Opinion
No. 1:17-cv-02745-JPH-DML
07-17-2019
Matthew CARTER, Plaintiff, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.
Jenna M. Shives, Kyle D. Steinbrueck, Tonya J. Bond, Plews Shadley Racher & Braun LLP, Indianapolis, IN, for Plaintiff. John B. Drummy, Kyle Blake Wong, Kightlinger & Gray, LLP, Indianapolis, IN, for Defendant.
Jenna M. Shives, Kyle D. Steinbrueck, Tonya J. Bond, Plews Shadley Racher & Braun LLP, Indianapolis, IN, for Plaintiff.
John B. Drummy, Kyle Blake Wong, Kightlinger & Gray, LLP, Indianapolis, IN, for Defendant.
ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
James Patrick Hanlon, United States District Judge Matthew Carter filed an insurance claim for water damage to a house on his family's vacation property. After the insurer, State Farm, denied the claim, Mr. Carter filed this lawsuit seeking, among other things, a declaratory judgment that the State Farm Policy provides coverage. The parties filed cross-motions for summary judgment. Dkt. [48], dkt. [52]. Because the key Policy terms "dwelling," "vacant," and "unoccupied" are ambiguous and must be construed against the insurer, Mr. Carter's motion is GRANTED , and State Farm's motion is DENIED .
I.
Facts and Background
The parties have filed cross-motions for summary judgment. Ordinarily, the Court would take the motions "one at a time," viewing the evidence and drawing all reasonable inferences in favor of the non-moving party. Am. Family Mut. Ins. v. Williams , 832 F.3d 645, 648 (7th Cir. 2016). Here, though, the material facts are undisputed, so the Court considers the motions together. See State Auto Prop. & Cas. Ins. v. Brumit Servs. , 877 F.3d 355, 357 (7th Cir. 2017).
A. Undisputed facts
Mr. Carter was the trustee of family vacation property on Lake Wawasee in Syracuse, Indiana. Dkt. 52-1 at 7–9 (Carter Dep. at 9–11). The property had three houses—the Main House, the Island House (which is the subject of this lawsuit), and the Hamburger Hut. The family generally gathered at the Main House, with the other two houses providing bedrooms and privacy as needed. Dkt. 52-2 at 1–2.
In March 2015, the Island House's boiler system failed, causing water damage that is unrelated to the claim at issue in this case. Dkt. 52-2 at 2. While the family decided not to replace some furnishings, including beds, they continued to use the Island House. Dkt. 52-2 at 2. The last time that someone spent the night at the Island House before the water damage that gave rise to this lawsuit was over the Fourth of July weekend in 2016, about six months before the damage. Dkt. 52-1 at 53 (Carter Dep. at 76).
Mr. Carter returned to the property over Labor Day weekend in 2016. Dkt. 52-1 at 53 (Carter Dep. at 76). He didn't stay at the Island House, but he walked through it since the property was for sale—as it had been off-and-on since 2010. Dkt. 52-1 at 53–54 (Carter Dep. at 76–77); dkt. 52-2 at 2. He left the thermostat on its cooling setting at 78 degrees in case a realtor had a showing. Dkt. 52-1 at 54 (Carter Dep. at 77). Mr. Carter's brother walked through the Island House around Christmas 2016; he saw that the thermostat registered in the 50s and made no changes. Dkt. 52-1 at 58–59 (Carter Dep. at 81–82).
With the thermostat set to cool, the heat never came on that winter. See dkt. 52-1 at 61 (Carter Dep. at 84). In January 2017, Mr. Carter discovered that a pipe had burst at the Island House. Dkt. 52-1 at 24, 41 (Carter Dep. at 40, 64). He filed a claim with State Farm for the damage caused by water from the burst pipe. See dkt. 52-1 at 46 (Carter Dep. at 69); dkt. 50-4.
