United States District Court, D. Columbia
October 18, 2005.
BURLINGTON INSURANCE COMPANY, Plaintiff,
OKIE DOKIE, INC. and C.J. THOMAS, INC Defendants.
The opinion of the court was delivered by: RICARDO URBINA, District Judge
GRANTING IN PART AND DENYING IN PART THE PLAINTIFF'S MOTION FOR
SUMMARY JUDGMENT; DENYING C.J. THOMAS' CROSS-MOTION FOR SUMMARY
This case is before the court on the plaintiff's motion for
summary judgment and on defendant C.J. Thomas, Inc.'s
cross-motion for summary judgment pursuant to Federal Rule of
Civil Procedure 56. The plaintiff asserts that it is entitled to
summary judgment on its claims against both defendants because
there is no genuine issue of material fact. Because the plaintiff
has not shown that defendant C.J. Thomas, Inc. ("C.J. Thomas")
violated a duty of care, the court denies summary judgment as to
the negligent misrepresentation claim. The court grants the
plaintiff's motion for a declaration that D.C. Code § 31-4314
defeats coverage under the insurance policy because that
insurance application contained a false statement that materially
affected the plaintiff's decision to insure the defendant.
Because the plaintiff has met its burden with respect to its
unjust enrichment claim against defendant Okie Dokie, Inc.,
("Okie Dokie") the court grants the plaintiff's motion for
summary judgment as to that claims. Because the defendants have not provided any substantive justification for
withholding an award of prejudgment interest, the court grants
the plaintiff's motion for an award of prejudgment interest.
A. Factual History
Defendant Okie Dokie is the owner and operator of Dream, a
nightclub in the District of Columbia. Compl. ¶¶ 8, 10. Defendant
C.J. Thomas, an insurance broker, prepared an application for
insurance on behalf of Okie Dokie for a general commercial
liability insurance policy to cover Dream. Id. ¶¶ 23, 24. The
application described Dream as a "Restaurant/Bar with Dance
Floor," and stated that: (1) the previous insurance carrier
cancelled its policy primarily because Dream had a dance floor;
(2) Dream does not sponsor "Social Events;" and (3) Dream's $4
million in total sales is comprised of $3 million in food sales
and $1 million in liquor sales. Id. ¶¶ 25-30. The plaintiff,
Burlington Insurance Company ("Burlington"), alleges that it
relied on the statements in the application when it issued a
commercial general liability policy to Okie Dokie on June 28,
2002. Id. ¶¶ 34, 36.
On August 10, 2002, an underaged drunk driver who had allegedly
been drinking at Dream, struck and killed a police officer named
Hakim Farthing. Id. ¶ 44. Farthing's estate sued Okie Dokie for
$50 million on October 1, 2003 ("Farthing Action"). Id. ¶¶
42, 45. Burlington settled the Farthing action for $410,000 on
August 21, 2004. Pl.'s Mot. For Summ. J. ("Pl.'s Mot.") at 5. The
plaintiff also alleges that it incurred legal costs to defend
Okie Dokie in the Farthing action. Id. B. Procedural History
In response to the Farthing Action, Burlington filed this
action against Okie Dokie and C.J. Thomas on September 26, 2003.
See generally Compl. With regard to Okie Dokie, Burlington
seeks: (1) a declaration that Burlington had no duty to defend or
indemnify Okie Dokie in the Farthing Action; (2) rescission of
the insurance policy; and (3) restitution for all costs
Burlington has paid with respect to the Farthing Action. Id.
¶¶ 58, 64, 69. Burlington moves for summary judgment on the
declaratory relief and unjust enrichment counts. Pl.'s Mot. at 2.
With regard to C.J. Thomas, Burlington seeks damages stemming
from alleged negligent misrepresentation in the insurance
application. Compl. ¶ 76. The complaint also alleges that C.J.
Thomas failed to disclose that Dream: (1) is a nightclub, (2)
hosts concerts, (3) seeks the patronage of eighteen to twenty
year olds, (4) derives over 25% of its revenue from the sale of
alcoholic beverages, and (5) regularly features an "open bar."
