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Opry Mills Mall Limited Partnership v. Arch Insurance Company

Court of Appeals of Tennessee, Nashville

January 26, 2018


          Session September 6, 2017

         Appeal from the Chancery Court for Davidson County No. 10-1504-IV Russell T. Perkins, Chancellor

         The primary claim at issue in this appeal is for breach of an insurance contract. The insured property at issue, Opry Mills Shopping Mall, sustained catastrophic damages from the May 2010 flood in Nashville, Tennessee. Following the flood, the insureds contended the policy provided $200 million of coverage. The insurers insisted the policy limit for the claim was $50 million pursuant to the High Hazard Flood Zones Limit due to the fact the location of the Mall had been designated on a Flood Insurance Rate Map as a Special Flood Hazard Area. The trial court summarily ruled that the policy limits were $200 million finding, inter alia, the insured properties that were limited to $50 million of coverage were listed on the High Hazard Flood Locations schedule in Endorsement 6 of the policy, and Opry Mills Shopping Mall was not listed. Therefore, the trial court ruled that the policy limits for the claim were $200 million. Following a lengthy trial, the jury awarded the insured a judgment of almost $200 million. The insurers appealed. We have determined the policy limits are $50 million. Because the insurers paid the insureds $50 million before the commencement of this action, which is all the insurers are obligated to pay on the claim, the judgment of the trial court is reversed. We have also determined that the trial court did not err by summarily dismissing the insureds' alternative claim that was based on promissory estoppel.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed and Remanded

          William L. Harbison, Phillip F. Cramer, and Lauren Z. Curry, Nashville, Tennessee, and Peter E. Kanaris and David E. Heiss, Chicago, Illinois for the appellants Arch Insurance Company; Aspen Insurance UK Ltd.; General Security Indemnity Company of Arizona Hiscox Inc., Ironshore Specialty Insurance Company; Lexington Insurance Co.; Liberty Mutual Fire Insurance Company; Certain Underwriters at Lloyds of London; Maiden Specialty Insurance Co.; RSUI Indemnity Company; Sompo Japan Insurance Company of America; Tokio Marine & Nichido Fire Insurance Co., Ltd. (U.S. Branch); Torus Specialty Insurance Co.; and XL Insurance America, Inc.

          Byron R. Trauger, Paul W. Ambrosius, Nashville, Tennessee, and J. Randolph Evans, and Anthony W. Morris, Atlanta, Georgia, attorneys for appellant Zurich American Insurance Company.

          Donald Capparella and Gregory L. Cashion, Nashville, Tennessee, and Andrew J. Detherage and Charles P. Edwards, Indianapolis, Indiana, for the appellees Simon Property Group L.P. and Opry Mills Mall Limited Partnership.

          Frank G. Clement Jr., P.J., M.S., delivered the opinion of the Court, in which D. Michael Swiney, C.J. and Richard H. Dinkins, J., joined.


          FRANK G. CLEMENT JR., P.J., M.S.

         Simon Property Group, L.P. ("Simon") is a real estate conglomerate that owns hundreds of real estate ventures and commercial properties.[1] One of the real estate ventures Simon owned during the period relevant to this appeal was Opry Mills Mall Limited Partnership ("Opry Mills"), which owns Opry Mills Shopping Mall ("the Mall") in Nashville, Tennessee.[2]

         At all times relevant to this appeal, Simon, its ventures and properties were insured under a global unscheduled insurance policy ("the Policy"). At the time of the May 2010 flood at issue, the Mall was insured under the Policy which afforded a maximum aggregate of coverage of one billion dollars. The risk of loss was shared by numerous insurance companies that collectively agreed to underwrite the Policy based on percentages of liability in layers of coverage. This appeal involves two layers of coverage between $50 million and $200 million.

         This action arises from one of the worst floods in Nashville's history which submerged the Mall in up to 10 feet of water. The flood resulted from a record amount of rain that fell on May 1 and 2, 2010, from a slow moving weather system. Several rainfall records in the area were broken, and the Cumberland River, which is adjacent to the Mall, crested at over 51 feet in Nashville, exceeding a level not experienced since 1937.

         When the Mall parking lot became submerged under water, the decision was made to close the Mall on Sunday, May 2. The following day, the entire Mall was completely submerged, and it remained closed for months.[3] Immediately thereafter, the parties agreed to engage Crawford & Company ("Crawford") to serve as the claim adjuster, and Crawford was on the ground as soon as the property became accessible. When Crawford representatives first accessed the property on May 5, the flood water had not yet receded. By the next day, the water had receded and Crawford representatives were able to observe the damage. Thereafter, Crawford representatives participated in daily meetings with contractors hired by Simon to remediate the damage. These meetings involved what work was to be done and how it was to be done.

