R&J Development Company, LLC et al v. The Travelers Property Casualty Company of America, No. 7:2011cv00047 - Document 22 (E.D. Ky. 2012)
Court Description: MEMORANDUM OPINION & ORDER: 1) dft's motion for summary judgment 19 is DENIED; 2) plas' motion for summary judgment 18 is GRANTED. Judgment is entered in favor of the plas on all claims asserted in their complaint; 3) Clerk shall STRIKE this case from the Court's active docket; 4) the Court will issue a separate Judgment contemporaneously with this Memorandum Opinion & Order. Signed by Judge Amul R. Thapar on 5/7/2012. (RKT) cc: COR
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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY SOUTHERN DIVISION PIKEVILLE R&J DEVELOPMENT COMPANY, LLC, et al., Plaintiffs, v. THE TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant. ) ) ) ) ) ) ) ) ) ) ) Civil No. 11-47-ART MEMORANDUM OPINION & ORDER *** *** *** *** This case presents a single question of law: in a property insurance policy that excludes coverage for damage to a vacant property due to vandalism, does vandalism include arson? Although the term vandalism is undefined, the language and structure of the policy make clear that vandalism does not include damage due to intentionally set fires. Therefore, the policyholders R&J and James Booth are entitled to coverage. BACKGROUND R&J Development Company, LLC and its owner, James Booth (together, R&J ), manage 115 residential and commercial rental properties in Kentucky, West Virginia, and Tennessee. R. 18-1 at 2 3; R. 19-1 at 1. One of the company s residential properties a two-story house in Lovely, Kentucky became vacant in July 2008 and stayed that way for the next two years. R. 19-12 at 3. Unfortunately, before R&J and Booth could find a tenant for this property, two fires broke out in the residence and severely damaged the property. Id. An independent expert, Matrix Investigation Group, later determined that the fires were acts of arson by unknown third parties. Id. R&J turned to its insurer, The Travelers Property Casualty Company of America, to protect them from this loss. After all, R&J s policy provided coverage for property damage due to specified causes of loss, including fire and vandalism. R. 18-3 at 54. Even though Travelers agreed that an intentionally set fire had caused the damage, Travelers red umbrella stayed closed. See R. 18-4. R&J s policy excluded coverage for losses caused by vandalism, among other things, to a property that was vacant for more than 60 consecutive days before the loss occurred. R. 18-3 at 56. According to Travelers, this vacancy exclusion applied because vandalism includes arson. R. 18-4 at 1. Dissatisfied with that answer, R&J filed a declaratory judgment action against Travelers under Kentucky Revised Statute § 418.065 in Martin Circuit Court. R. 1-4 ¶¶ 4, 6. R&J sought a judgment declaring that it is entitled to coverage as well as an award of costs and attorney s fees. Id. at 3 4. After Travelers removed the case to federal court and discovery completed, both parties filed cross-motions for summary judgment. The parties do not disagree about any of the underlying facts, and they agree that arson was the cause of the damage to R&J s property. See R. 18-1 at 2; R. 19-1 at 2. Further, Travelers does not dispute that, absent the vacancy exclusion, the policy provides coverage for the damage to R&J s property. See R. 18-3 at 36 (agreeing to pay for direct physical loss of or damage to Covered Property that is caused by certain specified causes of loss); id. at 54 (including fire, smoke, and vandalism, among other things, within the specified causes of loss ). Travelers defends its denial of coverage solely on the ground that the exclusion for damage to a vacant property due to vandalism includes damage caused by arson. 