Opinion
3:22-CV-00239-DCLC-DCP
03-17-2023
Yajing LIU, et al., Plaintiffs/Counter-Defendants., v. ROCK RIDGE INS. CO., Defendant/Counter-Plaintiff.
Clinton H. Scott, McWherter Scott & Bobbitt PLC, Jackson, TN, Jonathan L. Bobbitt, Nancy Rankin Steer, J. Brandon McWherter, McWherter Scott & Bobbitt PLC, Franklin, TN, for Plaintiffs/Counter-Defendants. Kenneth W. Ward, Elijah Thomas Settlemyre, Trammell, Adkins & Ward, PC, Knoxville, TN, for Defendant/Counter-Plaintiff.
Clinton H. Scott, McWherter Scott & Bobbitt PLC, Jackson, TN, Jonathan L. Bobbitt, Nancy Rankin Steer, J. Brandon McWherter, McWherter Scott & Bobbitt PLC, Franklin, TN, for Plaintiffs/Counter-Defendants. Kenneth W. Ward, Elijah Thomas Settlemyre, Trammell, Adkins & Ward, PC, Knoxville, TN, for Defendant/Counter-Plaintiff.
ORDER
Clifton L. Corker, United States District Judge
The parties present the Court with a deceptively simple question: what does their insurance policy mean? Plaintiffs Yajing Liu and Erming Tuo contend that their insurance policy allows them to recover $5 million for the total loss of their cabin because their policy is a "valued policy" under Tennessee law. Defendant Rock Ridge Insurance Company, unsurprisingly, disagrees with Plaintiffs' valuation and maintains that Plaintiffs are entitled to recover only the cost to repair or replace their cabin.
Both parties now move for partial judgment on the pleadings as to this issue, and each party has responded to the other's motion [Docs. 32, 34, 36]. This matter is now ripe for resolution. Because the insurance policy sets $5 million as the limit of coverage only and not the actual value of Liu's and Tuo's cabin, the policy is not a "valued policy" under Tennessee law. Accordingly, Defendant's Motion for Partial Judgment on the Pleadings [Doc. 34] is GRANTED, and Plaintiffs' Motion [Doc. 32] is DENIED.
I. BACKGROUND
On March 30, 2022, a wildfire destroyed Liu's and Tuo's cabin in Sevierville, Tennessee [Docs. 29, ¶¶ 1, 12; 30, pg. 3, ¶ 12]. Liu and Tuo insured their cabin with Openly, Inc., and Rock Ridge underwrote the insurance policy ("the Policy") [Doc. 1-1, pg. 1]. The Policy provided coverage for property damage and loss to Liu's and Tuo's cabin and other properties on the same parcel of land [See generally id.]. In relevant part, the "Homeowner Declaration Page" of the Policy noted that the coverage period ran from May 20, 2021, to May 20, 2022, and Liu and Tuo paid $1,579.19 as their policy premium for coverage [Id., pg. 2]. The "Section I Coverage Limits" on that same page stated Rock Ridge would provide "[g]uaranteed replacement up to $5 million" for buildings in Coverage A, which included Liu's and Tuo's cabin [Id.] (emphasis added). Liu and Tuo executed an Endorsement to the Policy that provides:
Openly, Inc., is a "Managing General Agency that manages a homeowners insurance program underwritten by Rock Ridge Insurance Company." [Doc. 1-1, pg. 1].
Rock Ridge disputes Liu's and Tuo's ownership of the cabin because the property was deeded to "The Erming Tuo and Yajing Liu Revocable Trust" rather than Liu and Tuo individually [Doc. 30, pgs. 18, ¶ 5; 26-27, ¶¶ 38-46]. But that dispute is not relevant to the issue presented in the parties' instant motions for partial judgment on the pleadings, and the Court makes no findings as to who owns the cabin.
2. Covered property losses are settled as follows:
a. Buildings under Coverage A or B at replacement cost at time of loss without deduction for depreciation. In case of a total loss, [Rock Ridge] will pay this amount whether or not [Liu and Tuo] choose to rebuild. However, settlement is subject to the following conditions:
[Id., pg. 35] (emphasis added). At the time of the wildfire in March 2022, "the Policy had been in place for more than ninety (90) days, having been in full force and effect since May 20, 2021." [Docs. 29, ¶ 20; 30, pg. 5, ¶ 20].(1) The most we will pay is :
(a) For Structures covered under Coverage A: $5 million.
(b) For Structures covered under Coverage B: The limit of liability that applies to Coverage B and is shown in the Declarations.
