Chateau Village North Condominium Association v. American Family Mutual Insurance Company
Filing
97
ORDER. ORDERED that plaintiff's Partial Motion for Judgment as a Matter of Law Pursuant to F.R.C.P. 56 51 is GRANTED in part and DENIED in part. ORDERED that defendant's Motion for Summary Judgment 52 is GRANTED in part and DENIED in part. Signed by Judge Philip A. Brimmer on 03/16/16.(jhawk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 14-cv-01583-PAB-NYW
CHATEAU VILLAGE NORTH CONDOMINIUM ASSOCIATION,
a Colorado corporation,
Plaintiff,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY,
a Wisconsin corporation,
Defendant.
ORDER
This matter is before the Court on plaintiff’s Partial Motion for Judgment as a
Matter of Law Pursuant to F.R.C.P. 56 [Docket No. 51] filed on July 20, 2015 by
Chateau Village North Condominium Association (the “Association”) and on defendant’s
Motion for Summary Judgment [Docket No. 52] filed on July 20, 2015 by American
Family Mutual Insurance Company (“American Family”). This Court has jurisdiction
pursuant to 28 U.S.C. § 1332.
I. BACKGROUND1
This case arises out of an insurance coverage dispute. The Association is
responsible for the operation, maintenance, preservation, and control of the Chateau
Village North Condominiums (“Chateau Village Condos”) in Boulder, Colorado. Docket
No. 52 at 2, Statement of Undisputed Material Facts (“SUMF”) 1. The Association
1
The following facts are undisputed unless otherwise indicated.
purchased a commercial property and liability insurance policy (the “policy”) from
defendant American Family, which became effective on February 1, 2013. Id., SUMF
2. The policy contains an exclusions section at Section I.B. Id. at 2-3, SUMF 3. The
exclusions section is prefaced with an anti-concurrent causation clause (“ACC”):
B. Exclusions
1. We will not pay for loss or damage caused directly or indirectly
by any of the following. Such loss or damage is excluded
regardless of any other cause or event that contributes concurrently
or in any sequence to the loss. These exclusions apply whether or
not the loss event results in widespread damage or affects a
substantial area.
Id.; Docket No. 52-1 at 2. Section I.B.1.g. of the exclusions section excludes coverage
for the following:
g. Water
(1) Flood, surface water, waves, tides, tidal waves, overflow of any
body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow;
(3) Water that backs up or overflows from a sewer, drain or sump;
or
(4) Water under the ground surface pressing on, or flowing or
seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
But if Water, as described in Paragraphs (1) through (4) results in
fire, explosion or sprinkler leakage, we will pay for the loss or
damage caused by that fire, explosion or sprinkler leakage.
Docket No. 52 at 3, SUMF 4; Docket No. 52-1 at 3.
The policy includes a Condominium Enhancement Endorsement (the
“endorsement”). See Docket No. 52 at 3-4, SUMF 5. At Section XVI, the endorsement
adds coverage for sewer backup and sump overflow and replaces the water exclusion
at Section I.B.1.g of the policy with language that omits any reference to sewer, drain,
2
or sump backup. Id., SUMFs 5-6. Section XVI of the endorsement reads:
XVI. Sewer Back-Up and Sump Overflow
The following is added to paragraph A.5. Additional Coverages:
Sewer Back-Up and Sump Overflow
1. We will pay for direct physical loss or damage to Buildings or
Business Personal Property, covered under Section I–Property,
caused by or resulting from:
A. Water which backs up through or overflows from a sewer
or drain; or
B. Water which overflows from a sump, even if the overflow
results from mechanical breakdown of a sump pump or its
related equipment.
However, with respect to paragraph XVI.1.b above, we will not pay
the cost of repairing or replacing a sump pump or its related
equipment in the event of a mechanical breakdown.
2. We will not pay for loss or damage caused by sewer or sump
back up or overflow which occurs or is in progress within five (5)
days of the effective date of this endorsement.
