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State Automobile Mutual Insurance Company v. Rod & Reel, Inc.

United States District Court, D. Maryland, Southern Division

November 7, 2018

STATE AUTOMOBILE MUTUAL INSURANCE CO., Plaintiffs/Counter-Defendants,
v.
ROD & REEL, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

         State Automobile Mutual Insurance Company (“State Auto” or “Insurer”) issued an insurance policy (“Policy”) providing, inter alia, “blanket coverage for loss of business income and extra expense coverage” for the property and businesses of Defendants Rod & Reel, Inc., Chesapeake Beach Resort and Spa, Chesapeake Beach Hotel and Spa, Smokey Joe's Grill and Boardwalk Café, and Chesapeake Amusement, Inc. t/a Rod-N-Reel Bingo (collectively “Insureds”). Stip. Facts ¶¶ 1, 3, ECF No. 26-1. Following a fire, the Insureds submitted a claim, which State Auto accepted, but the parties could not agree “on the payment due under the Policy's loss of business and extra expenses coverage.” Id. ¶¶ 5-12. The loss was appraised, resulting in an “Award” pursuant to the Policy's appraisal provision, and the Insureds sought to recover the amount stated as the “Total Award Amount” in the appraisal. State Auto refused to pay the total amount of the award (which was the sum of the appraisers' calculation of the monthly loss for a total of 15 months from the date of the fire loss), arguing that the Award included a determination of the “period of recovery” (that is, the period for which the Insureds were entitled to recover under the Policy), which was outside the scope of the referral.[1] It filed suit, asking this Court to vacate the Award or, alternatively, to modify it to include only the month-to-month calculations of loss. Id. ¶¶ 21-26; Pet., ECF No. 1. The Insureds seek a judgment enforcing the Award or modifying it simply by removing the period of restoration but not the calculation of the total amount due. Ans. & Req. to Enforce, ECF No. 7; Defs.' Mot., ECF No. 24.[2]

         Because the Award stated the period of restoration, which was outside the scope of the referral, the Award cannot be confirmed as drafted. Therefore, the Insureds' motion for summary judgment confirming the Award is denied, as is their Request to Enforce the Award. And, their motion, in the alternative, to modify the Award to eliminate the period of restoration but include the calculation of the total amount of loss is denied because it would imply the same period of restoration. Instead, in accordance with the appraisers' intent to calculate the total amount of loss without determining the period of restoration, the Award is modified to include only the month-to-month calculations. Thus, State Auto's Petition is granted insofar as the Award is modified, and it is denied insofar as the Award is not vacated.

         Background

          State Auto issued the “Policy, ” providing insurance coverage for Defendants' property and businesses, which are located at 4160 Mears Avenue, Chesapeake Beach, Maryland (the “Property”). Stip. Facts ¶¶ 1, 3. The Insureds' businesses include a hotel, restaurant, tackle shop, furniture storage, bingo, and related enterprises. Id. ¶ 1.

         The Policy “provided blanket coverage for loss of business income and extra expense coverage.” Id. ¶ 3. Specifically, it provided:

We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct physical loss of or damage to property at premises . . . . The loss or damage must be caused by or result from a Covered Cause of Loss.

Policy, Jt. Rec. 14. The Policy defined “business income” as “a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and b. Continuing normal operating expenses incurred, including payroll.” Id. It further defined “business income” to include “Rental Value.” Id. It defined “period of restoration” to begin at a specific time following the loss or damage and to “end[] on the earlier of . . . [t]he date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality or . . . [t]he date when business is resumed at a new permanent location, ” with exceptions. Id. at 21.

         Additionally, it provided “Extended Business Income” coverage for business income other than rental value:

         If the necessary “suspension” of your “operations” produces a Business Income loss payable under this policy, we will pay for the actual loss of Business Income you incur during the period that . . . begins on the date property . . . is actually repaired, rebuilt or replaced and “operations” are resumed; and ends on the earlier of . . . [t]he date you could restore your “operations”, with reasonable speed, to the level which would generate the business income amount that would have existed if no direct physical loss or damage had occurred; or . . . [180] consecutive days after the date determined . . .. above.

Id. at 15-16, 21; see also Declarations, Jt. Rec. 4 (modifying the number of days stated on 15- 16).

         On February 8, 2015, at which time the Policy was in effect and the premium had been paid, a fire “damaged the Property and caused a loss of business income and incurred extra expenses.” Stip. Facts ¶¶ 5, 7, 8. The Insureds submitted a claim, which included “a claim for the loss of business income and extra expenses incurred, ” and State Auto accepted the claim as covered under the Policy. Id. ¶¶ 9-10. Because the parties could not agree “on the payment due under the Policy's loss of business and extra expenses coverage, ” the Insureds exercised their right under the Policy to obtain an appraisal. Id. ¶¶ 10, 12; see July 25, 2017 Ltr., Jt. Rec. 24-26.

The Policy's appraisal provision (“Appraisal Provision”) provided:
If we and you disagree on the amount of Net Income and operating expense or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser.
The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the amount of Net Income and operating expense or amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.
Each party will:
a. Pay its chosen appraiser; and b. Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim.

Policy, Jt. Rec. 17; see Stip. Facts ¶ 11. The Policy provided for payment within thirty days of an appraisal award. Id.

         The Insureds selected Charles Murray, Jr.; State Auto selected Randall Wilson; and the appraisers selected Retired Judge Richard Sothoron, Jr. as the umpire (collectively, the “Appraisal Panel”). Stip. Facts ¶¶ 13-15; Jt. Rec. 26, 28-29, 31. The agreement that the Appraisal Panel signed stated that they were “only appraising the amount of the loss and more specifically, the amount of the Business Income and Extra Expense loss (if any) relevant to the fire that occurred at the Smokey Joe's Grill (one of the named insureds under the policy) on February 8, 2015.” Agr., Jt. Rec. 32.

         The Appraisal Panel met in January to conduct the appraisal, and they all signed an appraisal award (“Award”) on January 11, 2018. Stip. Facts ¶¶ 18-19; Award, Jt. Rec. 34. The Award stated:

[T]he umpire and appraisers, after due consideration [illegible] the following appraisal award for the loss of Business Income and Extra Expense relevant to the captioned insurance loss:
Total Appraisal Award for February 2015 through April 2016 $671, 639 It is further determined that this amount is before the $71, 639 that was previously paid by the insurance company for Business Income and Extra Expense relevant to this loss and that the Appraisal Award of $671, 639 is ...

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