         After Crawford reviewed the insured location, the flood conditions, and the Policy, it reached the conclusion that the Mall was located in a High Hazard Flood Zone, as that term was defined in the Policy, for which the limit of coverage was $50 million. Based on this and Crawford's determination that the compensable damages would exceed $50 million, on July 20, 2010, Crawford recommended that the insurers pay the $50 million High Hazard Flood Zones Limit. Soon thereafter, the insurers remitted $50 million to the insureds. On July 30, 2010, the insurers formally notified Simon and Opry Mills that they were denying coverage for any amount in excess of $50 million.

         On September 14, 2010, Simon and Opry Mills ("Plaintiffs"), commenced this action in which they asserted claims against fifteen insurance companies that participated on a prorate basis in providing layers of coverage between $50 million and $200 million ("Defendants").[4] The insurance companies that participated in the first $50 million of coverage are not involved in this appeal because that sum was paid prior to the commencement of this action.

         The complaint asserted numerous alternative claims but only two are relevant in this appeal. The complaint asserted a claim for breach of contract for the wrongful denial of coverage in excess of $50 million. The complaint also asserted an alternative claim of promissory estoppel, which is premised on the allegation that Defendants made pre-flood representations that the Mall had $200 million in flood coverage.[5]

         Following discovery, the parties filed various motions on numerous issues including motions for partial summary judgment. Plaintiffs filed a motion for partial summary judgment contending the Policy provided $200 million of coverage because the $50 million High Hazard Flood Zones coverage limitation did not apply due to the fact the Mall was not one of the locations identified under Endorsement 6 as one of the High Hazard Flood Locations.[6] Defendants filed a joint motion for partial summary judgment contending the $50 million limitation of coverage applied because the Mall was located in a High Hazard Flood Zone as that term is defined in the Policy. Defendants also contended that the listing of High Hazard Flood Locations in Schedule 6 applied only to "the deductibles section" of the Policy, not to the limitation of coverage.

         The trial court held a hearing on February 11, 2015, on the cross motions for summary judgment related to the Policy limits and held hearings on March 3 and 4, 2015, on the remaining motions. The trial court issued an order and memorandum on March 13, 2015, in which it stated that it was applying the traditional Tennessee summary judgment standard because the case was filed before the standard in Tenn. Code Ann. § 20-16-101 became law. The court also stated that because the Policy did not contain a choice of law provision and because the Policy was delivered to Simon whose principal office was in Indiana, the court was applying Indiana law to interpret the Policy.

         As stated in the order entered on March 13, 2015, the trial court granted Plaintiffs' motion for partial summary judgment and denied Defendants' cross motion on the limits of coverage. Applying Indiana law to interpret the Policy, the trial court found that the $200 million limitation applied. The court stated in pertinent part "that a mall situated in a High Hazard Flood Zone had to be listed as a High Hazard Flood Location to be Subject to the $50 Million Sublimit." Further, the court "discern[ed] no ambiguity in the parties providing a list of malls which are 'High Hazard Flood Locations' immediately below a broader definition of 'High Hazard Flood Zones, ' and the undisputed fact that Opry Mills Mall was not on the list in 2010." The trial court granted summary judgment to Defendants on the estoppel, TCP A, and bad faith claims.

         The case then proceeded to trial before a jury. Plaintiffs introduced evidence that they incurred expenses and business losses as a result of the flood that included, inter alia, $55 million for remediation expenses, $93.4 million in replacement costs, and $41 million in lost income during the shutdown of Opry Mills. Defendants challenged the damages claimed by Plaintiffs on numerous grounds. The jury returned a verdict in favor of Plaintiffs, finding damages in the following amounts on Plaintiffs' breach of contract claims under the Policy:

Remediation Costs: $ 55, 060, 642
Replacement Costs: $ 89, 350, 351
Business Interruption Losses: $ 41, 945, 081
Consequential Damages: $ 16, 831, 605
Loss Adjustment Expenses: $ 936, 137

         The total award of damages, including additional consequential damages, was $204, 123, 816. After giving Defendants a credit for the $50 million paid on the claim prior to the commencement of this action and "[a]fter deductions for the deductible and participation by insurers who were not Defendants, " the trial court apportioned the covered damages among Defendants, that being the insurers that participated in this action. Pursuant to the Order on Jury's Verdict entered on November 5, 2015, Plaintiffs were awarded a judgment of $146, 373, 816 against the insurers that are Defendants in proportionate amounts as specified in the order. On April 11, 2016, the trial court entered a final judgment of $146, 373, 816 in favor of Plaintiffs and additionally awarded Plaintiffs $373, 535.28 in discretionary costs. The judgment additionally stated that Plaintiffs were not entitled to recover prejudgment interest.

         Defendants subsequently filed motions for a new trial and for judgment notwithstanding the verdict. The trial court denied these motions. Defendants then timely appealed.


