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Greenbrier Hotel Corp. v. Lexington Insurance Co.

United States District Court, S.D. West Virginia, Beckley Division

November 29, 2017

GREENBRIER HOTEL CORPORATION, et al., Plaintiffs,
v.
LEXINGTON INSURANCE COMPANY, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          IRENE C. BERGER UNITED STATES DISTRICT JUDGE

         The Court has reviewed the Plaintiffs' Motion to Vacate and Set Aside the Decision of the Appraiser/Umpire (Document 80) and Memorandum in Support (Document 81), the Defendants' Cross-Motion for Partial Summary Judgment as to Breach of Contract and Hayseeds Damages (Document 83), the Defendants' Memorandum of Law in Opposition to Plaintiffs' Motion to Vacate the Appraisal Award and in Support of Defendants' Cross-Motion for Partial Summary Judgment as to Breach of Contract and Hayseed Damages (Document 84), the Plaintiffs' Response to Defendants' Motion for Summary Judgment (Document 85), the Plaintiffs' Reply Memorandum in Support of Motion to Invalidate or Set Aside Report and Findings of the Umpire (Document 86), and the Defendants' Reply Memorandum of Law in Further Support of Their Cross-Motion for Partial Summary Judgment as to Breach of Contract and Hayseeds Damages (Document 88). The Court has also reviewed the Affidavit of Marvin W. Masters (Document 87), supplied in support of the Plaintiffs' opposition to the Defendants' motion for summary judgment, and all attached exhibits. In addition, the Court has reviewed the Defendants' Motion to Strike the Affidavit and Curriculum Vitae of Larry R. Weatherford and the Reply Affidavit of Marvin W. Masters (Document 89) and Memorandum of Law in Support (Document 90), the Plaintiffs' Response to Defendants' Motion to Strike the Affidavit and Curriculum Vitae of Larry R. Weatherford and the Reply Affidavit of Marvin W. Masters (Document 91), and the Reply Memorandum of Law in Further Support of Defendants' Motion to Strike the Affidavit and Curriculum Vitae of Larry R. Weatherford and the Reply Affidavit of Marvin W. Masters (Document 92).

         FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         The Plaintiffs, Greenbrier Hotel Corporation and the Greenbrier Sporting Club, Inc. (collectively, “the Greenbrier”), initiated this action in the Circuit Court for Greenbrier County. They named the following Defendants: Lexington Insurance Company (Lexington), XL Insurance America, Inc. (XL), ACE American Insurance Company (ACE), The Underwriters at Lloyd's London (Lloyd's), McLarens Young International, Inc. (McLaren's), and Rocco M. Bianchi (collectively “Insurers”). The Plaintiffs' Amended Complaint (Document 1-3) was filed in state court on April 16, 2014. The Defendants removed the matter to federal court on April 23, 2014.

         This case involves a dispute over insurance for losses allegedly suffered by the Greenbrier following the derecho windstorm of June 29, 2012.[1] The Greenbrier was scheduled to begin hosting its Greenbrier Classic golf tournament three days later. The region experienced widespread power outages, and trees, spectator areas, skyboxes, and camera towers at the Greenbrier were damaged. Power was restored at the Greenbrier prior to the Classic, and the tournament went forward as planned, but the Greenbrier asserts that it suffered losses including physical damage to the hotel and facilities, extra work needed to prepare the golf course and facilities, extra salaries, wages, and fringe benefits, adverse publicity, and additional advertising and promotion expenses. The dispute currently centers on a business interruption claim for a period of approximately nine months following the derecho. The Greenbrier's insurance policies were purchased through the Resort Hotel Association (RHA) and are largely identical. McLaren's is contracted to act as a claims adjuster for the RHA policies, and Mr. Bianchi was assigned to the Greenbrier's claims. The Plaintiffs assert that the Defendant Insurers paid “a small portion” of their losses, but refused to pay the remainder. (Am. Compl. at ¶ 29.) The Plaintiffs assert claims for breach of the insurance contract, declaratory relief and unfair and unlawful claims practices.

         The declaratory relief sought by the Plaintiffs was a declaration that appraisal was not required. The Defendants filed a motion seeking to compel appraisal. The Court found that appraisal was required under the terms of the policies, and stayed the matter pending completion of the appraisal process. Each party selected an appraiser, in accordance with the policies. The appraisers did not agree on the amount of loss, and they jointly selected an umpire. The umpire reviewed the evidence, but declined to hold an adversarial hearing as requested by counsel for the Greenbrier. Instead, each party, and their respective experts, submitted documentation and testimony in the form of affidavits. The Greenbrier's attorney was, however, permitted to examine the Insurers' expert.

