Norman et al v. State Farm Fire and Casualty Company

Filing 64

ORDER denying 33 State Farm's Motion for Partial Summary Judgment. By Judge Philip A. Brimmer on 11/19/14.(pabsec)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 13-cv-01643-PAB-CBS
J. BRUCE NORMAN and
DIANE NORMAN,
Plaintiffs,
v.
STATE FARM FIRE AND CASUALTY COMPANY,
Defendant.

ORDER

This matter is before the Court on the Motion for Partial Summary Judgment
[Docket No. 33] filed by defendant State Farm Fire and Casualty Company (“State
Farm”). The Court has subject matter jurisdiction pursuant to 18 U.S.C. § 1332.
I. BACKGROUND1
This case arises out of an insurance coverage dispute over residential property
damage caused by the Waldo Canyon Fire in Colorado in June and July 2012.
Plaintiffs J. Bruce and Diane Norman’s Colorado Springs, Colorado home was insured
under a homeowners policy, policy number 86-48-2982-4 (the “policy”), issued by State
Farm. Docket No. 31-6 at 2. On June 23, 2012, the Norm ans were directed by law
enforcement to evacuate their home due to the proximity of the fire. Docket No. 33 at
3, ¶ 1; Docket No. 33-1 at 4, p. 140:7-11. On June 29, 2012, State Farm contacted the

1

The following facts are undisputed unless otherwise indicated.

Normans. Docket No. 33 at 3, ¶ 2. Mrs. Norman told the State Farm representative
that she believed her home was intact, but that the home would likely have smoke
damage. Docket No. 33-3 at 20-21. 2 On July 5, 2012, the Normans returned to their
home and reported heavy smoke damage to the interior and exterior of the home with
some melting. Id. at 20. The following day, State Farm contacted the Normans and
scheduled an inspection of the property. Id. On July 10, 2012, State Farm inspected
the Normans’ home. Id. The claim notes state:
there is a slight smoke smell in the house, found light smoke damage
throughout the home . . . , no fire damage to home found, sprinklers,
waterfall damaged. [E]lectrical box and sprinkler system burned. . . . they
are in the process of obtaining estimates to replace the landscaping, repair
the sprinkler[] system and rocks and waterfall.
I inspected the entire home while in white socks for 1 ½ to 2 hrs, after
inspection found slight soot on socks.
Id. at 19-20. On July 11 and 13, 2012, Mrs. Norman requested an advance to begin
cleaning, at which point State Farm explained that the entire claim would be completed
in a few days. Id. at 19. On July 17, State Farm issued the Normans a check for
$78,106.36, along with documents explaining the basis for the payment. Docket No. 33
at 4, ¶ 7. The following day State Farm issued the Normans a second check for
$8,556.78 to correct an error made in calculating the policy benefits. Id. at 4, ¶ 8.
Edwin Lucero, State Farm’s Rule 30(b)(6) deponent, stated that, had State Farm not
received additional information, the payments made in July 2012 would have been the
settlement of the Normans’ claim. Docket No. 36-3 at 10-11, pp. 85:21-86:7. T he

2

Neither party disputes the admissibility of the statements contained within claim
notes kept by State Farm.
2

Normans have continued to live in their home since approximately July 5, 2012. Docket
No. 33-1 at 4, p.140:3-19.
On July 30, 2012, State Farm received an estimate from Rocky Mountain Electric
for the replacement or repair of exterior outlets, flood lights, and a light post. Docket
No. 33-3 at 17. Although the exterior lights were working, Mrs. Norman indicated that
the lights had baked on soot damage. Id. The claim notes state that State Farm
“spoke with ctr Jason with Rocky Mountain Electric. We discussed the condition of the
lights. He said that while there may be some baked soot on . . . some of the fixtures, he
would not definitively say that the fixtures needed to be replaced.” Id. A State Farm
representative inspected and took photographs of the damaged lights. Id. On August
4, 2012, State Farm revised the damage estimate of the Normans’ claim to include
cleaning of exterior light fixtures and replacement of a light post. Id. at 16-17. On
August 7, 2012, State Farm discussed the revised estimate with Mrs. Norman and
mailed the Normans a check for $784.83. Docket No. 33 at 5, ¶ 12. 3
On August 23, 2012, Mrs. Norman informed State Farm that “she keeps having
the carpets cleaned and the water is black so it appears there is still smoke deep in the
carpet. She has carpet company (her son) coming back out this next week and will
advise if it is better or not.” Docket No. 33-3 at 16. The claim notes state that, on
August 29, 2012, Mrs. Norman contacted State Farm and expressed her concern that
carpet cleaning time and costs had exceeded what had been estimated, noting that the
carpet had been cleaned several times. Id. at 15-16. State Farm asked Mrs. Norman
3