3. The coverage described in paragraph XVI.1 of this endorsement
does not apply to loss or damage resulting from an insured’s failure
to:
A. Keep a sump pump or its related equipment in proper
working condition; or
B. Perform the routine maintenance or repair necessary to
keep a sewer or drain free from obstructions.
4. With respect to the coverage provided under paragraph XVI.,
Exclusion B.1.g. Water in Section I–Property is replaced by the
following exclusion:
Water
(1) Flood, surface water, waves, tides, tidal waves, overflow
of any body of water, or their spray, all whether driven by
wind or not;
(2) Mudslide or mudflow; or
(3) Water under the ground surface pressing on, or flowing
or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows, or other openings.
3
But if water, as described in paragraph XVI.4. results in fire,
explosion or sprinkler leakage, we will pay for the loss or
damage caused by that fire, explosion, or sprinkler leakage.
5. The most we will pay for loss or damage in any one occurrence
is $300,000 per location.
Id. at 3-5, SUMFs 5-7; Docket No. 52-1 at 5.
Following severe rainstorms in September 2013 in Boulder, on September 12,
2013 Chateau Village Condos sustained water damage. Docket No. 52 at 5, SUMFs 89. The rainstorms caused sewer backups affecting Chateau Condo units and common
areas. Id., SUMF 10; see Docket No. 51 at 2, SUMF 3. The sewer backups were the
result of groundwater infiltrating the sewer system. Docket No. 52 at 5, SUMF 10.
Luke McConnell, president of the Association’s Homeowners Association (“HOA”),
reported to others that “the damage was caused by two things: sewer back up and rain
water.” Docket No. 52 at 6, SUMF 14. Mr. McConnell was contacted by unit owners on
the night of the water intrusion and was told that water was collecting on the patio of at
least one unit. Docket No. 52 at 5, SUMF 13.
Plaintiff made a claim under the policy. Defendant inspected the subject
property twice, on September 19, 2013 and October 5, 2013. Id., SUMF 12. On
September 19, 2013, Mark Foresee inspected the property on behalf of defendant. Id.
at 6, SUMF 15. Mr. Foresee’s note from the September 19, 2013 inspection states: “I
found water damage to the walls and floor covering in all rooms. This water entered in
thru the exterior doors and foundation.” Docket No. 52-6 at 5. In its Septem ber 20,
2013 letter, defendant explains:
[Regarding claim for damage to Building A:] The inspections of the
following properties revealed that surface and ground water has seeped
through the door and foundation areas. In addition, water has backed up
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and overflowed from the toilets and bathtub drains. The surface and
ground water mixed with the water that backed up and overflowed from
the toilets and bathtub drains causing material damages in the buildings.
Since the surface water mixed with the water that backed up through the
toilets and bathtub drains, we are unable to separate the water damages.
**
[Regarding claim for damage to the Clubhouse and Buildings B, C, and
D:] The interior water damages are excluded under the
BUSINESSOWNERS COVERAGE FORM, []. Please refer to page
eleven, B. Exclusions, page twelve, g. Water. (1)-(4). Based on the policy
exclusion, we will be unable to provide coverage for the interior water
damages as indicated above in the described loss locations.
Docket No. 51-9 at 1; see Docket No. 51 at 4, SUMFs 6, 8.
Scott Jones re-inspected the property on October 5, 2013. Docket No. 52 at 6,
SUMF 16. Mr. Jones’ recollection of his conversation with Mr. McConnell and Brenda
Feldman, property manager for the Association, is that there were two causes of loss in
all affected buildings–(1) rainwater/groundwater/surfacewater2 and sewer-backup water.
