Opinion
No. 1:22-cv-559
2023-12-07
Joan E. SCHIEFELBEIN, individually and as Trustee of the Joan E. Schiefelbein Revocable Trust, Plaintiff, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.
Kevin J. Kuhn, Kuhn Firm P.C., Chicago, IL, for Plaintiff. Cary R. Berlin, Patrick Johnson & Mott PC, Mt. Clemens, MI, for Defendant.
Kevin J. Kuhn, Kuhn Firm P.C., Chicago, IL, for Plaintiff.
Cary R. Berlin, Patrick Johnson & Mott PC, Mt. Clemens, MI, for Defendant.
OPINION AND ORDER GRANTING IN PART MOTION FOR SUMMARY JUDGMENT
Paul L. Maloney, United States District Judge.
This lawsuit arises from an insurance dispute. The roof of Plaintiff Joan Schiefelbein's residence suffered some damage during a storm. Plaintiff believes the insurance policy requires the entire roof to be replaced. Defendant State Farm contends the policy requires it to pay to repair the damage only. Defendant State Farm filed a motion for summary judgment (ECF No. 23) arguing, in part, that the action should be dismissed because several required parties were not named as plaintiffs. Defendant also seeks summary judgment the merits of the dispute about the language in the policy. The Court will deny the portion of the motion concerning the necessary
parties and will grant the portion of the motion addressing the proper interpretation of the policy.
I.
A.
Defendant filed this motion under Rule 56 of the Federal Rules of Civil Procedure. A trial court should grant a motion for summary judgment only in the absence of a genuine dispute of any material fact and when the moving party establishes it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the burden of showing that no genuine issues of material fact exist. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In resolving a motion for summary judgment, the court does not weigh the evidence and determine the truth of the matter; the court determines only if there exists a genuine issue for trial. Tolan v. Cotton, 572 U.S. 650, 656, 134 S.Ct. 1861, 188 L.Ed.2d 895 (2014) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The question is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-252, 106 S.Ct. 2505.
B.
This action comes to federal court on the basis of diversity of parties. In diversity suits, federal courts apply the substantive law of the forum state. Cen-Tra, Inc. v. Estrin, 538 F.3d 402, 409 (6th Cir. 2008) (citing Himmel v. Ford Motor Co., 342 F.3d 593, 598 (6th Cir. 2003)). This rule applies to actions arising from disputes over insurance contracts. Talley v. State Farm Fire and Cas. Co., 223 F.3d 323, 326 (6th Cir. 2000). Accordingly, Michigan law governs the resolution of the dispute.
When applying state law to a diversity action, the federal court "must follow the decisions of the state's highest court when that court has addressed the relevant issue." Talley, 223 F.3d at 326. Where the state's supreme court has not weighed in on the issue, federal courts must anticipate how the state's supreme court would rule by considering "all available data, including the decisional law of the state's lower courts." Ziegler v. IBP Hog Mkt., Inc., 249 F.3d 509, 517 (6th Cir. 2001). "'Where a state's highest court has not spoken on a precise issue, a federal court may not disregard a decision of the state appellate court on point, unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.' This rule applies regardless of whether the appellate court decision is published or unpublished." Id. (citations omitted).
II.
Defendant argues Allen Schiefelbein, Century Mortgage Services, and Century Bank and Trust are required parties under Rule 19. The insurance policy identifies Allen Schiefelbein as a named insured (ECF No. 23-2 PageID.115). The policy identifies the other two entities as the first and second mortgagee respectively (id.).
Rule 19 of Federal Rules of Civil Procedure concerns those individuals who must be joined as parties to a lawsuit. Rule 19(a)(1) sets forth the analysis for determining whether a party must be joined if feasible. Keweenaw Bay Indian Cmty. v. State, 11 F.3d 1341, 1345 (6th Cir. 1993).
