Melland Company v. Secura Insurance Companies

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
EASTERN DIVISION
Melland Company, successor by merger to
Melland Real Estate Company,
Plaintiff,
vs.
Secura Insurance Companies,
Defendant.
ORDER
Case No. 3:21-cv-58
Before the Court are two motions for summary judgment. The first is a motion for partial
summary judgment filed by Plaintiff Melland Company (“Melland”). Doc. No. 18. The second is
a motion for summary judgment filed by Defendant Secura Insurance Companies (“Secura”).
Doc. No. 21. Secura also filed a motion for hearing. Doc. No. 22. For the reasons below, Secura’s
motions are denied, and Melland’s motion is granted.
I. FACTS
This action involves the partial collapse of a commercial building1 in Jamestown, North
Dakota and the related insurance coverage dispute over whether the partial damage to the Building
resulted in a “constructive total loss.” Melland is the owner of the Building, and Russell Melland
is Melland’s president. Doc. No. 19 at 2. Secura is an insurance company that specializes in
property and casualty insurance. Doc. No. 1-2. Secura insured the Building under a Business
Protector Policy (the “Policy”), effective from November 18, 2018, to November 18, 2019. Doc.
No. 23-1. Per the Policy, the amount of insurance written for the Building was $3,164,000. Id.
1 The “Building” is actually two separate structures (the “East Building” and the “West Building”)
standing adjacent and adjoined by a gutter system. Doc. No. 23-2 at 15. While there are references
and documents that refer to the “East Building” and the “Building,” the Policy at issue here insured
the entire structure as the Building.
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A. The Snow Event and First Collapse
On March 13, 2019, a heavy snowfall damaged the roof of the Building and caused an
awning on the south side of the East Building to collapse. Doc. No. 23-4. Shortly after the storm,
Thomas Blackmore, a Building Inspector for the City of Jamestown, requested that Melland
remove the awning and clear the snow load off the roof so the City could inspect the damage. Id.
After the snow load was cleared, a buckled girder was discovered, suggesting the roof was
compromised. Blackmore deemed the East Building a “dangerous building” per the City of
Jamestown’s Municipal Code. Id. He gave Melland 30 days to repair or demolish the East
Building. Id. Blackmore’s letter stated that if repairs were made, “a Structural Engineer will be
required to provide the design required for a building permit.” Id.
B. Initial Structural Engineer Reports
Melland then had contractor James Schumacher inspect the property. Doc. No. 23-2 at 20.
Schumacher, in turn, asked Ryan Heyer, a structural engineer, to inspect the damage. Id. at 26.
Heyer authored a field report in June 2019 (the “Heyer Report”). Doc. No. 23-7. The Heyer Report
states:
It is our professional opinion that the building as it exists today will require
extensive reinforcement, to both fix the failed roof girder and to bring the building
up to code. We feel that it would not be economical or feasible to do so. We do not
have experience with the actual construction of this nature but there is a possibility
without major demolition it may be impossible. This is especially true with the
foundation system if needing reinforcements and additional pad footings installed,
also for verification of what exists.
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Id. Around the same time, Secura, having been notified of a claim by Melland,2 hired
Lon Eraldson, a senior engineer with PIE Consulting and Engineering, to inspect the Building.
Doc. No. 23-12. The September 16, 2019, PIE Observation Report (the “PIE Report”) concluded
the damage was repairable “under a general reading of the code.” Id. It estimated the cost of repairs
to be approximately $40,000. Id.
C. Second Collapse
Nine and a half months after the first collapse, on January 4, 2020, a second collapse
occurred in the same area as the first. Doc. No. 19. Melland submitted another claim to Secura for
the second collapse.3 Id. On January 14, 2020, Blackmore sent another letter to Melland regarding
the Building, stating:
I feel that I have given you ample time to either repair this building or have the
building demolished. I need a written Plan of Correction and a Timeline of how
you plan to proceed with either repair or demolition of the building by no later than
5:00 pm of January 24th, 2020. This Plan of Correction and Timeline should have
a start date and a date of completion. I would like to see a completion date of no
later than February 29th, 2020.
Doc. No. 23-8. The letter warned Melland that if a “Plan of Correction and a Timeline” were not
received, he would notify the Jamestown City Council of Melland’s noncompliance. Id. On
January 24, 2020, Russell Melland responded to Blackmore and indicated he did not intend to
submit a written plan of correction or a timeline. Doc. No. 23-9.