2 DISCUSSION Courts confront a two-stage battle whenever they construe any legal text. The first stage interpretation requires identifying the meaning of the language at issue. The second stage construction entails applying the meaning to the particular set of facts in the case. Construction often requires courts to resolve difficult and sometimes intractable questions about how to apply vague words to borderline cases: What is the tipping point between an object with normal weight and one that is heavy? When does conduct transition from reasonable to unreasonable? And so on. See Caleb Nelson, Statutory Interpretation 78 80 (2011). Unlike the vagueness problems that can plague the construction stage, determining whether the vacancy exclusion applies in this case involves resolving an ambiguity between two or more possible meanings at the interpretation stage. For example, words like bank can refer to a financial institution or to terrain along a body of water, and light can refer to color or weight. A similar ambiguity exists here. R&J s policy provides coverage for damage due to specified causes of loss, including fire, smoke, and vandalism. R. 18-3 at 54. The policy s vacancy exclusion, however, precludes coverage for damage to a vacant property caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft. R. 18-3 at 56. Does vandalism mean something broad like all intentional property damage or something narrower that excludes intentionally set fires? This question is a legal one for the Court to resolve because the facts are undisputed and the only issue is whether the facts meet the policy definition. State Auto. Mut. Ins. Co. v. Sec. Taxicab, Inc., 144 F. App x 513, 517 (6th Cir. 2005) (citing MGA Ins. Co. v. Glass, 131 S.W.3d 775, 777 3 (Ky. Ct. App. 2004)). Despite Travelers argument to the contrary, the term vandalism unambiguously excludes arson. R&J is therefore entitled to coverage. The policy does not define the term vandalism, and what the Sixth Circuit said more than twenty years ago remains true today: there is a surprising dearth of Kentucky law construing the familiar vandalism and malicious mischief clause in property insurance policies. Louisville & Jefferson Cnty. Metro. Sewer Dist. v. Travelers Ins. Co., 753 F.2d 533, 540 (6th Cir. 1985). But the policy at hand contains plenty of clues as to the meaning of vandalism. It lists fire, smoke, and vandalism, among other things, as separate causes of loss. R. 18-3 at 54. The presumption against superfluity strongly suggests that each of these terms should have independent meaning. See City of Louisa v. Newland, 705 S.W.2d 916, 919 (Ky. 1986); cf. John F. Manning & Matthew C. Stephenson, Legislation and Regulation 249 (2010) (explaining that this presumption emphasizes that where possible each statutory term should be construed to have independent meaning (and therefore should mean something different than nearby terms) ). Indeed, in doling out coverage, the policy consistently treats fire and vandalism as distinct causes. See, e.g., R. 18-3 at 44 (covering damage to personal property in transit that is caused by fire, lightning, explosion, windstorm or hail, riot or civil commotion, or vandalism ); id. at 46 (covering damage due to collapse that is caused by fire, but not by vandalism). Further, Travelers does not identify any general practice within the insurance industry of treating arson as a form of vandalism. SR Int l. Bus. Ins. Co. v. World Trade Ctr. Props, LLC, 467 F.3d 107, 139 (2d Cir. 2006). Quite the contrary: when property insurers want to exclude damage to vacant property caused by intentionally set fires, they do so expressly. See, e.g., Grange Mut. Cas. Co. v. DeMoonie, 490 S.E.2d 451, 453 (Ga. Ct. 4 App. 1997) (involving a property insurance policy excluding damage to vacant homes caused by vandalism or malicious mischief, including intentionally set fires (emphasis added)). Likewise, when Travelers wanted to limit its coverage for other specified causes of loss to accidental occurrences, it did so expressly elsewhere in this policy. E.g., R. 18-3 at 46 (providing coverage for building collapse caused by, among other things, water damage, meaning accidental discharge of water or steam as the direct result of the breaking apart or cracking of a system or appliance containing water or steam ); id. at 54 (same for water damage); id. at 40 (limiting coverage for replacement of fire protective equipment that discharges accidentally ); id. at 44 (limiting coverage from a vehicle collision and defining collision as accidental contact of a vehicle with another vehicle or object). By