The two payments in July 2012 and the August 2012 payment are collectively
referred to herein as the “July/August 2012" payment.
3

to submit an itemized bill. Id. The record does not indicate whether, prior to submitting
a proof of loss in February 2013, Mrs. Norman provided any further documentation to
State Farm concerning carpet cleaning expenses.
On September 28, 2012, Mrs. Norman contacted State Farm and stated that,
due to electrical issues, an electrician was coming to the home. Docket No. 33 at 5,
¶ 16. Ms. Norman also indicated that she was experiencing issues with the home’s
windows:
[Ms. Norman] has called Anderson Windows and they cannot see any issues
with the seals of the windows. They have told her that the warranties on the
windows will be void once they are exposed to 160 degrees (heat). I
explained that if the windows are not showing any damage, then there really
isn’t anything to review. Also, if damage does show, she can let us know and
we can investigate further. However, we would not owe her for her warranty.
Docket No. 33-3 at 15. On October 15, State Farm contacted Mrs. Norman, who stated
that she was waiting for estimates on electrical work and windows. Id. The record does
not indicate whether, prior to submitting a proof of loss in February 2013, the Normans
provided State Farm with additional estimates regarding electrical work and windows.
In October 2012, the Normans retained public adjuster Troy Payne of Loss
Analytics (the “public adjuster”). Mr. Payne was retained at a rate of ten percent of any
payment he assisted in recovering. Docket No. 36 at 9, ¶ 22. On October 16, 2012,
State Farm received a letter from Loss Analytics stating that it had been retained by the
Normans. Docket No. 33 at 6, ¶ 18. That same day, State Farm left a voicemail for Mr.
Payne. Docket No. 33-3 at 15. On November 27, 2012, State Farm sent Loss
Analytics and the Normans letters “to determine if there is anything pending on this
claim.” Id. at 14-15.
4

In November 2012, the public adjuster retained industrial hygienist SJR
Environmental Consulting (“SJR”), who inspected and tested the Normans’ home to
“characteri[z]e the impact of soot, char and ash on the interior surfaces and contents of
the structure, as well as to assess the potential occupant exposures to soot, ash, char,
smoke and other common contaminants . . . .” Docket No. 36-7 at 5. SJR issued a
report that found ash and char present throughout the house and soot residue present
inside the furnace and air ducts. Id. at 4. The report noted that, “[a]lthough the
analytical results indicate that compounds of concern were below health-based
guidelines for short term occupancy, . . . cleaning is recommended to prevent chronic
exposure.” Id. at 4. SJR also recommended ventilating the interior of the home,
removing attic insulation and cleaning structural components, decontamination of walls,
ceiling, and floors throughout the home, cleaning of the HVAC system, cleaning,
decontamination, or disposal of personal items, and further testing. Id. at 11-12. On
December 17, 2012, State Farm received SJR’s report and invoice. Docket No. 36 at 9,
¶ 24; see also Docket No. 36-14 at 1. State Farm did not pay SJR’s invoice as
requested by SJR and the Normans. Docket No. 36 at 9, ¶ 24.
On December 17, 2012, State Farm contacted Mrs. Norman, who said that she
would be meeting with the public adjuster in the near future to review the scope of
repairs the Normans wished to pursue. Docket No. 33-3 at 14. State Farm left the
Normans’ claim open and asked Mrs. Norman to “submit any pending concerns for
review.” Id. On December 26, 2012, State Farm left a message for Mr. Payne, who
was on vacation at the time, inquiring as to the scope of any claimed repairs. Id. On

5

January 8, 2013, Mr. Payne emailed State Farm, indicating that the proof of loss would
be submitted shortly. Docket No. 33 at 6, ¶ 22.
On February 20, 2013, Loss Analytics provided State Farm with a proof of loss
estimate of $809,949.23 (the “proof of loss”). Docket No. 33-4 at 3. The proof of loss
estimate did not contain an itemized list of those parts of the Normans’ home and
property that required repair, replacement, or cleaning. See generally id. On February
22, 2013, State Farm and Mr. Payne discussed the proof of loss and agreed that State
Farm may need to conduct an additional inspection. Docket No. 33-3 at 12. On March
5, 2013, State Farm received from Mr. Payne hundreds of photos of the Normans’
home. Docket No. 36 at 10, ¶ 27. The claim notes state that State Farm contacted Mr.
Payne and “asked that he submit a scope of repairs as that has not yet been received.”
Docket No. 33-3 at 11. On March 11, 2013, State Farm emailed Mr. Payne requesting
that he submit a scope of repairs. Docket No. 33 at 7, ¶ 28. On March 19, 2013, State
Farm left a voicemail for Mr. Payne and sent an email requesting that Mr. Payne
provide a building damage repair estimate. Docket No. 33 at 7, ¶ 29; Docket No. 33-3
at 10. On March 22, 2013, State Farm received from Loss Analytics a disc that
included the complete itemized estimate of damages. Docket No. 36 at 10, ¶ 28;
Docket No. 38 at 5, ¶ 28; see generally Docket No. 36-8. The parties dispute whether
this estimate reflected “whole-house damages.” Docket No. 36 at 10, ¶ 28; Docket No.
38 at 5, ¶ 28.
On March 27, 2013, State Farm informed Mr. Payne that State Farm was
retaining its own engineer and industrial hygienist to inspect the Normans’ home.
Docket No. 33 at 7, ¶ 31. On April 11, 2013, Eng ineering Systems Inc. (“ESI”), an
6