         The primary issue presented for our review is whether the applicable limit of coverage for flood damage is $50 million or $200 million. If we rule that the $200 million limit applies, Defendants want us to additionally review the trial court's other rulings including its exclusion of evidence, its directed verdict rulings, certain jury instructions, the verdict form, and the trial court's denial of Defendants' motions for a new trial and judgment notwithstanding the verdict.[7] Conversely, if we rule that the $50 million limit applies, Defendants' state that their additional issues are moot.

         As for the issues raised by Plaintiffs, if we rule that the $200 million limit applies Plaintiffs want us to determine if they are entitled to recover prejudgment interest. Conversely, if we rule that the $50 million limit applies, Plaintiffs want us to determine whether reinstatement of their alternative claim of estoppel is required.[8]


         I. Interpretation of the Policy

         The primary contentions of the parties on this issue, that being the limit of coverage for flood damage, can be summarized as follows.

         Defendants contend the facts that are most relevant to this issue can be summarized in three sentences:

First, the Simon Policy provides $50 million of coverage for floods in high hazard flood zones as defined by the applicable government flood map. Second, at the time of the May 2010 flood, the applicable government flood map reflects Opry Mills being situated in a high hazard flood zone. Thus . . . this entire appeal may be resolved through application of the plain language of the Simon Policy and the FEMA-designated location of Opry Mills.

(Internal citations to the record omitted).

         Plaintiffs contend the policies that have insured Simon, its ventures and properties since Opry Mills and the Mall were acquired in 2007, have always listed the locations which only have $50 million in flood coverage under "High Hazard Flood Locations." They also rely on the fact the Mall has never appeared on that list.[9]

         Applying Indiana Law, the trial court found that the $200 million limitation applied. Specifically, the court stated "that a mall situated in a High Hazard Flood Zone had to be listed as a High Hazard Flood Location to be Subject to the $50 Million Sublimit." We respectfully disagree.

         The interpretation of an insurance policy is a question of law for the court and is thus reviewed de novo. State Farm Mut. Auto. Ins. Co. v. Jakubowicz, 56 N.E.3d 617, 619 (Ind. 2016). When interpreting insurance contracts, we are to construe them in the same manner as any other contract. Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049, 1054 (Ind. 2001). Courts cannot ignore the plain words of an insurance contract and are to "make all attempts to construe the language in a contract so as not to render any words, phrases, or terms ineffective or meaningless." American Family Life Assur. Co. v. Russell, 700 N.E.2d 1174, 1177 (Ind.Ct.App. 1998) (citing Farthing v. Life Ins. Co. of N. America, 500 N.E.2d 767, 772 (Ind.Ct.App. 1986) and Bicknell Minerals, Inc. v. Tilly, 570 N.E.2d 1307, 1316 (Ind.Ct.App. 1991)).

         Furthermore, a policy "must be reasonably construed, and the court may not find coverage unless the language of the policy admits liability." Gallant Ins. Co. v. Allstate Ins. Co., 723 N.E.2d 452, 455 (Ind.Ct.App. 2000) (citing Allstate Co. v. Kepchar, 592 N.E.2d 694, 696 (Ind.Ct.App. 1992)). "[E]xceptions, limitations and exclusions must be plainly expressed in the policy." American Family Life Assur. Co., 700 N.E.2d at 1177.

         "However, if the language of the policy is ambiguous, then the court may apply the rules of construction in interpreting the language." Askren Hub States Pest Control Services, Inc. v. Zurich Ins. Co., 721 N.E.2d 270, 275 (Ind.Ct.App. 1999) (citing Eli Lilly and Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985)). In determining whether an ambiguity exists and if so, how courts are to interpret that ambiguity, Indiana courts have previously stated:

An ambiguity does not arise merely because the two parties proffer differing interpretations of the policy language. Lexington Ins. v. American Healthcare Providers, 621 N.E.2d 332, 336 (Ind.Ct.App.1993), trans. denied. Rather, the policy is ambiguous only if it is "susceptible to more then [sic] one interpretation and reasonably intelligent persons would differ as to its meaning." Commercial Union Ins. v. Moore, 663 N.E.2d 179, 181 (Ind.Ct.App.1996), trans, denied. See Masonic Accident Ins. Co. v. Jackson, 200 Ind. 472, 481, 164 N.E. 628, 631 (1929). If there is an ambiguity, an insurance contract should be interpreted in the light most favorable to the insured. Eli Lilly, 482 N.E.2d at 470. The contract should be construed to further its basic purpose of indemnity.


         As we begin our analysis of the policy limits issue, it is important to understand the significance of certain terms that are used in the Policy. Two important terms, which are defined in the Policy, are: "High Hazard Flood Zones" and "High Hazard Flood Locations." Two other important terms that appear in the Policy are the "National Flood Insurance Program" and "Special Flood Hazard Area."

         Except for floods that occur in High Hazard Flood Zones, the Policy provides coverage up to $200 million. Defendants rely on Clause 3 of the Policy to insist that the $50 million limit applies to the claim at issue. Clause 3, which pertains to ...

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