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Case 4:09-cv-00691 Document 1 Filed in TXSD on 03/09/2009 Page 1 of 12

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

SERVICE STEEL §
WAREHOUSE CO., L.P. and §
COASTAL REALTY, L.L.C. §
§
§
Plaintiffs, §
§ CAUSE NO:
VS. §
§
ACE AMERICAN §
INSURANCE COMPANY §
§
§
§
Defendant. § JURY TRIAL REQUESTED

ORIGINAL COMPLAINT

TO THE HONORABLE UNITED STATES DISTRICT COURT:

Plaintiffs Service Steel Warehouse Co., L.P. (“Service Steel”) and Coastal Realty, L.L.C.

(“Coastal”) file their Original Complaint against Ace American Insurance Company (“ACE”), and

in support thereof would show as follows:

I. PARTIES:

1. Service Steel is a Texas limited partnership with its principal place of business at

8415 Clinton Drive, Houston, Texas.

2. Coastal is a Texas limited liability corporation with its principal place of business at

1740 Wroxton Court, Houston, Texas.

3. ACE is a foreign insurance company which is licensed in Texas and regularly

conducts business in Texas. It is believed to be domiciled in Switzerland, with its principal place
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of business in Switzerland and its U.S. headquarters in Philadelphia, Pennsylvania. However, it

may be a Pennsylvania domicile in addition to having its U.S headquarters in Philadelphia. ACE

may be served by serving its registered agent for service of process, Robin M. Mountain, 6600

Campus Circle Drive East, Suite 300, Irving, TX 75063-2732.

II. J URISDICTION AND VENUE :

4. This Court has diversity jurisdiction under 28 U.S.C. § 1332(a)(1) or (2), as the

parties are citizens of different states or citizens of a state and a foreign nation. The amount in

controversy exceeds $75,000.00. Venue is proper pursuant to 28 U.S.C. § 1391, as the Hurricane

Ike damage that is the basis of this dispute occurred in this district.

III. NATURE OF THE C ASE ; R ELIEF SOUGHT

5. This is a first-party insurance coverage case stemming from extensive damage to

Coastal’s property and Service Steel’s business caused by Hurricane Ike. Plaintiffs seek a

declaration that their property damage and business interruption losses are covered by an insurance

policy issued by ACE. Plaintiffs also seek damages for breach of contract, violations of the Texas

Insurance Code, and common law bad faith. Finally, plaintiffs seek their attorney’s fees, costs of

court and pre- and post-judgment interest.

IV. BACKGROUND F ACTS:

6. Service Steel and Coastal. Service Steel is a full-service, independent, carbon

structural steel distributor operating in the United States and internationally. It operates out of an

office building, a large warehouse building (consisting of six separate bay areas) and a smaller

warehouse building, all adjacent to the Houston Ship Channel at 8415 Clinton Drive. All three

buildings are owned by Coastal.


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7. Insurance coverage. Plaintiffs insured the Clinton Drive property and contents and

the business with an insurance policy issued by ACE, no. EPRN05057942, with effective dates of

6/01/08 to 6/01/09 (“the Policy”). Service Steel is the named insured; Coastal is a loss payee as its

interests may appear. A copy of the Policy (as modified by endorsements) is attached as Exhibit A

to this Complaint. Before accepting its premium, ACE had every right and opportunity to inspect

the property to ascertain the age and condition of the buildings.

8. As concerns this complaint, the Policy provides two vital coverages:

(a) “all risk” property damage coverage with overall limits for the buildings of

$2,550,000 (subject to certain deductibles and sub-limits); and

(b) business income and extra expense coverage (collectively, the “business

interruption” coverage) in the amount of $1,000,000.

9. Hurricane Ike. On the night of September 13/14, 2008, Hurricane Ike struck the

Houston area, and devastated the Ship Channel and adjacent properties. Plaintiffs’ main warehouse

sustained extensive damage to all six bay areas. Numerous doors, roof panels, sky lights and

gutters were blown away, some never to be found. Load-bearing columns, beams and other

structural members were snapped like twigs. The overhead cranes and electrical infrastructure

were damaged, causing an unsafe working condition that could not be assessed and rectified until

power was restored. The smaller warehouse was also damaged, though not as severely as the main

warehouse. The office sustained less damage.

10. As a result of Hurricane Ike, plaintiffs have incurred, and will incur, significant costs

to repair the main warehouse and, to a lesser extent, the smaller warehouse. Expenses to stabilize

the property in the days following Hurricane Ike, repair the two warehouses and return them to
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something approaching pre-Ike condition will exceed $1,300,000. Service Steel has also suffered

extra expenses and a profound disruption in its business operations and thus its profits due to the

extensive damage to the property. Service Steel estimates it has lost $1,000,000 or more in lost

business income and extra expenses incurred as a result of Hurricane Ike.