engineering firm hired by State Farm, and Forensic Analytical Consulting Services
(“FACS”), an industrial hygienist firm hired by State Farm, conducted an inspection of
the Normans’ home. Docket No. 33 at 8, ¶ 33. The inspection examined the roof,
stucco, windows, exterior doors, landscaping, exterior electrical fixtures, HVAC system,
sound system, appliances, cabinets, countertops, and garage door openers. Docket
No. 36 at 10, ¶ 29. The claim notes state that the Normans complained that their dryer,
Tempurpedic bed and treadmill worked only sometimes, but that those items were
working on the day of the inspection. Docket No. 33-3 at 8. State Farm explained that
it would await test results and reports before determining whether to take further action.
Id. On April 26, 2013, ESI issued its report. Docket No. 36-1 at 2. ESI’s report
concluded that the roof, stucco, deck, windows, doors, and interior cabinets did not
appear to have suffered damage from the fire. Docket No. 36-1 at 10. The staircase
handrail was split, possibly due to excessive heat in the residence during the fire. Id.
Trees showed fire damage, but the driveway and outdoor walkways appeared
undamaged due to heat or fire. Id. On May 1, 2013, FACS issued its report. Docket
No. 36-2 at 1. FACS’ report recommended cleaning/restoration of areas with visible
smoke impact and cleaning of surfaces with “‘uncommon’ prevalence of combustion
products,” which included furnishings/contents/fixtures, flooring/baseboards/door
thresholds, windows, the attic, and the exterior. Docket No. 36-2 at 7. 4
On May 9, 2013, State Farm reviewed the ESI and FACS reports. Docket No.
4

An “uncommon” percentage of combustion product is defined as > 10% and is
indicative “of an unusual percentage of the dust composition (but may or may not
contribute to corrosion potential or environmental health risk) and likely due to a large
source of combustion particles (e.g. wildfire).” Docket No. 36-2 at 6.
7

33 at 8, ¶ 35. On May 16, 2013, State Farm contacted Mr. Payne requesting
information regarding completed repairs at the Normans’ home. Docket No. 33-3 at 67. On May 21, 2013, State Farm met with the Normans and Mr. Payne to discuss the
Normans’ claim. Docket No. 33-3 at 5-6. On May 29, 2013, State Farm contacted Mrs.
Norman and confirmed that it was completing its estimate of repairs for known items,
but would keep the claim open for any unknown items. Id. at 4. State Farm also
requested copies of receipts referred to in the proof of loss. Id. On May 31, 2013,
State Farm informed the Normans that it declined to accept the entire proof of loss, but
sent the Normans $85,574.43 (the “May 2013 payment”) as compensation for “covered
damages as outlined in the enclosed building estimate and contents inventory.” Docket
No. 33-7 at 1, 3-9. 5
On June 21, 2013, the Normans filed the present case. Docket No. 1. The
Normans’ first claim for relief alleges that State Farm breached the implied covenant of
good faith and fair dealing. Docket No. 5 at 4. The Normans’ second claim for relief
alleges that State Farm breached the policy. Id. at 4-5. The Normans’ third claim for
relief alleges that State Farm violated Colo. Rev. Stat. § 10-3-1115 and § 10-3-1116.
Id. at 5. On August 26, 2013, plaintiff disclosed a damage estimate from David Poynor,
who estimated the Normans’ total damages at $514,878.71. Docket No. 33-8 at 1, 3.
On December 30, 2013, the Normans disclosed a report from Mr. Poynor, which
included Mr. Poynor’s itemized calculation of the Normans’ damages. See generally

5

The building estimate and contents inventory itemized the payment, including
those amounts paid for repair/replacement of appliances, doors, carpet, and
landscaping, along with cleaning and electrical expenses. Id.
8

