Parkway Assoc, LLC v. Harleysville Mutl , 129 F. App'x 955 ( 2005 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0351n.06
Filed: May 4, 2005
No. 04-5257
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
PARKWAY ASSOCIATES, LLC,
Plaintiff-Appellant, On Appeal from the
v. United States District Court for
the Middle District of Tennessee
HARLEYSVILLE MUTUAL INSURANCE CO.,
Defendant-Appellee.
______________________________/
BEFORE: KENNEDY, MOORE, and SUTTON, Circuit Judges.
KENNEDY, Circuit Judge. This appeal arises out of a diversity action brought by an
insured, Parkway Associates, against its commercial general liability insurer, Harleysville Mutual
Insurance Co., for 1) bad faith refusal to pay an insurance claim in violation of Tenn. Code Ann. §
56-7-105, 2) violation of the Tennessee Consumer Protection Act (“TCPA”), Tenn. Code Ann. 47-
18-101 et seq., and 3) misrepresentation. Harleysville moved for summary judgment on the above
claims, which the district court granted. The district court then ordered the parties to participate in
a binding appraisal process as required by the insurance policy. After an appraisal award was
issued, Harleysville moved to confirm the award. In confirming the award, the district court held
that the insurance policy entitled Parkway only to the “actual cash value” of its loss, not the
“replacement cost value,” since the policy requires that the property be actually repaired, which it
was not, for the insured to recover the replacement cost value. In so holding, the district court
summarily dismissed Parkway’s claim that Harleysville was estopped from relying upon the “actual
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repair” condition of the policy. Moreover, the court held that Parkway was not entitled to either
“overhead and profit” or prejudgment interest. Parkway appeals from both the district court’s order
granting summary judgment to Harleysville and from the court’s order affirming the appraisal
award. For the following reasons, we affirm the district court’s dismissal of Parkway’s bad faith,
TCPA, and misrepresentation claims, set aside its judgment that Parkway is not entitled to the
replacement cost value of its loss, overhead and profit, and prejudgment interest, and remand for
proceedings consistent with this opinion.
BACKGROUND
Harleysville issued a commercial insurance policy to Parkway to insure an eight-story
structure designed and utilized as a hotel. On April 17, 1998, Parkway reported to Harleysville that
it sustained a loss due to a tornado that occurred in the Nashville area the preceding day. On April
18, 1998, Gregg Parker, an adjuster for Harleysville, inspected Parkway’s property and advanced
it $50,000 to handle the immediate cleanup work. After conducting an inspection of the loss,
Harleysville advanced Parkway a total of $348,995 in installments. Parker also contracted with Jay
Construction in an effort to repair the roof over Parkway’s property. Meanwhile, Parkway hired Jeff
Fisher as its agent to supervise the construction work. Fisher told Jay Construction that Parkway
would not authorize it to do further work without estimates or plans as to what repairs it intended
to perform. After Parker was informed of Fisher’s statement, Parker told Jay Construction not to
proceed without a building estimate.
Parkway’s insurance claim consisted of both property and content damage and business
interruption loss. With respect to the business interruption portion of Parkway’s claims, Harleysville
retained Alan Moore, CPA, to assist in the valuation of the loss while Parkway retained the Alex N.
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Sill Company to represent its interest. Parkway advised Moore to communicate directly with Joe
Migliore, a CPA with the Sill Company.
On May 1, 1998, Moore wrote Migliore to request certain records to assist in Harleysville’s
evaluation of Parkway’s business interruption loss claim. On May 29, 1998, Moore received certain
records pursuant to his request. Migliore acknowledged, however, that certain information still
needed to be provided. Thereafter, on June 29, July 21, and September 10, 1998, Moore requested
that Migliore or Parkway provide certain documents and records that would assist him in evaluating
the business interruption claim. Although Moore received from the Sill Company Parkway’s
business interruption claim on September 21, 1998, he had still not received all the information he
needed in order to form an estimate as to Parkway’s business interruption claim. On October 20,
1998, Moore directed a letter to Parkway requesting the outstanding documents. Since Harleysville
had not received all the information it needed in order to form an estimate as to Parkway’s business
interruption loss, it could not make an offer to settle this portion of Parkway’s claim.1 Nonetheless,
on October 22, 1998, Harleysville made an offer to settle the property and content damages portion
of the insured’s claim for $400,000. Parkway complains that Harleysville gave no explanation as
to the basis of the offer. Moreover, Parkway asserts, the offer was “totally unacceptable” in light
of its estimate that it suffered in excess of $800,000 in property and content damages. On
November 13, 1998, Moore received a correspondence from Migliore that provided the information
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Parkway argues, on the basis of Migliore’s opinion, that Harleysville had sufficient
information as of September 21, 1998, to determine the amount of Parkway’s business interruption
loss. It is undisputed, however, that as of September 21, 1998, Harleysville had yet to receive
invoices for expenses incurred during the loss period. Additionally, on November 13, 1998, Migliore
informed Moore that he requested Parkway to provide Moore with additional information, including
the schedules showing miscellaneous expenses on Parkway’s 1995, 96, and 97 tax returns.