2 The record is less than clear as to Secura’s and Melland’s communications as to notice and extent
of the damage. For example, Melland cites specific language from a October 31, 2019, letter to
Secura indicating the Building is a total loss. Doc. No. 25 at 12-13. However, this letter is not in
the record.
3 Melland claims the March 2019 collapse caused a constructive total loss. Doc. No. 1-2. In the
alternative, Melland asserts the January 2020 incident caused a constructive total loss. Id.
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D. Second Structural Engineer Reports
Melland then retained Tom Schanandore, a structural engineer with CW Structural
Engineers, to reexamine the damage to the Building and issue a report. Schanandore’s February
14, 2020, Structural Assessment Report (the “Schanandore Report”) concluded the damage was
less than “substantial structural damage,” so the collapsed portion of the Building could be repaired
back to its pre-damaged condition. Doc. No. 23-11 at 6. However, it also stated it would be
“imprudent” to repair and suggested “the collapse[d] portion of the Building and any other
damaged elements would need to be repair/re-constructed to meet current building code
requirements for snow load.” Id. Further, it concluded the Building was “dangerous and unsafe,”
though it may have been so even before the collapse. Id.
Secura then had Erlandson complete a supplemental report, given the second collapse. The
June 29, 2022, Supplemental Memorandum (the “Supplemental Report”) found that even if the
repairs had to be made to up to the current building code, the repairs would be limited to the
damaged area and did not require updates to the remaining, undamaged portions of the Building.
Doc. No. 23-13 at 5-6. It further stated that a cost-effective repair could be constructed to bring
the damaged part of the Building up to current code, and that the second collapse would not have
occurred if Melland had made immediate repairs after the buckled girder was discovered. Id. at 5.
E. City of Jamestown’s Discussions and Findings
Eventually, the Jamestown City Council met on March 2, 2020, and discussed the status of
the Building. Doc. No. 23-10. Russell Melland testified at the meeting. Id. Ultimately, the City
found:
Mr. Melland acknowledged that the East portion of the Building is a dangerous
building and should be demolished. Mr. Schumacher, who is the general contractor
for Melland Company indicated he would likely be able to demolish the East
portion of the building within 30-45 days.
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Id. On March 4, 2020, the Mayor of the City of Jamestown signed an order providing:
The City of Jamestown hereby orders Melland Company to demolish the East
portion of the building located at 202 Business Loop West, Jamestown, North
Dakota, 58401 by May 1, 2020.
Id. Melland then notified Secura of the City’s decision and of its plan to demolish the Building.
Melland completely razed the Building in the summer of 2020. Doc. No. 23-2 at 14.
F. The Policy and the Valued Policy Statute
Turning to the Policy, no one disputes the Building is “Covered Property” under the Policy.
Id. The property damage coverage provisions of the Policy state, in relevant part:
5. Additional Coverages
* * *
d. Collapse
(1) We will pay for direct physical loss or damage to Covered
Property, caused by collapse of a building or any part of a building
insured under this policy, if the collapse is caused by
one or more of the following:
(a) The “specified cause of loss” . . . , all only as insured
against in this policy;
* * *
H. Property Definitions
* * *
6. “Specified Causes of Loss” means the following:
. . . weight of snow, ice or sleet[.]
See Doc. No. 23-1. The parties agree that the Building sustained a specified cause of loss.
The Policy also includes a “North Dakota Changes” endorsement that states, in relevant
part:
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C. The following is added to the Loss Payment Property Loss Condition:
VALUED POLICIES
1. When this policy is written to insure any real property in North Dakota
against loss caused by or resulting from any Covered Cause of Loss, and the
property is wholly or completely destroyed by any Covered Cause of Loss without
fraud on the part of the insured or assignee, the amount of insurance written on such
real property will be taken to be the true value of the property insured and the true
amount of loss and measure of damages, subject to Paragraphs C.2., C.3. and D.
below.
(Emphasis added). This endorsement follows North Dakota’s valued policy statute, which states:
Whenever any insurance policy is written or renewed to insure any real property in
this state, including structures owned by persons other than the insured, against loss
caused by or resulting from any covered cause of loss and the insured property is
wholly or completely destroyed by any covered cause of loss without fraud on the
part of the insured or the insured’s assigns, the amount of the insurance written in
the policy is the true value of the property insured and the true amount of loss and
measure of damages[.]