Docket No. 36-10. 6 In a separate order, the Court determined that Mr. Poynor’s
opinions are inadmissible pursuant to Fed. R. Civ. P. 702. Docket No. 63.
In the present motion, State Farm seeks summary judgment on the Normans’
claims for breach of the implied covenant of good faith and fair dealing and violation of
Colo. Rev. Stat. § 10-3-1115 and § 10-3-1116. Docket No. 33 at 1. T he motion is fully
briefed and both parties have submitted supplemental authority. Docket Nos. 43, 48.
II. STANDARD OF REVIEW
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when
the “movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed f act is “material” if
under the relevant substantive law it is essential to proper disposition of the claim.
Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes
over material facts can create a genuine issue for trial and preclude summary
judgment. Faustin v. City & Cnty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An
issue is “genuine” if the evidence is such that it might lead a reasonable jury to return a
verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir.
1997).
However, “[w]hen, as in this case, the moving party does not bear the ultimate
burden of persuasion at trial, it may satisfy its burden at the summary judgment stage
by identifying a lack of evidence for the nonmovant on an essential element of the
6

State Farm’s challenge to the admissibility of Mr. Poynor’s opinions will be
addressed in a separate order.
9

nonmovant's claim.” Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th
Cir. 2001) (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998))
(internal quotation marks omitted). “Once the moving party meets this burden, the
burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a
material matter.” Concrete Works of Colo., Inc. v. City & Cnty. of Denver, 36 F.3d 1513,
1518 (10th Cir. 1994) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). The
nonmoving party may not rest solely on the allegations in the pleadings, but instead
must designate “specific facts showing that there is a genuine issue for trial.” Celotex,
477 U.S. at 324; see Fed. R. Civ. P. 56(e). “To avoid summary judgment, the
nonmovant must establish, at a minimum, an inference of the presence of each
element essential to the case.” Bausman, 252 F.3d at 1115 (citing Hulsey v. Kmart,
Inc., 43 F.3d 555, 557 (10th Cir.1994)). “In applying this standard, we view all facts and
any reasonable inferences that might be drawn from them in the light most favorable to
the nonmoving party.” Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th
Cir. 1994).
III. ANALYSIS
A. Breach of the Implied Covenant of Good Faith and Fair Dealing
The Normans claim that State Farm violated its duty of good faith and fair
dealing “by, among other things, failing to offer to pay the Plaintiffs an amount which it
otherwise concluded to be a fair and reasonable amount for their losses and by
compelling Plaintiffs to institute litigation to recover amounts due under the Policy with
State Farm.” Docket No. 47 at 5-6 (citing Colo. Rev. Stat. § 10-3-1104(h)(VII)).

10

Under Colorado law, a “special duty is imposed upon an insurer to deal in good
faith with an insured.” Decker v. Browning-Ferris Indus. of Colo., 931 P.2d 436, 443
(Colo. 1997) (citing Farmers Grp., Inc. v. Trimble, 691 P.2d 1138, 1141-42 (Colo.
1984)). An insurer may breach its duty of good faith due to the insurer’s conduct with
third parties or with first parties. Am. Fam. Mut. Ins. Co. v. Allen, 102 P.3d 333, 342
(Colo. 2004). To show bad faith in a first-party claim, like this one, the insured must
prove (1) that the insurer acted “unreasonably under the circumstances” and (2) that
“the insurer either knowingly or recklessly disregarded the validity of the insured’s
claim.” Goodson v. Am. Std. Ins. Co. of Wis., 89 P.3d 409, 415 (Colo. 2004).
Under common law bad faith principles, Colorado courts traditionally find that it is
reasonable for an insurer to challenge claims that are “fairly debatable.” Zolman v.
Pinnacol Assurance, 261 P.3d 490, 496 (Colo. App. 2011); see also Vaccaro v. Am.
Family Ins. Grp., 275 P.3d 750, 760 (Colo. App. 2012) (noting that the fairly debatable
defense “goes as much to the knowledge or recklessness prong of common law bad
faith as it does to unreasonable conduct”). Thus, under common law, finding that an
insurer’s justification for denying or delaying payment of a claim is “fairly debatable”
typically weighs against finding that an insurer acted unreasonably. Sanderson v. Am.
Fam. Mut. Ins. Co., 251 P.3d 1213, 1218 (Colo. App. 2010) (citation om itted).
However, “fair debatability is not a threshold inquiry that is outcome determinative as a
matter of law, nor is it both the beginning and the end of the analysis in a bad faith
case.” Id.

