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Lead GHR Enterprises, Inc. v. American States Insurance Co.

United States District Court, D. South Dakota, Western Division

September 30, 2014

LEAD GHR ENTERPRISES, INC., formerly d/b/a GOLDEN HILLS RESORT, now d/b/a DAYS INN LEAD, SOUTH DAKOTA, Plaintiff,
v.
AMERICAN STATES INSURANCE COMPANY, Defendant.

ORDER

JEFFREY L. VIKEN, Chief District Judge.

Pending before the court is defendant's motion for summary judgment or partial summary judgment and plaintiff's cross-motion for partial summary judgment.[1] (Dockets 44, 53). The court referred the motions to Magistrate Judge Veronica L. Duffy for a report and recommendation. (Docket 64). On May 15, 2014, Magistrate Judge Duffy filed a report recommending the court deny defendant's motion for summary judgment and grant in part and deny in part plaintiff's motion for partial summary judgment. (Docket 70). Defendant timely filed objections. (Dockets 109, 110). Plaintiff filed a response to defendant's objections.[2] (Docket 78).

The court reviews de novo those portions of the report and recommendation which are the subject of objections. Thompson v. Nix , 897 F.2d 356, 357-58 (8th Cir. 1990); 28 U.S.C. § 636(b)(1). The court may then "accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1).

For the reasons stated below, defendant's objections are overruled. The court adopts the report and recommendation of the magistrate judge.

A. MAGISTRATE JUDGE'S CONCLUSIONS OF LAW

Defendant asserts the magistrate judge erred in finding:

1. American States Insurance Company ("American States") breached its contract of insurance;
2. An issue of fact exists with respect to the source and scope of the damages;
3. An issue of material fact exists related to defendant's refusal to pay for full roof replacement and its handling of the claim; and
4. An issue of material fact exists related to whether plaintiff is entitled to punitive damages.

(Docket 74 at pp. 1-2). Each objection will be addressed separately.

The recommendation contains a thorough discussion of the facts. (Docket 70 at pp. 2-16). Specific facts will be discussed only to the extent they relate to defendant's objections.

B. DEFENDANT'S OBJECTIONS

1. Breach of Contract

Defendant contends the magistrate judge erred in finding American States breached its contract of insurance by (1) "[m]aking unsupported conclusions and failing to adequately consider the pre-existing condition of the roof when assessing the hail's effect on the roof's overall value'"; (2) "[m]isunderstanding the methodology and process related to the Xactimate estimate"; (3) "[f]ailing to consider industry practice"; (4) "[m]isconstruing the basis of American States' coverage position"; and (5) "[f]ailing to adequately consider apposite legal authority." (Docket 74 at pp. 1-2).

a. Pre-existing condition

The magistrate judge found defendant breached the insurance policy contract because the August 3, 2010, hail storm caused damage to the hotel's roof and defendant denied coverage for the damage. (Docket 70 at pp. 20-25). The magistrate judge concluded it is "axiomatic that a dented roof is worth incrementally less than an undented roof." Id. at p. 22.

Defendant first contends the magistrate judge made "unsupported conclusions" and failed to "adequately consider the pre-existing condition of the roof when assessing the hail's effect on the roof's overall value'." (Docket 74 at p. 1). Defendant argues that "given the prior condition of the roof, at the very least a genuine issue of material fact exists as to whether the hail impacts occurring on August 3, 2010, actually caused any significant effect at all on the property's overall aesthetics or valuation, as the record is replete with information regarding the deficiencies in the overall condition of the roof well before the hail event."[3] Id. at p. 8.

The insurance contract between plaintiff and defendant does not define "damage." As a result, the magistrate judge engaged in a lengthy analysis of what constitutes damage, applying "the term's plain, ordinary and popular meaning, which the ordinary and average person would understand.'" (Docket 70 at p. 21 (quoting Finck v. Northwest School Dist. No. 52-3 , 417 N.W.2d 875, 877 (S.D. 1988)). The magistrate judge found damage meant "physical harm caused to something in such a way as to impair its value, usefulness, or normal function, commonly associated as causing unwelcome and detrimental effects." Id. at p. 21 (internal quotation marks and citations omitted).

Based on this definition of damage, the magistrate judge concluded the hotel's roof was damaged, even if the damage did not affect the overall functionality of the roof. Id . The magistrate judge also concluded the pre-existing condition of the roof was not the basis for defendant's denial of the claim. This conclusion was based on the fact defendant "ordered [Chris] Shopshear to prepare a repair estimate for twenty-five percent of the left upper slope of the roof, the gable and trim, and the air conditioning condenser unit fins...." Id. at p. 23. The magistrate judge found defendant failed to present evidence showing "the condition of the roof was so bad prior to the hail storm that it could not be further damaged as a result of the hail storm." Id.

The court concludes the magistrate judge properly found the August 3, 2010, hail storm caused damage. Defendant's argument that the hail damage was barely visible and de minimus compared to the pre-existing condition of the roof is disingenuous. Even accepting as true that the pre-existing condition of the roof was not repaired as asserted by plaintiff, [4] the court finds defendant has not produced evidence showing no damage existed at all. Defendant's position is flatly contradicted by defendant's own action in writing a repair estimate which can only be interpreted as indicating defendant believed the roof was ...


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