial court’s decision under a deferential standard of review.
The lower court’s verdict would “not be set aside unless it
appear[ed] from the evidence that the judgment [was] plainly wrong
or without evidence to support it.” 532 S.E.2d at 330. Our
standard of review, on the other hand, is de novo, and we view the
facts and inferences fairly drawn therefrom in the light most
favorable to Lynnhaven and Kyrus, as the non-moving parties.
Seabulk, 377 F.3d at 418.
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B.
The district court, in ruling on summary judgment,
appropriately did not make a finding on whether a “collapse” of the
Fish House subfloor had occurred; however, the court decided that
Lynnhaven and Kyrus had failed to produce sufficient evidence of a
“collapse.” We are unable to agree with that assessment.
Lynnhaven and Kyrus, in opposing summary judgment, forecast
the presentation of evidence by two expert witnesses, a structural
engineer and an insurance claims expert, to the effect that the
Fish House subfloor had indeed “collapsed,” as that term was
applied in the Lower Chesapeake decision. See Fed. R. Evid. 704(a)
(providing that opinion testimony on ultimate issue of fact is not
objectionable on that basis); TFWS, Inc. v. Shaefer, 325 F.3d 234,
241-42 (4th Cir. 2003) (vacating summary judgment award because
nonmoving party proffered expert reports demonstrating genuine
issue of material fact); see also Ashley Furniture Indus., Inc. v.
Sangiacomo N.A., Ltd., 187 F.3d 363, 377 (4th Cir. 1999) (“[I]n
many areas, an expert’s affidavit will enable the plaintiff to
survive summary judgment . . . .”). As we have pointed out, see
supra Part I.B., Lynnhaven and Kyrus also presented multiple
photographs showing the disintegration of the Fish House subfloor,
they proffered testimony from the restaurant’s kitchen manager
describing the subfloor’s disintegration in detail, and they
presented a letter from the Lloyd’s adjuster that a “portion of the
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building had collapsed . . . .” Scottsdale and Lloyd’s did not and
do not challenge the admissibility of any of this evidence.
In these circumstances, the evidence forecast by Lynnhaven and
Kyrus in opposition to summary judgment supports the reasonable
inference that a “collapse” of the Fish House subfloor occurred in
November 2000, under the terms of the Scottsdale Policy and the
Lloyd’s Policy. Whether such a “collapse” occurred is
determinative of this dispute, and the evidence, viewed in the
proper light, creates a triable issue of fact. Summary judgment,
therefore, should not have been awarded.
IV.
Pursuant to the foregoing, we reverse the award of summary
judgment to Scottsdale and Lloyd’s and remand for such other and
further proceedings as may be appropriate.
REVERSED AND REMANDED
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DUNCAN, Circuit Judge, dissenting:
Federal courts sitting in diversity are bound to apply the
substantive law of the state in which the court sits, as that law
has been applied by the state’s highest court. Commissioner v.
Estate of Bosch, 387 U.S. 456, 465 (1967); see also Erie R.R. v.
Tompkins, 304 U.S. 64 (1938). Accordingly, I agree with the
majority that the substantive law of Virginia applies to this case.
Because, however, I believe that the district court correctly
applied Virginia law as it has been interpreted by the Virginia
Supreme Court, I respectfully dissent from the majority opinion
mandating reversal.
The Virginia Supreme Court holds that “collapse,” if not
defined elsewhere in an insurance contract, means “to break down
completely: fall apart in confused disorganization: . . .
disintegrate.” Lower Chesapeake Associates v. Valley Forge Ins.
Co., 532 S.E.2d 325, 330 (Va. 2000). While the majority correctly
notes that Lower Chesapeake was not a summary judgment case, it
notes a distinction without a difference. The Virginia Supreme
Court in Lower Chesapeake defined “collapse” as a matter of law.
Id. (holding that collapse means “to break down completely: fall
apart in confused disorganization: . . . disintegrate,” without any
reference to the factual findings of the district court (alterations
in original) (internal quotations omitted)). It further held that
the district court applied the correct legal definition of collapse
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and separately held that the district court’s factual finding that
the deck at issue in that case met the definition was not clearly
erroneous. Id. at 330-31 (“[T]he [trial] court properly applied the
ordinary and customary meaning of [collapse] when reaching its
conclusion.”) In other words, the Virginia Supreme Court did give
deference to the district court’s factual findings, but not in
regards to the definition of collapse. That definition is a legal,
not factual, definition and is therefore applicable to this summary
judgment proceeding.
Using that definition of “collapse,” and taking everything that
the plaintiffs posit as true, there is no basis here on which a jury
could find that the flooring in question fell apart in confused
disorganization. The expert reports and proffered testimony upon
which the majority relies to create a dispute of material fact
simply state legal conclusions--not factual assertions. See
Weinstein's Federal Evidence § 704.04[1] (2004) (“In general,
testimony about a legal conclusion, or the legal implications of
evidence is inadmissible under Rule 704.”). No one disputes that
the flooring in question was damaged and required repairs. But no
actual evidence, as opposed to mere conclusory statements,
demonstrates that the flooring in question came close to “breaking
down completely” or “disintegrating” as required by Virginia
insurance law.
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I would therefore affirm the well reasoned opinion of the
district court.*
*
As the district court succinctly notes: “The . . .
evidence submitted to the Court, by both parties, similarly fails
to describe damage beyond the clearly established rot, decay, and
deterioration. In their briefs, Lynnhaven and Kyrus equate this
deterioration with ‘disintegration’ and ‘collapse’ without setting
forth any additional facts beyond the undisputed decay and
deterioration of the restaurant’s subfloor. Likewise, Millenium’s
expert report opines that the subfloor ‘disintegrated’ and
‘collapsed,’ but provides no objective support for these conclusory
statements. Mere recitation of the words ‘disintegration’ and
‘collapse’ is not sufficient to bring the damage within the scope
of the ordinary and accepted meaning of ‘collapse.’ The Court
finds no evidence that the subfloor broke down completely, fell
apart in confused disorganization, or disintegrated.” Dist. Ct.
Opinion and Order at 17 (E.D. Va. # 2:02cv238, Oct. 31, 2003).
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