11

1. Unreasonable Conduct
Whether an insurer’s conduct was reasonable under the circumstances is
ordinarily a question of fact for the jury when conflicting evidence exists. Zolman v.
Pinnacol Assurance, 261 P.3d 490, 497 (Colo. App. 2011). T he reasonableness of an
insurer’s conduct must be determined objectively based on industry standards. Allen,
102 P.3d at 342. An insurer’s claims handling decisions “must be evaluated based on
the information before the insurer at the time of that decision.” State Farm Mut. Auto.
Ins. Co. v. Reyher, 266 P.3d 383, 390 (Colo. 2011). Although expert testimony
concerning industry standards is often helpful, “[i]f the reasonable investigation and
denial of an insured’s claim is within the common knowledge and experience of ordinary
people, then expert testimony is not required.” Allen, 102 P.3d at 344. In Colorado, the
Unfair Claims Settlement Practices Act (“UCSPA”), Colo. Rev. Stat. § 10-3-1104(1)(h)
is designed to regulate the conduct of the insurance industry and, while it “does not
establish a standard of care actionable tort, it may be used as valid, but not conclusive,
evidence of industry standards . . . .” Allen, 102 P.3d at 344.
The Normans appear to claim that State Farm’s conduct was unreasonable in
two relevant respects. Docket No. 47 at 7-8. 7

7

The Normans’ common law bad faith and statutory claims appear to be
additionally premised on State Farm’s failure to pay the total amount of loss as
calculated by Mr. Poynor. Docket No. 47 at 8. State Farm’s lone challenge to this
aspect of the Normans’ claims is its argument that the estimated damage amount
contained in Mr. Poynor’s expert report cannot be used to show that it acted in bad faith
for failure to pay such an amount. However, the Court has, in a separate order,
excluded Mr. Poynor’s report in its entirety. Thus, State Farm’s argument is moot.
12

a. Denial and/or Delay
The Normans claim that State Farm “denied and/or delayed investigating and
paying the full damages that were present at the inception of the claim in July 2012.”
Docket No. 47 at 7. 8 State Farm argues that it reasonably evaluated the Normans’
claim, timely making the first payment and, upon receipt of further information from the
Normans, timely made additional inspections and payments. Docket No. 33 at 12.
State Farm argues that it was “unaware of many of the concerns of the Plaintiffs until
March 2013 because of the delay on the part of the public adjuster hired by Plaintiffs in
providing complete information to State Farm.” Docket No. 33 at 13. Thus, State
Farm’s primary argument appears to be that any delay in making the May 2013
payment was attributable to the actions of the Normans and their public adjuster.
The Normans respond that, regardless of whether a public adjuster intervened,
State Farm was obligated to conduct a reasonable inspection and prepare a f air and
accurate estimate, but failed to do so. In support of their argument, the Normans cite to
Mr. Lucero’s deposition testimony, which the Court construes in the light most favorable
to the Normans.9 Mr. Lucero testified without objection that State Farm was required

8

State Farm appears to argue that the Normans’ claim is based entirely on State
Farm’s actions “after receipt of a Proof of Loss.” Docket No. 38 at 9. Although the
Normans are critical of State Farm’s actions “after receipt of the Proof of Loss,” Docket
No. 36 at 17, the Normans do not appear to have limited their bad faith and statutory
claims to the time period that State Farm indicates. Docket No. 47 at 7; see also Dale
v. Guar. Nat’l Ins. Co., 948 P.2d 545, 551 (Colo. 1997) (“the tort of bad faith breach of
an insurance contract encompasses an entire course of conduct and is cumulative”).
9

State Farm argues that some of the topics raised by defense counsel during Mr.
Lucero’s deposition were not properly designated in the Normans’ Rule 30(b)(6) notice
of deposition. Docket No. 38 at 7 (citing Docket No. 38-3). As a result, State Farm
claims that portions of Mr. Lucero’s testimony do not bind State Farm. Id. A Rule
13

under the policy to provide an “investigation of coverage, apply the facts to the loss of
the policy, [and] provide all available coverages under the policy.” Docket No. 36-3 at
4, p. 27:13-15. Mr. Lucero also testified that “policyholders can rely on the accuracy of
State Farm estimates,” id. at 6, p. 40:5-6, and are not required to retain a public
adjuster. Id. at 6, p. 39:13-15 (“It’s up to the policyholder whether or not they would like
to secure the services of a public adjuster. That is their decision.”).10