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord complete relief among the parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action the person's absence may:
(i) as a practical matter impair or impede the person's ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring a double, multiple, or otherwise inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)(1). If the individual is a required party under Rule 19(a), the court must next decide if joinder of that individual would deprive the court of subject-matter jurisdiction. Glancy v. Taubman Ctrs., Inc., 373 F.3d 656, 666 (6th Cir. 2004). If joining that individual would destroy the diversity of the parties and deprive the court of subject-matter jurisdiction, then joinder is not feasible. See Hooper v. Wolfe, 396 F.3d 744, 748 (6th Cir. 2005).
When a court finds that an entity is a required party and that joining that party would eliminate the court's jurisdiction over the action, the court must analyze the Rule 19(b) factors to determine whether it "should 'in equity and good conscience' dismiss the case because the absentee is indispensable." Glancy, 373 F.3d at 666 and at 668 (explaining that when the absentee party "cannot be joined for jurisdictional reasons, . . . the four factors in Rule 19(b) will need to be weighed"). Rule 19(b) sets forth the four factors:
(1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened by or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person's absence would be adequate; and
(4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.
Fed. R. Civ. P. 19(b). This rule must "not be applied in a rigid manner but should instead be governed by the practicalities of the individual case." Keweenaw Bay Indian Cmty., 11 F.3d at 1346.
A. Mortgagees
The two banks, identified in the policy as mortgagees, are not required parties under Rule 19. Defendant identifies no authority in which a court dismissed a lawsuit brought by a named insured on a policy insuring a residential home against an insurance company because the insured failed to include the mortgagee bank as a party.
Defendant relies on a standard loss-payable provision in the policy. The provision Defendant quotes arguably creates a financial interest for the mortgagee if a loss is payable. "If a mortgagee is named in this policy, any loss payable under Coverage A will be paid to the mortgagee and you, as interests appear" (ECF No. 23-2 PageID.158 emphasis in original). Parties with a financial interest, as
On page 21 (PageID.102) of its brief, Defendant purports to quote a provision in the policy that contains the language ". . . any loss payable under Coverages A and B. . .". Defendant cites "Policy at 14-15." The Court cannot locate this passage in the policy on any page numbered 14 or 15. No such language exists on those page numbers as the policy document is paginated in the bottom center (PageID.149-150). No such language exists on the page with those Bates Stamp numbers in the lower right corner (PageID.112-13). No such language exists on pages 14 and 15 using the ECF generated page number for the exhibit in the upper right corner (PageID.122-23). The Court believes the passage Defendant intended to reference appears on page 23 of the policy, Bates Stamp page 60, ECF exhibit page 50 (PageID.158). This policy refers only to loss payable under Coverage A, not Coverages A and B.
opposed to a legally protected interest, are not required parties under Rule 19. Dine Citizens Against Ruining Our Env't v. Bureau of Indian Affairs, 932 F.3d 843, 852 (9th Cir. 2019); Liberty Mut. Ins. Co. v. Treesdale, Inc., 419 F.3d 216, 230 (3d Cir. 2005); see, e.g., Grow's Marine, Inc. v. American Honda Motor Co., Inc., No. 1:08cv1120, 2010 WL 1438520, at *3 (W.D. Mich. Apr. 19, 2010). In a non-binding occurrence, Judge Sutton of the Sixth Circuit Court of Appeals found that legally-protected interests, not any sort of interest, are necessary for Rule 19. Sch. Dist. of City of Pontiac v. Sec'y of United States Dept. of Educ., 584 F.3d 253, 281 (6th Cir. 2009) (Sutton, J. concurring). In another unpublished opinion, the Sixth Circuit perfunctorily rejected the argument that the "district court erred in ruling that the policy mortgagees were not indispensable parties[.]" Farris v. Standard Fire Ins. Co., 280 F. App'x 486, 488 (6th Cir. 2008). The court explained that "all of the issues raised by Standard Fire an appeal have no merit, and the district court is affirmed on each of these issues." Id. Earlier this year, the United States District Court for the Southern District of Ohio recently found that "[n]umerous courts across the county have held that a legally protected interest must be more than a merely financial interest." Gillispie v. City of Miami Twp., No. 3:13cv416, 2023 WL 4861025, at *5 (S. D Ohio July 32, 2023) (collecting cases). This reasoning applies to mortgagees in insurance policy coverage lawsuits like this one. See, e.g., Fuller v. Allstate Prop. and Cas. Ins. Co., No. 3:17cv955, 2018 WL 451235, at *3 (M.D. Pa. Jan. 18, 2018) ("Conversely, though, the purported holder of the mortgage is not a necessary party under Rule 19 based solely on the mortgagee clause in the insurance policy.").