N.D. Cent. Code § 26.1-39-05(1). (Emphasis added).
G. Procedural Posture
Ultimately, Secura did pay Melland $42,377.77 (the actual cash value of the damage from
the first collapse) for the partial damage caused by a covered cause of loss under the Policy. Doc.
No. 24. Melland’s position, however, is that the Building sustained a constructive total loss, and
as a result, it is entitled to the amount of the insurance written in the Policy for the Building (or
$3,164,000). To that end, Melland commenced an action against Secura in North Dakota state
court, which Secura then removed to this Court. Doc. No. 1.
II. LAW AND ANALYSIS
As noted from the start, the critical issue in the cross motions for summary judgment is
whether the partial collapse of the Building after the March 13, 2019, snow event resulted in a
constructive total loss. Secura argues that, as a matter of law, the Building was not wholly or
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completely destroyed and did not suffer any constructive total loss. Melland disagrees, noting there
are fact issues that preclude summary judgment. For its part, Melland’s motion seeks an order
recognizing that North Dakota Century Code section 26.1-39-05 applies to the Policy, and if
Melland proves a constructive total loss occurred, Melland is entitled to the amount of the
insurance written in the Policy for the Building. Secura does not oppose Melland’s motion.
A. Summary Judgment Standard
“A party may move for summary judgment, identifying each claim or defense—or the part
of each claim or defense—on which summary judgment is sought.” Fed. R. Civ. P. 56(a). Summary
judgment is required “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.” Id.; see also Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). “An issue is ‘genuine’ if the evidence is sufficient to persuade a
reasonable jury to return a verdict for the nonmoving party.” Schilf v. Eli Lilly & Co., 687 F.3d
947, 948 (8th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). “A
fact is material if it ‘might affect the outcome of the suit.’” Dick v. Dickinson State Univ., 826
F.3d 1054, 1061 (8th Cir. 2016) (quoting Anderson, 477 U.S. at 248). Courts must afford “the
nonmoving party the benefit of all reasonable inferences which may be drawn without resorting to
speculation.” TCF Nat’l Bank v. Mkt. Intelligence, Inc., 812 F.3d 701, 707 (8th Cir. 2016) (quoting
Johnson v. Securitas Sec. Servs. USA, Inc., 769 F.3d 605, 611 (8th Cir. 2014)).
“At summary judgment, the court’s function is not to weigh the evidence and determine
the truth of the matter itself, but to determine whether there is a genuine issue for trial.” Nunn v.
Noodles & Co., 674 F.3d 910, 914 (8th Cir. 2012) (citing Anderson, 477 U.S. at 249). If the movant
demonstrates the absence of a genuine issue of material fact, “[t]he nonmovant ‘must do more than
simply show that there is some metaphysical doubt as to the material facts,’ and must come forward
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with ‘specific facts showing that there is a genuine issue for trial.’” Torgerson v. City of Rochester,
643 F.3d 1031, 1042 (8th Cir. 2011) (en banc) (quoting Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87 (1986)). “However, if a plaintiff cannot support each element
of its claim, summary judgment must be granted, because a complete failure of proof regarding an
essential element necessarily renders all other facts immaterial.” Cousineau v. Norstan, Inc., No.
00-1113 DSD/JGL, 2001 WL 1640118, at *3 (D. Minn. July 26, 2001), aff’d, 322 F.3d 493 (8th
Cir. 2003) (citing Celotex, 477 U.S. at 322-23).
B. Constructive Total Loss
The Court turns to Secura’s motion first. To start, the parties agree on several key points—
first, that the Policy covers the Building, and second, that the March 2019 snow event is a covered
cause of loss per the Policy. The real dispute is over the extent of the damage, and whether the
Building sustained a “constructive total loss,” as Melland suggests, or if the Building sustained
only partial, repairable damage, as Secura suggests.
