United States District Court, S.D. Indiana, Indianapolis Division
ENTRY ON CROSS-MOTIONS FOR PARTIAL SUMMARY
WALTON PRATT, JUDGE
matter is before the Court on cross-motions for partial
summary judgment filed pursuant to Federal Rule of Civil
Procedure 56 by Plaintiff Westfield Insurance Company
(“Westfield”) (Filing No. 99; Filing No. 143) and
Defendant Bell Aquaculture LLC (“Bell”) (Filing
No. 108). After suffering a significant loss resulting from
an incident at its facilities, Bell submitted a claim to
Westfield to obtain insurance proceeds to cover its losses. A
dispute arose between Westfield and Bell regarding the
coverage provided by the insurance policy for Bell's
claims. This litigation followed. The parties filed
cross-motions for partial summary judgment regarding coverage
under a specific endorsement in the policy, and Westfield
filed a motion for partial summary judgment on Bell's
counterclaim for insurance bad faith. For the following
reasons, Westfield's motion for partial summary judgment
on coverage is granted in part and denied in
part, Bell's motion on coverage is
granted in part and denied in part, and
Westfield's motion for partial summary judgment on the
bad faith counterclaim is granted.
is an insurance company based out of Westfield Center, Ohio.
Westfield issued a commercial package insurance policy, No.
CAG 4 490 989, to Bell, which policy was effective during the
policy period of August 15, 2014, to August 15, 2015. The
policy provides certain first-party property and third-party
liability coverages and includes “Equipment Breakdown
Coverage, ” which is provided by an endorsement
attached to and forming a part of the “Commercial
Property Coverage Part” of the policy (“the EBC
Endorsement”) (Filing No. 100 at 2-3; Filing No. 100-1
at 16, 46).
in the business of aquaculture, which is,
the breeding, rearing, and harvesting of fish in all types of
water environments including indoors, ponds, rivers, lakes,
and the ocean. Aquaculture can be in fresh or marine water.
There are different types of aquaculture - net pen,
land-based, closed-containment, flow through and
recirculating. Bell Farms uses a land-based,
closed-containment RAS (Recirculating Aquaculture System).
(Filing No. 100-32 at 5.) Bell was founded in 2005 and is
based in Redkey, Indiana. Id. at 2. It's
commercial fish farm is located in Albany, Indiana, where
Bell has farmed trout, salmon, and perch to be sold to
various customers such as restaurants and grocery stores
(Filing No. 108-1 at 2; Filing No. 100-33 at 5). Bell's
aquaculture operation consists of several buildings where
fish eggs and fingerlings are hatched, reared, and grown out
in recirculating tanks. The fish are moved to the various
tanks as they grow and become ready for processing. Once the
fish have grown to the desired size, they are shipped to
Bell's processing site in Redkey where they are
processed, packaged, and sold. Id.
had insured Bell's commercial fish farm since at least
2008 (Filing No. 108-2 at 2). During the course of the
insuring relationship, Westfield visited Bell's facility
with one of these visits occurring on July 1, 2015 (Filing
No. 108-12 at 2). Electricity is required to operate
Bell's fish farm. One piece of equipment that Bell relied
on to sustain the electrical current being supplied to
Bell's facilities was an ASCO Power Technologies 7000
Series Automatic Transfer Switch. The automatic transfer
switch is a three-phase electrical switch through which
electrical power flows and, when operating correctly, helps
keep Bell's pumps and other equipment functioning. The
automatic transfer switch does not independently supply
electricity; rather, it is supposed to transfer an electrical
load to a backup generator when there is a power outage
(Filing No. 100 at 4-5; Filing No. 100-13 at 5).
early morning hours of July 22, 2015, the automatic transfer
switch, which was to provide protection to the Row 3 Building
in the event of a power outage, failed (Filing No. 108-1 at
3). While making his rounds, the night watchman walked by the
automatic transfer switch and smelled burning or smoldering
wires. He opened the door to the building and noticed that
the lights were off, and it was quiet. When everything is
operating properly, it is noisy. He immediately knew
something was wrong and called the farm manager to have him
come back to the farm (Filing No. 100-11 at 6).
farm manager arrived back at the farm around 1:00 a.m. He
smelled burning, he noticed that the lights were off in the
Row 3 Building, and he could hear that the pumps were off.