The Policy also included a provision governing the process for appraisals in the event of a loss [Doc. 1-1, pg. 20]. That provision stated that if the parties disagreed on the amount of loss, each party would select an appraiser, and the two appraisers would select an umpire [Id.]. The appraisers and umpire would then work together to set the amount of loss [Id.].
After the March 2022 wildfire, Liu and Tuo reported their cabin's loss to Rock Ridge [Docs. 29, ¶ 24; 30, pg. 6, ¶ 24]. Liu and Tuo demanded payment of $5,423,000.00 [Docs. 29, ¶ 24; 30, pg. 6, ¶ 24]. Rock Ridge initially acknowledged the loss was covered under the Policy but disagreed with the amount of Liu's and Tuo's demand [Docs. 29, ¶ 28; 30, pg. 7, ¶ 28]. Instead, Rock Ridge issued a payment for $517,983.55, based on its own estimate of the cabin's replacement cost [Docs. 29, ¶ 33; 30, pg. 8, ¶ 33]. Liu and Tuo subsequently sent four letters to Rock Ridge, explaining their disagreement with Rock Ridge's valuation of the amount owed under the Policy and requesting payment of the replacement cost plus $5 million [Docs. 29, ¶¶ 35-42; 30, pgs. 8-10, ¶¶ 35-42]. Rock Ridge did not respond to any of their letters [Docs. 29, ¶¶ 35-42; 30, pgs. 8-10, ¶¶ 35-42]. Liu and Tuo then filed the instant lawsuit to recover the $5 million they believe they are owed under the Policy [Doc. 1].
In their First Amended Complaint, Liu and Tuo assert claims for breach of contract by Rock Ridge, declaratory judgment setting out their rights under the Policy, and statutory bad faith by Rock Ridge [Doc. 29]. Rock Ridge, in response, files a Counter-Complaint against Liu and Tuo, alleging claims of breach of contract, misrepresentation under Tennessee law, declaratory judgment setting out its obligations under the Policy, and statutory bad faith [Doc. 30]. Both parties now move for partial judgment on the pleadings [Docs. 32, 34]. Liu and Tuo ask the Court to conclude that the Policy is a "valued policy" under Tennessee law, and Rock Ridge asks that the Court determine the Policy, instead, is an "open policy" under which it must only pay Liu and Tuo the replacement cost of their cabin [Docs. 32, pg. 2; 34, pg. 2]. This matter is now ripe for resolution.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 12(c) provides that "[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). The Court applies the same standard for a motion to dismiss under Rule 12(b)(6) to a motion for judgment on the pleadings under Rule 12(c). Roger Miller Music, Inc. v. Sony/ATV Publishing, LLC, 477 F.3d 383, 389 (6th Cir. 2007). "For purposes of a motion for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment." S. Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 478, 480 (6th Cir. 1973). But the Court "need not accept as true legal conclusions or unwarranted factual inferences." Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999). A Rule 12(c) motion "is granted when no material issue of fact exists and the party making the motion is entitled to judgment as a matter of law." Paskvan v. City of Cleveland Civil Serv. Comm'n, 946 F.2d 1233, 1235 (6th Cir. 1991).
"A federal court sitting in diversity applies the substantive law of the state in which it sits." Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 566 (6th Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). Tennessee law presumes a contract is governed by the "law of the jurisdiction in which it was executed absent a contrary intent." Carbon Processing & Reclamation, LLC v. Valero Mktg. & Supply Co., 823 F. Supp. 2d 786, 801 (W.D. Tenn. 2011) (citing Se. Tex. Inns Inc. v. Prime Hosp. Corp., 462 F.3d 666, 672 (6th Cir. 2006) (applying Tennessee law); Ohio Cas. Ins. Co. v. Travelers Indem. Co., 493 S.W.2d 465, 467 (Tenn. 1973)). Here, the Court will apply Tennessee substantive law because the Policy was executed in Tennessee, and there is no evidence of a contrary intent in the contract.
III. ANALYSIS
Black's Law Dictionary defines a "valued-policy law" as a "statute requiring insurance companies to pay the full amount of the insurance to the insured in the event of a total loss, regardless of the true value of the property at the time of the loss." Valued-Policy Law, Black's Law Dictionary (11th ed. 2019). Tennessee created its valued-policy law by enacting three statutes relating to fire insurance. Tenn. Code Ann. §§ 56-7-801, -802, -803. Under Tennessee's scheme, insurance agents must inspect a building or structure within 90 days of executing "any contract of fire insurance" covering the same. Id. § 56-7-801(a). If a building insured against loss by fire is totally destroyed by fire, the insurance company will not be liable beyond the actual value of the property at the time of the total loss. Id. § 56-7-802. Importantly,
[i]f the [insurance company] . . . fails to place a reasonable value on any insured property within the ninety-day period provided in § 56-7-801, and that is agreed to by the insured, and a loss occurs, then the value as shown by the policy or application is conclusively presumed to be reasonable, and settlement shall be made on that basis.