Id. ¶ 72. The plaintiff asserts that "C.J. Thomas was under a
duty to disclose one or more" of these facts. Id. ¶ 73. The
complaint further alleges that these "false statements and
omissions were material" to the plaintiff's decision to issue the
policy to Okie Dokie. Id. ¶ 74. The plaintiff claims that it
"reasonably relied on one or more of the false statements and
omissions. Id. ¶ 75.
Burlington moves for summary judgment on its claims against
Okie Dokie and C.J. Thomas.*fn1 C.J. Thomas cross-moves for
summary judgment on the negligent misrepresentation claim. The
court now turns to these motions. III. ANALYSIS
A. Legal Standard for a Motion for Summary Judgment
Summary judgment is appropriate when "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 a judgment as a matter of law." FED. R. CIV. P.
56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986); Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C. Cir. 1995).
To determine which facts are "material," a court must look to the
substantive law on which each claim rests. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" is one
whose resolution could establish an element of a claim or defense
and, therefore, affect the outcome of the action. Celotex,
477 U.S. at 322; Anderson, 477 U.S. at 248.
In ruling on a motion for summary judgment, the court must draw
all justifiable inferences in the nonmoving party's favor and
accept the nonmoving party's evidence as true. Anderson,
477 U.S. at 255. A nonmoving party, however, must establish more than
"the mere existence of a scintilla of evidence" in support of its
position. Id. at 252. To prevail on a motion for summary
judgment, the moving party must show that the nonmoving party
"fail[ed] to make a showing sufficient to establish the existence
of an element essential to that party's case, and on which that
party will bear the burden of proof at trial." Celotex,
477 U.S. at 322. By pointing to the absence of evidence proffered by
the nonmoving party, a moving party may succeed on summary
In addition, the nonmoving party may not rely solely on
allegations or conclusory statements. Greene v. Dalton,
164 F.3d 671, 675 (D.C. Cir. 1999); Harding v. Gray, 9 F.3d 150, 154 (D.C. Cir. 1993). Rather, the nonmoving party must present
specific facts that would enable a reasonable jury to find in its
favor. Greene, 164 F.3d at 675. If the evidence "is merely
colorable, or is not significantly probative, summary judgment
may be granted." Anderson, 477 U.S. at 249-50 (internal
B. The Negligent Misrepresentation Claim Against C.J. Thomas
The plaintiff argues that it is entitled to summary judgment on
its claim against defendant C.J. Thomas because it has fulfilled
the elements of a negligent misrepresentation claim under
District of Columbia law. Pl.'s Mot. at 6. C.J. Thomas, on the
other hand, argues that District of Columbia law is inapplicable.
Def. C.J. Thomas Company, Inc.'s Mem. of Law in Opp'n to Pl.'s
Mot. for Summ. J. and in Supp. of its Cross-Mot. For Summ. J.
("C.J. Thomas' Opp'n") at 6. In the alternative, C.J. Thomas
argues that it is entitled to summary judgment because the
plaintiff cannot meet the elements of negligent misrepresentation
under District of Columbia law. Id. at 7 n. 1. For the reasons
that follow, the court denies the plaintiff's motion for summary
judgment on the negligent misrepresentation claim against
defendant C.J. Thomas.
1. District of Columbia Law Applies to the Negligent
The parties in this case are completely diverse and the amount
in controversy is over $75,000. Federal jurisdiction is
accordingly based on diversity of citizenship.
28 U.S.C. § 1332(a). To determine which state's laws apply to the instant
suit, this court applies the District of Columbia choice of law
rules. Liberty Mut. Ins. Co. v. Travelers Indem. Co.,
78 F.3d 639, 642 (D.C. Cir. 1996) (explaining that "[a] federal court
sitting in diversity jurisdiction applies the choice of law rules
of the forum state").
The choice of law rules in the District of Columbia require the
court to "evaluate the governmental policies underlying the applicable laws and
determine which jurisdiction's policy would be more advanced by
the application of its law." Dist. of Columbia v. Coleman,
667 A.2d 811, 816 (D.C. 1995). The jurisdiction with the most
significant interest in insurance cases is "either the place of
the occurrence that requires coverage or the insured's
headquarters." Nationwide Mut. Ins. Co. v. Nat'l REO Mgmt.