The automatic transfer switch box was hot to the touch. After
opening the front panel of the box, it was apparent that
something had burned up inside. The head of maintenance, who
the farm manager had called, then arrived at the farm around
1:30 a.m. to help (Filing No. 100-12 at 4-8). He opened the
inner part of the automatic transfer switch box and noticed
melted plastic, black soot, and ash. The purpose of the
automatic transfer switch was to transfer power to the backup
generator in the event of a power outage from the line power,
but the backup generator was not running, and thus, the tank
pumps were not functioning. With the help of an electrical
contractor, they eventually were able to restore power
through the generator around 5:00 a.m. (Filing No. 100-13 at
the automatic transfer switch failed and there was a loss of
electricity, the tanks could not recirculate water, introduce
oxygen to the fish, or remove waste. As a result,
approximately 800, 000 of Bell's fish died. These fish
were nearly ready for harvesting, processing, and sale
(Filing No. 108-1 at 3). Bell would later submit a claim for
insurance coverage for the fish loss in the amount of $1,
649, 118.00, consisting of the loss of the fish inventory
itself ($1, 551, 712.00) as well as the loss of the fish feed
ingredient inventory ($97, 406.00). Id. at 4.
approximately 4:42 a.m. that same morning, Bell notified an
independent adjusting firm of the incident and property loss.
The property loss notice was then promptly submitted to
Westfield at about 4:56 a.m. The notice requested immediate
assistance from an adjuster (Filing No. 100-10 at 2-3). After
Westfield received the notice, it opened a claim,
acknowledged receipt of the loss notice, began an
investigation, and assigned responsibility to conduct
Westfield's investigation and claim adjustment to Timothy
Call (“Call”) (Filing No. 100 at 3). Westfield
had entered into a reinsurance agreement with The Hartford
Steam Boiler Inspection and Insurance Company
(“HSB”), pursuant to which HSB reinsured the
policy's EBC Endorsement. Thus, Westfield notified HSB,
its equipment breakdown reinsurer, of the loss notice, and
HSB also opened a claim and undertook an investigation.
23, 2015, the day after the incident, Call traveled from his
office in West Virginia to Bell's commercial fish farm in
Albany, Indiana. He inspected the equipment and other
property involved in the reported loss, took photographs of
his observations, and spoke with Bell's CEO, Robert
Davis. He also reviewed a comprehensive business background
report on Bell, which revealed a default judgment, a tax
penalty, and other risk factors for Bell. Call decided to
retain a forensic accounting consultant, subrogation counsel,
and an electrical engineering consultant to assist Westfield
with the continued investigation of Bell's claim (Filing
No. 100 at 4; Filing No. 144 at 2-3).
24, 2015, Call and Westfield's subrogation counsel and
electrical engineering consultant visited Bell's facility
with Steven Smith (“Smith”), who was assigned
responsibility by HSB to investigate and adjust the claim.
They conducted additional inspections of the equipment and
other property involved in the reported loss, took
photographs, and interviewed some of Bell's employees.
Smith asked Bell for maintenance records and quotes for the
replacement of the automatic transfer switch (Filing No. 147
at 3; Filing No. 144 at 3).
and HSB decided, based on their initial investigation, that
Bell had suffered an equipment breakdown accident, and they
so advised Bell and proceeded with their claim adjustment
efforts (Filing No. 100 at 5). On July 29, 2015, Westfield
issued an initial reservation of rights letters to Bell,
which identified various issues related to coverage,
including exclusions for losses to animals (Filing No. 100-14
August 4, 2015, Call, Smith, and Joseph Rauch
(“Rauch”), a member of Westfield's special
investigation unit, traveled to Bell's facility. They
again inspected the automatic transfer switch, and Rauch took
the recorded statements of Bell's night watchman, farm
manager, maintenance manager, and CEO. Smith again requested
that Bell provide documentation to support its claim (Filing
No. 147 at 3; Filing No. 100 at 4; Filing No. 100-11; Filing
No. 100-12; Filing No. 100-13).
early August 2015, Westfield issued an advance payment of
$200, 000.00 to Bell under the equipment breakdown coverage
(Filing No. 100-19 at 2; Filing No. 100-16 at 3). Throughout
the following weeks and months, Westfield and HSB sent
correspondence to Bell requesting additional documentation
and information to support Bell's claim, requesting sworn
statements for proof of loss, and discussing the various
policy provisions that they understood to create coverage
issues for Bell's claim. Bell generally responded with
counter arguments to the insurers' coverage positions and
requested additional advance payments in the amount of one
million dollars. Westfield and Bell also each retained
forensic accounting consultants to evaluate Bell's
business loss claim (Filing No. 100-15; Filing No. 100-16;
Filing No. 147-1; Filing No. 100-17; Filing No. 100-18;
Filing No. 144-1; Filing No. 108-5).