11. ACE “adjusts” the claim. Service Steel gave prompt notice to ACE of its and

Coastal’s claim under the Policy. The claim was timely acknowledged by ACE, and was adjusted

by ACE’s claims administrator, Technical Loss Adjustment & Appraisal, LLC, an outfit in

northwest suburban Chicago, Illinois, which at all times was ACE’s agent. On September 27,

2008, the adjuster, Mr. Michael Minasian, wrote to Service Steel with respect to the claim.

12. As will be shown below, the Policy provides coverage for the vast majority of

plaintiffs’ property damage and business interruption losses. However, in his September 27th letter

and in follow-up correspondence, Mr. Minisian has displayed a tone that would characterize ACE’s

entire “adjustment” of the claim. Rather than attempting to help make Coastal and Service Steel

whole following Hurricane Ike, ACE instead claims without basis that the property was

underinsured (which could allegedly trigger a punitive “coinsurance” clause).

13. Acting through Mr. Minisian, ACE also suggests that not all the damage to the

warehouses was a result of Hurricane Ike. ACE apparently is under the impression that parts of the

main warehouse would have been snapped or blown away on the night of September 13/14, 2008

with or without Hurricane Ike.

14. More recently, despite the urgency of the situation and plaintiffs’ willingness to

satisfy all legitimate ACE requests, ACE has offered to settle its policyholders’ multi-million dollar

property claim for roughly $40,000. And, despite admitting liability for the property damage
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(albeit in a grossly inadequate fashion), ACE has not offered anything for Service Steel’s business

interruption claim.

15. As of the filing of this complaint, roughly six months have passed since Hurricane

Ike devastated the Houston community. Service Steel and Coastal have waited patiently for ACE

to fully address the damages and losses they sustained. By offering just pennies on the dollar on

Coastal’s claim and nothing for Service Steel’s, ACE has made it unmistakably clear that it will not

be honoring its commitments to its policyholders.

16. Instead of promptly and fully honoring its obligations, ACE has indicated, through

its and its agent’s acts and failures to act, that it has denied coverage for:

(a) the vast majority of Coastal’s property damage loss and

(b) all of Service Steel’s business interruption and extra expense losses

as a result of Hurricane Ike. As will be shown below, these denials are wrongful breaches of

contract, violate the Texas Insurance Code, and amount to common law “bad faith.”

17. Service Steel and Coastal have been and will be damaged. Service Steel and

Coastal have sustained extensive costs to stabilize the warehouses and perform the most vital

repairs. Other extensive repairs are needed, however, and the value of the property declines every

day they are not made. Income loss and extra expenses caused by the hurricane – and insured by

ACE – can never be recouped except through a claim under the Policy.

18. If ACE’s wrongful denials of coverage are not quickly redressed, Service Steel and

Coastal will be forced to shoulder the vast majority of the costs to repair the most serious damages

to the Clinton Drive property. Except for a deductible, all of these expenses are the responsibility

of ACE. ACE’s recalcitrance may also cause its policyholders to experience greater difficulty
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obtaining work by reputable contractors, and/or require them to pay more to contractors who would

accept a lower price if ACE was honoring its obligations. Finally, if ACE is not forced by this

Court to act honorably, Service Steel will never recover the lost business income and extra

expenses occasioned by Hurricane Ike.

V. C OVERAGE FOR P LAINTIFFS' DAMAGES AND L OSSES

19. Pr oper ty damage cover age. ACE cannot dispute that the damaged warehouses and

their contents are scheduled property in the Declarations to the Policy. Nor will it dispute that

Hurricane Ike was a covered peril (i.e., an event insured against). As is the case with most property

damage policies, the ACE Policy insures the buildings and contents on an “All Risk” basis; i.e. the

property damage is covered unless a specific exclusion or limitation precludes or limits coverage.

See Policy, and specifically the General Conditions section:

ALL RISKS - GENERAL CONDITIONS


COVERAGE: PERILS INSURED AGAINST:

This Policy covers the property insured hereunder against all risks of direct physical loss or damage
occurring during the period of this Policy from any external cause, except as hereinafter excluded
or limited.

Exhibit A, ST.AR 200 General Conditions section, p. 1 of 11.