Inc., 205 F.R.D. 1, 9 (D.D.C. 2000) (citing Potomac Elec. Power
Co. v. California Union Ins. Co., 777 F. Supp. 968, 972-73
(D.D.C. 1991)). Because Dream's headquarters are in the District
of Columbia, and because the Farthing action was brought in the
District of Columbia, the court determines that District of
Columbia law applies to the negligent misrepresentation claim.
2. Negligent Misrepresentation
Under District of Columbia law, a claim for negligent
misrepresentation requires the claimant to show that:
(1) the defendant made a false statement or omission
of a fact,
(2) the statement was in violation of a duty to
exercise reasonable care,
(3) the false statement or omission involved a
(4) the plaintiff reasonably relied and to [its]
detriment relied on the false information, and
(5) the defendant's challenged conduct proximately
caused injury to the plaintiff.
In re U.S. Office Prods. Co. Sec. Litig., 251 F. Supp. 2d 58
74 (D.D.C. 2003) (citing Redmond v. State Farm Ins. Co.,
728 A.2d 1202
, 1207 (D.C. 1999)). Because the plaintiffs have not
shown that defendant C.J. Thomas violated its duty of care, the
court denies the plaintiff's motion for summary judgment on its
negligent misrepresentation claim against C.J. Thomas.
This court previously ruled that, under D.C. law, "commercial
suppliers of information, such as C.J. Thomas," owe a duty of
care "to those intended to receive the information, even if the recipient is a third party, like Burlington, that has no
privity with the supplier." Burlington Ins. Co. v. Okie Dokie
Inc., 329 F. Supp. 2d 45, 49 (D.D.C. 2004) (citing Restatement
(Second) of Torts § 552 cmt. g. (1977)). "[T]he duty of
reasonable care requires that those with special training and
experience adhere to a standard of conduct commensurate with such
attributes." Morrison v. MacNamara, 407 A.2d 555, 560 (D.C.
White, an account executive at C.J. Thomas, prepared a number
of insurance applications on behalf of Dream's owners, including
a liquor liability application and the general commercial
liability application at issue in the instant suit. Pl.'s Mot.,
Ex. B ("White Dep.") at 7:5; Okie Dokie's Opp'n at 7. With
regards to the liquor liability application, on November 15,
2001, White prepared an application stating that liquor sales
could be as high as $1.5 million. White Dep. at 48:12-18, 49:4-5;
Pl.'s Reply at 11. That is, the liquor liability application
originally stated that liquor sales could be as high as 40% of
total sales. Eleven days later, on November 26, 2001, White
changed the estimated liquor sales on the liquor liability
application to $1 million, or 25% of total sales. White Dep. at
48:2-12, 159:1-11; Pl.'s Reply at 11. In March 2002, when filling
out the plaintiff's general commercial liability application,
White used the $1 million figure from the latter liquor liability
application. Pl.'s Reply at 11. White also testified that she
knew that Burlington would not renew its coverage if liquor sales
were higher than 25% of total annual sales. White Dep. at
White testified that the change in estimated liquor sales in
November 2001 did not "raise any red flags with her" because the
liquor liability application only requires that an establishment
classified as a restaurant have liquor sales that are less than
75% of its annual total sales. Id. at 159-160. She also stated
that it did not seem strange to her that Dream's estimates had
changed because "it was a new business." Id. at 153.
The plaintiff argues that White's failure to alert it to the
changed estimates in the liquor liability application constitutes
a violation of White's duty of care. Pl.'s Mot. at 9. The duty of
care required that White "exercise such reasonable care and skill
as is expected of an insurance agent acting under similar
circumstances." Morrison, 407 A.2d 555, 560-61. Neither party,
however, explains whether White acted with the reasonable care
and skill expected of an insurance agent acting under similar
circumstances. The plaintiff only states that C.J. Thomas was
"indisputably" obligated to disclose that a previous liquor
application contained a different sales estimate. Pl.'s Mot. at
9. While it is possible that C.J. Thomas' duty of care required
that White notify the plaintiff of the changes in sales estimates
in unrelated insurance applications, the plaintiff has not shown
that the standard of care did, in fact, require such an action.
