Appeal from the United States District Court for the Southern District of Iowa.
The opinion of the court was delivered by: Shepherd, Circuit Judge.
Submitted: March 12, 2009
Before MURPHY, MELLOY, and SHEPHERD, Circuit Judges.
The Weitz Company ("Weitz"), an Iowa limited liability company, filed this diversity action for breach of contract and bad-faith denial of an insurance claim against Lloyd's of London, Lexington Insurance Company, Continental Casualty Company, and United States Fire Insurance Company (the "Insurers"). The district court granted summary judgment for the Insurers and dismissed Weitz's claims, holding that Weitz failed to provide timely notice of loss and the Insurers had an objectively reasonable basis for denying Weitz's claim. For the reasons set forth below, we reverse and remand.
In January 2001, CC-Aventura, Inc., an affiliate of H. Group Holdings, Inc. ("Hyatt"), hired Weitz as the general contractor to build a luxury retirement community in Aventura, Florida (the "Project"). Hyatt agreed to purchase and maintain "All Risks" property insurance that protected Weitz's interests in its work at the Project site. As part of its coverage portfolio, Hyatt obtained commercial property policies (the "Policies") from the Insurers to cover all of the corporation's real and personal property, including the Project. Weitz was not a named insured in the Policies.*fn1 To establish that it had obtained the required insurance, Hyatt gave Weitz an "Evidence of Property Insurance" certificate from Hyatt's broker, Marsh USA, Inc. The certificate listed "BUILDERS RISK COVERAGE 19333 WEST COUNTRY CLUB DRIVE AVENTURA, FL 33180," which is the Project site's address. (J.A. 11.) After repeated requests over a three-year period, Hyatt finally furnished Weitz with copies of the actual Policies in June 2004.
Severe rains caused water damage to the Project site in June 2002. Hyatt representatives Tim Reidy and Juan Rodriguez, who visited the Project regularly, discovered the damage soon after water entered the construction site. However, Reidy and Rodriguez did not inform Hyatt's Risk Management Department of the damage. Meanwhile, Weitz took immediate steps to repair the water damage. In November 2002, Weitz informed Hyatt that Weitz was compiling costs associated with repairing the damage and that Weitz planned to submit a claim against the Policies. On December 10, 2002, Weitz sent a claim letter to Reidy that stated:
We hereby request that the attached Insurance claim for water damage be submitted to your Builders Risk Carrier. The attached package contains all costs associated with the rainwater damage that occurred at the Classic Residence by Hyatt project located at 19333 West Country Club Drive, Aventura, FL. The water damage was a result of extremely high volume, windy rains during the month of June 2002. The submission of this package has been delayed to allow [t]he Weitz Company and the subcontractors the necessary time to compile all costs related to this claim. Please submit at your earliest convenience.
(Id. at 467.) On December 23, 2002, Reidy forwarded Weitz's notice of the water damage claim to Dan Corrigan at GAB Robins North America, Inc. ("GAB"), the claims adjuster named in the Policies. Hyatt's Risk Manager, David Mikulina, was copied on the letter to GAB. Consequently, both the Insurers and Hyatt's Risk Management Department first received notice of the loss on the same day.
Reidy, Mikulina, and Corrigan conversed via telephone regarding the water damage claim and the state of construction at the Project when the loss occurred. Reidy told Corrigan that the structure was not enclosed, watertight, or on schedule, and that problems existed with materials and workmanship. GAB did not visit the Project site, view photographs of the damaged property, or discuss the claim with Weitz. Instead, GAB only discussed the claim with Reidy and Mikulina. On February 28, 2003, Corrigan informed Hyatt, in writing, that the Policies did not cover the water damage to the Project for reasons including improper construction and failure to protect the property. Corrigan's letter did not claim that Weitz failed to provide timely notice of loss. However, the letter contained language reserving any rights or defenses the Insurers may have had under the Policies or the law. The Policies' Notice of Loss provision reads, in relevant part:
Any loss or damage insured hereunder in excess of $10,000 shall be reported in writing with full particulars to Marsh USA Inc., 500 West Monroe, Chicago, Illinois 60661 for transmittal to this Company for adjustment as soon as practicable after it becomes known to the Insured's [Hyatt's] Risk Management Department. The Insured may immediately make all necessary repairs or replacement.... GAB Robins North America[,] Inc. will be assigned for loss adjustments under this policy.
Reidy and Mikulina discussed GAB's findings with Corrigan and concurred with its decision to deny coverage. In March 2003, Hyatt notified GAB that Hyatt no longer wished to pursue the water damage claim. Hyatt did not inform Weitz of this development. Because the Insurers denied the claim, Weitz suffered the entire loss of $3,430,893.74 under the terms of its construction contract. Hyatt owed nothing. If the Insurers had granted the claim, Hyatt would have had to pay a $250,000 deductible per occurrence under the terms of the Policies.
On July 7, 2004, Weitz sued the Insurers for breach of contract and for bad-faith denial of an insurance claim. The Insurers moved for summary judgment on both of Weitz's claims. The Insurers argued that Illinois had the most significant relationship to the Policies and, therefore, Illinois law should apply in this case. Weitz argued that Iowa or Florida law applied to its breach-of-contract claim and Iowa law applied to its bad-faith denial claim. The Insurers asserted that Weitz's claim for breach of contract failed because Weitz did not give timely notice of loss to the Insurers. They also argued that Weitz's claim for bad-faith denial failed because Illinois law does not recognize a bad-faith denial cause of action. They further asserted that, even if Iowa law applied, Weitz could not satisfy the elements of a bad-faith denial claim ...