Id. § 56-7-803. Tennessee enacted these laws " 'to protect insureds from being subjected to the insurer's argument that the building had been over insured and gives the insurer an incentive to inspect risks and assist insureds in establishing proper insurance evaluations.' " Brayfield v. Kentucky Nat. Ins. Co., No. 01A01-9701-CV-00007, 1998 WL 670389, at *4 (Tenn. Ct. App. Sep. 30, 1998) (quoting Third Nat'l Bank v. American Equitable Ins. Co., 27 Tenn.App. 249, 178 S.W.2d 915, 924, 926 (1943)). Because these laws are remedial, Tennessee courts construe them liberally in furtherance of their purpose. Id.
As an initial matter, the parties do not dispute that at the time of the cabin's loss, the Policy had been in effect for more than 90 days [Docs. 29, ¶¶ 6, 20; 30, pg. 2, ¶ 6, pg. 5, ¶ 20]. Moreover, the parties do not dispute either that the March 2022 wildfire totally destroyed Liu's and Tuo's cabin or that the Policy attached to Liu's and Tuo's initial Complaint is an accurate copy of the policy in effect at the time of loss [Docs. 29, ¶¶ 1, 12; 30, pg. 3, ¶ 12]. The only issue the Court must address is whether the Policy's terms make it a valued or open policy under Tennessee law.
The Court's analysis begins with the Policy's language. "In general, courts should construe insurance contracts in the same manner as any other contract." Am. Just. Ins. Reciprocal v. Hutchinson, 15 S.W.3d 811, 814 (Tenn. 2000). "The language of the policy must be taken and understood in its plain, ordinary, and popular sense." Id. (citing Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn. 1975)). In Tennessee, the guiding principle of contract interpretation "is to ascertain and give effect to the intent of the parties." Clark v. Sputniks, LLC, 368 S.W.3d 431, 441 (Tenn. 2012).
Liu and Tuo argue that the plain language of the Policy demonstrates that it is a "valued policy" under Tennessee law [Doc. 33, pg. 7]. Liu and Tuo note that the Policy "expressly sets the limit of insurance coverage" at $5 million [Id.]. According to them, the $5 million limit establishes that "the value was agreed upon within the Policy." [Id.]. Liu and Tuo assert that Rock Ridge's admissions that the Policy had been in effect for more than 90 days at the time of the loss, the March 2022 wildfire destroyed the cabin, and the Policy filed with Liu and Tuo's initial Complaint was a true and correct copy establish they are entitled to partial judgment on the pleadings [Id., pg. 8].
Rock Ridge responds that the language in the Policy's Homeowner Application, Homeowner Declaration Page, and Endorsement support its interpretation that the Policy is an open, replacement cost, insurance policy [Doc. 35, pg. 12]. It contends that the Endorsement specifies that "the amount paid is the replacement cost without deduction for depreciation including in the event of a total loss[.]" [Id., pg. 17]. Rock Ridge also notes that the Policy includes a provision on appraisals, indicating that the parties understood the Policy as covering the replacement cost of the cabin [Id.]. It argues that the parties agreed the replacement cost would be "capped at $5,000,000.00;" that agreed cap was the maximum Rock Ridge would pay for replacement of the cabin [Id., pgs. 17-18]. Rock Ridge claims the cap was not an agreement that the actual value of the cabin was $5,000,000.00 [Id.]. Rock Ridge asserts that because the Policy does not fix a value for the cabin, the Policy "is an open policy that leaves the amount of recovery uncertain up to a policy limit." [Id., pg. 18].
Liu and Tuo reply that the Endorsement states that "[i]n case of a total loss [Rock Ridge] will pay this amount whether or not you choose to rebuild . . . (a) For Structures covered under Coverage A: $5 million." [Doc. 36, pg. 6] (emphasis omitted). Liu and Tuo contend that the Declaration's limit of "[g]uaranteed replacement up to $5 Million" is a "distinction without a difference" because all policy limits are "up to" a specified amount [Id.]. Liu and Tuo concede that the Endorsement governs and does not include the "up to" language from the Declaration [Id., pg. 7].