See Docket No. 52 at 6, SUMF 17; Docket No 51-3 at 1. Mr. Jones’ determ ination that
there was overlap between sewer-backup water and ground or surface water was
based in large part on the representations of Mr. McConnell and Ms. Feldman to that
effect. Docket No. 52 at 6, SUMF 19. Mr. Jones’ notes indicate that a video shows
water entering through the foundation wall. Docket No. 51-3 at 1. On September 20,
2013, defendant denied plaintiff’s insurance claims. Docket No. 51-9.
On March 3, 2014, plaintiff initiated this action. Docket No. 1 at 1. Plaintif f
2
Mr. Jones uses the terms groundwater and surface water interchangeably to
mean the same thing, Docket No. 52-7 at 3 (Jones Depo., 52:15-19), and ex plains that
Mr. McConnell and Ms. Feldman referred to groundwater and surface water as
rainwater. Docket No. 51-3 at 1.
5
asserts three claims for relief: (1) breach of contract; (2) common law bad faith breach
of insurance contract; and (3) violation of Colo. Rev. Stat. § 10-3-1115. Plaintiff moves
for summary judgment on its breach of contract claim. Docket No. 51 at 16.
Specifically, plaintiff argues that (1) the Section B exclusions do not apply to the sewer
backup coverage in the endorsement, id. at 6, (2) any rain water that flowed into the
sewer system is not “surface water,” id. at 14, and (3) any rain water that traveled
through sewer pipes and backed up into the condos is not ex cluded from coverage. Id.
Defendant moves for summary judgment on all claims. Docket No. 52 at 2. Defendant
seeks a determination that, if surface water or ground water contributed to the damage
plaintiff alleges, then the ACC precludes recovery by plaintiff. Id. Defendant also
argues that plaintiff’s common law and statutory bad faith claims should be denied
because defendant acted reasonably and plaintiff’s claim was denied for “fairly
debatable reasons.” Id.
II. STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56, summary judgment is warranted 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 & Cty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An
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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). Where “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 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 & Cty. 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 (citation omitted). When reviewing a motion for
summary judgment, a court must view the evidence in the light most favorable to the
non-moving party. Id.; see McBeth v. Himes, 598 F.3d 708, 715 (10th Cir. 2010).
However, where, as here, there are cross motions for summary judgment, the
reasonable inferences drawn from affidavits, attached exhibits, and depositions are
rendered in the light most favorable to the non-prevailing party. Jacklovich v. Simmons,
392 F.3d 420, 425 (10th Cir. 2004). Furthermore, “[w]hen the parties file cross motions
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for summary judgment, we are entitled to assume that no evidence needs to be
considered other than that filed by the parties, but summary judgment is nevertheless
inappropriate if disputes remain as to material facts.” Atlantic Richfield Co. v. Farm
Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000) (internal quotation marks
omitted).
III. ANALYSIS
A. Applicability of ACC to Endorsement
An insurance policy is a contract, which should be interpreted consistently with
the well-settled principles of contractual interpretation. Chacon v. Am. Family Mut. Ins.
Co., 788 P.2d 748, 750 (Colo. 1990). The interpretation of an insurance policy is a
matter of law. Allstate Ins. Co. v. Huizar, 52 P.3d 816, 819 (Colo. 2002). The words of
a contract should be given their plain meaning according to common usage and
strained constructions should be avoided. Allstate Ins. Co. v. Starke, 797 P.2d 14, 18
(Colo. 1990).
American Family contends that the ACC applies to the language in the
endorsement adding coverage for sewer backups. Docket No. 52 at 10. Plaintiff
contends that the endorsement does not specifically state that the sewer backup
provision is subject to any exclusions and that no exclusions can be implied from the
policy language. Docket No. 51 at 7.
The policy is entitled “Businessowners Policy” and generally insures against
property damage to the Chateau Village Condos. Docket No. 51-1. Section I.A.3
defines “Covered Causes of Loss” as “Risks of direct physical loss unless the loss is: a.
8
excluded in Paragraph B. Exclusions in Section I; or b. Limited in Paragraph 4.