B. The insurance Policy
The State Farm insurance Policy in force at the time of the loss ("the Policy") defined the insured property as the "residence premises ," which in turn was defined as "(a) the one, two, three, or four-family dwelling, other structures and grounds; or (b) that part of any other building; where you reside." Dkt. 50-1 at 5. The Policy also had the following relevant provisions:
SECTION I - COVERAGES
COVERAGE A - DWELLING
...
2. Dwelling Extension. We cover other structures on the residence premises , separated from the dwelling by clear space. Structures connected to the dwelling by only a fence, utility line, or similar connection are considered to be other structures.
Dkt. 50-1 at 6.
SECTION I - LOSSES INSURED
COVERAGE A - DWELLING
We insure for accidental direct physical loss to the property described in Coverage A, except as provided in SECTION I - LOSSES NOT INSURED
Dkt. 50-1 at 10.
SECTION I - LOSSES NOT INSURED
1. We do not insure for any loss to the property described in Coverage A which consists of, or is directly and immediately caused by, one or more of the perils listed in items a. through n. below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these:
...
b. freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system, or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. The exclusion only applies while the dwelling is vacant, unoccupied or being constructed. This exclusion does not apply if you have used reasonable care to:
(1) maintain heat in the building; or
(2) shut off the water supply and drain the system and appliances of water.
Dkt. 50-1 at 12 (emphasis added) ("the Exclusion").
State Farm denied Mr. Carter's claim based on the Exclusion, concluding that "reasonable care was not used to maintain heat in the vacant and/or unoccupied residence and the plumbing system or appliances were not drained of water." Dkt. 50-4 at 4.
C. Procedural history
Mr. Carter filed this suit—which State Farm removed to this Court—seeking a declaratory judgment that the Policy covered the claim and alleging that State Farm breached the Policy. Dkt. 1; dkt. 1-1. Both Mr. Carter and State Farm moved for summary judgment. Dkt. 48; dkt. 52.
II.
Applicable Law
Summary judgment shall be granted "if the movant shows that 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 moving party must inform the court "of the basis for its motion" and specify evidence demonstrating "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party meets this burden, the nonmoving party must "go beyond the pleadings" and identify "specific facts showing that there is a genuine issue for trial." Id. at 324, 106 S.Ct. 2548.
III.
Analysis
Indiana law governs this insurance-contract case. See Lodholtz v. York Risk Servs. Grp. , 778 F.3d 635, 639 (7th Cir. 2015) (citing Erie R.R. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ). Insurance policy interpretation "is primarily a question of law, even if the policy language is ambiguous." Ind. Funeral Dirs. Ins. Trust v. Trustmark Ins. Corp. , 347 F.3d 652, 654 (7th Cir. 2003) (citing USA Life One Ins. v. Nuckolls , 682 N.E.2d 534, 537–38 (Ind. 1997) ). Here, the threshold question that determines whether the Exclusion applies is whether the Island House was "vacant" or "unoccupied" at the time of the claimed loss. See dkt. 50-1 at 12. The answer depends on the interpretation of the terms "dwelling," "vacant," and "unoccupied."
State Farm contends there is only one reasonable interpretation of those terms and that it results in application of the Exclusion—and thus no coverage. Dkt. 49 at 13; dkt. 50-1 at 12. Under State Farm's interpretation, the Island House was "vacant" or "unoccupied" because nobody lived in it or routinely stayed there, and because it was unfurnished. Dkt. 49 at 4-5; 13-19. Mr. Carter argues there is more than one reasonable interpretation of those terms because they are used in the context of a Policy insuring a vacation home used on a seasonal basis. Dkt. 54 at 14–17.