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pursuant to his request of October 20, 1998. In his correspondence, Migliore notes that he requested
that Parkway provide still additional information. On December 21, 1998, Moore received the
additional information that he had requested. During this time period, Moore was advised that both
Parkway and Harleysville had retained counsel. As a result, Moore ceased communication with
Parkway directly.
On March 1, 1999, Parkway filed this lawsuit against Harleysville. At that time, Harleysville
was still trying to obtain from Parkway all the documents it needed in order to reach a business
interruption loss estimate. On June 30, 1999, Moore requested that Harleysville’s attorney secure
the documentation that had not yet been provided. On July 15, 1999, Harleysville provided Moore
with certain documents that it was able to obtain from Parkway. On August 16, 1999, Moore
requested that Harleysville’s attorney obtain the still outstanding documents that he needed in order
to form a business interruption loss estimate. On August 20, 1999, Harleysville informed Parkway’s
counsel of Moore’s request and the reasons for it. In Moore’s view, he could not calculate the
business interruption claim without the information requested.
On October 4, 1999, Harleysville moved for summary judgment. On February 5, 2001, the
district court granted Harleysville’s motion with respect to the following claims: bad faith refusal
to pay an insurance claim, violation of the TCPA, and misrepresentation.
The district court then ordered the parties to submit to the appraisal process as required by
the parties’ policy. Parkway’s policy permits either party to request that the matter be submitted to
two appraisers, one selected by each party, for a binding decision as to the value of the loss. In this
case, each party selected an appraiser and the dispute was submitted to them for decision. On
September 18, 2003, the appraisers issued an “award” reflecting their agreed upon value of the loss.
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The award contained two different valuations: one for “replacement cost value” and one for “actual
cash value,” depending on which valuation was ultimately authorized by the policy. The
replacement cost value was $694,549, while the actual cash value was $607,728. With respect to
both valuation methods, the appraisers’ award included an allocation for “general contractor’s
overhead and profit” of $61,520 for replacement cost and $57,283 for actual cash value. On
November 20, 2003, Harleysville moved to confirm the appraisers’ award. In confirming the award,
the district court held that the policy permitted Parkway to recover only the actual cash value and
that Parkway was not entitled to overhead and profit nor prejudgment interest.
ANALYSIS
We first consider whether the district court properly granted summary judgment in favor
of Harleysville on Parkway’s bad faith refusal to pay an insurance loss, Tennessee Consumer
Protection Act, and misrepresentation claims.2
We review a district court’s grant of summary judgment de novo, using the same standard
under Federal Rule of Civil Procedure 56(c) used by the district court. Williams v. Mehra, 186
F.3d 685, 689 (6th Cir. 1999). Summary judgment is appropriate where 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). In deciding a motion for
summary judgment, “we must view the factual evidence and draw all reasonable inferences in
favor of the non-moving party.” Nat’l Enters. v. Smith, 114 F.3d 561, 563 (6th Cir. 1997). To
2
We affirm the district court’s grant of summary judgment in favor of Harleysville on
Parkway’s misrepresentation claim as Parkway has failed to show how it relied upon any of the
alleged misrepresentations to its detriment.
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prevail, the non-movant must show sufficient evidence to create a genuine issue of material fact.
Klepper v. First Am. Bank, 916 F.2d 337, 342 (6th Cir. 1990). “The mere existence of a scintilla
of evidence in support of the [non-movant’s] position will be insufficient; [rather] there must be
evidence on which the jury could reasonably find for the [non-movant].” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 252 (1986).
I.
A. Parkway claims that it is entitled to recover for Harleysville’s bad faith refusal to pay its
loss in violation of Tenn. Code Ann. § 56-7-105. In support of this claim, Parkway asserts that
Harleysville 1) unreasonably delayed both its investigation of the loss and payment of benefits,
2) attempted to settle the claim for less than Parkway was reasonably entitled to, and 3) could
have easily reached an opinion as to the amount of the business interruption loss once it received
the Sill Company’s estimate on September 21, 1998, and certainly before this suit was filed on
March 1, 1999, since it possessed more than enough information to make such a determination.