30(b)(6) deponent’s answers to questions “outside the scope of the [deposition] notice
will not bind the organization.” E.E.O.C. v. Freeman, 288 F.R.D. 92, 99 (D. Md. 2012).
However, if an examining party asks questions “outside the scope of the matters
described in the notice, the general deposition rules govern [and] relevant questions
may be asked and no special protection is conf erred on a deponent.” King v. Pratt &
Whitney, 161 F.R.D. 475, 476 (S.D. Fla. 1995). Here, the Norm ans endorsed Mr.
Lucero as an expert witness concerning the policy and coverage decisions at issue in
this case. Docket No. 36-12. Thus, to whatever extent Mr. Lucero was asked
questions not contemplated by the Normans’ Rule 30(b)(6) notice, Mr. Lucero simply
answered in his personal capacity or as an expert witness in the areas of the terms and
conditions of the policy, State Farm’s claims handling decisions, or State Farm’s claims
handling practices. See id. at 4. Regardless of whether Mr. Lucero’s testimony was
binding on State Farm, his testimony is relevant to the reasonableness of State Farm’s
conduct. For that reason, the Court need not decide w hether defense counsel inquired
into topics not properly designated. See Int’l Brotherhood of Teamsters, Airline Div. v.
Frontier Airlines, Inc., No. 11-cv-02007-MSK-KLM, 2013 WL 627149, at *6 (D. Colo.
Feb. 19, 2013) (noting that seeking pre-deposition relief is preferred course for party
concerned about the specificity of a Rule 30(b)(6) deposition notice).
The Court also rejects State Farm’s argument that Mr. Lucero was not
designated as an expert on industry standards. Although the Normans’ expert
disclosure does not contain the phrase “industry standards,” the Normans disclosed Mr.
Lucero as possessing “knowledge regarding State Farm’s claims handling practices and
procedures, as well as their training of adjusters and representatives in handling claims
in compliance with Colorado law.” Docket No. 36-12 at 4. Thus, the disclosure
contemplates that Mr. Lucero may testify on claims handling practices.
10

Defense counsel objected to the questions that elicited this testimony as being
outside the scope of the Normans’ Rule 30(b)(6) notice, but instructed Mr. Lucero to
answer. Id. at 6, pp. 38:24-40:6. Thus, regardless of whether such testimony binds
State Farm, Mr. Lucero appears to have answered based on his personal knowledge,
or, to the extent his testimony is in the form of an expert opinion, as an expert witness.
14

State Farm provides no authority supporting the proposition that, whenever an
insured retains a public adjuster, an insurer is relieved from conducting a reasonable
investigation, and the Court finds no basis for so concluding. See Colo. Rev. Stat.
§ 10-3-1104(1)(h)(IV) (stating that unfair claims settlement practice is willfully “[r]efusing
to pay claims without conducting a reasonable investigation based upon all available
information”). Moreover, the Court rejects any argument that an insured must retain its
own adjuster in order to secure the complete payment of a claim. Because an insured
is not required to retain its own adjuster, a reasonable juror could also conclude that it is
unreasonable for an insurer to compel an insured to hire an adjuster to recover
amounts due under a policy by offering less than what is ultimately recovered. See
§ 10-3-1104(1)(h)(VII) (stating that compelling an insured to initiate litigation to recover
amounts due is unfair claims settlement practice). Thus, regardless of whether the
Normans retained their own adjuster, State Farm was required to conduct a reasonable
investigation.
The question becomes whether the Normans have presented evidence that
State Farm failed to conduct a reasonable investigation. Mr. Lucero testified that,
during the initial handling of the Normans’ claim in July 2012, State Farm believed it had
identified the damage to the Normans’ home and that there was no reason for needing
an additional expert inspection. Docket No. 36-3 at 10, p. 84:8-17; see also id. at 11, p.
86:4-7 (“The settlement payment that we made in July of 2012 would have been the
settlement had we not received additional information that caused us to make additional
payments.”). Mr. Lucero testified that the Normans’ claim was reevaluated because of
information received from the public adjuster and that, upon receipt of such information,
15

“[State Farm] hired an expert to go out there and inspect the property again and provide
us with information that helped us adjust this claim and make additional payments to
Mr. and Ms. Norman.” Id. at 10, p. 83:3-14. Thus, State Farm appears to admit that
the May 2013 payment was based upon additional inspections conducted by State
Farm in April 2013. However, State Farm fails to establish, as a matter of law, that the
additional inspections should not or could not have been conducted earlier in the claims
handling process. Mr. Lucero admitted, without objection, that the condition of the
Normans’ home in May 2013 was virtually the same as it was in July 2012. Id. at 8 p.
76:20-23.11 A reasonable juror could therefore conclude that, because the Normans’
home was in substantially the same condition in July 2012 as it was in April 2013,
engineering and industrial hygienist inspections conducted earlier in the claims handling
process would have revealed the same information upon which State Farm based its
May 2013 payment, which in turn could have led to an earlier payment of the additional
$85,574.43. Thus, a factfinder could conclude that State Farm failed to conduct a
prompt, reasonable investigation of the underlying damage to the Normans’ home, see

11

Mr. Lucero also testified as follows:
Q: When you made the fair payment, according to State Farm, in April 2013,
the information you had was what was revealed in the inspection of a house
plus experts that you yourself hired, correct? That’s what the payment was
based on, correct?
A: The payment is based on that, yes.
Q: All of that, that data, all of that was available or could have been available
to State Farm in July of 2012, correct?
. . . A: It could have been available; however, . . . we didn’t have any
information to say that our initial inspection and findings were not accurate.
See also id. at 9-10, pp. 81:14-82:2. Although State Farm’s counsel objected to the
second question, the basis of his objection is not clear from the transcript and the
objection is not re-raised by State Farm.
16