North Dakota law applies here. The concept of constructive total loss originates from
valued policy statutes. Valued policy statutes, which generally apply to real property and have
been adopted in many states, are designed to provide definite standards of insurance recovery in
the case of a total loss, typically caused by a fire or other natural disasters. The purpose of the
statute, as explained by the North Dakota Supreme Court, is two-fold: “(1) to relieve the insured
from the burden of proving the value of his property after its total destruction, and (2) to prevent
overinsurance by discouraging insurance companies from collecting premiums on overvalued
property, but then contesting value, and hence liability, when it becomes to their advantage to do
so.” Stevick v. Nw. G. F. Mut. Ins. Co., 281 N.W.2d 60, 63 (N.D. 1979). As noted above, North
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Dakota’s valued policy statute is found in North Dakota Century Code section 26.1-39-05(1) and
states:
Whenever any insurance policy is written or renewed to insure any real property in
this state, including structures owned by persons other than the insured, against loss
caused by or resulting from any covered cause of loss and the insured property is
wholly or completely destroyed by any covered cause of loss without fraud on the
part of the insured or the insured’s assigns, the amount of the insurance written in
the policy is the true value of the property insured and the true amount of loss and
measure of damages[.]
Id. (emphasis added).
Naturally though, what constitutes a “total loss” or “wholly or complete destroyed” is
subject to much litigation and judicial interpretation. In North Dakota, the only case to directly
address the valued policy statute and the concept of constructive total loss is Stevick. In Stevick,
a residential home was partially damaged after a fire, and ultimately, the City of Minot ordered the
home be destroyed. Id. at 61-62. The question was whether the loss was a constructive total loss,
or a partial, repairable loss. Id.
The North Dakota Supreme Court concluded the home was a constructive total loss under
the valued policy statute because the City of Minot condemned the home and ordered it to be
demolished following the fire. The North Dakota Supreme Court reasoned that compulsory
condemnation by a governmental authority is an extension of the constructive loss doctrine, “i.e.,
a fire loss is considered total if a building has lost its identity and specific character even though
some parts remain standing.” Id. Said another way, Stevick recognizes one common principle and
extension of the constructive total loss doctrine—that when a building is compulsory condemned
by a governmental authority after sustaining damage by a covered caused of loss, even if a portion
of the building remains standing, the loss is a “constructive” total loss.
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Here, Melland attempts to analogize this case to Stevick. However, the cases are
distinguishable. In Stevick, the City of Minot ordered demolition within a month of the fire (id. at
61), whereas here, the demolition was not ordered by the City of Jamestown for roughly ten
months. There also appeared to be, at least initially, an opportunity for Melland to make repairs to
the Building and avoid condemnation entirely, which is quite different than Stevick where the
opportunity to repair was foreclosed quickly. Id. Further, in Stevick, the North Dakota Supreme
Court specifically discussed and distinguished a New Jersey case where the property at issue
sustained repairable damage. See id. at 64 (discussing Feinbloom v. Camden Fire Ins. Ass’n, 149
A.2d 616 (N.J. App. Div. 1959)). So, put simply, Stevick is not controlling on the facts of this
case.
Taking a step back from the specific holding of Stevik, however, there is the basic principle
of constructive total loss, as recognized in passing by the North Dakota Supreme Court, that
focuses on whether the building “has lost its identity and specific character, even though some
parts remain standing.” Stevick, 281 N.W.2d at 63. Somewhat related to the loss of identity and
specific character question is the concept (recognized by some courts, but not the North Dakota
Supreme Court) of a constructive total loss occurring when the cost to repair exceeds the value of
the building. See Darmer v. State Farm Fire & Cas. No., No. 17-4309, 2020 WL 514261, at *8 (D.
Minn. Jan. 31, 2020). Although North Dakota has not specifically adopted either approach, both
inquires focus more or less on assessing the extent of the damage in determining whether a
constructive total loss occurred.
Assuming without deciding, for the purposes of this motion, that North Dakota would
likely follow the identity and specific character inquiry, the question is whether the damage to the
Building as a result of the March 13, 2019, snow event resulted in the Building losing its identity
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and specific character. And on that question, the Court is essentially left with a case of conflicting
expert opinions.4
On the one hand are Melland’s experts reports, including the Heyer Report and
Schanandore Report. Accorinding to the Heyer Report, “the building as it exists today will require
extensive reinforcement[.] We feel that it would not be economical or feasible to do so.”
Doc. No. 19-3. While it is concerning that the Heyer Report lacks any specific repair estimates and
does not explain what “not economical or feasible” means in this case, it raises questions as to the
extent of the damage from the first collapse. In addition to the Heyer Report, the Schanandore
Report reaches similar conclusions, stating “it would be imprudent to allow the current east
building to be occupied, without substantial repair/reinforcement[.]” Doc. No. 23-11. It also states
that “a repair/reinforcement course of action, taken to save the building, would incur substantial
expense[.]” Id. And beyond Melland’s expert reports is the decision by Mr. Blackmore deeming
the Building “dangerous.” Doc. No. 23-4.