Tenn. Code Ann. § 56-7-105 authorizes a court to impose a penalty of up to twenty-five
percent of the amount of the insured’s loss on an insurer for refusing to pay a loss in bad faith.
Before an insured can recover for its insurer’s bad faith refusal to pay a loss, the insured must
establish that 1) its policy of insurance became due, 2) it made a formal demand for payment, 3) it
waited 60 days after making its demand before filing suit (unless there was a refusal to pay prior to
the expiration of the 60 days), and 4) the insurer’s refusal was not made in good faith. Palmer v.
Nationwide Mut. Fire Ins. Co., 723 S.W.2d 124, 126 (Tenn. Ct. App. 1986). It is well established
that a “delay in settling a claim does not constitute bad faith when there is a genuine dispute as to
the value, no conscious indifference to the claim, and no proof that the insurer acted from ‘any
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improper motive.’” Id. (citing Johnson v. Tenn. Farmers Mut. Ins. Co., 556 S.W.2d 750, 752 (Tenn.
1977)). Moreover, while the insurer owes a “duty of exercising good faith and diligence in
protecting the interest of its insured,” the insured owes a reciprocal duty of full co-operation. S. Fire
& Cas. Co. v. Norris, 250 S.W.2d 785, 790 (Tenn. Ct. App. 1952).
We conclude that the district court properly granted summary judgment on Parkway’s bad
faith claim since, in light of the evidence, no reasonable trier of fact could conclude that Harleysville
refused to pay Parkway’s loss in bad faith. Rather, the evidence establishes that Harleysville never
denied coverage or refused to pay Parkway’s claim. Indeed, Harleysville advanced nearly $350,000
to Parkway after the loss occurred and offered to settle Parkway’s property and contents claim. With
respect to Parkway’s business interruption claim, the evidence establishes that Harleysville
repeatedly requested to review certain documents that it needed to evaluate the claim. The insurance
contract provides that Parkway must cooperate fully with Harleysville’s investigation and settlement
of Parkway’s claims. Harleysville’s repeated attempts to obtain the documents it needed to form
an opinion as to Parkway’s business interruption loss evidences that it was not consciously
indifferent to Parkway’s claim. Moreover, Harleysville did not make the repeated requests for
documents relating to Parkway’s business interruption loss as part of a dilatory tactic to “starve
Parkway out.” Rather, it needed the requested documents to evaluate Parkway’s business
interruption loss claim, especially considering that, although Parkway’s business operated at a net
loss during the years preceding the damage, Parkway’s experts were projecting a significant amount
of profits for the period of time after the tornado hit in April of 1998. Thus, there was no evidence
indicating that Hareleysville had an improper motive with respect to its requests for documents.
The district court properly granted Harleysville summary judgment on Parkway’s bad faith claim.
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B. Parkway also claims that Harleysville violated the Tennessee Consumer Protection Act by
engaging in deceptive practices. The TCPA provides a lengthy list of prohibited unfair or deceptive
acts or practices. See Tenn. Code Ann. § 48-18-104(b)(1)-(36). Parkway, however, in support of
its claim, relies upon the “catch-all” provision, which prohibits “engaging in any other act or
practice which is deceptive to the consumer or to any other person.” Id. § 47-18-104(b)(27). The
Tennessee Supreme Court has indicated that a “deceptive act or practice is a material representation,
practice or omission likely to mislead a reasonable consumer.” Ganzevoort v. Russell, 949 S.W.2d
293, 299 (Tenn. 1987). Parkway asserts that Harleysville violated the TCPA by 1) failing to return
telephone calls, 2) forcing Parkway into litigation, and 3) placing the mortgage holder’s name on
the checks it submitted to Parkway.3 Nowhere does Parkway explain how it was misled or deceived
by these acts. Parkway fails to state a claim for a violation of the TCPA. Thus, the district court
properly granted Harleysville summary judgment on this claim.
II.
Next, we consider whether the district court, in affirming the appraisers’ award, erred in
holding that Parkway 1) was only entitled to recover on an “actual cash value” basis, rather than on
a “replacement cost” basis, 2) was not entitled to overhead and profit, and 3) was not entitled to
prejudgment interest.
A. Harleysville asserted in its motion to confirm the appraisers’ award that Parkway was entitled
to a recovery only on an “actual cash value basis” instead of on a “replacement cost basis” because
3
Parkway also asserts that the same arguments in support of its bad faith refusal to pay claim
support a finding that Harleysville violated the TCPA. We find that none of the alleged acts that
Parkway raises in support of its bad faith claim supports a finding that Harleysville violated the
TCPA.
