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Mt. Hawley Insurance Co. v. Adell Plastics, Inc.

United States District Court, D. Maryland

October 11, 2018

MT. HAWLEY INS. CO., Plaintiff,



         This case arises from a fire that demolished several buildings at the Baltimore facility of Adell Plastics, Inc. ("Adell"). Mt. Hawley Insurance Co. ("Mt. Hawley") sued Adell, seeking a declaration that, under their commercial property insurance contract, Mt. Hawley owed no coverage and seeking a recoupment of its $1 million advance payment. Adell filed a counterclaim, claiming that Mt. Hawley breached the insurance contract and acted with a lack of good faith. Adell moved for summary judgment on its breach of contract and lack of good faith claims. Mt. Hawley opposed Adell's motion and moved for summary judgment, in its own right, arguing that it was entitled to a declaratory judgment and restitution as a matter of law. Both sides have also moved to strike certain exhibits relied on by the opposing party. No. hearing is required. See Local Rule 105.6 (D. Md. 2016). For the reasons set forth below, the Court will deny both motions to strike. The Court will further deny Adell's motion for summary judgment in full and Mt. Hawley's motion for summary judgment in part.

         I. Factual and Procedural Background

         On October 4, 2016, Adell's Baltimore facility caught fire. The fire began at approximately 1:00 p.m. and lasted for several days, eventually destroying two buildings and causing over $12.7 million of damage. (Adell Mem. M.S.J, at 6, ECF No. 95; Adell Mem. M.S.J. Ex. 1 at 29, ECF No. 95-2; Ex. 13, ECF No. 95-14; Mt. Hawley Mem. M.S.J. Ex. 11 at 10, ECF No. 110-13.)

         At the time of the fire, Adell had a commercial property insurance policy in effect through Mt. Hawley. (Mt. Hawley Mem. M.S.J. Ex. 20(A), ECF No. 110-22.) The insurance contract included coverage in the event of a fire and contained a Protective Safeguard Endorsement ("the Endorsement"), which stated,

As a condition of this insurance, it is understood and agreed that the protective devices or services set forth in the Schedule below will be maintained in complete working order.... We will not pay for loss or damage if the protective safeguard or service in the above Schedule was not maintained in complete working order and such failure to maintain contributed directly or indirectly to the loss or damage or to the extent of such loss or damage.

(Id. at 85-86.) The Endorsement "Schedule" listed the "Automatic Sprinkler System" and "Automatic Fire Alarm" as the types of protective devices that Adell had to maintain. (Id.) Adell's Baltimore facility had two sprinkler systems, and the Endorsement obligated Adell to maintain "[a]ll" of them in "complete working order." (Id.) One sprinkler system connected to Buildings Five and Six while a second connected to Buildings One through Four. (Mt. Hawley Mem. M.S.J. Ex. 24(C, F), ECF. No. 110-26) The fire destroyed Buildings Five and Six. (Mt. Hawley Mem. M.S.J. Ex. 11 at 10.)

         Within a week of the fire, Mt. Hawley began its investigation and delivered an advance payment of $1 million to Adell. (Adell Mem. M.S.J. Ex. 13.) At the end of October, Mt.

         Hawley informed Adell by letter that its investigation revealed that some of the protective devices may not have responded to the fire:

Based on the facts known to date, it is believed that the sprinkler system in Building 5 did not activate, and there was no audible sound (water motor gong) indicating the sprinkler system's activation. The lack of a gong usually indicates that water was not flowing in the system. It is also believed that the post indicator valve that controls the system's water flow in Building 5 was in a closed position, which means that water was prevented from entering the sprinkler system.

(Mt. Hawley Mem. M.S.J. Ex. 16(B) at 18, ECF No. 110-18.) The letter made clear that Mt. Hawley would continue to investigate the Adell fire but would do so "under an express reservation of rights." (Id. at 19, )

         In January 2017, Mt. Hawley filed a complaint in this court, seeking a declaration that it did not owe Adell under the insurance contract and seeking restitution for the advance payment. (Compl. at 1, ECF No.l.) Adell filed a counterclaim, alleging breach of contract and lack of good faith under Md. Code Ann. Cts. & Jud. Proc. § 3-1701 (West 2016). (Answer & Countered, ECF No. 10; First Am. Countercl., ECF No. 41.) After engaging in a hard-fought discovery battle, see Mt, Hawley Ins. Co. v. Adell Plastics, Inc., No. 17-252, slip op. at 1-2 (D. Md. Aug, 22, 2017), both parties have moved for summary judgment on their claims. In doing so, they attach voluminous exhibits.

