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Steak in a Sack, Inc. v. Covington Specialty Insurance Co.

United States District Court, D. Maryland, Southern Division

September 28, 2018

STEAK IN A SACK, INC., Plaintiff,
v.
COVINGTON SPECIALTY INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION

          GEORGE J. HAZEL, UNITED STATES DISTRICT JUDGE

         Plaintiff Steak in a Sack, Inc., a Maryland restaurant, has sued its former insurer, Defendant Covington Specialty Insurance Company, for Breach of Contract and Lack of Good Faith. ECF No. 2. This case was removed from the Circuit Court for Prince George's County pursuant to the Court's diversity jurisdiction, 28 U.S.C. § 1332, as Plaintiff is a Maryland resident, Defendant is a New Hampshire corporation and the amount in controversy is more than $75, 000.00. The parties have filed cross-Motions for Summary Judgment. ECF Nos. 30, 31, 34.[1]No hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the following reasons, both motions for summary judgment are denied.

         I. BACKGROUND [2]

         Defendant Covington Specialty Insurance Company (“Covington”)[3] is a New Hampshire corporation and operates as a Surplus Lines Insurance[4] Carrier in Maryland. ECF No. 2 at 2; ECF No. 11 at 1. Tapco Underwriters, Inc. (“Tapco”) was the managing general agent for Covington. ECF No. 31-3 at 3.[5] Plaintiff Steak in a Sack, Inc. is the entity that runs a restaurant by the same name located in Temple Hills, Maryland. ECF No. 2 ¶ 4. Covington was Plaintiff's insurance provider and on June 19, 2015, Plaintiff applied for a renewal of its insurance contract with Covington, using a form provided by Tapco. ECF No. 31-2 ¶ 4. An Insurance Policy was subsequently entered into for the period of June 19, 2015 to June 19, 2016 (the “Policy”). ECF No. 2-1 at 5. On July 21, 2015, at Tapco's request, York Risk Control (“York”) performed an inspection of Plaintiff's restaurant. Id. ¶ 5. York noted that Plaintiff did not have a “K-class fire extinguisher located within 30 feet of the kitchen, ” and recommended that such an extinguisher be “mounted in a readily accessible area of the kitchen by a licensed fire protection contractor.” Id. ¶ 6. On August 3, 2015, Tapco sent a letter to Plaintiff's insurance broker, Walterry, Inc., and requested that York's recommendations be implemented. Id. ¶ 7. Tapco further explained that “[i]f no response is received within 20 days, the carrier will require us to issue an additional premium endorsement and/or a notice of cancellation.” Id. On September 2, 2015, having received no response, Tapco issued a Notice of Cancellation to the Plaintiff, reflecting that the Insurance Contract would be cancelled on October 18, 2015. Id. ¶ 8. On October 16, 2015, Ashleigh Kalid, one of Plaintiff's employees, called Stacey Shanklin, a Policy Issuance Supervisor for Tapco, to inform Tapco that Kalid had implemented the recommendations; Shanklin sought additional documentation. Id. ¶ 9. At approximately 1:28 pm, Kalid subsequently emailed Shanklin a photograph of a fire extinguisher sitting on a counter and three photographs of documents. ECF No. 31-2 at 6-10.

         At this point, the parties' versions of events diverge. According to Tapco and Shanklin, these photographs were insufficient proof that Kalid had implemented the recommendations, as it was “not evident from the photograph . . . that the fire extinguisher was a K-rated wet chemical type fire extinguisher or that it had been mounted in a readily accessible area of the kitchen . . .” Id. ¶ 11 (internal quotations omitted). Shanklin claims that at 1:59 pm, a half hour after receiving the email from Kalid, Shanklin responded and asked for further information regarding the fire extinguisher. Id. ¶ 12. At 4:36 pm, two and a half hours later, she sent a follow-up email requesting “a photo of the extinguisher, once it's installed” as well as “a photo of the label or ‘bill of sale' indicating that this is a ‘K' Type fire extinguisher.” Id. ¶ 13.[6] In order to give Steak in a Sack an opportunity to provide the requested information, Shanklin explains that the Insurance Contract was reinstated on October 20, 2015, “to provide Plaintiff with additional time to provide the documentation requested . . . .” Id. ¶ 14. On November 6, 2015, having not received the requested information, Shanklin emailed Kalid and stated that “I don't show that we've [received] the required information. I'll have to request cancellation . . . .” Id. ¶ 15. That same day, Shanklin ordered the cancellation of Plaintiff's insurance coverage. Id. ¶ 16.