contrast, the policy does not distinguish between damage from accidental fires and damage from intentionally set fires. Indeed, the word arson does not appear anywhere in the policy. Travelers simply chose to insure against the risk of damage due to fire whether accidental or intentional. Therefore, arson is an act contained within the class of damages caused by fire not vandalism. The last clue in the policy is the list of causes of loss contained in the vacancy exclusion. Recall that the policy s vacancy exclusion precludes coverage for damage to a vacant property caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft. R. 18-3 at 56. Because words are social creatures that travel in packs, the company that an otherwise-ambiguous word keeps may shed light on that word s intended meaning. William N. Eskridge, Jr., et al., Legislation 852 (2007). Leaky sprinklers, broken glass, and stolen property all typically result in low-level, non- 5 structural damage. Here, this tool of interpretation fancified by the Latin phrase noscitur a sociis confirms that vandalism should be read to share the same feature as its confederates. Most other courts construing policies agree either that vandalism unambiguously excludes arson or that the term is ambiguous and must be construed against the insurer.1 Like the case at hand, all of these cases involve named-peril coverage that expressly distinguishes between fire and vandalism. Travelers also mobilizes an army of cases that interpret vandalism to include arson.2 But this army involves nothing more than decoys that are easy cannon fodder for any sustained analysis. The policies at issue in these cases involved all-risk coverage that did not enumerate or otherwise distinguish among causes of loss like fire and vandalism. Unlike the policy here, the structure and language of the policies in those cases did not indicate that fire and vandalism should have independent meaning. See, e.g., Bear River Mut. Ins. Co. v. Williams, 153 P.3d 798, 801 (Utah Ct. App. 2006) (finding no tension with cases reaching the opposite conclusion because the all-risk policy at issue did not contain the type of conflicting language that has led other courts to find coverage for arson damage to vacant property). 1 See, e.g., Bates v. Hartford Ins. Co. of Midwest, 787 F. Supp. 2d 657, 663 (E.D. Mich. 2011); Fort Lane Village LLC v. Travelers Indem. Co. of Am., 805 F. Supp. 2d 1236, 1241 (D. Utah 2011); United Capital Corp. v. Travelers Indem. Co. of Ill., 237 F. Supp. 2d 270, 276 77 (E.D.N.Y 2002); Nationwide Mut. Fire Ins. Co. v. Nationwide Furniture, Inc., 932 F. Supp. 655, 656 (E.D. Pa. 1996); Johnson v. State Farm Fire & Cas. Co., 2008 WL 4724322, at *3 (Mich. Ct. App. Oct. 28, 2008) (unpublished); Mut. Fire Ins. Co. of Calvert Cnty. v. Ackerman, 872 A.2d 110, 118 (Md. Ct. Spec. App. 2005) ; MDW Enters. v. CNA Ins. Co., 4 A.D.3d 338, 338 39 (N.Y. App. Div. 2004); Am. States Ins. Co. v. Rancho San Marcos Props., LLC, 97 P.3d 775, 779 (Wash. Ct. App. 2004); Dixon v. Safeco Ins. Co. of America, 2002 WL 31002848, at *3 (Wash. Ct. App. Sept. 6, 2002) (unpublished); Tillman v. S. States Ins. Co., 325 S.E.2d 585, 585 (S.C. Ct. App. 1985). 2 See Am. Mut. Fire Ins. Co. v. Durrence, 872 F.2d 378, 379 (11th Cir. 1989); Costabile v. Metro. Prop. & Cas. Ins. Co., 193 F. Supp. 2d 465, 478 (D. Conn. 2002); Estes v. St. Paul Fire & Marine Ins. Co., 45 F. Supp. 2d 1227, 1229 (D. Kan. 1999); Potomac Ins. Co. of Ill. v. NCUA a/k/a Nat l Credit Union Ass n., 1996 WL 396100, at *4 (N.D. Ill. July 12, 1996); Bear River Mut. Ins. Co. v. Williams, 153 P.3d 798, 801 (Utah Ct. App. 2006); Battishill v. Farmers Alliance Ins. Co., 127 P.3d 1111, 1116 (N.M. 2006); cf. Louisville & Jefferson Cnty. Metro. Sewer Dist., 753 F.2d at 540 (interpreting vandalism and malicious mischief to include toxic dumping of illegal chemicals because the policy expressly defined this phrase as direct loss by willful and malicious damage to or destruction of property ). 