10110 Group, LLC v. Mt. Hawley Insurance Company

Background

10110 Group, LLC owns the Brandon Center Hotel in Tampa, Florida. The hotel was insured by Mt. Hawley Insurance Company and Certain Underwriters at Lloyd’s London. In October 2022, 10110 Group submitted a claim for damage allegedly caused by Hurricane Ian on September 28, 2022. After inspections, the insurers denied the claim, stating that the hotel had not been damaged by the hurricane and that some damage resulted from excluded causes, including wear and tear, defective construction, or lack of maintenance. 10110 Group then sued for coverage.

The pending motions were the insurers’ motion for partial summary judgment under Rule 56 of the Federal Rules of Civil Procedure and their motion under Rule 702 of the Federal Rules of Evidence to exclude part of damages expert Ronald A. Patella’s testimony.

New York law governs

The policy states that all matters arising under it, including questions about its validity, interpretation, performance, and enforcement, must be determined under New York law, despite New York’s conflicts-of-law rules. The court held that this language clearly requires New York law. It rejected 10110 Group’s arguments that the provision was ambiguous because of the placement of the word “notwithstanding” and references to Florida law elsewhere in the policy.

Because New York law applies, the court granted the insurers summary judgment on 10110 Group’s claim for statutory attorney’s fees and costs under Florida law. The court noted that the insurers did not address whether 10110 Group might be entitled to a small amount of fees under a New York regulation, so it did not decide that issue.

Continuing normal operating expenses

The policy covers the actual loss of “Business Income” sustained because of a necessary suspension of operations during the restoration period. “Business Income” includes both net income that would have been earned or incurred and continuing normal operating expenses, including payroll. The policy also requires a reduction in the business-income loss to the extent the insured can resume operations, wholly or partly, by using damaged or undamaged property.

Patella calculated 10110 Group’s alleged lost net income during a twenty-one-week period at $142,260. He separately calculated continuing normal operating expenses for the twelve months after the hurricane at $1,411,961, including property taxes, management fees, ordinary room expenses, and utilities. He combined those amounts for a total alleged business-income loss of $1,554,221.

The court held that, under the policy, 10110 Group could recover only actual business-income losses caused by the alleged suspension of operations. The court found that the hotel continued operating “in the black,” meaning it generated enough revenue to cover its normal operating expenses during the restoration period. Those expenses therefore were not actual losses caused by the suspension.

The court also concluded that Patella’s calculation would result in double recovery. His net-income calculation already used expected profits, actual expenses, and actual revenue. Adding the continuing operating expenses separately would pay those expenses twice and place 10110 Group in a better financial position than it would have occupied without the interruption. The court therefore held that 10110 Group could not separately recover the amount Patella calculated as continuing normal operating expenses.

The court distinguished the decisions relied on by 10110 Group because those cases concerned situations in which expected net income was negative. To the extent those decisions conflicted with the court’s reasoning here, the court declined to follow them.

Expert testimony

Under Rule 702, expert testimony must rest on a reliable foundation and be relevant to the issue being decided. Because the court held that 10110 Group could not recover continuing normal operating expenses, it held that Patella’s testimony about those expenses was irrelevant and would not assist the factfinder. The court therefore granted the insurers’ motion to exclude that portion of his testimony.

The court did not reach the insurers’ separate arguments about the length of the period for which Patella calculated continuing normal operating expenses.

Disposition

The court granted Defendants’ motion for partial summary judgment and granted Defendants’ motion to exclude in part Patella’s testimony. The court directed the parties to submit proposed pretrial materials within thirty days, discuss settlement, and appear for a pretrial teleconference. The clerk was directed to terminate the docket entries for the two motions.