Bismarck Park Avenue Properties, L.L.P. v. Owners Insurance Company

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
Bismarck Park Avenue Properties, LLP, )
) ORDER GRANTING
Plaintiff, ) DEFENDANT’S MOTION FOR
) SUMMARY JUDGMENT
vs. )
) Case No. 1:21-cv-165
Owners Insurance Company, )
)
Defendant. )
___________________________________ )
)
Park Avenue Business Condo )
Association, LLP, )
)
Plaintiff, )
) Case No. 1:21-cv-175
vs. )
)
Owners Insurance Company, )
)
Defendant. )
___________________________________ )
)
B & C Properties, LLP, )
)
Plaintiff, )
) Case No. 1:21-cv-187
vs. )
)
Owners Insurance Company, )
)
Defendant. )
Before the Court is the Defendant’s motion for summary judgment filed on December 1,
2022.1 See Doc. No. 21. Plaintiff Bismarck Park Avenue Properties, LLP (“BPAP”) filed a
response in opposition to the motion on January 26, 2023. See Doc. No. 34. The Defendant filed
1 The Defendant also moved for summary judgment against B & C Properties, LLP and Park Avenue Business
Condo Association, LLP. See Doc. Nos. 37 and 42. The Court will address those motions in separate orders.
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a reply on February 10, 2023. See Doc. No. 45. For the reasons set forth below, the motion is
granted.
I. BACKGROUND
Bismarck Park Avenue Properties, LLP owns commercial buildings (“the buildings”) with
the following addresses in Bismarck, North Dakota: 1236 Park Avenue; 1309 Park Avenue; 1351
Park Avenue; 1421 East Main; 1323 Republic Street unit L; and 1323 Republic Street unit M.
Owners Insurance Company (“Owners”) is a Michigan insurance company with its principal place
of business in Lansing, Michigan. BPAP is the named insured under Policy No. 064608-77047088-
18 (“the policy”) which is issued by Owners and covers the buildings.
BPAP alleges the buildings sustained damaged from a hailstorm on August 25, 2019.
BPAP filed a claim with Owners under the policy. Owners issued payments to BPAP for actual
cash value in the amounts of $53,553.44 issued on September 27, 2019, $88,828.62 issued on
March 31, 2020, and $54,779.35 issued on July 9, 2020. See Doc. 24-4. On August 13, 2020,
Owners issued a supplemental payment of $7,287.91 pursuant to a revised estimate. Id. The total
amount of payments issued to BPAP for the actual cash value was $204,449.32. Owners
determined the cash value owed to the Association by deducting deprecation and the Association’s
deductible from the replacement cost value. BPAP put the payments in escrow and to date the
funds have not been used for any repairs.
On July 23, 2021, BPAP brought claims against Owners in state court for breach of contract
and bad faith and unfair claims practices. On August 11, 2021, Owners removed the action to
federal court on the basis of diversity jurisdiction.2 BPAP alleges Owners breached its contract
2 Upon review of the Plaintiff’s Rule 7.1 Corporate Disclosure Statement the Court is satisfied that the parties are
diverse. See Doc. No. 53.
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with BPAP by paying actual cash value rather than replacement cost for the damages the hailstorm
caused to the buildings. BPAP further alleges Owners breached an implied covenant of good faith
and fair dealing by acting unreasonably in handling BPAP’s claim. BPAP also seeks a declaratory
judgment that Owners is obligated under the policy to pay replacement cost for the damaged
components of the buildings. On January 18, 2023, pursuant to the parties’ stipulation (Doc. No.
27) the Court issued an Order (Doc. No. 32) consolidating BPAP’s action against Owners with
two other actions involving similar claims other parties brought against Owners. Owners filed the
instant motion for summary judgment on December 1, 2022. The motion has been fully briefed
and is ripe for disposition.