Allen, 102 P.3d at 345, resulting in the delay and/or denial of a portion of the Normans’
claim.
State Farm argues that its conduct is justified by the Normans’ failure to timely
provide to State Farm documents it requested or a scope of repairs. According to Mr.
Lucero, the policyholder is required under the policy to “cooperate and provide
information as requested.” Docket No. 36-3 at 4, pp. 27:25-28:6. 12 However, Mr.
Lucero was asked whether, in his opinion as someone “with experience who has
reviewed the file,” the Normans performed their duties under the policy and answered,
“Based on my review of the Normans’ claim file, I don’t believe they did anything
wrong.” Id. at 4, pp.28:19-29:8. Thus, at a minimum, there is a genuine dispute as to
whether the Normans cooperated as requested. In addition, Mr. Lucero testified that an
insured was permitted to rely on the accuracy of State Farm’s estimates, which
suggests that an insurer’s duty to conduct a reasonable investigation is not dependent
on whether the insured requests more money in satisfaction of a claim. Although State
Farm argues that it was unaware of the Normans’ specific requests until March 2013,
the Normans informed State Farm of electrical issues and difficulty in cleaning the
carpet after the July/August 2012 payment, which arguably could have indicated to
State Farm that the July/August 2012 payment was insufficient to satisfy the Normans’
claim. State Farm fails to establish that the Normans’ actions rendered its own conduct

12

State Farm objected to the question that elicited this testimony as outside the
scope of plaintiff’s Rule 30(b)(6) deposition notice, but was not prohibited from
answering the question. Id. As noted above, to whatever extent Mr. Lucero’s testimony
does not bind State Farm, Mr. Lucero testified as either a fact witness or as an expert
witness.
17

reasonable as a matter of law.13
Although State Farm argues that other aspects of its conduct were reasonable,
sufficient evidence exists to create a genuine dispute of material fact as to the
reasonableness of State Farm’s conduct in denying and/or delaying investigating and
paying the Normans’ claim.
b. SJR Invoice
The next aspect of the Normans’ common law bad faith claim is State Farm’s
refusal to pay SJR’s invoice for its inspection and testing of the Normans’ home.
Docket No. 47 at 8. Neither party indicates whether the policy requires State Farm to
pay SJR. Mr. Lucero testified that, because State Farm did not request SJR to prepare
a report on the Normans’ home, State Farm did not pay SJR’s fees. Docket No. 36-3 at
13, p. 97:7-10. However, as discussed above, there is evidence that, but for
information provided by the public adjuster, including SJR’s report, State Farm would
not have conducted the additional investigation that led to the payment of an additional
$85,574.43. See id. at 13, 96:8-20. Thus, a reasonable juror could conclude that State
Farm’s failure to conduct a reasonable investigation caused the Normans to incur the
expense of retaining SJR and, as a result, that State Farm’s decision not to pay the
SJR invoice was made in bad faith.
2. Knowing or Reckless Disregard
The Court turns to the question of whether State Farm knowingly or recklessly
13