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the policy provides that Harleysville will not pay on a replacement cost basis for any loss until the
damaged property is actually repaired, which it was not. In its response, Parkway asserted that a
question of fact existed as to whether Harleysville was “equitably estopped from relying upon the
policy language to forego its responsibility to pay replacement cost.” Parkway was permitted to file
an amended complaint claiming, specifically, that Harleysville was equitably estopped from relying
upon the policy’s “actual repair” condition to resist paying replacement costs due to Harleysville
inaction, delay, and misleading conduct, which, it claims, prevented it from actually repairing the
property. The district court, in holding that Parkway was entitled only to the “actual cash value” of
the loss, did not address Parkway’s equitable estoppel claim. In effect, the district court summarily
dismissed Parkway’s equitable estoppel claim as Harleysville never moved to dismiss the claim.
The district court may not have explicitly considered Parkway’s equitable estoppel claim because
Parkway raises essentially the same arguments in support of this claim as it raised in support of its
bad faith, TCPA, and misrepresentation claims, which the district court did address and dismiss.
However, since the district court permitted Parkway to amend its complaint to allege this claim, the
court should have given Parkway both notice of the court’s intent to dismiss the claim and an
opportunity to respond. Benson v. O’Brian, 179 F.3d 1014, 1015 (6th Cir. 1999) (citing Tingler v.
Marshall, 716 F.2d 1109, 1112 (6th Cir. 1983) (noting that a district court faced with a claim that it
believes may be subject to dismissal must notify all parties of its intent to dismiss the claim and give
the plaintiff a chance to respond to the reasons stated by the district court in its notice of intended
dismissal.).
B. After finding that Parkway was entitled to recover only the actual cash value of its loss,
rather than the replacement value (a conclusion that the district court will have to reconsider in light
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of Parkway’s equitable estoppel claim), the district court then concluded that contractor’s overhead
and profit should be deducted from the actual cash value. In reaching this conclusion, the district
court noted that Tennessee requires anyone who engages in contracting to be licensed, and that all
unlicensed contractors who engage in contracting are to receive only their actual expenses. Tenn.
Code Ann. § 62-6-103(a)(1) & (b). Parkway intended to hire Jeff Fisher, an unlicensed contractor,
to repair its property. The district court concluded that since Fisher could only recover his actual
expenses, Parkway was not entitled to contractor’s overhead and profit.
Parkway’s policy provides that it is entitled to recover the actual cash value of its loss. The
actual cash value of a loss is equal to the repair or replacement costs less depreciation. Braddock
v. Memphis Fire Ins. Corp., 493 S.W.2d 453, 460 (Tenn. 1973). The Tennessee courts have not
determined what repair or replacements costs include. Other courts, however, have held that
“[r]epair or replacement costs logically and necessarily include any costs that an insured reasonably
would be expected to incur in repairing or replacing the covered loss.” Gilderman v. State Farm Ins.
Co., 649 A.2d 941, 945 (Pa. Super. Ct. 1994); accord Salesin v. State Farm Fire & Cas. Co., 581
N.W.2d 781, 790-91 (Mich. Ct. App. 1998); Ghoman v. N.H. Ins. Co., 159 F. Supp. 2d 928, 934
(N.D. Tex. 2001). Although there are some types of losses where the services of a contractor would
normally not be utilized, “[t]here are many instances where the insured reasonably would be
expected to call a contractor, especially where there is extensive damage.” Gilderman, 649 A.2d
at 945. If a contractor would reasonably not be required to repair an insured’s loss, then contractor’s
overhead and profit would not be included in replacement costs. In the instant case, however,
Parkway would reasonably be expected to hire a contractor to repair its property. Since the actual
cash value of a loss is the repair or replacement costs less depreciation, and since the cost of a
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contractor would reasonably be incurred in repairing Parkway’s damaged property, then the costs
of contractor’s overhead and profit would be included in the actual cash value of Parkway’s loss.