issued additional advance payments to Bell, with Bell's
mortgage company listed on the checks as an additional payee
pursuant to the insurance policy. The following advance
payments were made: $200, 000.00 on September 4, 2015; $250,
000.00 on September 18, 2015; $350, 000.00 on October 21,
2015; and $65, 772.00 on January 8, 2016. The last payment
included Dymax as an additional payee on the check, which was
issued to replace the automatic transfer switch. Each of
these payments was issued to Bell with a reservation of
rights and an explanation that the payments were not for the
loss of Bell's fish (Filing No. 100-20; Filing No.
100-21; Filing No. 100-22; Filing No. 100-23).
Westfield's requests, Bell submitted sworn statements for
proof of loss in October 2015, January 2016, and March 2017,
claiming more than six million dollars for its loss (Filing
No. 100-24; Filing No. 100-25; Filing No. 100-26; Filing No.
100-27). Following receipt of Bell's proofs of loss,
Westfield and HSB asked to take examinations under oath of
Bell's CEO, farm manager, and director of sales
integration/business operations. Westfield conducted these
examinations under oath on February 29, March 1, June 7, and
June 8, 2016. Westfield and HSB then continued their
investigation and claim adjustment efforts, gathering and
reviewing additional documents, working with a forensic
accountant, and further assessing the coverage issues
presented by Bell's claim (Filing No. 100 at 6-7).
issued a coverage position letter to Bell on August 24, 2016
(Filing No. 100-33), and the following day, Westfield removed
this case to from the Marion Superior Court (Indiana) to
federal court, based on diversity jurisdiction (Filing No.
TCFI Bell SPE III LLC (“TCFI”) had purchased and
was the holder of various promissory notes executed by Bell
(Filing No. 1-2 at 56-57). Bell defaulted on its payment
obligations under those notes, and TCFI filed a complaint
with the Marion Superior Court to collect on the notes. That
case was styled as TCFI Bell SPE III LLC v. Bell
Aquaculture LLC, Cause No. 49D04-1604-CC-013622. On July
19, 2016, the State Court granted TCFI a default judgment
against Bell in the original principal amount of $7, 715,
649.70. Based on its understanding that Bell had submitted
insurance claims to Westfield, TCFI filed a “Verified
Motion for Entry of Asset Garnishment Order” in the
state court on August 4, 2016, less than a month after TCFI
obtained a default judgment against Bell (Filing No. 1-2 at
60). Following removal of the state court action to this
Court and after an October 13, 2016 status conference, the
Court entered an “Order Realigning Parties”
(Filing No. 23), which realigned Westfield as the plaintiff
and Bell and TCFI as defendants. The Order also required
Westfield to file a complaint on or before October 28, 2016.
October 28, 2016, Westfield filed its Complaint for
Declaratory Judgment and Damages (Filing No. 26). On November
18, 2016, Bell filed its Answer and also asserted
counterclaims against Westfield, which included a claim for
insurance bad faith and punitive damages (Filing No. 28).
Bell and Westfield filed cross-motions for partial summary
judgment regarding their coverage dispute about the
“animal exclusion” in the EBC Endorsement, and
Westfield filed a motion for partial summary judgment on
Bell's counterclaim for bad faith. Co-defendant TCFI did
not respond to or participate in these summary judgment
motions regarding coverage and the bad faith claim.
Additional facts will be provided as needed in the discussion
SUMMARY JUDGMENT STANDARD
purpose of summary judgment is to “pierce the pleadings
and to assess the proof in order to see whether there is a
genuine need for trial.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Federal Rule of Civil Procedure 56 provides that summary
judgment is appropriate if “the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.”
Hemsworth v. Quotesmith.com, Inc., 476 F.3d 487,
489-90 (7th Cir. 2007). In ruling on a motion for summary
judgment, the court reviews “the record in the light
most favorable to the non-moving party and draw[s] all
reasonable inferences in that party's favor.”
Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009)
(citation omitted). “However, inferences that are
supported by only speculation or conjecture will not defeat a
summary judgment motion.” Dorsey v. Morgan
Stanley, 507 F.3d 624, 627 (7th Cir. 2007) (citation and
quotation marks omitted). Additionally, “[a] party who
bears the burden of proof on a particular issue may not rest
on its pleadings, but must affirmatively demonstrate, by
specific factual allegations, that there is a genuine issue
of material fact that requires trial.”
Hemsworth, 476 F.3d at 490 (citation omitted).
“The opposing party cannot meet this burden with
conclusory statements or speculation but only with
appropriate citations to relevant admissible evidence.”
Sink v. Knox County Hosp., 900 F.Supp. 1065, 1072
(S.D. Ind. 1995) (citations omitted).
much the same way that a court is not required to scour the
record in search of evidence to defeat a motion for summary
judgment, nor is it permitted to conduct a paper trial on the
merits of [the] claim.” Ritchie v. Glidden
Co., 242 F.3d 713, 723 (7th Cir. 2001) (citations and
quotation marks omitted). “[N]either the mere existence
of some alleged factual dispute between the parties nor the
existence of some metaphysical doubt as to the material facts
is sufficient to defeat a motion for summary judgment.”
Chiaramonte v. Fashion Bed Grp., Inc., 129 F.3d 391,
395 (7th Cir. 1997) (citations and quotation marks omitted).
same standards apply even when each side files a motion for
summary judgment. The existence of cross-motions for summary
judgment does not imply that there are no genuine issues of
material fact. R.J. Corman Derailment Serv., LLC v.
Int'l Union of Operating Eng'rs., 335 F.3d 643,
647 (7th Cir. 2003). The process of taking the facts in the
light most favorable to the non-moving party, first for one
side and then for the other, may reveal that neither side has
enough to prevail without a trial. Id. at 648.
“With cross-motions, [the Court's] review of the
record requires that [the Court] construe all inferences in
favor of the party against whom the motion under
consideration is made.” O'Regan v. Arbitration
Forums, Inc., 246 F.3d 975, 983 (7th Cir. 2001)
(citation and quotation marks omitted).
parties filed cross-motions for partial summary judgment
regarding their coverage dispute over the “animal
exclusion” in the EBC Endorsement. Westfield also filed
a motion for partial summary judgment on Bell's
counterclaim for bad faith. The Court will first address the
cross-motions on the coverage issue and then turn to the
motion on the bad faith claim.
The Animal Exclusion in the EBC Endorsement
parties' cross-motions for partial summary judgment
present a narrow issue for the Court to resolve: whether the
“animal exclusion” provision in the EBC
Endorsement of Westfield's policy excludes coverage under
the EBC Endorsement for Bell's claim for its lost fish.
Westfield asserts that the language in the endorsement
clearly excludes coverage for Bell's fish loss because
the language unambiguously excludes coverage for loss of
animals, and fish are animals. Bell argues that fish are not
animals, and thus, its fish loss is not excluded from
coverage by the endorsement's language. Alternatively,
Bell argues there are ambiguities in the policy, which must
be resolved in favor of providing coverage.
Court begins with the well-known and settled case law in
Indiana regarding the interpretation of insurance policies.
The interpretation of an insurance policy is a question of
law that is particularly appropriate for summary judgment.
State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964
N.E.2d 845, 848 (Ind. 2012). The goal of a court interpreting
a policy is to “ascertain and enforce the
parties['] intent as manifested in the insurance
contract.” Buckeye State Mut. Ins. Co. v.
Carfield, 914 N.E.2d 315, 318 (Ind.Ct.App. 2009). Courts
“construe the insurance policy as a whole and consider
all of the provisions of the contract and not just the
individual words, phrases or paragraphs.” Id.
“If the language is clear and unambiguous, we give the
language its plain and ordinary meaning.” Id.
“An unambiguous provision in an insurance policy must
be enforced, even if it results in a limitation of the
insurer's liability.” Nat'l Fire & Cas.
Co. v. W. by & Through Norris, 107 F.3d 531, 535
(7th Cir. 1997) (citation and quotation marks omitted).
on the other hand, there is an ambiguity in the terms of an
insurance policy, the terms should be construed both to favor
the insured and to further indemnity.” Id.
“An ambiguity exists where a provision is susceptible
to more than one interpretation and reasonable persons would
differ as to its meaning. However, an ambiguity does not
exist merely because the parties proffer ...