Opinion
Civil Action No. 3: 04-CV-0278-B.
January 19, 2005
MEMORANDUM ORDER
Before the Court are Plaintiffs' Motion for Partial Summary Judgment on Issues of Insurance Coverage (doc. 20) and Defendant's Motion for Summary Judgment (doc. 17). Because Plaintiffs did not present evidence of a "necessary suspension of [their] `operations,'" the Court DENIES Plaintiffs' Motion and GRANTS Defendant's Motion on Plaintiffs' declaratory judgment claim regarding Policy coverage of the business slowdown allegedly experienced by Plaintiffs as a result of lost Yellow Pages advertising. The Court DENIES Defendant's Motion in all other respects and ORDERS the parties to submit, to the extent possible, a Joint Motion for Dismissal of any statutory claims that Plaintiffs will no longer pursue as a result of this Order. The Court will keep this case on the trial docket for February 7, 2005.
I. BACKGROUND FACTS
Unless otherwise noted, the background facts are undisputed by the parties and are taken from the evidence submitted by the parties. Plaintiff did not file an appendix as required by Local Rule 56.6; instead, Plaintiff filed a affidavits from Rodger Johnson and attached exhibits. While not approving of such practice, the Court will treat the affidavits as Plaintiff's appendices.
Plaintiffs purchased a Business Income Insurance Policy (the "Policy") from Defendant OneBeacon Lloyd's of Texas f/k/a CU Lloyd's of Texas ("Defendant"). The Policy provided, in part, as follows:
We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your "operations" during the "period of restoration." The suspension must be caused by direct physical loss of or damage to property at the premises described in the Declarations, including personal property in the open (or in a vehicle) within 100 feet, caused by or resulting from any Covered Cause of Loss.
(Def. App. p. 3)
During the Policy Period, Laban Toni Mmbololo ("Mmbololo"), an accounts payable clerk in Plaintiffs' Irving office, began embezzling money from Plaintiffs. Mmbololo accomplished this by issuing checks and transfers to himself in the amount equal to the invoices Plaintiffs received from vendors. Mmbololo then destroyed the invoices, which remained unpaid.
Plaintiffs discovered Mmbololo's embezzlement in January 2002; however, by that time, Mmbololo had destroyed several invoices for Plaintiffs' Yellow Pages directory advertising. (Johnson Aff. ¶ 6) In the following months, the Yellow Pages directory companies complained to Plaintiffs of unpaid past balances, demanded immediate payment, and required all future advertisements to be paid for up front. ( Id. at ¶ 7) According to Plaintiffs, The Original Apartment Movers, Inc.'s advertisement was moved 23 pages back in the Yellow Pages and was cut from a whole page to a half page. (Johnson Sec. Aff. ¶¶ 6-7) There was no evidence presented as to how the destruction of the Yellow Pages invoices affected any other Plaintiff. As a result of the problems with the Yellow Pages invoices, Plaintiffs allege they lost business.
Plaintiffs also refer to "Verizon yellow page advertising." (Johnson Sec. Aff. ¶ 6) For convenience, the Court will refer to all the telephone directory advertising as "Yellow Pages advertising."
Plaintiffs made a claim on the Policy with Defendant and delivered a proof of loss form to Defendant on May 1, 2002. (Johnson Aff. Ex. B) Defendant paid Plaintiffs $25,000 to cover the destruction of Plaintiffs' accounting records pursuant to a commercial property coverage extension. ( Id. at ¶ 11) On May 7, 2003, Defendant issued a "Declination of Coverage" letter regarding Plaintiff's claim for business interruption coverage under the Policy. (Johnson Aff. Ex. C) In that letter, Defendant asserted that Plaintiffs' business interruption claim was not covered because there was no "direct physical loss" or "necessary `suspension' of [Plaintiffs'] `operations.'" ( Id.) Defendant also denied certain other of Plaintiffs' claims under the employee dishonesty exception to the Policy. ( Id.)
Plaintiffs also made a separate claim for damages on an employee dishonesty policy issued by an unrelated insurer.
II. PROCEDURAL HISTORY
Plaintiffs filed suit against Defendant on January 12, 2004 in the 160th Judicial District Court of Dallas County, Texas. Plaintiffs' Petition included claims for declaratory judgment, breach of contract, and violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act. Defendant removed the case on February 10, 2004, based on diversity. The parties proceeded through discovery and have now filed summary judgment motions. Plaintiffs' Motion seeks only a declaration that the damages claimed are covered by the Policy. Plaintiffs then request to proceed to trial on the issues of liability regarding the statutory claims and amount of damages. Defendant seeks summary judgment on all of Plaintiffs' claims. The Court has reviewed the arguments and evidence presented by the parties and now turns to the merits of the decision.
III. ANALYSIS
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that, as a matter of law, the movant is entitled to judgment. Hart v. Hairston, 343 F.3d 762, 764 (5th Cir. 2003). In a motion for summary judgment, the burden is on the movant to prove that no genuine issue of material fact exists. Provident Life Accident Ins. Co. v. Goel, 274 F.3d 984, 991 (5th Cir. 2001). To determine whether a genuine issue exists for trial, the court must view all of the evidence in the light most favorable to the non-movant, and the evidence must be sufficient such that a reasonable jury could return a verdict for the non-movant. See Chaplin v. NationsCredit Corp., 307 F.3d 368, 371-72 (5th Cir. 2002).
A. Declaratory Judgment Claim Related to Yellow Pages Advertising
The central issue in the parties' motions is what is meant by "necessary suspension of your `operations'" as used in the Policy. Defendant contends that Plaintiffs must experience a complete cessation of business activities before the Policy applies and that the Policy is not triggered by a slowdown in business. (Def.'s Br. in Support of Mot. for Summ. J. p. 5) Plaintiffs argue that complete cessation is not necessary and a business slowdown is sufficient. (Br. in Supp. of Pls.' Mot. for Partial Summ. J. pp. 8-11) In support of their arguments, the parties have cited multiple cases to this Court, none of which are binding on it. Thus, the Court will consider them as persuasive authority only and make its own interpretation of the Policy.
