December 7, 2011

Fourth DCA Settles Dispute over Collapsed Roof between J.C. Penny and Dillard’s

J.C. Penney Company, Inc. v. Dillard’s, Inc.
Case No. 4D10-1770

JCPenney sued Dillard’s for damage to its store at the Turtle Creek Mall in Mississippi. In 2005, the roof over the Dillard’s store (which was adjacent to the JCP store) collapsed from Hurricane Katrina, severing a sprinkler main and causing uncontrolled water flow into the mall and the JCP store. Dillard’s moved for partial summary judgment, arguing that pursuant to the Turtle Creek Mall Operating Agreement (OA), JCP and Dillard’s agreed to release each other from liability from any loss or damage to property covered by the party’s insurance policy. However, they expressly reserved the right to bring an action for any “deductible” amount contained in their insurance policies. Dillard’s also filed a second motion for partial summary judgment, arguing that JCP could not recover any damages because JCP had already recovered from its insurer the entire damage amount claimed without any deductible being applied. In opposition, JCP argued that the notion that it had been made whole for its Turtle Creek Mall losses was illusory because JCP’s insurer treated Hurricane Katrina-related losses at several covered JCP stores as one “occurrence” for coverage purposes and unilaterally elected to apply the policy’s entire $2.5 million-per-event deductible to one JCP store (the Biloxi, Mississippi store). JCP argued that it had not been made whole for its losses in the Turtle Creek Mall. The trial court granted both partial motions for summary judgment.

The Fourth District Court of Appeal disagreed with JCP’s argument that the trial court erred in limiting its recovery to the deductible because under Mississippi law, Dillard’s cannot contractually exculpate itself against breaches of duties imposed by common law and for torts involving gross negligence. Instead, the court noted the parties were sophisticated national retailers, occupying equal bargaining positions, in negotiations for a commercial operating agreement and that the exculpatory clause was valid and did not contravene public policy. The court also found that Dillard’s conduct did not rise to the level of gross negligence simply because a different Dillard’s roof, in a different store, sustained damage in a prior hurricane, and Dillard’s internal memoranda acknowledged the potential for damage due to hurricanes and the need to perform maintenance prior to such storms. The Fourth District Court of Appeal reversed the trial court’s summary judgment order and held that a genuine issue of material fact existed as to how the deductible was apportioned and whether the application of the deductible was beyond JCP’s control.