Sable Cove Condominium Association et al v. Owners Insurance Company

Filing 25

ORDER granting in part and denying in part 12 Defendant Owners Insurance Company's Partial Motion to Dismiss. By Magistrate Judge Michael J. Watanabe on 9/5/2014.(emill)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 14-cv-00912-MJW
SABLE COVE CONDOMINIUM ASSOCIATION and
EDGE CONSTRUCTION, LLC,
Plaintiffs,
v.
OWNERS INSURANCE COMPANY,
Defendant.

ORDER
ON DEFENDANT OWNERS INSURANCE COMPANY’S PARTIAL MOTION TO
DISMISS (Docket No. 12)

MICHAEL J. WATANABE
United States Magistrate Judge

This case is before this court for all purposes pursuant to the Court’s Pilot
Program and 28 U.S.C. § 636(c) upon consent of the parties and the Order of
Reference Upon Consent to Jurisdiction of Magistrate Judge issued by Chief Judge
Marcia S. Krieger on May 8, 2014 (Docket No. 17; see Docket No. 15 - Consent).
Now before the court is Defendant Owners Insurance Company’s Partial Motion
to Dismiss (Docket No. 12). Plaintiffs filed a Response (Docket No. 14), and defendant
filed a Reply (Docket No. 16). The court has carefully considered these motion papers
as well as applicable Federal Rules of Civil Procedure and case law. In addition, the
court has taken judicial notice of the court file. The court now being fully informed
makes the following findings, conclusions of law, and order.

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Plaintiffs’ Allegations
This action was removed from Arapahoe County District Court. (See Docket No.
1). The two plaintiffs in this action, Sable Cove Condominium Association (“Sable
Cove”) and Edge Construction, LLC (“Edge”), which was the contractor that completed
construction at the condominium community, have each pled the same three claims in
this case: (1) insurance bad faith, (2) breach of contract, and (3) statutory bad faith
pursuant to §§ 10-3-1113(3), 1115, 1116, C.R.S. These claims are based upon
damage from a hail and wind storm on June 6, 2012, for which Sable Cove filed an
insurance claim with its insurer, defendant Owners Insurance Company (“defendant”).
Plaintiffs allege the following in the Complaint (Docket No. 4).
Defendant investigated the loss and agreed to pay for it. Defendant’s field
adjuster calculated the loss in an estimate that included overhead and profit charges for
a total of $891,963.66, not including the cost of the permits the defendant agreed to
pay. The total overhead and profit charges for this loss totaled $153,417.02. Sable
Cove contracted with Edge to complete the roof repairs according to the defendant’s
estimate. Edge completed the work, but defendant’s in-house adjuster then refused to
pay for any overhead and profit charges. As a result, Edge was not paid $153,417.02
due under its contract with Sable Cove. Defendant in bad faith unreasonably denied
this portion of Sable Cove’s claim. Both Sable Cove and Edge complained to defendant
about this wrongful failure to pay.
On February 7, 2014, Sable Cove and Edge entered into a Post-Loss
Assignment of Insurance Proceeds wherein Sable Cove assigned to Edge its unpaid,
post-loss policy benefits of $153,417.02 for the subject overhead and profit for the work

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that has already been completed. (See Ex. B to Compl., Docket No. 4). In addition,
Edge qualifies as a “first-party claimant” under § 10-3-1115, C.R.S., and is entitled to
sue defendant under § 10-3-1116, C.R.S.
Defendant’s conduct was done in bad faith, with the intent of delaying payment
and reducing the covered benefit owed by defendant to Sable Cove and Edge for the
repair of the storm damage on Sable Cove’s covered claim. Defendant’s actions
constitute a breach of the express duties set forth in Sable Cove’s insurance policy as
well as the implied contractual duties of good faith and fair dealing that defendant owes
Sable Cove.
Defendant’s Motion to Dismiss
Defendant seeks dismissal of the Edge’s claims in their entirety. Defendant
asserts that Edge is not the real party in interest and lacks standing to pursue at least
the breach of contract and “insurance bad faith” claim and perhaps as to the
unreasonable delay/denial claim as well. As such, defendant submits that a dismissal
as to all claims brought by Edge is the appropriate remedy. However, to the extent
Edge remains in the case to any degree, defendant asserts that dismissal of Edge
should occur at least with respect to the breach of contract and “insurance bad faith”
claims, and only one plaintiff should be permitted to pursue the “statutory bad faith
claim.” Furthermore, to the extent the court may determine that plaintiff Sable Cover
has validly assigned any claims to Edge, Sable Cove is not the real party in interest,
and its claims must be dismissed. In addition, defendant asserts that plaintiffs have
attempted to expand the “statutory bad faith” claim to include not only a claim made
pursuant to §§ 10-3-1115 and 1116, C.R.S., but also made pursuant to § 10-3-1113(3),

