United States District Court, D. Maryland, Southern Division
STATE AUTOMOBILE MUTUAL INSURANCE CO., Plaintiffs/Counter-Defendants,
ROD & REEL, INC., et al., Defendants.
MEMORANDUM OPINION AND ORDER
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. 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.
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.
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.
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.
it provided “Extended Business Income” coverage
for business income other than rental value:
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 . . .  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).
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
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.
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.
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
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