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United States Roller Works, Inc v. State Auto Property & Casualty Insurance Co.

United States District Court, M.D. Tennessee, Nashville Division

March 13, 2018



          ALETA A. TRAUGER United States District Judge

         State Auto Property & Casualty Insurance Company (“State Auto”) has filed a Motion to Dismiss Punitive Damage Claim (Docket No. 29), to which United States Roller Works, Inc., (“U.S. Roller”) has filed a Response (Docket No. 31), and State Auto has filed a Reply (Docket No. 33). State Auto has also filed a Motion for Partial Summary Judgment (Docket No. 36), to which U.S. Roller has filed a Response (Docket No. 42), and State Auto has filed a Reply (Docket No. 44), to which U.S. Roller has file a Sur-Reply (Docket No. 50). For the reasons set out herein, both motions will be denied.


         U.S. Roller is a Tennessee-based company specializing in the application of rubber to steel rollers used in various manufacturing processes. (Docket No. 45 ¶¶ 1-2.) It leases a building located at 1901 Elm Hill Pike in Nashville, on which U.S. Roller, at the times relevant to this case, maintained an insurance policy with Ohio-based State Auto. (Docket No. 1 ¶ 2; Docket No. 42-1 ¶¶ 1-2; Docket No. 45 ¶ 3.) U.S. Roller characterizes the insurance policy as “all-risks, ” meaning that it covered all risks of physical loss or damage other than those expressly excluded. (Docket No. 45 ¶ 18.) The policy has a coverage limit of $2, 433, 600, with an additional $50, 000 available in certain situations. (Id. ¶ 19.)

         The roof of the Elm Hill Pike building consists of metal decking and fiberboard insulation over what is called a “built-up asphalt roof”-or “BUR”-system. (Id. ¶¶ 10, 12.) As part of its underwriting process, State Auto sent an agent, Mark Holley, to inspect the building, including the roof, on February 4, 2014. (Id. ¶ 25.) In Holley's March 5, 2014 written report of the inspection, under the heading “Roofs, ” he wrote: “Metal deck, steel bar joist, membrane roof covering-contact uncertain as to age of roof material, no recent replacement-no evidence of leakage.” (Id. ¶ 30.) Elsewhere in the report, Holley wrote that he had noted “no obvious building maintenance related deficiencies.” (Id. ¶ 31.) U.S. Roller employees have testified that, prior to the events giving rise to the insurance claim at issue in this case, the building's roof, to their knowledge, was not damaged and did not leak in significant amounts. (Id. ¶ 32; Docket No. 42-3 at 12, 15-16; Docket No. 42-4 at 13, 26, 75; Docket No. 42-5 at 11-15.)

         On July 28, 2015, a storm hit the Elm Hill Pike building. (Docket No. 42-1 ¶ 3.) At the time of the storm, U.S. Roller's manufacturing crew had already left for the day, but U.S. Roller founder Jim Robers was still on the premises. (Docket No. 45 ¶¶ 40-41.) Robers describes hearing extremely high wind and loud rain. At some point, Robers began to hear water beating on the floor within the building. He followed the noise to the building's production area, where he found “heavy torrents of water” coming into the building and observed gaps in the roof. An external view of the roof confirmed significant damage. (Id. ¶¶ 41-45; Docket No. 42-3 at 20, 22, 24.)

         U.S. Roller reported the damage to State Auto. In the meantime, U.S. Roller sought to mitigate the immediate effects of the damage by hiring Don Kennedy Roofing (“DKR”) to perform temporary repairs. (Docket No. 45 ¶ 47.) U.S. Roller's Vice President of Manufacturing, Richard Howell, testified at his deposition that, despite the temporary repairs, the roofing system continued to observably leak during most rain events. (Id. ¶ 50; Docket No. 42-5 at 28.)

         State Auto sent a claim representative, Melissa Smith, to inspect the property. (Docket No. 42-1 ¶ 5.) U.S. Roller informed Smith of the damage its employees had observed, including that substantial amounts of water had penetrated the building.[1] (Docket No. 45 ¶ 52; Docket No. 42-2, Ex. 21 at 17.) State Auto does not dispute that, although she had been told that water had poured into the building, Smith made no effort to determine whether the roofing system itself had been infiltrated by water. (Docket No. 45 ¶ 55.) After the inspection, Smith-for reasons that are disputed by the parties-brought in an outside company, Donan Engineering, to further inspect and assess the roof. (Docket No. 42-1 ¶ 6.)

         On August 12, 2015, Donan Engineering's Jeff Bradley inspected the roof and confirmed that a portion of it had sustained wind damage. (Id. ¶ 7.) Bradley also identified ridges, cracks, and age-related deterioration that, he claimed, were not a result of the storm. (Docket No. 45 ¶ 59.) U.S. Roller takes issue with several aspects of Bradley's methodology, including that he did not perform tests necessary to assess the water intrusion into the roofing system, did not speak to anyone, namely Jim Robers, who witnessed the damage during the storm, and did not consult State Auto's own earlier underwriting report that had found no preexisting deficiencies in the roof. (Id. ¶¶ 60-62.) State Auto hired Grecco Construction Consultants (“GCC”) to prepare a repair estimate based on the scope of storm-related damage determined by Bradley, and State Auto has paid U.S. Roller $9, 562.48 based on the GCC estimate. (Docket No. 42-1 ¶ 8.)