B. Allen Schiefelbein
Allen Schiefelbein is a necessary party under Rule 19(a). He is a named insured on the policy and therefore has both obligations and rights under the policy; all of the references to "you" in the policy includes Mr. Schiefelbein because he is a named insured (ECF No. 23-2 PageID.140). Accordingly, he has an interest in the subject matter of this lawsuit, the insured property. Plaintiff insists that Mr. Schiefelbein does not own the property; it is owned by the Trust. The same would be true of Joan Schiefelbein in her individual capacity. Assuming that to be true, Plaintiff does not explain the legal significance of that fact or why Allen is not a required party. Michigan law does not require ownership, only an insurable interest, which is determined "by whether the individual will suffer a direct pecuniary loss as a result of the destruction of the property." Secura Ins. Co. v. Pioneer State Mut. Ins. Co., 188 Mich.App. 413, 470 N.W.2d 415, 416 (1991). Allen's absence from this lawsuit impedes his ability to protect his interest, see Fed. R. Civ. P. 19(a)(1)(B)(i), and would also leave open the possibility that Defendant would face a second lawsuit from Allen, see id. 19(a)(1)(B)(ii). Joinder of Allen Schiefelbein would not be feasible. Allen lives in Illinois and is considered a citizen of that state (see ECF No. 26-2 Allen S. Aff. PageID.328). Defendant is also a citizen of Illinois. If Allen were joined as a plaintiff, the Court could not exercise subject matter jurisdiction because the parties would lack diversity. See 28 U.S.C. § 1332(a).
Allen Schiefelbein, however, is not an indispensable party under Rule 19(b). He has agreed to be bound by any judgment rendered in this lawsuit as if he were a party (Allen S. Aff. PageID.329). Joan Schiefelbein's interest and Allen's interest in the property align. To the extent that any of the four factors weigh in favor of dismissal, Allen's signed agreement undermines that factor as weighing in favor of dismissal. Defendant indicates it is satisfied with this approach so long as any order memorializes the agreement (ECF No. 27 PageID.352).
Accordingly, the Court will deny the Rule 19 portion of Defendant's motion for summary judgment and proceeds to the merits of the breach of contract claim.
III.
For a breach of contract claim, a plaintiff must establish that (1) a contact existed, (2) the defendant breached the contract, and (3) plaintiff suffered damages as a result of the breach. Zwiker v. Lake Superior State Univ., 340 Mich.App. 448, 986 N.W.2d 427, 443 (2022).
A.
The parties generally agree on the facts and the record establishes that no dispute of a material fact exists. During the relevant time period, Allen and Joan Schiefelbein and the Trust were the named insureds on a home insurance policy for the property at 67421 Crooked Creek Road in White Pigeon, Michigan (ECF No. 32-2 PageID.114-15). Defendant State Farm issued the policy (id.). Around August 11, 2021, a storm caused damage to the residence (See ECF No. 23-5 Damage Report PageID.186 — noting information from the National Weather Service about a storm on August 11). An inspector for a claims service retained by State Farm attests that the damage to the roof occurred as the result to two trees falling on the roof (ECF No. 23-4 Ottersen Aff. PageID.182). The roof of the house contains approximately 17 faces or slopes (ECF No. 23-5 PageID.192 Roof Diagram). The shingles on at least 5 (but fewer than 17) of the faces or slopes suffered some damage (id. PageID.185-87; see ECF No. 23-9 Hopkins Dep. at 22-23 PageID.211).