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C.R.S., which allegedly does not give rise to any right of action but instead merely
addresses the court’s options for instructing the trier of fact at trial on various insurancerelated claims. As such, defendant contends that the portion of plaintiffs’ “statutory bad
faith” claim predicated upon that section should likewise be dismissed.
In response, Edge asserts that it has standing to pursue its contract and statutory
bad faith claims, but it agrees it lacks standing to assert a common law bad faith claim.
(Docket No. 14 at 2). Therefore, Edge’s common law bad faith claim shall be
dismissed. With regard to the two remaining claims, Edge asserts the following. It has
standing to pursue its contract claims through Sable Cove’s post-loss assignment of its
insurance proceeds. Furthermore, Edge has independent standing to pursue its
statutory bad faith claims because the legislature deliberately chose to expand the class
of plaintiffs for such claims by defining a “first party claimant” as a person or entity that
asserts a claim “on behalf of” an insured. (Docket No. 14 at 5, citing Larson v. Allstate,
305 P.3d 409 (Colo. 2012) (roofer or general contractor can assert statutory bad faith
claims under §§ 10-3-1115 and 10-3-1116, C.R.S.)). Finally, both plaintiffs properly
pleaded for relief under § 10-3-1113(3), C.R.S. They do not contend that that provision
provides an independent cause of action but instead have specifically pleaded the jury
instructions contained therein to avoid potential arguments about the specificity of the
pleadings or waiver.
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a pleading must
contain “a short and plain statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2). A motion to dismiss pursuant to Rule 12(b)(6) alleges
that the complaint fails “to state a claim upon which relief can be granted.” Fed. R. Civ.

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P. 12(b)(6). “A complaint must be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) if it
does not plead ‘enough facts to state a claim to relief that is plausible on its face.’”
Cutter v. RailAmerica, Inc., 2008 WL 163016, at *2 (D. Colo. Jan. 15, 2008) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974 (2007)).
“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, . . . a plaintiff’s obligation to provide the ‘grounds’ of his
‘entitlement to relief’ requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do . . . .” Bell Atlantic Corp., 550
U.S. at 555 (citations omitted). “Factual allegations must be enough to raise a right to
relief above the speculative level.” Id. “[A] plaintiff must ‘nudge [] [his] claims across the
line from conceivable to plausible’ in order to survive a motion to dismiss. . . . Thus, the
mere metaphysical possibility that some plaintiff could prove some set of facts in
support of the pleaded claims is insufficient; the complaint must give the court reason to
believe that this plaintiff has a reasonable likelihood of mustering factual support for
these claims.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.
2007) (quoting Bell Atlantic Corp., 127 S. Ct. at 1974).
The Tenth Circuit Court of Appeals has held “that plausibility refers ‘to the scope
of the allegations in a complaint: if they are so general that they encompass a wide
swath of conduct, much of it innocent, then the plaintiffs ‘have not nudged their claims
across the line from conceivable to plausible.’” Khalik v. United Air Lines, 671 F.3d
1188, 1191 (10th Cir. 2012). The Circuit court has further “noted that ‘[t]he nature and
specificity of the allegations required to state a plausible claim will vary based on
context.’” Id. The court thus “concluded the Twombly/Iqbal standard is ‘a wide middle

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ground between heightened fact pleading, which is expressly rejected, and allowing
complaints that are no more than labels and conclusions or a formulaic recitation of the
elements of a cause of action, which the Court stated will not do.’” Id.
For purposes of a motion to dismiss pursuant to Rule 12(b)(6), the court must
accept all well-pled factual allegations in the complaint as true and resolve all
reasonable inferences in the plaintiff’s favor. Morse v. Regents of the Univ. of Colo.,
154 F.3d 1124, 1126-27 (10th Cir. 1998); Seamons v. Snow, 84 F.3d 1226, 1231-32
(10th Cir. 1996). However, “when legal conclusions are involved in the complaint ‘the
tenet that a court must accept as true all of the allegations contained in a complaint is
inapplicable to [those] conclusions’ . . . .” Khalik, 671 F.3d at 1190 (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009)). “Accordingly, in examining a
complaint under Rule 12(b)(6), [the court] will disregard conclusory statements and look
only to whether the remaining, factual allegations plausibly suggest the defendant is
liable.” Id. at 1191.
This court agrees with defendant that the two remaining claims cannot be
maintained by both plaintiffs simultaneously. Regarding the breach of contract claim,
either the assignment from Sable Cove to Edge is invalid due to the provision in the
insurance contract and thus Edge’s breach of contract claim must be dismissed, or the
assignment is valid, and thus Sable Cove’s breach of contract claim must be dismissed.
This court finds that the assignment is valid. The court notes that the Tenth Circuit
ruling relied upon by plaintiffs, City Center West, LP v. American Modern Home Ins.
Co., 741 F.3d 1338 (10th Cir. 2014), was vacated, and the stare decisis effect of the
vacated judgment was removed. City Center West, LP v. American Modern Home Ins.