II. STANDARD OF REVIEW
Summary judgment is appropriate when the evidence, viewed in a light most favorable to
the non-moving party, indicates no genuine issues of material fact exist and that the moving party
is entitled to judgment as a matter of law. Davison v. City of Minneapolis, Minn., 490 F.3d 648,
654 (8th Cir. 2007); see Fed. R. Civ. P. 56(a). Summary judgment is not appropriate if there are
factual disputes that may affect the outcome of the case under the applicable substantive law.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is genuine if
the evidence would allow a reasonable jury to return a verdict for the non-moving party. Id. The
purpose of summary judgment is to assess the evidence and determine if a trial is genuinely
necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The court must inquire whether the evidence presents a sufficient disagreement to require
the submission of the case to a jury or whether the evidence is so one-sided that one party must
prevail as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir.
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2005). The moving party bears the responsibility of informing the court of the basis for the motion
and identifying the portions of the record which demonstrate the absence of a genuine issue of
material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011). The non-
moving party may not rely merely on allegations or denials in its own pleading; rather, its response
must set out specific facts showing a genuine issue for trial. Id.; Fed. R. Civ. P. 56(c)(1). The court
must consider the substantive standard of proof when ruling on a motion for summary judgment.
Anderson, 477 U.S. at 252. If the record taken as a whole and viewed in a light most favorable to
the non-moving party could not lead a rational trier of fact to find for the non-moving party, there
is no genuine issue for trial and summary judgment is appropriate. Matsushita, 475 U.S. at 587.
III. LEGAL DISCUSSION
In its motion for summary judgment Owners contends BPAP cannot prove Owners
breached its obligations under the policy or that it acted in bad faith by withholding replacement
cost because BPAP failed to comply with the policy’s repair or replace prerequisite. BPAP argues
Owners prevented it from completing the condition precedent by directing BPAP to have the price
approved before completing the repairs.
A. BREACH OF CONTRACT
1. Repair or Replace Prerequisite
Because the jurisdictional basis for this action is based on diversity of citizenship, the Court
must apply the substantive law of North Dakota. See Atkinson v. McLaughlin, 462 F. Supp. 2d
1038, 1047 (D.N.D. 2006). Under North Dakota law, “[t]erms of an insurance policy are given
their ordinary, usual and commonly accepted meaning. An ambiguity exists when good arguments
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can be made for two contrary positions about the meaning of a term in a document.” Ctr. Mut. Ins.
Co. v. Thompson, 2000 ND 192, ¶ 14, 618 N.W.2d 505 (citations omitted).
The relevant provision of BPAP’s policy with Owners provides:
3. Replacement Cost
a. Replacement Cost (without deduction for depreciation) replaces
Actual Cash Value in the Valuation Loss Condition of this Coverage
Form.
…
c. You may make a claim for loss or damage covered by this insurance
on an actual cash value basis instead of on a replacement cost basis. In
the event you elect to have loss or damage settled on an actual cash
value basis, you may still make a claim you may still make a claim for
the additional coverage this Optional Coverage provides if you notify
us of your intent to do so within 180 days after the loss or damage.
d. We will not pay on a replacement cost basis for any loss or damage:
(1) Until the lost or damaged property is actually
repaired or replaced; and
(2) Unless the repairs or replacement are made as soon as
reasonably possible after the loss or damage.
…
e. We will not pay more for loss or damage on a replacement cost basis
than the least of (1), (2) or (3), subject to f. below:
(1) The Limit of Insurance applicable to the lost or damaged
property;
(2) The cost to replace the lost or damaged property with other
property:
a. Of comparable material and quality; and
b. Used for the same purpose; or
(3) The amount actually spent that is necessary to repair or replace
the damaged property.
See Doc. No. 24-3, pp. 83-84.
