Lawsuit Alleging Faulty Work by Restoration Contractor May Proceed

December 1, 2020

An Indiana automotive parts manufacturer may proceed with a lawsuit that alleges its factory suffered additional damages after a fire because its insurer failed to quickly protect the facility from the elements and hired a restoration contractor who damaged equipment that had been unharmed.

The Indiana Court of Appeals on Monday reversed Whitley County Superior Court Judge Douglas M. Fahl’s decision to grant summary judgement in favor of NBD International and Selective Insurance Co. of America in a lawsuit filed by Viking Inc. The appellate panel found there are genuine issues of material fact as to whether Selective breached its duty of good faith and fair dealing, and also whether NBD breached its contract and was negligent.

“It is well settled that summary judgment must be denied if the resolution hinges upon state of mind, credibility of the witnesses, or the weight of the testimony,” the panel wrote in its opinion. “This is precisely the scenario here.”

The court did uphold Judge Fahl’s finding that Viking could not pursue a claim that Selective negligently hired NBD and is therefore liable for the damages caused by the contractor.

On Jan. 6, 2014 a fire engulfed the office inside Viking’s factory in Columbia City, Indiana. The area of the factory that contained manufacturing equipment was not destroyed, but the equipment was affected by heat and smoke and water used by firefighters.

The fire left a hole in the roof directly above the manufacturing space. Sub-zero temperatures caused ice to form on the floor of the factory. After managers expressed concern that the ice and rust would damage manufacturing equipment, an adjuster for Selective said the carrier “would take care of everything.” A contractor sealed the hole in the roof 10 days after the fire, but limited heat was not restored to the building until Jan. 21.

On Jan. 16, a project manager for NBD arrived at the factory after being hired by Selective. The company was tasked with repairing seven “priority” machines that Viking needed in order to resume production. But in the process of cleaning the machines, either a Viking employee or NBD employee sprayed WD-40 on one of the machines, which removed all lubrication from brass bearings and caused the machine to jam.

Viking decided to hire William Watterud, a public adjuster. He told NBD to stop all work. Viking hired another restoration company, Protechs, to finish the restoration work.

NBD sent Viking a bill for $63,357.56 for restoration work it had completed before it was ordered to stop. It filed suit when Viking refused. The company dropped the suit after Selective agreed to pay the bill. The insurer counted that payment against Viking’s policy limit.

During negotiations, Watterud told Selective that his client was considering filing a second claim for damages caused by NBD’s inadequate workmanship. The carrier said such a claim would not be covered by the policy, and that any complaints about the quality of the work should be taken up directly with NBD.

On Oct. 1, 2014, Selective notified Viking that it had determined the total loss amount was $4,690,822.89. A manager for the company signed a receipt of payment in that amount.

But that wasn’t the end of it. In January 2016, Viking filed a lawsuit against NBD and Selective. The company alleged NBD was negligent and breached its insurance contract not taking immediate actions to protect is property, by not paying for the full amount of damages, by delaying payment without grounds and by improperly pressuring it to settle its claim.

Judge Fahl granted summary judgment in favor of NBD and Selective on all counts. Viking appealed.

The appellate court rejected Selective’s argument that Viking’s claims were barred because its manager had signed a “Sworn Proof of Loss.” The court noted that the signed document addressed only damages from the Jan. 6, 2014 fire and that it was not clear if its intent was to include damages that occurred after the fire.

The panel also found that factual disputes exist as to whether Selective had made timely payments under the policy it had issued to Viking, and whether the policy covered the subsequent damages that Viking claimed.

The appellate court said there is also a question as to whether Selective had allowed further damage by failing to quickly restore heat to the factory and protect the building from the elements. Selective had introduced into evidence a report by a metallurgical materials engineer that stated the freezing temperatures had not damaged Viking’s equipment, but Viking had introduced testimony from its restoration contractor that Selective had failed to take immediate steps to protect the building and exposed the equipment to corrosion.

“Here, based on the competing ‘expert’ testimony presented, we find that Selective has not met its burden of negating the element of causation as a matter of law,” the appellate panel said.

The court remanded the case to the Whitley County Superior Court for further proceedings.

Was this article valuable?

Here are more articles you may enjoy.