6 Relying on dictionaries and the Kentucky criminal code, see R. 19-1 at 6, Travelers claims that vandalism broadly refers to any intentional damage to property, see R. 21 at 5. And just like vandalism, Travelers argues, arson is the willful destruction of another s property. The medium of destruction fire is irrelevant according to Travelers because the end result vandalism is still the same. R. 19-1 at 6. There are two problems with this argument. First, regardless of the breadth of definitions found elsewhere, the language of R&J s policy indicates that it was using a narrower definition. If the language and structure of a contract indicates that the term color does not include black (technically the absence of all color), then the Court could not override the parties agreement with an external definition that includes black as a color. The same is true here. Second, Travelers approach would render part of the vacancy exclusion superfluous. If vandalism means any intentional property damage and the medium of destruction is irrelevant, then there is no need to include damage to theft or attempted theft in the vacancy exclusion. For instance, suppose that an individual breaks into a vacant property and steals a refrigerator. The process of dragging the refrigerator out to his waiting getaway truck rips the kitchen linoleum apart. Applying Travelers approach here, the medium theft is irrelevant because the end result is the same the intentional destruction of property, or vandalism. Yet Kentucky courts have not adopted this approach in the context of interpreting theft. See Reynolds v. Travelers Indem. Co. of Am., 233 S.W.3d 197, 201 (Ky. App. 2007) ( While the home had been vacant for more than 30 consecutive days, the loss was clearly not caused by vandalism or malicious mischief as those terms are commonly understood. Instead, the Reynoldses loss in this case was plainly caused by the theft of the 7 refrigerator. ); see also SR Int l Bus. Co., 467 F.3d at 139 (refusing to interpret vandalism and malicious mischief to include terrorism even though terrorism involves intentional property damage). Of course, the presumption against superfluous language is not absolute. See, e.g., United States v. Atl. Research Corp., 551 U.S. 128, 137 (2007) ( It is appropriate to tolerate a degree of surplusage rather than adopt a textually dubious construction that threatens to render the entire provision a nullity. ); Gutierrez v. Ada, 528 U.S. 250, 258 (2000) ( But as one rule of construction among many, albeit an important one, the rule against redundancy does not necessarily have the strength to turn a tide of good cause to come out the other way. ). Insurance policies, like all forms of communication, sometimes contain redundancies. TMW Enters., Inc. v. Fed. Ins. Co., 619 F.3d 574, 577 (6th Cir. 2010). So this presumption has limits: when faced with two ways to read the text, and the one that avoids surplusage makes the text ambiguous, applying the rule against surplusage is, absent other indications, inappropriate. Id. at 578 (quoting Lamie v. U.S. Trustee, 540 U.S. 526, 536 (2004)). Here, however, applying the presumption corrects a superficial ambiguity in the term vandalism and does not create any ambiguity of its own. Moreover, Travelers offers no reason to jettison the presumption in this case to favor a superfluous interpretation. Even if there is some force to the notion that specifically enumerated causes of loss, like fire and vandalism, can overlap at the margins, ambiguity between a coverage provision and an exclusion must be resolved in favor of the insured. Kemper Nat. Ins. Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 874 (Ky. 2002) (citing St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223, 227 (Ky. 1994)). Travelers has not shown that the term vandalism unambiguously includes intentionally set 8 fires. Consequently, R&J is entitled to coverage. CONCLUSION Accordingly, it is ORDERED that: (1) The Defendant s motion for summary judgment, R. 19, is DENIED. (2) The Plaintiffs motion for summary judgment, R. 18, is GRANTED. Judgment is entered in favor of the Plaintiffs on all claims asserted in their complaint. (3) The Clerk shall STRIKE this case from the Court s active docket. (4) The Court will issue a separate Judgment contemporaneously with this Memorandum Opinion and Order. This the 7th day of May, 2012. 9
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