Following an inspection, State Farm agreed to pay for repairs to the damaged portions of the roof (ECF No. 23-3 Minter Aff. PageID.177). State Farm concluded that the terms of the policy did not require it to pay for a full roof replacement (id.).
Because Plaintiff contends that policy requires the entire roof to be replaced, Plaintiff sued Defendant for breach of contract.
Under Michigan law, the proper interpretation of an insurance policy is a question of law. Fed.-Mogul U.S. Asbestos Personal Injury Trust v. Continental Cas. Co., 666 F.3d 384, 387 (6th Cir. 2011); Citizens Ins. Co. v. Pro-Seal Serv. Group, Inc., 477 Mich. 75, 730 N.W.2d 682, 684-85 (2007). Courts treat insurance policies like any other contract. Bridging Cmtys., Inc. v. Hartford Cas. Ins. Co., 9 N.W.3d 92, 98-99 (Mich. Ct. App. Mar. 2, 2023). For insurance policy disputes, courts, "look to the language of the insurance policy and interpret the terms therein in accordance with Michigan's well-established principles of contract construction." Henderson v. State Farm Fire and Cas. Co., 460 Mich.
348, 596 N.W.2d 190, 193 (1999). The insured bears the burden of proving coverage. American Tooling Ctr., Inc. v. Travelers Cas. and Surety Co. of America, 895 F.3d 455, 459 (6th Cir. 2018) (citing Pioneer State Mut. Ins. Co. v. Dells, 301 Mich.App. 368, 836 N.W.2d 257, 263 (2013)).
When interpreting insurance policies, courts assign "the words in the contract their ordinary and plain meaning if such would be apparent to the reader of the instrument." Auto Owners Ins. Co. v. Seils, 310 Mich.App. 132, 871 N.W.2d 530, 539 (2015) (internal quotation marks omitted). Courts should construe the contract as a whole and give meaning to all of its terms. Id.
A contract is ambiguous when after considering the entire contract, its words may be understood in different ways. Thus, when a fair reading of the contract of insurance leads one to understand that there is coverage under particular circumstances and another fair reading of it leads one to understand that there is no coverage under the same circumstances, the contract is ambiguous.
Id. (cleaned up). That the parties disagree about the proper interpretation of a contract "does not, in itself, establish an ambiguity." Gortney v. Norfolk & Western Ry. Co., 216 Mich.App. 535, 549 N.W.2d 612, 615 (1996).
B.
With this guidance in mind, the Court turns to the language in the policy. In the "Property Coverages" portion of Section I, the policy states that it provides coverage for both the dwelling and other structures on the residential premise (ECF No. 32-2 PageID.140). The "Losses Insured" portion of Section I identifies what losses are covered for the property described in Coverage A (the dwelling).
COVERAGE A — DWELLING
1. Dwelling. We will pay for accidental direct physical loss to the property described in Coverage A, unless the loss is excluded or limited in SECTION I — LOSSES NOT INSURED or otherwise excluded or limited in this policy. However, loss does not include and we will not pay for, any diminution in value.
(Id. PageID.147). Subsection 2 provides coverage for other structures on the residential premises (id.). And, Subsection 3 describes "Property Not Covered" (id.). Plaintiff elected the "Replacement Costs — Similar Construction" option for the "Loss Settlement" portion of Section I (id. PageID.115). The Loss Settlement section contains the following description.
Only the Loss Settlement Provisions shown in the Declarations apply. We will settle covered property losses according to the following. However, the valuation of any covered property losses does not include, and we will not pay, any amount for diminution in value.
COVERAGE A — DWELLING
1. A1 — Replacement Cost Loss Settlement — Similar Construction
a. We will pay the cost to repair or replace with similar construction and for the same use on the premises as shown in the Declarations, the damaged part of the property covered under SECTION I — PROPERTY COVERAGES, COVERAGE A — DWELLING, except for wood fences, subject to the following: . . .