Limitations in Section I.” Docket No 51-1 at 10. Section I.B.1.g . of the policy excludes
coverage for:
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body
of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow;
(3) Water that backs up or overflows from a sewer, drain or sump; or
(4) Water under the ground surface pressing on, or flowing or seeping
through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
Docket No. 51-1 at 20. Thus, the basic terms of the policy exclude coverage for
damage or loss due to sewer drain backup.
Plaintiff’s policy, however, contains an endorsement called the “Condominium
Enhancement Endorsement.” Docket No. 51-2 at 35. The endorsement includes
additional coverage for “Sewer Back-Up and Sump Overflow” in Paragraph XVI. The
Endorsement adds the following language to Section A.5, “Additional Coverages”:3
Sewer Back-Up and Sump Overflow
1. We will pay for direct physical loss or damage to Buildings or
Business Personal Property, covered under Section I–Property,
caused by or resulting from:
A. Water which backs up through or overflows from a sewer
or drain; or
B. Water which overflows from a sump, even if the overflow
results from mechanical breakdown of a sump pump or its
related equipment.
However, with respect to paragraph XVI.1.b above, we will not pay
the cost of repairing or replacing a sump pump or its related
equipment in the event of mechanical breakdown.
3
The language in the endorsement adding the sewer backup coverage states:
“The following is added to paragraph A.5. Additional Coverages.” Docket No. 52-1 at 5.
9
Id. at 38. Thus, Subparagraph 4 of Paragraph XVI replaces Exclusion B.1.g on water to
eliminate the exclusion for sewer backup and sump overflow.4 Id. The effect of the
endorsement, as relevant here, is to add coverage for sewer backup and sump overflow
and to eliminate the exclusion for the same in Section I.B.1.g.
Plaintiff argues that the endorsement does not state that the exclusion section of
the policy, Section B, applies to the additional coverage added by the endorsement.
Docket No. 70 at 7. Plaintiff states that, “[b]ecause the Sewer Back-Up coverage is not
expressly or implicitly subject to the paragraph B exclusions, the water exclusion
contained within it cannot be used to defeat Chateau Village’s claim.” Id. Plaintiff,
however, provides no persuasive reason for its interpretation of the policy. “An
insurance policy and an endorsement attached to it must be considered as a single
instrument, and they should be construed together in the absence of an internal conflict
4
Subparagraph 4 provides:
4. With respect to the coverage provided under paragraph XVI.,
Exclusion B.1.g. Water in Section I–Property is replaced by the following
exclusion:
Water
(1) Flood, surface water, waves, tides, tidal waves, overflow
of any body of water, or their spray, all whether driven by
wind or not;
(2) Mudslide or mudflow; or
(3) Water under the ground surface pressing on, or flowing
or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows, or other openings.
But if water, as described in paragraph XVI.4. results in fire,
explosion or sprinkler leakage, we will pay for the loss or
damage caused by that fire, explosion, or sprinkler leakage.
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which cannot be reconciled.” Martinez v. Hawkeye-Security Ins. Co., 576 P.2d 1017,
1019 (Colo. 1978) (citation omitted). Here, the endorsement describes how it modifies
the main policy. Paragraph XVI.4 states that “Exclusion B.1.g. Water. . . is replaced by
the following exclusion” (emphasis added). If the language from the endorsement
replaces the original language in the policy, policy provisions that related to or affected
the original language will similarly relate to or affect the new language provided by the
endorsement. This reading of the endorsement is consistent with the holdings of other
courts interpreting the effect of an ACC in relation to an endorsement that replaces
policy language. See, e.g., Surabian Realty Co. Inc. v. NGM Ins. Co., 462 Mass. 715,
721 (Mass. 2012) (“By situating the new coverage within the structure of the original
policy [the insurer] clarified that all other provisions of the original policy continued to
apply, including the surface water exclusion and the anticoncurrent cause provision”);
cf. Doylestown Elec. Supply Co. v. Maryland Cas. Ins. Co., 1996 WL 34393843 (E.D.