Only a few Tennessee courts have addressed the statutes at issue here. In most of those cases, the circumstances clearly showed whether an insurance policy was open or valued. See, e.g., Brayfield, 1998 WL 670389, at *4 (discussing only whether Tennessee's valued-policy law applied to an insurance policy where the parties disputed the extent of loss to the insured property); Transamerica Ins. Co. v. Koonce, 1986 WL 5246, at *3 (Tenn. Ct. App. May 6, 1986) (concluding an insurance policy was an open policy because the insured property was totally destroyed within the 90-day inspection period). But a decision from the Sixth Circuit the year before Tennessee enacted its valued-policy laws proves instructive.
In Stuyvesant Ins. Co. v. Jacksonville Oil Mill, the Sixth Circuit addressed a dispute between two insurance companies and a cotton seed oil mill that was totally destroyed by fire. 10 F.2d 54, 54-55 (6th Cir. 1926). The two insurance companies issued similar policies to the oil mill except that one was "for an amount not exceeding $10,000 and the other for an amount not exceeding $13,400." Id. at 54. The district court found that the polices were valued policies and directed a verdict for the oil mill for the full amount of the policies. Id. On appeal, the Sixth Circuit considered "whether the[ ] policies, when correctly construed, are open or valued policies." Id. at 55.
The court reasoned that in every case to consider the question above, "the amount of liability of the insurance company was either definitely fixed or required merely a mathematical computation for its determination." Id. The Sixth Circuit concluded that the policies were open rather than valued. Id. at 55-56. In reaching that conclusion, the court looked to the language of the policies and noted that "[t]he term 'not exceeding' is of frequent use, and, in the absence of qualification, is usually, if not always, one of limitations only." Id. at 56. The Sixth Circuit stated that "not exceeding" "necessarily mean[s] that the liability of the insurer shall not be more, but may be less, than the amount stated." Id. "In other words, the term 'not exceeding' in a policy of insurance denotes that uncertainty of amount which is the chief characteristic distinguishing an open from a valued policy." Id. The Sixth Circuit determined that the amount of insurance was referenced three times in the policies and that "in each instance [was] preceded by the words 'not exceeding.' " Id. Although the court noted that the phrase "not exceeding" was common to both open and valued policies, interpreting the policies at issue in that case as valued policies would require the court to read "not exceeding" counter to other provisions in the policies. Id. The Sixth Circuit stated that "[a]ny other construction [to label the policies as valued policies] does violence to the plain and unambiguous language." Id.
Liu and Tuo also argue that Stuyvesant Ins. Co. does not apply to the issue presented in this matter because it was decided before Tennessee enacted its valued-policy laws [Doc. 36, pg. 11]. They contend that those laws now mandate insurers pay the amount set in a valued policy, rendering the Sixth Circuit's analysis in that case irrelevant to the issue here [Id.]. But before determining whether Rock Ridge must pay Liu and Tuo $5 million, the Court must find whether the Policy is a valued policy in the first instance. On that point, Stuyvesant Ins. Co. remains valid and helpful to the Court. Liu and Tuo point to nothing other than the age of Stuyvesant Ins. Co. to argue it is inapplicable. They do not contend, for instance, Tennessee's valued-policy laws changed the method of analysis courts use to determine whether an insurance policy is valued or open. Without more, the mere age of a relevant authority will not disqualify its application to an issue before the Court.
More recent sources appear to follow the Sixth Circuit's analysis in Stuyvesant Ins. Co. For example, Black's Law Dictionary defines a valued policy as an "insurance policy in which the sum to be paid when a loss occurs is fixed by the terms of the contract. The value agreed on is conclusive for a total loss . . . . This value is in the nature of liquidated damages." Valued Policy, Black's Law Dictionary (11th ed. 2019) (emphasis added); see also Palatine Ins. Co. v. E.K. Hardison Seed Co., 42 Tenn.App. 388, 303 S.W.2d 742, 747 (1957) (defining a valued policy as "one where the value of the subject matter is agreed upon"). One popular treatise on insurance law notes that "[a]n amount stated in the policy as the amount of the insurance or the maximum amount of recovery does not, in itself, constitute or make the policy a valued policy so as to entitle the insured to recover the specified amount in case of an actual or constructive total loss." Steven Plitt et al., Couch on Insurance § 175:98 (3d ed. 2022). That treatise further explains that when a policy provides a limit to coverage, the "amount in the policy is not prima facie evidence of the extent of loss and is not a substantive measure of damages but only a limitation upon what might be otherwise recovered under the terms of the policy." Id. "Stated otherwise, an open or unvalued policy is one in which the value of the subject matter is not fixed by the policy but the amount of liability is left open to be determined according to the actual loss." Id.