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Co., 749 F.3d 912, 913-14 (10th Cir. 2014). Nevertheless, this court agrees with the
analysis and conclusions set forth in the vacated opinion and finds as follows.
Sable Cove’s insurance policy issued by defendant includes a non-assignment
provision which provides in pertinent part, “Your rights and duties under this policy may
not be transferred without our written consent except in the case of death of an
individual named insured.” (Docket No. 12-2 at 3). The policy or portions thereof,
however, were not assigned by the Post-Loss Assignment of Insurance Proceeds
(Docket No. 12-1) entered into by the plaintiffs. The assignment was only for Sable
Cover’s “unpaid, post-loss policy benefits of $153,417.02.” (Docket No. 12-1). It
provided in pertinent part:
. . . Edge will pursue the recovery of this amount without any cost to Sable
Cove. Edge will file suit in the name of Sable Cover under this
assignment and Sable Cove will cooperate in the prosecution of this
litigation. In the event of any extra-contractual recovery over the payment
of the overhead and profit, attorney’s fees, interest and costs, the parties
agree to split any extra-contractual recovery 50/50.
In consideration for this agreement, Edge also agrees not to lien
the property of Sable Cove for the unpaid amount due under its contract
with Sable Cove and will not initiate any action or collection effort against
Sable Cove during the pendency of the litigation against Auto-Owners in
this matter.
(Docket No. 12-1). As one treatise states, “[T]he great majority of courts adhere to the
rule that general stipulations in policies prohibiting assignments of the policy, except
with the consent of the insurer, apply only to assignments before loss, and do not
prevent an assignment after loss. . . .” 3 Steven Plitt et al., Couch on Insurance § 35:8
(3d ed. 2013). See, e.g., In re Katrina Canal Breaches Litig., 63 So.3d 955, 963 (La.
2011) (“Post-loss assignment of claims arising under the policy is not equivalent to the

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assignment of the policy itself.”); Windey v. N. Star Farmers Mut. Ins. Co., 231 Minn.
279, 43 N.W.2d 99, 102 (1950) (“Assignment, after loss, of the proceeds of insurance
does not constitute an assignment of the policy, but only of a claim or right of action on
the policy.”). In fact, the Colorado Supreme Court, in considering the validity of an
assignment of payment owed under a contract, wrote, “Under the law of assignments, it
is a well settled principle that the right to receive money due or to become due under an
existing contract may be assigned, even though the contract itself may not be
assignable.” Farmers Acceptance Corp. v. DeLozier, 178 Colo. 291, 294 (1972). See
Interbank Invs., LLC v. Vail Valley Consol. Water Dist., 12 P.3d 1224, 1228 (Colo. App.
2000) (following Farmers Acceptance). See also Metropolitan Life Ins. Co. v. Lanigan,
74 Colo. 386 (1924) (assignment of a claim for benefits under a life insurance policy
after the insured’s death did not forfeit the coverage despite a prohibition on assignment
of the policy).
Furthermore, even if the policy was ambiguous as to whether the nonassignment provision precluded assignment of a post-loss claim, ambiguous terms in an
insurance policy are construed against the insurer. Thompson v. Maryland Cas. Co., 84
P.3d 496, 502 (Colo. 2004). Defendant’s policy could have barred assignment of postloss claims by simply saying so or the like. See Parrish Chiropractic Centers, P.C. v.
Progressive Cas. Ins. Co., 874 P.2d 1049 (Colo. 1994) (provision stating that “[i]nterest
in this policy may not be assigned without our written consent” prohibited post-loss
assignment of a claim for medical care under a no-fault auto policy).
Based upon this finding, Sable Cove’s breach of contract claim should be
dismissed.