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The repair or replace provision of the policy is unambiguous. The clear language of the
policy requires BPAP to repair or replace damaged property before Owners will pay replacement
cost. If BPAP does not repair or replace the damaged property it is only entitled to actual cash
value under the policy. Almost identical language has been interpreted to condition replacement
cost recovery on the insured actually repairing or replacing the property. See Vakas v. Hartford
Cas. Ins. Co., 361 F. App'x 1 (10th Cir. 2010) (holding the insured was only entitled to actual cash
value because the insured failed to comply with the unambiguous repair or replace prerequisite in
the policy and implicitly elected the actual cash value payment option by not repairing or replacing
the damaged property).
Here, the parties do not dispute the meaning of the repair and replace prerequisite. Scott
Beierle, who testified on behalf of BPAP, testified that he was aware the policy requires BPAP to
repair or replace any damaged parts of the buildings before Owners will pay replacement cost. See
Doc. No. 24-2, p. 16. Additionally, Beierle testified that he is not aware of any other terms or
provisions in the policy that would create any different obligation on Owners to pay replacement
cost coverage benefits other than the repair and replace prerequisite. Id. at p. 17. BPAP does not
cite any legal authority holding that an insurance company’s liability for replacement cost arises
before the repair or replacement has been completed when the policy contains a repair or replace
prerequisite.
The only damaged property BPAP allegedly repaired was the roof of 1323 Republic Street
until L. Owners argues summary judgment is appropriate with respect to the 1323 Republic Street
until L roof repair because BPAP did not comply with its obligations outlined in the policy. The
relevant provision of BPAP’s policy with Owners provides:
3. Duties in the Event of Loss or Damage
a. You must see that the following are done in the event of loss or damage
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to Covered Property:
…
(5) At our request, give us complete inventories of the damaged and
undamaged property. Include quantities, costs, values and amount of
loss claimed.
(6) As often as may be reasonably required, permit us to inspect the
property proving the loss or damage and examine our books and records.
Also permit us to take samples of damaged and undamaged property for
inspection, testing and analysis, and permit us to make copies from your
books and records.
(7) Send us a signed, sworn proof of loss containing the information we
request to investigate the claim. You must do this within 60 days after
our request. We will supply you with the necessary forms.
(8) Cooperate with us in the investigation or settlement of the claim.
See Doc. No. 24-3, p. 79.
Owners requested BPAP provide documentation several times. First, Owners sent BPAP a
letter on February 6, 2020, stating “The replacement cost provision in your policy requires you to
notify us within 180 days after the loss of your decision to make a further claim for the replacement
cost. To receive the payment, please submit an itemized invoice, photos of repaired property and
other documentation we may further request.” See Doc. No. 24-6. Similarly, Owners sent a letter
on March 12, 2021, notifying BPAP it must submit an itemized invoice, photos of repaired
property, and other documentation Owners may request by April 12, 2021, to make a claim for
replacement cost. See Doc. No. 24-7. On April 15, 2021, Owners sent a letter to BPAP stating
“The deadline of April 12, 2021 has passed, and we have not received the requested information
from our March 12, 2021 letter. Therefore, the replacement cost portion of your claim has been
closed, and we will be closing our file.” See Doc. No. 24-9. Despite the deadline for claims passing,
Owners gave BPAP another opportunity to provide the requested information when it sent another
letter on April 27, 2021, asking BPAP to “provide itemized, detailed breakdown of all material
cost, measurements and labor related to repair.” See Doc. No. 24-10.
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Beierle testified that BPAP did not send Owners itemized invoices, photos of the repaired
property, and other documentation showing that the roof of 1323 Republic Street until L or any
other damaged property had been repaired. See Doc. No. 24-2, p.18. Beierle acknowledged his
awareness of the letters sent from Owners requesting the information. Id. at p. 18. Despite repeated
requests BPAP did not provide Owners any proof that it repaired or replaced the roof of 1323
Republic Street unit L. Additionally, in its “Memorandum of Law in Opposition to Defendant’s
Motion for Summary Judgment” (Doc. No. 34) BPAP did not cite to any documents evidencing
that it completed the alleged repair. Accordingly, BPAP is not entitled to replacement cost for the
roof of 1323 Republic, unit L at this stage. Further, BPAP undisputedly did not provide any
evidence that it completed any other repairs to damaged property.
