SERVICE STEEL WAREHOUSE CO LP Et Al v. ACE AMERICAN INSURANCE COMPANY Complaint

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
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
5
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.
6
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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Case 4:09-cv-00691 Document 1-2 Filed in TXSD on 03/09/2009 Page 1 of 67

SERVICE STEEL WAREHOUSE CO LP Et Al v. ACE AMERICAN INSURANCE COMPANY Complaint

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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

TO THE HONORABLE UNITED STATES DISTRICT COURT:

in support thereof would show as follows:

8415 Clinton Drive, Houston, Texas.

1740 Wroxton Court, Houston, Texas.

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

of business in Switzerland and its U.S. headquarters in Philadelphia, Pennsylvania. However, it

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

II. J URISDICTION AND VENUE :

III. NATURE OF THE C ASE ; R ELIEF SOUGHT

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

court and pre- and post-judgment interest.

IV. BACKGROUND F ACTS:

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

buildings are owned by Coastal.

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

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

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

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

warehouse. The office sustained less damage.

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

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

with or without Hurricane Ike.

be honoring its commitments to its policyholders.

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

expenses occasioned by Hurricane Ike.

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

See Policy, and specifically the General Conditions section:

ALL RISKS - GENERAL CONDITIONS

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

damaged property. See Policy, Endorsement no. 5:

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

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

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

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

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

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

VI. C AUSES OF ACTION

damaged by Hurricane Ike, less only a deductible;

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

Service Steel and Coastal.

interest, other litigation expenses and costs of court.

Insurance Code Chapter 541.060 by, among other things:

b. making untrue statements of material fact;

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

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

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

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

aware of this ongoing damage.

their attorney’s fees and expenses.

the recovery of prejudgment and post-judgment interest.

VII. J URY DEMAND:

WHEREFORE, Service Steel and Coastal seek the following relief:

● The Court’s declaration that:

Hurricane Ike, less only a deductible; and

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

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

reasonable and necessary attorneys’ fees;

legally or equitably entitled.

CORNELL & PARDUE

/s/ James L. Cornell