Here, Liu's and Tuo's interpretation of the Policy does not conform to the Policy's plain language. Liu and Tuo concede that the Endorsement governs the Policy [Doc. 36, pg. 7]. The Endorsement states that "[c]overed property losses are settled . . . at replacement cost at time of loss" for buildings under Coverage A, which applies to Liu's and Tuo's cabin [Doc. 1-1, pg. 35] (emphasis added). The Endorsement then conditions settlements at replacement cost by stating that "settlement is subject to the following condition: [t]he most [Rock Ridge] will pay" for buildings in Coverage A is $5 million [Id.]. Stated differently, Rock Ridge will pay Liu and Tuo for the cost to replace their cabin at the time the loss occurred, so long as that cost does not exceed $5 million.
Indeed, the Policy emphasizes that the limit of insurance on the cabin is $5 million. The limit of $5 million for the cabin appears only twice in the Policy, and both times the $5 million figure is preceded by language showing its function as a limit rather than a definite value for the cabin [Id., pgs. 2, 35]. Liu and Tuo admit as much by identifying the $5 million figure as a "limit" throughout their briefing on this issue as well [Docs. 33, pgs. 2, 7-8, 10; 36, pgs. 14, 16, 18]. For example, the first appearance of the $5 million figure is on the Homeowner Declaration Page where the Policy sets the coverage limit for the cabin as "[g]uaranteed replacement up to $5 million[.]" [Doc. 1-1, pg. 2] (emphasis added). The next time the $5 million figure appears is in the Endorsement, which states that "settlement is subject to the [ ] condition[ ]" that "[t]he most [Rock Ridge] will pay" is $5 million [Id., pg. 35] (emphasis added). "An amount stated in the policy as the amount of the insurance or the maximum amount of recovery does not, in itself, constitute or make the policy a valued policy." Steven Plitt et al., Couch on Insurance § 175:98 (3d ed. 2022); see also Stuyvesant Ins. Co., 10 F.2d at 55-56. The use of the $5 million figure in the Policy sets the maximum amount of recovery by Liu and Tuo but does not set the value of the cabin as $5 million.
The Endorsement also does not support Liu's and Tuo's interpretation. Although the Endorsement to the Policy shows the $5 million figure separate from any limiting language, the $5 million figure follows after the clear limitation in the line above, which states that $5 million is "[t]he most [Rock Ridge] will pay[.]" [Id.]. Liu's and Tuo's reliance on that out-of-context portion of the Endorsement as establishing the value of the cabin confuses the meaning of other sections in the Policy. To be sure, Liu's and Tuo's reading would render the appraisal provision of the Policy inoperable in the context of a total loss, even though the appraisal process applies in both partial and total loss scenarios [Id., pg. 20]. The Court must read the Policy in such a way as to give effect to all provisions in it harmoniously. Cummings Inc. v. Dorgan, 320 S.W.3d 316, 333 (Tenn. Ct. App. 2009) ("All provisions of a contract should be construed in harmony with each other so as to give effect to each provision."). Liu's and Tuo's suggested reading would "do violence" to the other provisions in the Policy, such as by obviating the need for an appraisal in the event of a total loss. Stuyvesant Ins. Co., 10 F.2d at 55-56.
Accordingly, the Policy that Liu and Tuo executed with Rock Ridge is an open policy and not a valued policy under Tennessee law. Because the Court does not consider any evidence outside of the pleadings and briefing, it need not address Rock Ridge's alternative argument to convert the parties' motions to motions for partial summary judgment.
Rock Ridge attaches several exhibits to its motion for partial judgment on the pleadings and asks, in the alternative, to convert the parties' motions to motions for partial summary judgment to allow further discovery on this issue [Docs. 35, pg. 20; 35-1, pgs. 1-10]. Liu and Tuo argue that if the Court converts the instant motions to motions for partial summary judgment, the evidence of Rock Ridge's revised endorsement forms and advertising materials would be relevant [Doc. 36, pgs. 13-18]. Because the Court does not convert the parties' motions to motions for partial summary judgment, it does not consider the parties' extrinsic evidence.
IV. CONCLUSION
For the reasons stated herein, Defendant's Motion for Partial Judgment on the Pleadings [Doc. 34] is GRANTED. Plaintiffs' Motion [Doc. 32] is DENIED. The Policy between the parties concerning Liu's and Tuo's cabin is an open policy under Tennessee law.
SO ORDERED.