The policy is not ambiguous. The unambiguous terms of the contract require the insured to
actually repair or replace the damaged property before collecting the full replacement cost. And if
the insured does not repair or replace the damaged property, he or she is only entitled to actual
cash value. In other words, the requirement that the damaged property be repaired or replaced is a
condition precedent to the insured (BPAP) being entitled to replacement cost. BPAP received
payments totaling $204,449.32 from the insurer; put that money in escrow; and the funds have not
been spent or used for any repairs. As such, there is no showing, as a matter of law, that BPAP is
entitled to replacement cost coverage.
2. Prevention of Condition Precedent
Under North Dakota law, “[E]ach party to a contract impliedly agrees not to prevent the
other party from performing and not to render performance impossible. When one party prevents
the other party’s performance of a term of a contract, it excuses the nonperformance and provides
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a defense in a suit for breach by the nonperformance.” Barrett v. Gilbertson, 2013 ND 35, ¶ 21,
827 N.W.2d 831 (internal citations omitted). When applying the doctrine of prevention in Int'l
Travel Arrangers v. NWA, Inc., the Eighth Circuit Court of Appeals held that a party may breach
a contract only by preventing or making impossible the other party’s performance—not merely by
making performance more difficult. 991 F.2d 1389, 1405-06 (8th Cir. 1993). BPAP maintains
Owners prevented it from fulfilling the condition precedent of repairing or replacing the property
by not accepting BPAP’s estimates. BPAP argues this prevention excuses its failure to meet the
repair or replace policy requirement.
Marshal Matlock, an Owners claim representative, testified that he advised BPAP to get a
contractor, have the contractor put together an estimate, and send the estimate to him. See Doc.
No. 24-8, p. 7. Although BPAP provided an estimate from a contractor, Owners determined the
estimate did not provide sufficient detail because it was not itemized. Id. at p. 10. It is undisputed
that BPAP did not provide an itemized estimate upon Owners’ request. Matlock testified that
Owners would adjust an estimate if an insured and a contractor provide an itemized estimate and
documentation showing like-kind and quality materials are be used (Doc. 24-8, p. 12), which
shows Owners’ refusal to accept BPAP’s estimates was the result of BPAP’s failure to provide
sufficient documentation.
The policy does not require Owners to accept BPAP’s estimates that exceed its own.
Nevertheless, Owners attempted to resolve BPAP’s claim by requesting an itemized breakdown
when BPAP’s estimate exceeded the one provided by Owners. An itemized estimate was necessary
for Owners to understand whether the costs in the estimate were justified. When BPAP provided
a vague estimate that did not detail what work the contactor would complete, Owners tried to
obtain the necessary information itself by speaking with the contractor. Id. at p. 10. Additionally,
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Matlock testified that Owners retained two companies to do an inspection of the buildings and
provides estimates because BPAP disputed Owners’ estimate. Id. at p. 8. Owners then provided
BPAP an updated estimate to reflect the inspection and sent a supplemental payment for actual
cash value. Owner’s request for an itemized estimate did not amount to preventing BPAP from
performing a condition precedent. Rather, Owners attempted to settle BPAP’s dispute regarding
the estimate. Accordingly, the doctrine of prevention does not excuse BPAP’s failure to repair or
replace the damaged property.
The undisputed evidence shows BPAP understood the policy requires it to repair or replace
the damaged property before Owners will pay replacement cost. Nevertheless, nearly 4 years have
passed since the hailstorm and BPAP has not completed any of the work, other than allegedly
repairing the roof of 1323 Republic, unit L. Therefore, BPAP is not entitled to replacement costs
at this time.