The statute relied upon by the district court says nothing to the issue of whether an insured
who contracts to receive the actual cash value of its loss must deduct overhead and profit because
it plans to hire an unlicensed contractor. The fact that Jeff Fisher, if he ultimately repairs Parkway’s
property, would not be entitled to profit does not mean that Parkway is not entitled to what it
bargained from Harleysville, which is the actual cash value of its loss. In essence, Harleysville
complains that Parkway would receive a windfall if it paid Parkway contractor’s overhead and profit
where Parkway hires a contractor that is not entitled to earn a profit. The same general argument
was raised in both Salesin and Ghoman. In those cases, the insurers argued that they were entitled
to deduct contractor’s overhead and profit from the actual cash value awards since the insureds, who
repaired their damaged property themselves, did not incur the costs of contractor’s overhead and
profit. Salesin, 581 N.W.2d at 784, 791; Ghoman, 159 F. Supp. 2d at 934. Both courts concluded
that the fact that the insureds did not incur the costs for contractor’s overhead and profit was
irrelevant because the insureds contracted to receive the actual cash value of their losses, which
included contractor’s overhead and profit since, in light of the damages the insureds incurred, it
would have reasonably been necessary to utilize a contractor to make their repairs. Salesin, 581
N.W.2d at 791; Id. Similarly, in this case, Parkway contracted to receive the actual cash value of
its loss. It is irrelevant to the determination of the actual cash value of its loss that Parkway might
employ an unlicensed contractor who is not entitled to earn a profit. What Parkway actually spends
to repair its property does not affect its right to recover the actual cash value of its loss, as the actual
cash value is not calculated based upon what the insured ultimately pays to repair its property.
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Indeed, even if Parkway chooses not to repair its property at all, it would still be entitled to what it
bargained for: the actual cash value of its loss, which includes contractor’s overhead and profit
where a contractor would reasonably be utilized to make repairs. We set aside the district court’s
order deducting overhead and profit from the actual cash value of Parkway’s loss.4
C. Finally, we consider whether the district court properly denied Parkway’s request for
prejudgment interest. An award of prejudgment interest is within the sound discretion of the trial
court. Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998). “While the ‘abuse of
discretion’ standard limits the scope of our review of discretionary decisions, it does not immunize
these decisions completely from appellate review. Even though it prevents us from second-guessing
the trial court, . . . it does not prevent us from examining the trial court’s decision to determine
whether it has taken the applicable law . . . into account. We will not hesitate to conclude that a trial
court ‘abused its discretion’ when the court has applied an incorrect legal standard . . . .” Johnson
v. Nissan North America, Inc., 146 S.W.3d 600, 604 (Tenn. Ct. App. 2004) (internal citations
omitted).
Because the district court applied an incorrect legal standard in deciding whether to grant
Parkway prejudgment interest, we set aside this part of the district court’s order. In support of its
decision to deny prejudgment interest, the district court stated that Parkway’s insurance policy “does
not authorize the recovery of interest and the Court cannot award it” because “Tennessee law does
not award [prejudgment interest] for unliquidated damages.” For support of this proposition, the
4
We do not consider whether Harleysville engaged in bad faith by raising the argument that
Parkway was not entitled to recover contractor’s overhead and profit since Parkway did not raise
this argument below. Rather, Parkway merely argued that Harleysville’s delay and inaction in
settling its claim constituted bad faith.
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district court relied upon Howard G. Lewis Construction Company, Inc. v. Lee, 830 S.W.2d 60
(Tenn. Ct. App. 1991).
The district court incorrectly relied upon Howard G. Lewis for the proposition that Tennessee
does not award prejudgment interest for unliquidated damages because Myint v. Allstate Insurance
Company, 970 S.W.2d 920, 927 (Tenn. 1998), overruled Howard G. Lewis on this point. The Myint
court overruled Howard G Lewis to the extent that it suggested that prejudgment interest could never
be awarded when a claim is reasonably disputed, regardless of any equitable considerations. 970
S.W.2d at 928 n.7. The court noted that several principles should “guide trial courts in exercising
their discretion to award or deny prejudgment interest. Foremost are the principles of equity.
Simply stated, the [trial] court must decide whether the award of prejudgment interest [would be]
fair.” Id. at 927 (citations omitted). In addition, the court continued, “if the existence or amount of
an obligation is certain, this fact will help support an award of prejudgment interest,” while the
“uncertainty of either the existence or amount of an obligation does not mandate a denial of
prejudgment interest . . . .” Id. at 928. Finally, the court explained, the “test for determining
whether the amount of damages is certain is not whether the parties agree on a fixed amount . . . .
Instead, the test is whether the amount of damages is ascertainable by computation or any
recognized standard of valuation. This is true even if there is a dispute over monetary value or if
the parties’ experts compute differing estimates of damage.” Id. Upon remand, the district court
should apply these principles to determine, in its discretion, whether the award of prejudgment
interest would serve the principles of equity.
III.
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For the foregoing reasons, we AFFIRM the district court’s dismissal of Parkway’s bad
faith, TCPA, and misrepresentation claims, SET ASIDE its judgment that Parkway is not entitled
to 1) the replacement cost value of its loss, 2) contractor’s overhead and profit, 3) and
prejudgment interest, and REMAND for proceedings consistent with this opinion.
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