Similarly, the fact that the Normans no longer appear to seek all of the
damages claimed in the proof of loss does not, as State Farm argues, render the
totality of the Normans’ claim fairly debatable or otherwise relieve State Farm of liability
for its claims-handling decisions. See Sanderson, 251 P.3d at 1218.
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disregarded the validity of the Normans’ claim. State Farm claims that it was not aware
of precisely what the Normans were requesting until the public adjuster provided it with
a completed scope of repairs in March 2013. Docket No. 33 at 13. However, sufficient
evidence exists for a reasonable juror to find that State Farm was aware of or recklessly
disregarded the possibility that the Normans’ claim was not entirely satisfied by the
July/August 2012 payment. On July 5, 2012, Mrs. Norman reported heavy smoke
damage to the interior and exterior of the house. Docket No. 33-3 at 20. On July 10,
2012, Irvin Bergeron with State Farm reported a slight smoke smell in the house and
light smoke damage throughout the home. Id. Mr. Bergeron found slight soot on his
socks after inspecting the Normans’ home. Id. at 19. On August 29, 2012, Mrs.
Norman expressed to State Farm that she was having difficulty cleaning the carpet. Id.
at 15-16. On September 28, 2012, Mrs. Norman indicated to State Farm that the
Normans’ home continued to have electrical issues. Id. at 15. As early as December
17, 2012, State Farm knew that SJR also recommended ventilating the interior of the
home, removing attic insulation and cleaning structural components, decontamination
of walls, ceiling, and floors throughout the home, cleaning of the HVAC system,
cleaning, decontamination, or disposal of personal items, and further testing. Docket
No. 36 at 9, ¶ 24; see also Docket No. 36-7 at 11-12. The Court finds that a genuine
dispute of material fact exists concerning whether State Farm knew or recklessly
disregarded the possibility that State Farm’s July/August 2012 payment did not fully
compensate the Normans for their fire-related losses.
For the foregoing reasons, State Farm’s motion for summary judgment on the
Normans’ common law bad faith claim is denied.
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B. Violation of Colo. Rev. Stat. § 10-3-1115 and § 10-3-1116
Under § 10-3-1115, an insurer may not “unreasonably delay or deny payment of
a claim for benefits owed to or on behalf of any first-party claimant.”14 Colo. Rev. Stat.
§ 10-3-1115(1)(a). Similarly, § 10-3-1116 states that “[a] first-party claimant as defined
in section 10-3-1115 whose claim for payment of benefits has been unreasonably
delayed or denied may bring an action in a district court to recover reasonable attorney
fees and court costs and two times the covered benefit.” Colo. Rev. Stat. § 10-31116(1). An insurer’s delay is unreasonable “if the insurer delayed or denied
authorizing payment of a covered benefit without a reasonable basis for that action.”
Colo. Rev. Stat. § 10-3-1115(2) (emphasis added).
Because the statutes at issue here create a cause of action that is different from
the common law tort of bad faith breach of an insurance contract, the “burden of
proving th[e] statutory claim is less onerous than that required to prove a claim under
the common law for breach of the duty of good faith and fair dealing.” Kisselman v. Am.
Fam. Mut. Ins. Co., 292 P.3d 964, 975 (Colo. App. 2011); see also Vaccaro, 275 P.3d
at 760 (“Even if plaintiff’s claim for . . . benefits were ‘fairly debatable’ in the common
law context, that would not alone establish that defendant’s actions here were
reasonable as a matter of law.”). However, even under the statutes, the
reasonableness of an insurer’s conduct must be determined objectively, based on proof
of industry standards. See Allen, 102 P.3d at 342.
The Normans’ statutory claim appears to be based on the same aspects of State
14

The parties do not dispute that the Normans are first-party claimants within the
meaning of the statutes. See Colo. Rev. Stat. § 10-3-1115.
20

Farm’s conduct identified above. See Docket No. 47 at 7-8. The Court finds that the
Normans have satisfied their burden of creating a genuine dispute of material fact
under this less onerous statutory standard. See Kisselman, 292 P.3d at 975. For the
reasons discussed above, the Court finds that a genuine dispute of material fact exists
with respect to the reasonableness of State Farm’s conduct in denying and/or delaying
investigating and paying damages. A reasonable juror could find that State Farm
delayed and/or denied payment of the covered benefit for failure to conduct a
reasonable investigation of the damages to the Normans’ home. See Allen, 102 P.3d
at 345. A reasonable juror could also find that State Farm’s refusal to pay SJR’s
invoice was unreasonable under the circumstances. State Farm’s arguments with
respect to these aspects of the Normans’ statutory claim are largely the same as those
discussed above and are rejected for the same reasons.
State Farm’s only additional argument with respect to the Normans’ statutory
claim is that the Normans did not “identify any witness or expert to testify to the conduct
that is unreasonable or in violation of an industry standard.” Docket No. 33 at 15. State
Farm later admits that, although expert testimony may not always be necessary in
determining the reasonableness of an insurer’s conduct, “it appears that an expert may
be necessary to address the insurance industry standards in this matter.” Docket No.
38 at 9. The Court disagrees. State Farm’s alleged failure to reasonably investigate
the full extent of the damage to the Normans’ home is within the common
understanding of a ordinary juror. Cf. Allen, 102 P.3d at 345 (holding that the
“reasonableness of an insurer’s investigation into the underlying events of an
automobile insurance claim” and “determination of what constitutes a reasonable
21

explanation for denying a claim” were within the knowledge of the average juror).
Moreover, the UCSPA, which is valid, but not conclusive evidence of industry
standards, provides relevant guidance concerning the industry standards applicable to
this dispute. See § 10-3-1104(1)(h). As noted above, although the Normans’ expert
disclosure concerning Mr. Lucero does not contain the phrase “industry standards,” the
topics on which Mr. Lucero has been endorsed are arguably relevant to the
reasonableness of State Farm’s claims handling conduct. See Docket No. 36-12 at 4.
State Farm has therefore failed to establish that the Normans’ statutory claim should be
dismissed for failure to provide expert testimony on industry standards.
State Farm’s motion for summary judgment on the Normans’ statutory claim is
denied.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that State Farm’s Motion for Partial Summary Judgment [Docket No.
33] is DENIED.

DATED November 19, 2014.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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