3. Breach of Contract Claim
“The elements for a prima facie case for breach of contract are: (1) the existence of a
contract; (2) breach of the contract; and (3) damages which flow from the breach. A breach of
contract is the nonperformance of a contractual duty when it is due. The party asserting a breach
of contract must prove all elements.” Swenson v. Mahlum, 2019 ND 144, ¶ 19, 927 N.W.2d 850
(internal citations omitted).
BPAP argues Owners breached its contract with BPAP by failing to pay replacement cost
for damages to the buildings, as required by the policy. As noted above, it is undisputed that the
policy requires BPAP to first repair or replace the damaged property before Owners will pay
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replacement cost and it is undisputed BPAP has not completed the repairs. BPAP is not entitled to
replacement cost of the damaged property at this stage.
BPAP also argues summary judgment is improper because the parties dispute the amount
of loss. However, any dispute as to amount of loss regarding replacement cost is irrelevant because
BPAP is not entitled to replacement cost at this stage. The property must be repaired or replaced
as a condition precedent to recovering replacement costs. Additionally, a review of the complaint
reveals the actual cash value paid by Owners is not disputed in this case. BPAP’s breach of
contract, declaratory judgment, and bad faith claims are all based on Owner’s failure to pay
replacement cost value. BPAP does not bring claims or seek damages for any alleged failure of
Owners to pay the appropriate actual cash value. Therefore, even if disputed, the actual cash value
is not an issue of material fact in dispute in this case. Accordingly, Owners did not breach its
obligations under its policy with BPAP. Summary judgment in favor of Owners as to BPAP’s
breach of contract claim is granted.
B. BAD FAITH CLAIM
An insurer has a duty to act fairly and in good faith in its contractual relationship with its
policy holders. Hanson v. Cincinnati Life Ins. Co., 1997 ND 230, ¶ 29, 571 N.W.2d 363. “The test
for bad faith is whether the insurer acts unreasonably in handling an insured’s claim by failing to
compensate the insured, without proper causes, for a loss covered by the policy.” Id. BPAP argues
Owners breached its obligations of good faith and fair dealing by acting unreasonably in handling
BPAP’s claim. Specifically, BPAP argues Owners’ refusal to consider BPAP’s estimates is
evidence of bad faith. The record does not support this contention. Matlock’s testimony establishes
that Owners attempted to resolve BPAP’s claim. Matlock contacted BPAP’s contractor to obtain
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an itemized estimate when BPAP did not provide one. Additionally, Owners retained two
companies to inspect the buildings and provide estimates because BPAP disputed Owners’
estimate. Owners then provided BPAP an updated estimate and sent a supplemental payment for
actual cash value to reflect the new estimate.
BPAP argues Owners acted in bad faith by failing to pay replacement cost. The
unambiguous terms of the policy require BPAP to repair or replace damaged property as a
condition precedent before Owners must pay replacement cost. BPAP is not entitled to
replacement cost because it did not complete the required repairs to the buildings. Under the policy
BPAP is entitled only to the actual cash value that Owners paid. Therefore, Owners did not act in
bad faith by failing to pay replacement cost under the circumstances. In this case, BPAP had
contracted for replacement cost coverage. The insured is generally entitled under the policy to an
immediate payment representing the actual cash value of the loss, which was done in this case.
The actual cash value payments ($204,449.32.) can then be used as seed money to start the
necessary repairs. Here, BPAP put that cash value payments in escrow back in 2019 and 2020; the
monies remain there today; and no further funds have been spent or used for repairs. Summary
judgment in favor of Owners as to BPAP’s bad faith claim is granted.
IV. CONCLUSION
The Court has carefully reviewed the entire record, the parties’ briefs, and relevant case
law. For the reasons set forth above, the Defendant’s motion for summary judgment (Doc. No. 21)
is GRANTED.
IT IS SO ORDERED.
Dated this 3rd day of October, 2023.
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/s/ Daniel L. Hovland
Daniel L. Hovland, District Judge
United States District Court
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