(Id. PageID.153) (underlining added). The policy defines "dwelling" as "the building structure on the residence premises used as the primary residence and includes structures attached to the dwelling" (id. PageID.137). The parties disagree about the proper interpretation of the underlined language: "the damaged part of the property." Plaintiff interprets the language to require repair or replacement of the entire roof. Plaintiff reasons that the part of the property that was damaged was the roof. Defendant interprets the word language to require it to repair or replace the only damage itself.
The policy language requires Defendant to pay for the cost of repairing or replacing the damage to the dwelling. The phrase "damaged part of the property" refers to the specific damage. Plaintiff's interpretation of the disputed phrase would require Defendant to repair or replace parts of the dwelling that did not suffer damage. "A court must not hold an insurance company liable for a risk it did not assume." Henderson, 596 N.W.2d at 193. More than half of the room's faces or slopes suffered no damage and Defendant is not obligated to pay to replace the undamaged faces or slopes. For the same reason, the Court concludes the disputed phrase is not ambiguous. Plaintiff's interpretation, which would require State Farm to replace undamaged faces or slopes on the roof, is not a fair reading of the policy.
The Sixth Circuit reached a similar conclusion about ten years ago in a lawsuit against State Farm involving the same policy language and damage to a wood shake roof. See Wright v. State Farm Fire and Cas. Co., 555 F. App'x 574 (6th Cir. 2014). The plaintiffs purchased a home in a golf-club development subject to deed restrictions enforced by a homeowners association. About two months after the plaintiffs moved in, a storm damaged the wood-shake roof and State Farm agreed to pay for the repairs minus the deductible but would not pay to replace the roof. Id. at 577. One of the deed restrictions on the house required that "[a]ny roof that needs repair must be re-roofed in entirety. Partial or patch roofing is not permitted." Id. at 576. The policy in that case, as is also true in this case, explicitly stated that it does not cover "increased costs result from enforcement of any ordinance or law regulating the construction, repair or demolition of a building or other structure, except as provided." Id. at 577. The court found that the "the policy unambiguously does not cover roof replacement." Id. at 578; see, e.g., Wilson v. State Farm Fire & Cas. Co., 799 F. Supp. 2d 829, 836 (E.D. Tenn. 2011) (involving the same policy language and a fire in the residence and the court found that the policy did not "require[] State Farm to replace parts of the home that were undamaged by the fire"); Pellegrino v. State Farm Fire and Cas. Co., No. 12-2065, 2013 WL 3878591, at *4 (E.D. Penn. July 29, 2013) (involving the same policy language and damage to a portion of a roof and the court found that "nowhere in the policy does it state that if only a portion of the property is damaged, and replacement of the damaged portion will not match the undamaged portion, State Farm will be obligated to replace the entire portion of that property").
Defendant has established that it did not breach the contract. The loss provision of the policy does not require Defendant to pay to replace the entire roof, which would include replacing both the damaged and the undamaged parts of the roof. The policy requires Defendant to pay to repair the damage to the roof. The policy language is not ambiguous.
The Court will grant the portion of Defendant's motion addressing the merits of the breach of contract claim.
IV.
The Court will grant in part and will deny in part Defendant State Farm's motion for summary judgment. The two
banks identified on the policy as mortgagees are not required parties under Rule 19 through the loss-payable provision. Allen Schiefelbein, as a named insured, is a required party under Rule 19(a), but he is not an indispensable party under Rule 19(b). Allen has agreed to be bound by this Court's judgment. Defendant has established that the policy requires it to pay to repair the damaged portions of the roof and does not require Defendant to pay to replace the roof. The relevant policy provision is not ambiguous. Plaintiff has not established a genuine issue of material fact for its breach of contract claim.
ORDER
For the reasons provided in the accompanying Opinion, the Court GRANTS IN PART AND DENIES IN PART Defendant's motion for summary judgment (ECF No. 23). The Court dismisses Plaintiff's breach of contract claim. The Court accepts Allen Schiefelbein's agreement to be bound by this Court's ruling on the breach of contract claim.
IT IS SO ORDERED.