In Texas, insurance policies are interpreted according to the rules of contract construction. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). If a policy is worded so that it can be given a definite or certain meaning, it is unambiguous and the court construes it as a matter of law. Id. at 157. If, however, the policy is ambiguous, its interpretation becomes a fact issue and extrinsic evidence may be considered. Id.; Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). An ambiguity is shown only if the contract language is susceptible to two or more reasonable meanings, not if the parties simply offer conflicting interpretations. Schaefer, 124 S.W.3d at 157.
After reviewing the Policy and the pertinent case law, the Court finds that it does not need to specifically decide whether a "necessary suspension of [Plaintiffs'] operations" requires a complete cessation or a partial cessation of operations. Rather, the Court finds the Policy is unambiguous in that a business slowdown is not sufficient to invoke coverage. A survey of relevant case law demonstrates that the "necessary suspension of `operations'" must come, not from a lack of customer demand, but of an inability to meet customer demand. In other words, if Plaintiffs are able to fully perform their operations, there is no "necessary suspension" simply because they do not have as much business as they once did.
For example, in Royal Indemnity Insurance Company v. Mikob Properties, Inc., a fire at an apartment complex made Building C uninhabitable, but did not affect the habitability of Buildings A and B. 940 F. Supp. 155, 156 (S.D. Tex. 1996). The complex owners made a claim on their business interruption policy after the occupancy in Buildings A and B dropped significantly. Id. The court, however, found that there was no "necessary suspension of operations" in Buildings A and B because those buildings were still operating, even if not fully occupied. Id. at 160 (stating that the business interruption clause did not cover a decrease in income). Similarly, in Buxbaum v. Aetna Life and Casualty Company, the court did not permit recovery under a business interruption policy because although one law office was flooded, the attorneys could have continued their operations at their other office. 126 Cal. Rptr. 2d 682, 692 (Cal.Ct.App. 2002).
A reference to a "business interruption policy" in this opinion refers to an insurance policy worded identically or substantially similar to the Policy at issue in this case.
In American Medical Imaging Corporation v. St. Paul Fire and Marine Insurance Company, a case cited by Plaintiffs, the court permitted recovery under a business interruption policy. 949 F.2d 690 (3d Cir. 1991). In that case, however, evidence was presented that a fire made use of the insured's facilities impossible, and the temporary location did not provide enough telephone lines. Id. at 691. Thus, the insured could not perform its operations to the extent it had been able to prior to the fire. See id. at 691-92 (noting that business interruption policy in that case covered necessary or potential suspension[s]" (emphasis added)). Other cases from across the county demonstrate that a business slowdown is not sufficient to invoke coverage under a business interruption policy. See, e.g., Ramada Inn Ramogreen, Inc. v. Travelers Indem. Co. of Am., 835 F.2d 812 (11th Cir. 1988) (denying recovery to hotel under business interruption policy when fire damaged nearby restaurant and hotel business slowed but hotel remained operational); Nat'l Children's Expositions Corp. v. Anchor Ins. Co., 279 F.2d 428 (2d Cir. 1960) (denying recovery under business interruption policy when snowstorm decreased number of customers at exposition, but facilities remained operational); Ketch v. Mutual of Enumclaw Ins. Co., 831 P.2d 784 (Wash.Ct.App. 1992) (denying recovery to motel under business interruption policy after Mount St. Helens erupted and business slowed but motel continued to operate).
Thus, while the Court does not express an opinion on whether a complete cessation of business is required before the policy goes into effect, the Court finds that Plaintiffs have not presented evidence that they were unable to perform their operations, and, thus, that there was a "necessary suspension of operations." The only evidence submitted by Plaintiffs was that The Original Apartment Movers, Inc. experienced a slowdown in business, and there was no evidence that Plaintiffs were in any way prevented from carrying on with their operations. Therefore, the Court DENIES Plaintiff's Motion and GRANTS Defendant's Motion on Plaintiffs' declaratory judgment claim regarding Policy coverage of the business slowdown allegedly experienced by Plaintiffs as a result of the lost Yellow Pages advertising.
B. Statutory Claims
Plaintiffs' Petition also seeks relief for numerous statutory violations under the Texas Insurance Code and the Texas Deceptive Trade Practices Act. The Court's decision that the Policy does not cover Plaintiffs' business slowdown will likely eliminate some, but not necessarily all, of Plaintiffs' statutory claims. However, neither party specifically identified what evidence supports which claims and which claims are now without evidence. Therefore, the Court DENIES Defendant's Motion regarding Plaintiffs' statutory claims and ORDERS the parties to confer and, to the extent agreement is possible, submit a Joint Motion for Dismissal of any statutory claims that Plaintiffs can no longer bring in good faith. See FED. R CIV. P. 11. Any Joint Motion for Dismissal should be presented to the Court prior to the pretrial conference in this case.
C. Other Claims
Finally, Plaintiffs seek declaratory judgment and recovery for statutory violations for their alleged losses "as outlined in [Plaintiffs'] claims submitted to OneBeacon." (Pls.' Pet. ¶ 4(B)) Plaintiffs' claim form submitted to OneBeacon listed seven categories of losses, of which Plaintiffs' business interruption claim related to the Yellow Pages was only one. (Johnson Aff. Ex. B) Thus, there are six categories of damages sought in Plaintiffs' claim to OneBeacon that are not addressed by either party's summary judgment motion. These claims shall be heard at trial, set for February 7, 2005.