Under Indiana law, the Court interprets insurance policies "from the perspective of an ordinary policyholder of average intelligence." Bradshaw v. Chandler , 916 N.E.2d 163, 166 (Ind. 2009) (citations and quotation omitted). This includes giving unambiguous terms their "ordinary meaning" and construing ambiguous terms "strictly against the insurer"—particularly when a policy excludes coverage. Id. (citing Am. States Ins. Co. v. Kiger , 662 N.E.2d 945, 947 (Ind. 1996) ). That's because "the insurer drafts the policy and foists its terms upon the customer." Wagner v. Yates , 912 N.E.2d 805, 810 (Ind. 2009) (quoting Kiger , 662 N.E.2d at 947 ). While a policy term is not necessarily ambiguous just because it is undefined or because its meaning is disputed, it is ambiguous if a provision is susceptible to more than one reasonable interpretation. Id.
Here, the Exclusion can reasonably be read as State Farm urges—to encourage the insured to take reasonable care of the property when "no one is living in it." Dkt. 49 at 13–17. Under this reasonable reading, the Exclusion would apply whenever the Carter family had no one staying in the Island House yet failed to take reasonable steps to prevent frozen pipes.
But that must be the only reasonable interpretation for State Farm to be correct that the Policy is unambiguous. See Wagner , 912 N.E.2d at 810 ("[A]n insurance policy is ambiguous if a provision is susceptible to more than one reasonable interpretation."). Yet the Policy does not define "dwelling," "vacant," or "unoccupied," and the term "dwelling" is not used clearly or consistently as State Farm argues. Compare dkt. 50-1 at 5 (defining "residence premises " to include "the ... dwelling" and "that part of any other building") and dkt. 50-1 at 6 (covering "other structures on the residence premises , separated from the dwelling by clear space") with dkt. 50-1 at 12 ("This exclusion only applies while the dwelling is vacant, unoccupied or being constructed."). Reading the Exclusion as State Farm urges would define all the buildings on the property as dwellings, making the Policy internally inconsistent. See Bradshaw , 916 N.E.2d at 166 ("[I]nterpretation should harmonize the policy's provisions rather than place its provisions in conflict.").
Indiana law defines "dwelling" as a "customary place of abode, not absolutely and uninterruptedly continuous, but that must be the place of usual return and habitual stoppage." Estate of Luster v. Allstate Ins. Co. , 598 F.3d 903, 906 (7th Cir. 2010) (applying Indiana law) (quoting Home Ins. Co. v. Boyd , 19 Ind.App. 173, 49 N.E. 285, 291 (1898) ); see Ohio Farmers' Ins. Co. v. Vogel , 166 Ind. 239, 76 N.E. 977, 979 (1906). When a dwelling is no longer used in that way, it becomes vacant and unoccupied. See Boyd , 49 N.E. at 291. But the Policy did not adopt that case law definition of "dwelling," and an ordinary policyholder could reasonably think that a different definition of "dwelling" applies in a policy that insures a summer vacation home.
Moreover, Indiana law requires that the terms "vacant" and "unoccupied" "be construed with relation to the character or class of property" at issue. Vogel , 76 N.E. at 979 ; see Boyd , 49 N.E. at 287 (construing the words "vacant, unoccupied, or uninhabited" based on the "sense and connection" of their use). So the words "vacant" and "unoccupied" may have a different meaning in the context of a summer vacation home, just as they have different meanings in the context of an owner-occupied dwelling versus a tenant-occupied dwelling, or when applied to a church, schoolhouse, store, barn, or mill. See id. ; Vogel , 76 N.E. at 979 ; Cont'l Ins. Co. v. Kyle , 124 Ind. 132, 24 N.E. 727, 729 (1890) ; Luster , 598 F.3d at 908. The Court must construe the terms "vacant" and "unoccupied" as Indiana law requires.
The dictionary definitions of "vacant" and "unoccupied" provided by the parties, dkt. 54 at 15-16; dkt. 58 at 4-8, do not take into account the character and class of the Island House.
