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Cincinnati Insurance Co. v. Bluewood

March 24, 2009

THE CINCINNATI INSURANCE COMPANY, APPELLEE,
v.
BLUEWOOD, INC., APPELLANT.



Appeal from the United States District Court for the Western District of Missouri.

The opinion of the court was delivered by: Gruender, Circuit Judge.

Submitted: October 15, 2008

Before MELLOY, BEAM and GRUENDER, Circuit Judges.

In this diversity action for breach of contract and vexatious refusal to pay an insurance claim, Bluewood, Inc. appeals the judgment of the district court*fn1 entered on a jury verdict against the Cincinnati Insurance Company ("Cincinnati"). Although the jury found in favor of Bluewood, it did not award any damages beyond the $93,283 that Cincinnati had already paid on Bluewood's insurance claim. For the following reasons, we affirm.

I. BACKGROUND

Bluewood is the self-described "managing agent" of the Broadmoor apartment complex in Jefferson City, Missouri, and the beneficiary of an insurance policy issued by Cincinnati that covered Broadmoor against enumerated losses, including certain types of water damage. On the morning of December 27, 2004, James Cain and Steve Sweeten, the two-person maintenance staff at Broadmoor, learned that water was running under the door of a ground-level apartment in "Building C." Upon opening the door, Cain and Sweeten saw water falling from the ceiling and running down the walls. At least four inches of water had accumulated on the floor. Cain and Sweeten shut off the water and electricity to Building C, whose eight units were vacant, and proceeded to check the building's other seven apartments. Later that day, Cain and Sweeten discovered a similar problem in "Building B," which had five vacant units and three units with tenants who had left their apartments unattended from December 25 to December 27.

After Cain and Sweeten located the sources of the leaks-a burst pipe in one of the upper-level apartments in each building-they started to execute an improvised plan to dry the apartments. First, Cain and Sweeten used a squeegee to push standing water out the front doors of several apartments. Next, Cain and Sweeten removed the carpets and underlay pads in the apartments that had been saturated with water. This task occupied much of Cain and Sweeten's time for at least four days and perhaps as long as a week. During that period, a member of Broadmoor's staff rented six fans and at least one dehumidifier, which Cain and Sweeten used in the wet apartments on a rotating basis. In addition, Cain and Sweeten attempted to accelerate the drying process by cycling each apartment's heating and air conditioning units and opening windows when weather conditions seemed favorable. Eventually, Cain and Sweeten noticed mold growing in some of the apartments that had been exposed to water.

Neither Cain nor Sweeten had any experience or expertise in the field of water removal-or what both parties sometimes refer to as "water remediation." Yet in the weeks that followed this incident, Bluewood did not hire a water-remediation professional to assist Cain and Sweeten.

In late December or early January, John Morrissey, Bluewood's president, called John Rowe, the insurance agent who sold Bluewood the Cincinnati policy that covered Broadmoor. While the substance of this conversation is disputed, its result is clear: Rowe did not contact Cincinnati to file a claim at that time. On January 27, 2005, a representative from Bluewood's "home office" in St. Louis visited Broadmoor to inspect the damage to Buildings B and C. The next day, Rowe submitted a loss notice form to Cincinnati, thereby indicating that Bluewood intended to file a claim.

Cincinnati and Bluewood each hired insurance adjusters to estimate the value of the loss in terms of the cost to remediate or replace the damaged property within Buildings B and C at Broadmoor. Cincinnati's adjuster reached an estimate of $93,191.83, excluding the cost of mold remediation, which Cincinnati insisted was not covered under the policy. Bluewood's adjuster reached an estimate of $536,138.20, which included the cost of at least some mold remediation. These competing estimates reflected differences in the adjusters' conclusions about the extent of the damage as well as a broader disagreement between Cincinnati and Bluewood over the question whether Bluewood complied with its contractual obligation to mitigate its damages.

Cincinnati paid Bluewood $93,283. Shortly thereafter, Bluewood exercised its right under the policy to demand an appraisal of the loss. Although Cincinnati and Bluewood each selected one of the two appraisers, who then agreed on an umpire, Bluewood objected to Cincinnati's proposed "Agreement for Submission to Appraisal." In turn, Cincinnati filed this action in federal court, seeking a declaration that the policy's appraisal provision allowed Cincinnati to deny Bluewood's claim for additional damages, notwithstanding the result of the proposed appraisal. Bluewood raised five counterclaims, asserting, among other things, that Cincinnati had breached its contractual obligations and that Cincinnati's refusal to pay Bluewood's insurance claim was vexatious and unreasonable. When the parties agreed that their central dispute was over the amount of damages, the district court decided to treat the case as a diversity action for breach of contract and vexatious refusal to pay an insurance claim. In effect, Bluewood became the plaintiff and Cincinnati the defendant.

After a five-day trial held in September 2007, the jury returned a verdict in favor of Bluewood, but it did not award any damages beyond the $93,283 that Cincinnati had already paid. The district court denied Bluewood's motion for a new trial. Bluewood appeals, asking this court to vacate the judgment and remand the case for further proceedings.

II. DISCUSSION

Bluewood's primary argument on appeal is that the district court applied the wrong measure of damages to the loss at Broadmoor. According to Bluewood, the district court's error caused it to deliver a defective instruction to the jury and to improperly ...


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