20. Because the burden of proof is on ACE to show that certain exclusions

unequivocally preclude coverage, Service Steel will not attempt to guess which exclusions or

limitations, if any, ACE will set forth as applicable. Service Steel can assure the Court, however,

that it has analyzed the exclusions and limitations it expects ACE to assert, and that these

exclusions and limitations are inapplicable to the vast majority of the damages sustained.

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21. By endorsement, the Policy provides for replacement cost coverage; i.e., ACE is to

pay the cost to repair the damage caused by Hurricane Ike, not just the depreciated value of the

damaged property. See Policy, Endorsement no. 5:

A. In consideration of the premium of the policy to which this endorsement is attached and the
following Coinsurance Clause being made a part of this policy to apply to the above named
coverage, which Coinsurance Clause supersedes and replaces the Coinsurance Clause
otherwise applicable to such coverage, the provisions of this policy applicable only to such
coverage is amended to substitute the term “replacement cost” for the term “actual cash
value” wherever it appears in the policy, thereby eliminating any deduction for depreciation
....

Exhibit A, Replacement Cost Endorsement, p. 1 of 2.

22. Coastal estimates that necessary repairs to date and further repairs required to restore

the buildings to their prior condition will exceed $1,300,000, and that after taking into account the

windstorm deductible, ACE will owe Coastal over $1,150,000.

23. Business interruption coverage. The ACE Policy also provides coverage for the

business income loss Service Steel sustained and the extra expenses it incurred as a result of

Hurricane Ike. The Policy provides, at Endorsement no. 22 (which supersedes earlier provisions):

B. COVERAGE:

Subject to all terms, conditions and stipulations of the Policy to which this endorsement is
attached, not in conflict herewith, this Policy is extended to insure against loss resulting
directly from:

1. Necessary interruption of the Insured’s business and the consequent reduction in


Gross Earnings, caused by damage to or destruction of real or personal property,
except finished stock;

2. Necessary Extra Expense, as hereinafter defined, incurred by the Insured in order to


continue as nearly as practicable the normal operation and normal Gross Earnings of
the Insured’s business following damage to or destruction of real or personal
property;

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by the peril(s) insured against during the term of this Policy, which property is on premises
occupied by the Insured and situated as herein described.

Exhibit A, ECBI/Extra Expense Endorsement, p. 1 of 5.

24. Service Steel estimates that it has sustained at least $1,000,000 in lost business

income and extra expenses incurred as a result of Hurricane Ike.

VI. C AUSES OF ACTION

25. Declaratory Judgment. Service Steel and Coastal re-allege paragraphs 1 through

24 of their complaint as if set forth verbatim. Pursuant to the federal Declaratory Judgment Act, 28

U.S.C. § 2201, and the Federal Rules of Civil Procedure, Rule 57, plaintiffs are entitled to the

following declarations:

(a) The ACE Policy provides coverage for the cost to repair the buildings

damaged by Hurricane Ike, less only a deductible;

(b) The ACE Policy provides coverage for Service Steel’s lost income and extra

expenses as a result of Hurricane Ike, subject only to the Policy’s limitation on coverage;

(c) Alternatively, the Policy is ambiguous and must be interpreted in favor of

Service Steel and Coastal.

26. Breach of Contract. Service Steel and Coastal re-allege paragraphs 1 through 25 of

their complaint as if set forth verbatim. The acts and omissions of ACE and its agents constitute a

breach and/or anticipatory breach of ACE’s contract with its named insured Service Steel and its

loss payee Coastal, even though plaintiffs have satisfied all conditions precedent to the fulfillment

of their contractual demands. Accordingly, additionally or in the alternative, plaintiffs also bring

an action for breach of contract against ACE pursuant to Texas statutory and common law,

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including Chapter 38 of the Texas Civil Practice and Remedies Code, and seek all their damages

for such breach, including actual damages, consequential damages, attorneys’ fees, prejudgment

interest, other litigation expenses and costs of court.

27. Violations of the Texas Insurance Code. Service Steel and Coastal re-allege

paragraphs 1 through 26 of their complaint as if set forth verbatim. At all pertinent times, ACE was

engaged in the business of insurance as defined by the Texas Insurance Code. The acts and

omissions of ACE and its agents appear to constitute one or more violations of the Texas Insurance

Code. More specifically, ACE appears to have violated the following provisions of the Code:

Insurance Code Chapter 541.060 by, among other things:

a. failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a
claim with respect to which ACE’s liability has become reasonably clear;

b. making untrue statements of material fact;

c. failing to state a material fact necessary to make other statements made not misleading,
considering the circumstances under which the statements were made; and

d. making statements in a manner that would mislead a reasonably prudent person to a


false conclusion of a material fact.

e. refusing to timely explain to its insured its coverage position; and/or

f. refusing to affirm or deny coverage within a reasonable time.