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With regard to the statutory bad faith claim, this court finds as follows. The PostLoss Assignment of Insurance Proceeds (Docket No. 12-1) entered into by the plaintiffs
does not assign such a claim to Edge, and the Complaint does not allege that the
statutory bad faith claim was so assigned. Instead, Edge asserts that it is a “first-party
claimant” as defined by the statute and thus is permitted to bring this claim pursuant to
Kyle W. Larson Enterprises, Inc. v. Allstate Ins. Co., 305 P.3d 409 (Colo. App. 2012).
Defendant, however, asserts that the factual allegations of the Complaint do not
demonstrate that Edge qualifies as a party entitled to assert such a claim. Defendant
contends that in contrast to Larson, here there is no allegation that Edge was given
authority to communicate with defendant on behalf of Sable Cove or that Edge was
authorized to present Sable Cove’s claim for damages to defendant. Defendant points
out that in fact, the Complaint alleges that it was Sable Cove, not Edge, that submitted
the claim to defendant and that defendant was communicating with a “representative of
Sable Cove.” (Docket No. 4 at ¶ 6). Defendant further asserts that likewise, this is not
a situation where the contractor is pursuing the statutory claim on behalf of the insured,
as Sable Cove is a named plaintiff pursuing its own claim under the same statute. As
such, defendant contends that while there are circumstances in which a roofing
contractor can have standing to bring a claim of this nature, the allegations in the
Complaint make clear that the facts of this case do not affording standing to Edge. This
court does not agree.
Section 10-3-1115, C.R.S., concerns the “[i]mproper denial of claims” and
provides, inter alia, that “[a] person engaged in the business of insurance shall not
unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any

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first-party claimant.” § 10-3-1115(1)(a). The statute defines “[f]irst-party claimant” for
the purposes of that section and § 10-3-1116 as “an individual, corporation, association,
partnership, or other legal entity asserting an entitlement to benefits owed directly to or
on behalf of an insured under an insurance policy. ‘First-party claimant’ includes a
public entity that has paid a claim for benefits due to an insurer’s unreasonable delay or
denial of the claim.” § 10-3-1115(1)(b)(I), C.R.S. In addition, the statute states that a
“‘First-party claimant’ does not include: (A) A nonparticipating provider performing
services; or (B) A person asserting a claim against an insured under a liability policy.” §
10-3-1115(1)(b)(II)(A)-(B), C.R.S. The Colorado Court of Appeals has found § 10-31115 to be unambiguous and that “‘first-party claimant’ includes repair vendors when
they assert an entitlement to benefits owed on behalf of an insured under an insurance
policy.” Larson, 305 P.3d at 413. Here, Edge is asserting an entitlement to benefits
owed directly to or on behalf of an insured, Sable Cover, under an insurance policy.
This court does not read Larson as requiring the repair vendor to have been given
authority to communicate with the insurance carrier on behalf of the insured. In any
event, the Complaint does aver that both plaintiffs “complained to Defendant about [the]
wrongful failure to pay . . . .” (Docket No. 4 at 3, ¶ 9). In sum, this court finds that Edge
is a “first-party claimant” as defined under § 10-3-1115 and may thus bring a statutory
bad faith claim. However, both Edge and Sable Cove may not both bring these claims.
Therefore, the statutory bad faith claim brought by Sable Cove shall be dismissed.
Defendants also assert that plaintiffs improperly pled a claim for relief under § 103-1113(3), C.R.S., because that section does not provide an independent cause of
action. Plaintiffs respond that they do not contend that section

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provides an independent basis for recovery, but instead have specifically
pleaded the jury instructions contained in C.R.S. § 10-3-1113(3) to avoid
potential arguments about the specificity of the pleadings or waiver.
C.R.S. §10-3-1113(3) is titled “Information to trier of fact in civil
actions” and provides specific instructions for the Court when preparing
the charge. Although the statute does not create a private cause of
action, it does entitle Plaintiffs to specific jury instructions from the Court in
its charge. Plaintiffs have merely pleaded this provision to ensure that
these instructions are included in this charge, but have not sought any
independent relief under C.R.S. §10-3-1113(3). In this respect, since
there is no independent claim to be dismissed, OIC’s motion to dismiss
under Fed.R.Civ.P. 12(b)(6) should be denied.
(Docket No. 14 at 7). Inasmuch as plaintiffs concede they are not raising a claim for
relief under § 10-3-1113(3), defendant’s motion to dismiss such a claim is denied.
WHEREFORE, for the foregoing reasons, it is hereby
ORDERED that Defendant Owners Insurance Company’s Partial Motion to
Dismiss (Docket No. 12) is granted in part and denied in part. The motion is granted to
the extent that plaintiff Edge Construction’s common law bad faith claim and plaintiff
Sable Cove’s breach of contract and statutory bad faith claims are dismissed. The
motion is denied in all other respects.

Date: September 5, 2014
Denver, Colorado

s/ Michael J. Watanabe
Michael J. Watanabe
United States Magistrate Judge