         The Insurers contracted with Meaden & Moore (M&M) to analyze the loss after the initial claim was made, and M&M continued to provide analysis through the conclusion of the appraisal process. The Greenbrier initially submitted a claim with the assistance of RWH Myers. However, it used Economic Valuation Associates, PLLC (EVA) during the appraisal process. The Greenbrier claimed a loss of $16, 497, 138.63 for business interruption, which includes $2, 717, 740.07 for the period of the Greenbrier Classic and $13, 779, 398.56 for the period from July 9, 2012 until March 31, 2013. The Greenbrier also sought $973, 886.39 for extra expenses.

         M&M and the Insurers maintained that there was no business interruption loss for the period following the completion of the Greenbrier Classic. This was based on the conclusion that the documentation did not demonstrate that there was a loss (i.e., a reduction in revenue compared to the anticipated revenue) for that period. M&M relied on 120-day forecasts[2] prepared by the Greenbrier to calculate anticipated revenue. One was prepared on June 26, 2012, days before the derecho and the Greenbrier Classic, and M&M found that the actual experience of the Greenbrier was consistent with the projections contained in the 120-day forecast. M&M and the Insurers also argued that nothing about the derecho or its aftermath could be causally linked to any loss for the nine-month period following the Classic. The Greenbrier and EVA put forth evidence that revenue increased by about 25% in calendar year 2011 over that in calendar year 2010, and claimed that a similar increase was anticipated in calendar year 2012, but for the derecho. They asserted that the purpose of the Greenbrier Classic was to market the resort as a high-end golf destination, and they expected the participation of high-profile golfers, including Tiger Woods and Phil Mickelson, to support that goal. They argued that attendance at the Classic was lower because of the derecho, and that impacted revenue in subsequent months. The experts and counsel for both the Greenbrier and the Insurers supplied reports, documentation, and supplemental reports, including responses to each other's submissions, detailing their respective positions.

         M&M calculated a loss of $798, 116.00, including a business loss of $759, 245 during the Greenbrier Classic and extra expenses of $38, 871. The Insurers paid that amount prior to this suit. Ultimately, the umpire and the appraiser appointed by the Insurers primarily adopted M&M's methodology. The umpire explains that the Greenbrier calculated its business interruption loss “by applying the growth rate trend of its revenues and attendance at the Classic from years 2010 to 2011 and resort and hotel industry growth trends for the same period to arrive at their projected revenue and reducing the projected revenue by the actual resort and hotel revenue achieved.” (Appraisal Decision at 1, att'd as Pl. Ex. 1) (Document 80-1.) M&M “calculated the loss for that period by relying primarily on 120 day forecasts generated weekly by the Greenbrier as part of its regular course of business, ” beginning with the 120 day forecast for June 26, 2012. (Id.)

         The umpire and the Insurers' appraiser found that M&M's calculation provided a better estimate of the losses because “it used the Greenbrier's actual experience during the prior three years to adjust the weekly projections in the June 26, 2012, 120 day forecast.” (Id. at 2.) The opinion further found that the revenue growth trend from 2010 to 2011 was of little import, because “growth over a single year is not necessarily predictive of future growth, particularly where, as here, the operator has only recently emerged from bankruptcy and has invested substantial capital in improving the facility.” (Id.) The umpire described the claim for additional extra expenses for advertising, a social media hire, and a sales office in Washington D.C. He, together with both appraisers, rejected some advertising costs and the D.C. sales office, finding that they were planned before the derecho. The appraisers and umpire agreed on an award of $26, 000 for a social media hire, and $31, 000 for advertising. The Insurers paid the additional $57, 000 that the panel determined was due.

         The Greenbrier's appraiser, G. Nicholas Casey, submitted an affidavit, arguing that the panel erred by relying on the 120-day forecasts despite the fact that the author of those reports, Greenbrier manager Jeff Kmiec, stated that they did not accurately reflect the anticipated growth of the Greenbrier. Mr. Casey further asserts that the process did not permit a sufficient hearing, and that he believes the Insurers' appraiser and the umpire had reached their conclusions prior to considering all of the evidence, prior to the discussion that included him, and prior to the hearing during which the Greenbrier's counsel examined the Insurers' expert.

         The Greenbrier also submitted an affidavit and curriculum vitae of Dr. Larry R. Weatherford, and an affidavit by its counsel, Marvin W. Masters, which are the subject of the Defendants' motion to strike. Dr. Weatherford expressed opinions criticizing the methodology and assumptions used by M&M and adopted by the umpire and the Insurers' appraiser. Mr. Masters' affidavit describes his request for a hearing and the content of the hearing in which he questioned the Insurers' expert. Briefing on all motions is complete.

         STANDARD OF REVIEW

         A. Motion for Summary Judgment The well-established standard in consideration of a motion for summary judgment is that “[t]he court shall grant summary judgment 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)-(c); see also Hunt v. Cromartie, 526 U.S. 541, 549 (1999); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Hoschar v. Appalachian Power Co., 739 F.3d 163, 169 (4th Cir. 2014). A “material fact” is a fact that could affect the outcome of the case. Anderson, 477 U.S. at 248; News & Observer Publ'g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010). A “genuine issue” concerning a material ...


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