ACE has also violated Insurance Code Chapter 542.060, the Prompt Payment Act.

28. Where statements were made by ACE, Service Steel and Coastal reasonably relied

upon them. As a result of the foregoing conduct, which was and is the producing cause(s) of injury

and damage to Service Steel and Coastal, plaintiffs have suffered damages including, without

limitation, actual damages, economic damages, and consequential damages. Moreover, one or

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more of the foregoing acts or omissions were “knowingly” made, entitling Service Steel and

Coastal to seek treble damages pursuant to the Insurance Code. ACE has also violated the Prompt

Payment Act, and plaintiffs seek 18% interest damages as a penalty, plus reasonable and necessary

attorney’s fees incurred as a result of these violations.

29. These actual and apparent violations of the Texas Insurance Code have caused

plaintiffs damages which they are not presently seeking (with the exception of the Prompt Payment

claim), but which they will seek after they have sent ACE a 60 day notice letter as provided by the

Insurance Code. At that time, plaintiffs will amend their pleading to fully assert these claims and

will seek their damages, including, without limitation economic damages, actual damages,

consequential damages, treble damages, and reasonable and necessary attorneys’ fees.

30. “Bad Faith”. Service Steel and Coastal re-allege paragraphs 1 through 29 of their

complaint as if set forth verbatim. ACE has refused to pay or delayed in paying a claim after

liability has become reasonably clear. This constitutes common law “bad faith.” As a result,

Service Steel and Coastal seek extra-contractual damages provided by the common law, including

punitive damages. Service Steel and Coastal have sustained and continue to sustain serious damage

to their property and business as a result of ACE’s refusal to honor its Policy, and ACE is well

aware of this ongoing damage.

31. ACE has refused to make payment on plaintiffs’ claims even though its liability is

reasonably clear, and has refused to pay, delayed in paying or offered grossly inadequate and

unconscionable sums to settle the claims submitted by its policyholders. Such wrongful actions

were and continue to be committed knowingly, deliberately, intentionally and with reckless

disregard for the well being of ACE’s insureds. As such, ACE has breached its common law duty
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of good faith and fair dealing, and Service Steel and Coastal are entitled to recover their actual

damages, consequential damages, punitive damages, and pre- and post-judgment interest.

32. Attorney’s fees. Service Steel and Coastal have been required to engage the

services of the undersigned attorneys and have agreed to pay their attorneys a reasonable fee for

services expended and to be expended in the prosecution of their claims against ACE through the

trial court and all levels of the appellate process. Service Steel and Coastal seek the recovery of all

their attorney’s fees and expenses.

33. With respect to all causes of action asserted herein, Service Steel and Coastal seek

the recovery of prejudgment and post-judgment interest.

34. All conditions precedent to recovery under the Policy have occurred or been

performed.

VII. J URY DEMAND:

35. Plaintiffs request that a jury be convened to try the factual issues in this action.

VIII. PRAYER

WHEREFORE, Service Steel and Coastal seek the following relief:

● The Court’s declaration that:

(a) The ACE Policy provides coverage for the cost to repair the buildings damaged by

Hurricane Ike, less only a deductible; and

(b) The ACE Policy provides coverage for Service Steel’s lost income and extra

expenses as a result of Hurricane Ike, subject only to the Policy’s limitation on coverage and any

applicable deductibles;

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● Damages for breach of contract, including actual damages, consequential damages,

attorneys’ fees, pre- and post-judgment interest, other litigation expenses and costs of court;

● (Conditionally) Damages for violations of the Texas Insurance Code, including

without limitation economic damages, actual damages, consequential damages, treble damages, and

reasonable and necessary attorneys’ fees;

● Damages for breach of the duty of good faith and fair dealing, including actual

damages, consequential damages, punitive damages and pre- and post-judgment interest; and

● Penalty in the amount of 18% interest for violations of the Prompt Payment Act.

● Service Steel and Coastal also seek all other relief and rulings to which they may be

legally or equitably entitled.

Respectfully submitted,

CORNELL & PARDUE

/s/ James L. Cornell


James L. Cornell
State Bar No. 04834800
jcornell@cornell-pardue.net
2727 Allen Parkway Suite 1675
Houston, Texas 77019
Telephone: (713) 526-0500
Facsimile: (713) 526-7974
Attorney in charge for
SERVICE STEEL WAREHOUSE CO. L.P.
and COASTAL REALTY, L.L.C.

Attachment:

Exhibit A: ACE Policy

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