The plaintiff, therefore, has not met its burden of showing that
C.J. Thomas violated the duty of care. Superior Bank, F.S.B. v.
Tandem Nat'l Mortgage, Inc., 197 F. Supp. 2d 298, 339 n. 8 (D.
Md. 2000) (declining to express an opinion on the plaintiff's
negligent misrepresentation claim because the extent of the duty
of care owed by the defendant could not be determined on the
record).*fn2 The court therefore denies the plaintiff's
motion for summary judgment on the negligent misrepresentation
claim. The court notes that its denial of the plaintiff's motion for
summary judgment does not automatically entitle defendant C.J.
Thomas to win on its cross-motion for summary judgment. 11 JAMES
WM. MOORE ET AL., MOORE'S FED. PRACTICE § 56.10 (3d. ed.
2004) (explaining that "denial of one cross-motion does not imply
the grant of the opponent's cross-motion"). Indeed, even C.J.
Thomas recognizes that "there is an issue of fact as to whether
C.J. Thomas failed to exercise reasonable care." C.J. Thomas'
Opp'n at 9 n. 2. The court accordingly denies defendant C.J.
Thomas' cross-motion for summary judgment*fn3 on the
negligent misrepresentation claim.
C. The Declaratory Relief Claim Against Okie Dokie
Burlington moves the court for "a declaration that D.C. Code §
31-4314 defeats coverage under the Policy for the Underlying
Actions."*fn4 Under D.C. Code § 31-4314, a false statement
on an insurance application bars the right to recovery thereunder
if "such false statement was made with intent to deceive or [the
false statement] materially affected either the acceptance of the
risk or the hazard assumed by the company." For the reasons that
follow, the court grants Burlington's motion for declaratory
1. The Insurance Application Contained a False Statement
The insurance application stated that Dream's liquor sales were
$1,000,000 and its food sales were $3,000,000. Okie Dokie's Opp'n
at 5. Marcus Barnes, Dream's owner, states that these numbers are
not representative of Dream's sales. Id. According to Barnes,
"we would never have said that it was going to be more food than
liquor because we don't do more food than liquor. We are more
night-life than we are restaurant." Id. The application, in
other words, contained a false statement.
Okie Dokie argues that C.J. Thomas "unilaterally" provided the
sales figures to Burlington and is consequently not liable for
the false statement on the application. Id. Assuming that Okie
Dokie's assertion is true, however, does not change the court's
conclusion because Okie Dokie is liable for C.J. Thomas'
misstatement. C.J. Thomas was acting as Okie Dokie's agent.
Travelers Indem. Co. v. Booker, 657 F. Supp. 280, 286 (D.D.C.
1987) (explaining that brokers "employed to procure insurance . . .
are agents of the insured). Principals are liable for the
tortious acts of their agents. Am. Soc. of Mech. Eng'rs, Inc. v.
Hydrolevel Corp., 456 U.S. 556, 565-66 (1982). Assuming
arguendo that C.J. Thomas is responsible for the false statement
on the insurance application, Okie Dokie still could not disclaim
liability by arguing that its agent was at fault. 2. The Sales Figures Materially Affected Burlington's Decision to
Insure Okie Dokie
According to the plaintiff, the sales figures listed on the
insurance application materially affected Burlington's decision
to insure Okie Dokie. Pl.'s Mot. at 3. Okie Dokie does not
substantively deny that the sales figures on the application
materially affected Burlington's decision to provide
coverage.*fn5 In the District of Columbia, a false statement
is material if it "concerns a matter which would reasonably cause
the insurer to consider, either not issuing the policy because of
increased risk, or issuing the policy with an increased premium."
