United States District Court, D. Utah, Central Division
ERIK SCOTT MEDIA, LLC, a Utah limited liability company, Plaintiff,
OWNERS INSURANCE COMPANY, a Michigan corporation, Defendant.
MEMORANDUM DECISION AND ORDER
Benson, United States District Judge
the Court are the parties cross-motions for summary judgment.
[Dkt. 27, 32]. A hearing was held on the motions on May 15,
2018 at which Plaintiff was represented by Brennan Moss and
Defendant was represented by Peter Barlow. The Court took the
motions under advisement. Shortly after the hearing, the
parties notified the Court that they were engaging in
mediation to resolve their disputes. Having now been informed
by the parties that their mediation efforts were not
successful, the Court issues this Memorandum Decision and
Erik Scott Media, LLC (“ESM”) operates a
third-party logistics business that stores and ships products
for their manufacturers. Dkt. 27 ¶1. ESM is insured by
Owners Insurance Company (“Owners”) under a
policy of insurance entitled Tailored Protection Policy
(“the Policy”), policy number 064643-57050255-13.
Id. at Ex. 2. The Policy includes commercial
property coverage and commercial general liability coverage.
Id. Between November 14, 2014 and the end of 2014,
ESM made errors in the shipments of products. Id. at
Exs. 3 & 4. One instance occurred when ESM's
operations manager downloaded a batch of orders from one of
its clients, Wise Company, that contained approximately 10,
000 orders. Id. at Ex. 4. She accidentally
downloaded the same 500 orders twice and those orders were
then shipped by ESM. Id. Another instance occurred
when an ESM employee unintentionally sent the wrong products
to customers. Id. After ESM discovered the errors,
it cancelled and retrieved some of the shipments. Some
customers voluntarily returned the erroneously shipped
products. Id. at Ex. 3. ESM was able to retrieve
about 60% of the mis-shipped orders. Id. Wise
Company directed ESM to discontinue contacting its customers
to whom the double shipments were sent because the contact by
ESM was “too intrusive.” Id. Wise
Company requested a credit from ESM in an amount equal to the
products which were shipped erroneously and not retrieved.
Id. ESM provided the credit to Wise Company.
February, 2015, ESM filed a claim under its insurance policy
with Owners for recovery of damages in the amount of $302,
496.85. Id. at Exs. 3. Included in this figure is
the amount of the unretrieved mis-shipped products equaling
$92, 759.36. ESM also claims shipping costs of $51, 580.88
and additional labor costs of $106, 770.90 incurred in
retrieving the products. Id. at Ex. 3.
assigned a senior claims representative specialist as the
adjuster for ESM's claims. He investigated the claim and
conducted interviews of ESM's owners and managers.
Id. The adjuster issued a coverage position letter
on behalf of Owners, denying ESM's claim. Id. at
Exs. 8. The letter states that ESM's claim did not fall
within the coverage provisions which require: “direct
physical loss of or damage to Covered Property at the
premises described in the Declarations caused by or resulting
from any Covered Cause of Loss.” Id. The
coverage position letter states that coverage for ESM's
claim is additionally barred by the exclusionary provision
prohibiting coverage for voluntarily sending property as a
result of unauthorized instructions. This lawsuit followed.
moves for summary judgment claiming that it is entitled to
coverage under the commercial general liability
(“CGL”) provision for the credits it gave its
customers for the mis-shipped products ESM was not able to
recover. ESM also argues it is entitled to coverage under the
commercial property coverage (“CPC”) provision
because it incurred a direct physical loss of the property at
its premises when the product was wrongly shipped. ESM also
seeks a finding by the Court of bad faith on Owners' part
for failing to adequately investigate its claim before
moves for summary judgment claiming that ESM is not entitled
to coverage under the CPC provision because the facts do not
fall within a covered loss under the policy and it did not
engage in bad faith in denying ESM's claim.
The Commercial General Liability Provision Does Not Apply
argues that it is entitled to coverage under the commercial
general liability (“CGL”) provision of the
Policy. The CGL provision applies where third-parties bring
claims against ESM. Under the CGL provision Owners then has
the right and duty to defend and indemnify against those
claims. Where the CGL provision applies, Owners is obligated
to pay the amounts ESM is liable to pay the third-parties as
damages. Under the CGL provision, ESM is not entitled to
settle third-party claims without Owners' involvement.
is no dispute that Owners was never involved in the
communications between ESM and the third-parties. It is
undisputed that no third-party brought a liability claim
against ESM for the losses alleged in this action. The issue
therefore is whether Owners is liable to ESM for the credits
ESM gave its customers to compensate for the unrecovered
erroneously-shipped product where no formal legal claim was
made by the customers against ESM and no judicial finding of
liability was made for the credits.
the CGL policy is only applicable in cases where
third-parties bring legal claims against ESM which Owners
then has the right and duty to defend and indemnify, the
Court finds that the CGL provision does not apply to these
facts. ESM is not entitled to coverage under the CGL
provision for the credits it gave its customers.
II.There is Insufficient Evidence to Support a Finding of
Bad Faith on the Part of ...