         U.S. Roller, believing that Bradley's initial inspection failed to assess the full extent of the storm damage, maintained that the building required repairs to the entire roof, which would cost substantially more than the limited repairs proposed by GCC. (Docket No. 45 ¶ 67.) In response to U.S. Roller's concerns, State Auto directed Bradley to re-inspect the property on November 5, 2015. According to Bradley, the November 5 inspection did not reveal any storm damage beyond what he had already identified on August 12. (Docket No. 42-1 ¶¶ 9˗10.)

         On May 20, 2016, counsel for U.S. Roller sent State Auto a letter reiterating U.S. Roller's concerns and stating: “This letter will also serve as formal notice pursuant to [Tenn. Code Ann.] § 56-7-105 of the Insured's intent to make a claim for statutory bad faith if this claim is not fully and promptly paid. As such, please respond accordingly.” (Docket No. 42-10, Ex. 41 at 1.) Counsel for U.S. Roller also had the building inspected by its own purported expert, Tom Irmiter of Forensic Building Science, Inc. (Docket No. 42-1 ¶ 11.) Irmiter has taken the position that the entire roof needs to be replaced. (Id. ¶ 13.)

         State Auto, meanwhile, hired an additional purported expert, Dr. Jonathan Goode of Haag Engineering. Goode inspected the property on August 8, 2016. (Id. ¶¶ 14-16.) Goode performed three “core cuts” into the roof, two of which revealed that moisture had, indeed, penetrated the insulation. Nevertheless, Goode endorsed Bradley's conclusion about the extent of the storm damage, based on the assumption that the water infiltration was the result of preexisting leaks. U.S. Roller points out, and State Auto concedes, that Goode made his conclusion without having been aware of, or having reviewed, the earlier underwriting report that found no evidence of preexisting leakage. (Docket No. 45 ¶¶ 76-80.) Based on Bradley's and Goode's assessments, State Auto refused to replace the building's roof or to pay for interior water intrusion. (Docket No. 42-1 ¶ 18.)

         As part of discovery in this case, a corporate representative of State Auto was asked if his company had any evidence that water had penetrated the roof prior to the storm:

Q. All right. Do you have any facts or know of any facts to support a claim that the roof was wet-the roof system, the insulation board, the underlayment, things that shouldn't be wet, do you have any facts to support a claim that any of the roofing system was wet and saturated prior to July 28, 2015?
A. No.

(Docket No. 42-10 at 53-54.) U.S. Roller notes that Bradley himself-on whose assessment State Auto's coverage determination was, in large part, based-admitted at his deposition that, if insulation is infiltrated by water, the water will affect its insulating capabilities and shorten the life span of the roof. When asked, during that deposition, whether it was therefore “important to determine the extent of the water intrusion” when “developing a scope of work to accomplish repairs, ” Bradley responded that it was. (Docket No. 42-8 at 35.) State Auto concedes, for purposes of summary judgment, that infiltration of water has those alleged ill effects on roofing insulation. (Docket No. 45 ¶ 86.)

         On November 2, 2016, U.S. Roller filed the Complaint in this case, naming State Auto as the sole defendant and relying on the court's diversity jurisdiction. (Docket No. 1 ¶¶ 2, 4.) Count I of the Complaint alleges breach of contract, based on various actions taken by State Auto related to its performance under the insurance policy, as well as its ultimate failure to pay a sum commensurate with the extent of the storm damage done to the building. In addition to ordinary damages for breach of contract, U.S. Roller seeks punitive damages based on State Auto's intentional, fraudulent, malicious, and/or reckless conduct. (Id. ¶¶ 22-29.) Count II is a cause of action for bad faith failure to pay pursuant to Tenn. Code Ann. § 56-7-105, whereby U.S. Roller seeks an additional penalty of 25% of its compensable loss. (Docket No. 1 ¶¶ 30-34.) Altogether, U.S. Roller seeks up to $850, 000 in compensatory damages, punitive damages not to exceed $5, 000, 000, plus the 25% bad faith penalty. (Id. at 7-8.)

         On December 28, 2017, State Auto filed a Motion to Dismiss seeking dismissal only of U.S. Roller's claim for punitive damages related to breach of contract, which, State Auto argues, are precluded by the availability of the bad faith penalty. (Docket No. 29.) On February 2, 2018, State Auto filed a Motion for Partial Summary Judgment, arguing that it is entitled to summary judgment in its favor both on the claim for punitive damages under Count I and for the bad faith penalty under Count II. (Docket No. 36.) State Auto has not filed any dispositive motion that would fully resolve the breach of contract claim.

         II. ...

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