Johnson v. Prudential Ins. Co. of Am., 589 F. Supp. 30, 35
Burlington submitted a binder*fn6 to its agent*fn7
showing that it considered the level of alcohol sales to be an
important factor in its decision to cover Okie Dokie. Okie
Dokie's Opp'n at 10-11. Specifically, the plaintiff stated that
it was not interested in the Okie Dokie account if liquor sales were higher than 25% of total sales. The binder further states,
"If we discover via audit that the liquor receipts are in fact
higher than 25% we will non-renew the account." Id. at 11. Okie
Dokie argues that the plaintiff is not entitled to rescission
because it "failed to reserve its right to immediate
cancellation" and because the plaintiff instead chose non-renewal
of the account as its exclusive remedy.
Okie Dokie's argument that the plaintiff is not entitled to
declaratory relief under D.C. Code § 31-4314 because "the proper
remedy was . . . non-renewal of the [p]olicy," as opposed to
rescission, id. at 11, is misplaced. First, Okie Dokie cites no
case law for the proposition that the plaintiff was required to
reserve its "right to immediate cancellation." Second, the
defendant's argument flies in the face of the clear language of
D.C. Code § 31-4314. "[P]roof that an application for insurance
contains a false statement which materially affects the
acceptance of risk or hazard assumed by the insurer is sufficient
to defeat a claim under the policy." Hill v. Prudential Ins. Co.
of Am., 315 A.2d 146, 148 (D.C. 1974). This means that the
plaintiff is not limited to non-renewal of the policy where the
application contained false statement. Morgan v. Am. Univ.,
534 A.2d 323, 330-31 (D.C. 1987) (holding that a contract provision
that did not expressly abrogate a party's right to rescind a
contract on the basis of a misrepresentation did not limit or
abrogate the rescission rights the party may otherwise have under
contract law principles); see also D.C. Code § 31-4314 (stating
that a false statement in the application bars a right to
recovery under the policy).
Okie Dokie further argues that Burlington was required to
conduct an independent investigation of the facts contained in the insurance
application.*fn8 Okie Dokie's Opp'n at 9. Specifically,
defendant Okie Dokie argues that the "notice of [a previous
insurer's] cancellation based on the size of Dream's dance floor
constituted reasonable notice that Dream was not a `traditional'
restaurant and that Burlington had a duty to undertake some
investigation of Dream." Okie Dokie's Opp'n at 9. But, as this
court stated previously in this same suit, an insurer has a right
to rely on statements made in the insurance application.
Burlington Ins. Co. v. Okie Dokie, Inc., 329 F. Supp. 2d 45, 49
(D.D.C. 2004). "An insurer's reliance on statements made in an
insurance application is generally recognized as objectively
reasonable." Id. This court further concluded that Burlington
did not have any reason to know that Okie Dokie's representations
were "untrue or unenforceable." Id.
Moreover, "an insurer is entitled to truthful responses to all
questions on an application so that it may correctly evaluate the
risk and determine whether the applicant meets its underwriting
standards." Apolskis v. Concord Life Ins. Co., 445 F.2d 31, 35
(7th Cir. 1971). The application stated that Dream is a
restaurant/bar with dance floor. On its face, this statement does
not indicate that Dream is a nightclub. Further, Okie Dokie
provides no evidence supporting its implicit contention that only
nightclubs have large dance floors. The court therefore concludes
that Burlington did not have a duty to investigate the sales
figures, and that the sales figures stated on the application
materially affected Burlington's decision to provide coverage.
The court accordingly grants the plaintiff's motion for a declaration
that D.C. Code § 31-4314 defeats coverage under the insurance
D. The Unjust Enrichment Claim Against Okie Dokie
The plaintiff also seeks indemnification from defendant Okie
Dokie under the theory of unjust enrichment. Pl.'s Mot. at 7;
Compl. ¶¶ 65-69. To recover under a theory of unjust enrichment
in the District of Columbia,*fn9 a plaintiff "must show that
[the defendant] was unjustly enriched at his expense and that the
circumstances were such that in good conscience [the defendant]
should make restitution." News World Commc'ns, Inc. v.
Thompsen, 878 A.2d 1218, 1222 (D.C. 2005); see also Rapaport v.
