United States District Court, E.D. Michigan, Southern Division
[Copyrighted Material Omitted]
For Frank Monteleone, Sheri Monteleone, Plaintiffs: Kevin J. Stoops, Sommers Schwartz, PC, Southfield, MI; Michael H. Fabian, Patrick A. King, Fabian, Sklar, Farmington Hills, MI; Jason J. Thompson, Sommers Schwartz, P.C., Southfield, MI.
For The Auto Club Group, memberselect insurance company, Defendants: Kevin M. Aoun, Morley Witus, Barris, Sott, Denn & Driker, PLLC, Detroit, MI.
OPINION AND ORDER
HONORABLE GEORGE CARAM STEEH, UNITED STATES DISTRICT JUDGE.
This putative class action arises out of plaintiffs' claims for homeowners' insurance coverage for water damage in their basements. The named plaintiffs, Frank and Sheri Monteleone, seek over $100,000 in damages. (Amended Complaint, ¶ 25, 27). Defendants are insurance companies The AutoClub Group, MemberSelect Insurance Company, AutoClub Insurance Assoc., Auto Club Group Insurance Co., Auto Club Property-Casualty Insurance Co., and Auto Club Services (collectively " defendants" ). Plaintiffs originally sought to proceed as a class action under three theories as set forth in their three-count amended complaint: (1) certification under Federal Rule of Civil Procedure 23(b)(2) seeking a declaration as to the meaning of certain allegedly ambiguous coverage and exclusion provisions within the insurance policy, (2) certification under Rule 23(b)(3) for breach of contract on the theory that defendants categorically denied valid claims based on an erroneous application of the policy terms, and that all individuals who merely purchased insurance, even those who never filed claims, are entitled to a partial refund of premiums because certain coverage is allegedly illusory, and (3) certification under Rule 23(b)(3) for breach of contract arising out of rejected claims for certain water damage in plaintiffs' basements. By prior written orders of the court, class certification under both the second and third theories for breach of contract has been denied. In addition, Count II, which sought relief of partial premiums paid under the " phantom coverage" theory, has been dismissed. The court is left now to decide whether class certification is appropriate under Rule 23(b)(2) for the declaratory judgment claim.
Now before the court are: (1) plaintiffs' motion for partial summary judgment and declaratory relief which seeks judicial interpretation of certain contested policy terms and exclusions, and (2) plaintiffs' motion for certification of the declaratory judgment class in the Monteleone's case, 13-12716. The Bushway plaintiffs in the companion case, 14-11417, have joined in the motion for declaratory relief, but not in the motion for class certification. Oral argument was delayed at the parties' request as they were engaged in settlement negotiations. A hearing was eventually held on June 16, 2015. For the reasons set forth below, plaintiffs' motion for partial summary judgment shall be granted in part and denied in part, and plaintiffs' motion for class certification shall be denied.
On January, 17, 2013, plaintiffs suffered water damage in their finished basement of their Clinton Township home which caused significant harm, including loss of personal property, and structural damage to their home. (Amended Complaint, ¶ 25). Plaintiffs claim the water damage has been traced to a faulty back flow preventer in the plumbing waste line that extends under the slab in their basement. Id. at ¶ 26. They claim coverage for the loss existed under the policy's provision providing that insured perils include:
13. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protection sprinkler system or domestic appliance.
Id. at ¶ 44 (quoting Homeowner's Policy at 8, ¶ 13). Plaintiffs claim they paid for coverage of water damage claims where water originating from within the home is prevented from leaving the premises. Id. at ¶ ¶ 6-7. Specifically, plaintiffs claim they paid for coverage for water damage losses where water " (1) from the home is unable to reach the municipal sewer (2) due to a blockage or other plumbing failure (3) which forces the exiting water to re-enter the home through a basement or floor drain." Id. at ¶ 5. Plaintiffs describe such water damage events as " overflows" which they claim were covered losses under their homeowner's insurance policies. Id. at ¶ 44 (citing Homeowner's Policy at 8, ¶ 13). Defendants denied coverage under the policies' exclusion ¶ 3.b which provides no coverage exists for:
water or water-borne material which backs up through sewers or drains or water which enters into and overflows from within a sump pump, sump pump well or other type system designed to remove subsurface water which is drained from the foundation area.