It would be reasonable for an ordinary policyholder of average intelligence to understand the terms "dwelling," "vacant," and "unoccupied" in the Exclusion in light of the Island House's role as a vacation home. See Boyd , 49 N.E. at 290–91 ("[The policy] is to have a meaning fitted to the circumstances in which it was made, and to the subject to which it related."). The Policy is therefore ambiguous, and Indiana law requires that ambiguity be resolved in favor of the insured. See Home Ins. Co. v. Gagen , 38 Ind.App. 680, 76 N.E. 927, 929 (1906) ("The provision that the policy should be void if the premises were vacant, unoccupied, or uninhabited, inserted for the protection of the insurer, is, like all other provisions of the contract, the form of which was provided by the insurer, to be construed most strongly against the insurer and most favorably as to the assured ...."). So the terms "vacant" and "unoccupied" must be read and interpreted in the context of a vacation home.
State Farm admitted "that it was aware the dwelling was a seasonal home." Dkt. 52-6 at 7.
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State Farm argues that construing the terms in the context of a seasonal vacation home redefines the term "vacant" to apply only when a property is "totally abandoned." Dkt. 58 at 3–4. That may be true if the Island House were a traditional dwelling. See Luster , 598 F.3d at 906. But it was not. Rather, the Island House was a lakeside vacation house for seasonal use. It was used to provide additional sleeping space and privacy when family and guests gathered at the lake property. The designed evidence demonstrates that several people slept in the Island House the summer before its pipes froze. This is consistent with the occasional, temporary occupation expected of a seasonal vacation home. See Vogel , 76 N.E. at 979 (recognizing that parties know, as "common knowledge," that schoolhouses will be vacant a large part of the year).
Moreover, State Farm could have defined the terms "dwelling," "vacant," and "unoccupied," see Buehler Corp. v. Home Ins. , 358 F. Supp. 15, 16 (S.D. Ind. 1973) (quoting a policy that became void if a building remained "vacant or unoccupied ... for ten (10) days"), or included specific provisions governing off-season coverage, see Bosecker v. Westfield Ins. Co. , 724 N.E.2d 241, 245 (Ind. 2000) (recognizing that "the risk remained with the insurer" because it failed to set out clear policy terms); Vogel , 76 N.E. at 979–80 (noting the parties' knowledge and intent, and ability to negotiate insurance policies). But in the absence of such specific definitions or contractual terms, an ordinary policyholder could reasonably believe that a seasonal vacation property would not be considered "vacant" or "unoccupied" for the purpose of insurance coverage so long as the structure is used on an occasional basis, even if sporadic and infrequent, in a way that is consistent with its nature.
As the Seventh Circuit recently explained, "a person who owns a vacation home may spend the summer months away from his primary home." Luster , 598 F.3d at 908 (applying Indiana law). The same person may spend the winter months away from his vacation home. When that person spends the summer away from his dwelling, the insurance policy on that dwelling doesn't lapse because of the summer away. Id. So an ordinary policyholder wouldn't expect the insurance policy on a seasonal vacation house to lapse because of infrequent use. The Island House was a vacation home, so intermittent and even infrequent usage, including the six-month gap between the last time anyone slept at the Island House and the date of the damage, fits the "character or class" of the property. Vogel , 76 N.E. at 979. No designated evidence demonstrates that Mr. Carter intended to change the way in which the Island House had previously been used—providing family members and guests with additional space for sleeping and privacy during seasonal visits. Resolving the Policy's ambiguity against State Farm as the Court must, Gagen , 76 N.E. at 929, the Exclusion does not apply.
Because the Exclusion does not apply, the Court need not address the parties' arguments about whether Mr. Carter exercised reasonable care. See dkt. 50-1 at 12.
IV.
Conclusion
Mr. Carter's motion for summary judgment, dkt. [52], is GRANTED ; State Farm's motion for summary judgment, dkt. [48] is DENIED . Mr. Carter is entitled a declaration that the Policy provides coverage for his claim and is granted summary judgment on his breach of contract claim. Because State Farm's motion to preclude expert testimony, dkt. [61], applies to testimony at trial, it is DENIED without prejudice . The parties shall file a status update by August 19, 2019 advising the Court whether a damages hearing will be required.