U.S. Dep't. of Treasury, Office of Thrift Supervision,
59 F.3d 212, 217 (D.C. Cir. 1995) (citing DOBBS, LAW OF REMEDIES §
4.1(2)). D.C. Code § 314-314 bars Okie Dokie's right to recovery
under the policy because the insurance application contained a
false statement that materially affected the plaintiff's decision
to issue the policy. Although the District of Columbia statute
bars Okie Dokie's right to recovery under the policy, Burlington
paid to defend and settle the claims against Okie
Dokie.*fn10 Pl.'s Mot. at 5. In short, Okie Dokie has
received the benefit of the commercial general liability
insurance coverage even though coverage is barred under D.C. Code
§ 31-4314. The court accordingly grants summary judgment as to the unjust enrichment claim in favor of the
E. Prejudgment Interest
Burlington further requests that the court award prejudgment
interest on its damages. Pl.'s Mot. 11. Because prejudgment
interest is a substantive matter, District of Columbia law
applies to this issue. Turkmani v. Republic of Bolivia,
273 F. Supp. 2d 45, 41 (D.D.C. 2002) (citing Harris v. Mickel,
15 F.3d 428, 429-30 (5th Cir. 1994)). Under District of Columbia law,
"[i]n an action to recover damages for a wrong the judgment for
the plaintiff shall bear interest." D.C. Code § 15-109.
District of Columbia law is unclear as to whether a plaintiff
in a tort action may recover prejudgment interest. See Williams
Enters., Inc. v. Sherman R. Smoot Co., 938 F.2d 230, 238 (D.C.
Cir. 1991) (explaining that "[i]t remains unclear whether
prejudgment interest is available in a negligence action");
Duggan v. Keto, 554 A.2d 1126 (D.C. 1989) (concluding "that
pre-judgment interest in tort actions in the District of Columbia
is neither authorized nor forbidden by statute"); Schneider v.
Lockheed Aircraft Corp., 658 F.2d 835, 856-57 (D.C. Cir. 1981)
(holding "that neither common law nor the District of Columbia
Code provides for the award of prejudgment interest in tort
actions in the District of Columbia"). District of Columbia law,
however, permits an "award of prejudgment interest where there
was a contractual relationship, but the action was not framed as
a breach of contract." Bell v. Westinghouse Elec. Corp.,
507 A.2d 548, 555 n. 5 (D.C. 1986). Furthermore, this court has broad
discretion to award prejudgment interest, and courts usually
award prejudgment interest "absent some justification for
withholding such an award." Fed. Mktg. Co. v. Impression Prods.
Co., Inc., 823 A.2d 513, 532 (D.C. 2003). In the instant case, Burlington has been deprived of the money
it paid in the settlement for a period of over one year. Pl.'s
Mot. at 11; Okie Dokie's Opp'n at 2. Instead of substantively
responding to Burlington's argument that it is entitled to
prejudgment interest, C.J. Thomas argues that Burlington is not
entitled to prejudgment interest because it has "submitted no
affidavit or other evidence showing that prejudgment interest is
required under the applicable D.C. statute." C.J. Thomas' Opp'n
at 12. C.J. Thomas cites D.C. Code § 15-109 as the applicable
statute in its argument. Id. Because this section of the
District of Columbia Code does not not require an affidavit to be
submitted for an award of prejudgment interest,*fn11 the
court finds that C.J. Thomas is liable for prejudgment interest.
Okie Dokie, similarly, does not substantively respond to the
argument that Burlington is entitled to prejudgment interest.
Citing no case law or statute, Okie Dokie argues that
Burlington's "proper remedy" is non-renewal of the policy. Okie
Dokie's Opp'n at 11. Because neither of the defendants has
provided any substantive justification for withholding an award
of prejudgment interest, and because the District of Columbia
case law authorizes an award of prejudgment interest in
situations such as the one at bar, the court grants the
plaintiff's motion for an award of prejudgment interest. IV. CONCLUSION
For the foregoing reasons, the court denies the plaintiff's
motion for summary judgment on its negligent misrepresentation
claim against C.J. Thomas, and grants the plaintiff's motion for
summary judgment on its declaratory relief and unjust enrichment
claims against Okie Dokie. The court also awards prejudgment
interest to the plaintiff. An order directing the parties
consistent with this Memorandum Opinion is separately and
contemporaneously issued this 18th day of October, 2005.
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