Id. at ¶ 45 (quoting Homeowner's Policy at 9, ¶ 3.b). Optional endorsements are available to override this exclusion which provide limits usually between $5,000 to $25,000. Named plaintiffs had purchased such an endorsement in this case, and under this option, defendants disclaimed liability and coverage above the $5,000 provided on the endorsement. Id. at ¶ 28. Plaintiffs claim that defendants wrongfully denied coverage under the policy and failed to investigate the cause of their loss. Id. at ¶ 26.
There is no dispute that under the policies, claims for " backups" were not covered. " Backups" occur when water originates from an external source, like a municipal sewer system. Id. at ¶ 7. Specifically, the policies describe " backups" which are excluded from coverage under ¶ 3.b, supra, and ¶ 13.c which provides that no coverage exists for loss:
caused by or resulting from water which backs up through sewers or drains or water which enters into and overflows from within a sump pump, sump pump well or other type system designed to remove subsurface water which is drained from the foundation area.
Id. at ¶ 44 (citing Homeowner's Policy at p. 8, ¶ 13.c). Plaintiffs claim that beginning in 2009, defendants began conflating all " overflow" losses as " backups" and wrongfully denied claims for " overflow" losses. Id. at ¶ ¶ 48-49. In support of this claim, plaintiffs rely on an e-mail written by defendants' director of claims, Nicole Whitlow, which states that " [a]ny claim reported with water back up or overflow coming from a basement drain is not a covered loss unless the insured has purchased the H-500 endorsement." Id. at ¶ ¶ 49-50.
In their motion for summary judgment, plaintiffs seek a declaration that (1) the policy in question afforded property and contents coverage for water overflow losses, (2) the ¶ 3.b exclusion does not apply to basement/floor drain water claims caused by water originating from within the resident premises, and (3) defendants bear the burden of establishing that an exclusion applies. Defendants oppose the relief sought.
II. Summary Judgment Standard
Federal Rule of Civil Procedure 56(c) empowers the court to render summary judgment " forthwith 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 judgment as a matter of law." See Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir. 2001). The Supreme Court has affirmed the court's use of summary judgment as an integral part of the fair and efficient administration of justice. The procedure is not a disfavored procedural shortcut. Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Cox v. Kentucky Dept. of Transp., 53 F.3d 146, 149 (6th Cir. 1995).
The standard for determining whether summary judgment is appropriate is " 'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Amway Distributors Benefits Ass'n v. Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir. 2003) ( quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The evidence and all reasonable inferences must be construed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Redding, 241 F.3d at 532 (6th Cir. 2001). " [T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis in original); see also National Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir. 2001).
If the movant establishes by use of the material specified in Rule 56(c) that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law, the opposing party must come forward with " specific facts showing that there is a genuine issue for trial." First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 270, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968); see also McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). Mere allegations or denials in the non-movant's pleadings will not meet this burden, nor will a mere scintilla of evidence supporting the non-moving party. Anderson, 477 U.S. at 248, 252. Rather, there must be evidence on which a jury could reasonably find for the non-movant. McLean, 224 F.3d at 800 ( citing Anderson, 477 U.S. at 252).
A. Plaintiffs' Motion for Declaratory Relief
1. Principles of Insurance Policy Construction
Insurance policies are subject to the same rules of contract construction as any other contract. Rory v. Continental Ins. Co., 473 Mich. 457, 461, 703 N.W.2d 23 (2005). Where the text of an insurance policy is clear and unambiguous, the court must enforce the provision as written. Id. In interpreting an insurance policy, the court is to give the written terms their ordinary and plain meaning. Id. at 464. If, on the other hand, a policy provision is ambiguous, the ambiguity will be resolved in favor of the insured. Fire Ins. Exchange v. Diehl, 450 Mich. 678, 687, 545 ...