         Adell presents the protective devices' monitoring logs; loss control inspection reports of the Baltimore facility; depositions of witnesses to the fire and employees of the companies involved in the insurance dispute; and several pieces of correspondence regarding the facility and the fire. Through this evidence, Adell supports its assertion that it properly maintained the protective devices by hiring Fireline Corp., a fire equipment distribution business, to inspect and repair their protective systems and by allowing both Fireline and other loss control inspectors to inspect the devices and prepare them when needed. (See Adell Mem. M.S.J. Ex. 20, ECF No. 95-21; Ex. 55, ECF No. 95-56; Ex. 57, ECF No. 95-58; Ex. 59, ECF No. 95-60; Ex. 65, ECF No. 95-66.) Adell puts forth testimony and monitoring logs that indicate that the post-indicator valve, which connects the sprinklers to the municipal water supply, was locked open and functioning at the time of the fire. (See Adell Mem. M.S.J. Ex. 22, ECF No. 95-23; Ex. 45, ECF No. 95-46; Ex. 46, ECF No. 95-47; Ex. 55; Ex. 57.) Testimony from Adell employees and monitoring logs indicate that water flowed from the sprinklers in response to the fire. (See Adell Mem. M.S.J. Ex. 22; Ex. 67, ECF No. 95-68.) Finally, Adell's interpretation of the monitoring logs illustrates a functioning sprinkler and alarm system that responded to the fire. (See Adell Mem. M.S.J. Ex. 40, ECF No. 95-41; Ex. 45; Ex. 46; Ex. 51, ECF No. 95-52.)

         Mt. Hawley's evidence conflicts on each point. Mt. Hawley puts forth inspection reports, the Fireline agreement with Adell, and several witness declarations to show that Adell failed to maintain the sprinklers in complete working order because it failed to contract for and receive complete inspections of the protective devices, as recommended by the National Fire Protection Association ("NFPA"). (See Mt. Hawley Mem. M.S.J. Ex. 11; Ex. 21, ECF No. 110-23; Ex. 22(B, C, I), ECF No. 110-24; Ex. 23(B), ECF No. 110-25.) Mt. Hawley presents evidence that the post-indicator valve may have sat in the closed position or, even, in disrepair for some time. (See Mt. Hawley Mem. M.S.J. Ex. 11; Ex. 14, ECF No. 110-16; Ex. 21; Ex. 22(B, F, G, H); Ex. 23(0).) Many of the first responders to the fire testify that water was not flowing from the sprinklers in Building 5 on the day of the fire and that the lack of sprinklers contributed to the rapid spread of the fire. (See Mt. Hawley Mem. M.S.J. Ex. 3, ECF No. 110-5; Ex. 4, ECF No. 110-6; Ex. 5, ECF No. 110-7; Ex. 6, ECF No. 110-8; Ex. 7, ECF No. 110-9; Ex. 8, ECF No. 110-10; Ex. 9, ECF No. 110-11; Ex. 10, ECF No. 110-12.) Finally, Mt. Hawley interprets the monitoring logs differently and concludes that they reflect a broken sprinkler system that failed to adequately respond to the fire. (See Mt. Hawley Mem. M.S.J. Exs. 13, ECF No. 110-15.)

         In addition, the parties dispute how Mt. Hawley became Adell's insurer in the first place. Mt. Hawley claims that, when Adell applied for insurance in April 2016, the application contained material misrepresentations as to the Baltimore facility's sprinkler system, code violations, and prior insurance coverage. (Mt. Hawley Mem. M.S.J, at 46.) Mt. Hawley offers communications showing that Adell's prior insurance provider, Verlan Fire Insurance Co., did not renew its policy and that several insurance providers declined to cover Adell-facts Adell omitted from its insurance application. (Mt. Hawley Mem. M.S.J. Ex. 20; Ex. 22(1, J, K, L); Ex. 23(1, J).) Adell offers testimony from Verlan's corporate designee stating that Verlan in fact offered to renew and that the insurance providers that declined to extend coverage to Adell were all under the umbrella corporation of The Hanover Insurance Group. (Adell Opp. & Reply at 28, ECF. No. 118; Adell Opp. & Reply Ex. 90 at 110, 22-23, 27, ECF No. 118-16.)

         Despite the volume of evidence, both parties assert that there is no genuine issue of material fact. At this stage, the ...

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