However, on the other hand are Secura’s expert reports, including the PIE Report and its
Supplemental Report. The PIE Report concludes, “based on a reasonable degree of engineering
certainty,” that the “[d]amages were generally limited” and “the structural elements can be restored
(replaced) to the conditions prior to the damage.” Doc. No. 23-12. The PIE Report also provides
actual repair estimates for the damage, estimating a repair cost of approximately $40,000. Id.
Moreover, the Supplemental Report concludes, “The relatively minor structural damages from the
March 13, 2019 collapse were readily repairable to conditions prior to the damage with similar
structural elements as allowed by the current building code at that time.” Doc. No. 23-13.
4 In this Court’s view, this is likely the same result under a cost of repair compared to actual value
inquiry as well on these facts and given the record.
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Although the Court may be quite skeptical that the partial damage at issue here resulted in
the Building losing its identity and specific character, it is the province of the jury, not the Court,
to make fact decisions and weigh expert testimony and reports. See Anderson, 477 U.S. at 251-52
(credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences
from the facts are left for trial). When viewing the evidence in the light most favorable to Melland,
there is a genuine issue of material fact as to the extent of the damage to the Building and whether
the partial collapse following the March 2019 snow event caused the Building to lose its identify
and specific character, effectively wholly or completely destroying the Building.
While a genuine issue of material fact precludes summary judgment, the Court does share
Secura’s public policy concerns and concerns about Melland’s unilateral decision to raze the
Building, then seek the amount of the insurance written in the Policy for the Building. On that
front, it is worth emphasizing that the constructive total loss doctrine is a specific doctrine that is
not intended to apply in all cases where a partial covered loss occurs. And it is also not intended
to provide a windfall to the insured. Rather, the doctrine is really meant to cover those rare
circumstances where a partial loss (caused by a covered cause of loss) is, for all intents and
purposes, a complete and total loss. The Court has its own reservations as to whether this case is
one of those rare circumstances, but unfortunately, the fact disputes as to the extent of the damage
preclude the Court from granting summary judgment for Secura. Nonetheless, this order should
not be taken as an endorsement of allowing insureds to convert partial covered losses into
constructive total losses through their own decisions and conduct.
On this particular record, a genuine issue of material fact remains as to whether the
Building sustained a constructive total loss so that the Building was “wholly or completely
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destroyed” by a covered cause of loss. And as a result, Secura’s motion for summary judgment is
denied.
C. Applicability of North Dakota Century Code § 26.1-39-05
On a final note, Melland’s motion for partial summary judgment seeks a determination
that, as a matter of law, if Melland proves the Building sustained a constructive total loss, Melland
is entitled to the amount of the insurance written in the Policy for the Building (again, $3,164,000).
Secura does not oppose the motion, except to reiterate its position that the Building did not sustain
a constructive total loss.
Again, as discussed at length above, North Dakota’s valued policy statute states:
Whenever any insurance policy is written or renewed to insure any real property in
this state, including structures owned by persons other than the insured, against loss
caused by or resulting from any covered cause of loss and the insured property is
wholly or completely destroyed by any covered cause of loss without fraud on the
part of the insured or the insured’s assigns, the amount of the insurance written in
the policy is the true value of the property insured and the true amount of loss and
measure of damages[.]
N.D. Cent. Code § 26.1-39-05(1). Melland’s motion accurately reflects the plain language of the
statute. Accordingly, the Court grants Melland’s motion and limitedly concludes that, if Melland
Company can prove the Building sustained a constructive total loss, then it is entitled to the amount
of the insurance written in the Policy for the Building, or $3,164,000, consistent with North Dakota
Century Code section 26.1-39-05.
III. CONCLUSION
The Court has carefully reviewed the record, the parties’ filings, and the relevant legal
authority. On this particular record, fact issues preclude summary judgment. Accordingly, Secura’s
motion for summary judgment (Doc. No. 21) is DENIED, and Melland’s motion for partial
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summary judgment (Doc. No. 18) is GRANTED. Given the extensive briefing on the motion, the
Court also DENIES Secura’s motion for hearing (Doc. No. 22).
IT IS SO ORDERED.
Dated this 19th day of December, 2022.
/s/ Peter D. Welte
Peter D. Welte, Chief Judge
United States District Court
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