         Plaintiff disputes this recitation of events. In her Affirmation, ECF No. 34-9, Ashleigh Kalid explains that the fire extinguisher they purchased was in fact a “K” rated wet chemical type fire extinguisher, but that it was not possible to mount the extinguisher in the kitchen “given the location of the stoves, hood and stainless steel backing.” Id. ¶ 12. Kalid alleges that she called Shanklin and explained the difficulty in mounting the extinguisher, and that Shanklin told her that the extinguisher could be placed on a shelf in a readily accessible area of the kitchen. Id. ¶ 13. Furthermore, Kalid alleges that after she sent the photographs of the extinguisher to Shanklin, she spoke with Shanklin who told her that “the recommendations had been met and that nothing further was needed.” Id. ¶ 14. Kalid further alleges that she was told that the Insurance Policy “was reinstated due to the Plaintiff's compliance with the inspection recommendations.” Id. ¶ 18. Regarding the emails that Shanklin claimed to have sent on October 16, 2015 at 1:59 pm and 4:36 pm, and on November 6, 2015, Kalid alleges that she never received those emails. Id. ¶ 20. Kalid further alleges that neither she nor Steak in a Sack ever received a subsequent cancellation notice, and that they continued to check their online account until February 2016, and “was informed that the account was ‘Active' and that all premiums had been ‘PAID OFF.'” Id. ¶ 24.

         On February 19, 2016, a fire occurred at Plaintiff's restaurant, resulting in property damage. Id. ¶ 27. Defendant refused to pay for the loss, and Plaintiff filed suit in the Circuit Court for Prince George's County, Maryland on March 22, 2017. ECF No. 2. In its Complaint, Plaintiff alleges one count of Breach of Contract (Count I) and one count of Lack of Good Faith (Count II). Id. On May 18, 2017, Defendant removed the case to this Court, ECF No. 1, pursuant to the Court's diversity jurisdiction, ECF No. 11. Defendant filed an Answer to the Complaint on May 22, 2017. ECF No. 9. On January 29, 2018, Plaintiff filed a Partial Motion for Summary Judgment, ECF No. 30, and Defendant filed a Motion for Summary Judgment, ECF No. 31. Plaintiff subsequently filed a Motion for Summary Judgment, ECF No. 34, and moved to strike an exhibit from Defendant's Motion for Summary Judgment, ECF No. 35. All motions have been fully briefed.

         II. STANDARD OF REVIEW

         A party may move for summary judgment under Fed.R.Civ.P. 56(a). “The court shall grant summary judgment if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant has the “initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings . . . together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 466 U.S. 317, 323 (1986) (internal citation omitted). In considering the motion, “the judge's function is not . . . to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1986). To withstand a motion for summary judgment, the nonmoving party must do more than present a mere scintilla of evidence. Phillips v. CSX Transport, Inc., 190 F.3d 285, 287 (4th Cir. 1999). Rather, “the adverse party must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 250. No. genuine issue of material fact exists if the non-moving party fails to make a sufficient showing on an essential element of his case as to which he would have the burden of proof. See Celotex, 477 U.S. at 322-23. Although the Court should draw all justifiable inferences in the nonmoving party's favor, the nonmoving party cannot create a genuine issue of material fact “through mere speculation or the building of one inference upon another.” Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985).

         Cross-motions for summary judgment require that the Court consider “each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003). “The Court must deny both motions if it finds there is a genuine issue of material fact, but if there is no genuine issue and one or the other party is entitled to prevail as a matter of law, the court will render judgment.” Wallace v. Poulos, No. DKC 2008-0251, 2009 WL 3216622, at *4 (D. Md. Sept. 29, 2009) (internal citation omitted).

         III. DISCUSSION

         In its Motions for Summary Judgment, Plaintiff alleges that there is no dispute that Defendant did not comply with certain notice provisions of the Maryland Insurance Code, and that the cancellation notice was sent from and to the wrong parties pursuant to the Policy. ECF No. 30-1; ECF No. 34. In its Motion for Summary Judgment, Covington alleges that the notice provisions of the Maryland Insurance Code do not apply to it, and that it cancelled the Policy prior to the fire in good faith. ECF No. 31-1. The Court first examines whether the notice provisions of the Maryland Insurance Code cited by Plaintiff apply to Defendant, before examining whether Defendant complied with the terms of the Policy when it cancelled Plaintiff's coverage.

         A. Application of Maryland Insurance Code

         The Court first considers whether certain provisions of the Maryland Insurance Code apply to Defendant's cancellation of Plaintiff's insurance policy. Md. Code, Ins. § 27-603 provides that for cancellation of a “commercial insurance”[7] policy, “at least 45 days before the date of the proposed cancellation or expiration of the policy, the insurer shall send to the insured, by a first-class mail tracking method or by commercial mail delivery service, written notice of ...


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