Pa. Dec. 31, 1996) (construing policy in light of endorsement and concluding “[t]here is
quite simply no provision precluding the application of the concurrent causation
preamble to “water that backs up from [a] sewer or drain”). Id. at 5. Plaintiff does not
deny that the ACC applies to Exclusion B.1.g. See Docket No. 51 at 6-7. There is no
apparent reason why the ACC should not apply to the language of the new Exclusion
B.1.g in the same manner it applied to the original language. Moreover, plaintiff fails to
identify an internal conflict between the policy and the endorsement suggesting that the
new Exclusion B.1.g should not be subject to the ACC. Therefore, the Court finds that
the ACC applies to the new language regarding sewer backup coverage provided by
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the endorsement.
American Family argues that, “[i]f the jury finds that surface water or groundwater
contributed to the damage [p]laintiff alleges, in any amount, then coverage for the claim
must be denied pursuant to the insurance policy’s ACC clause.” Docket No. 52 at 11.
Specifically, defendant argues that the ACC bars plaintiff’s recovery because surface
water and groundwater – uncovered perils – combined with the sewer backup to
contribute to the damage to plaintiff’s property. Docket No. 52 at 8. “An ACC denies
coverage whenever an excluded peril and a covered peril combine to damage a
dwelling or personal property.” Colorado Intergovernmental Risk Sharing Agency v.
Northfield Ins. Co., 207 P.3d 839, 842 (Colo. App. 2008), cert. granted, 2009 WL
1485804 (Colo. May 26, 2009) (internal quotation and citation omitted).5 In Kane v.
Royal Ins. Co. of America, 768 P.2d 678, 685-86 (Colo. 1989), the Colorado Suprem e
Court interpreted the effect of an ACC and found that the insured could not recover any
of his losses where those losses were caused in part by a peril excluded by the policy.
In addition, the court rejected the applicability of the efficient moving cause doctrine of
causation when the agreement contained an ACC. Id. at 684-85. Given that the ACC
applies to Exclusion B.1.g, as modified by the endorsement, if the jury finds that surface
water or groundwater, from a source other than a sewer or drain, directly or indirectly
5
The Colorado Supreme Court granted review in Northfield Insurance on the
issue of “[w]hether this court’s ruling in Kane v. Royal Ins. Co., 768 P.2d 678 (Colo.
1989), applies to exclude recovery under an insurance policy when a jury finds that the
damage was caused 90% by a covered peril (weather event) and 10% by an excluded
peril (wear and tear, rust, or deterioration). 2009 W L 1485804, at *1.
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caused the plaintiff’s damages, such damages are not covered by the policy.6
B. Surface Water vs. Sewer Water
In its summary judgment motion, plaintiff asks the Court to construe the term
“surface water” in the policy. Docket No. 51 at 13. Plaintiff argues that “[r]ain water that
flowed across streets and into manhole covers . . . is not ‘surface water’” and that
surface water “loses its character as such once it is directed into a man-made channel
or pipe.” Id. Defendant argues that the “particular path by which the storm water was
introduced into the Chateau buildings – whether through backup of sewer drains, or
through seepage over, through and around foundation walls, or through some
combination of the two – is of no moment for purposes of coverage analyses” because
flood water caused the damage. Docket No. 69 at 14.
The Court agrees with plaintiff. In the insurance context, surface water has been
defined as “water from melted snow, falling rain, or rising springs, lying or flowing
naturally on the earth’s surface, not gathering into or forming any more definite body of
water than a mere bog, swamp, slough or marsh. . . . Surface water . . . is not of a
substantial or permanent existence, has no banks, and follows no defined course or
channel.” Front Row Theatre, Inc. v. American Mfr’s. Mut. Ins. Cos., 18 F.3d 1343,
1347 (6th Cir. 1994) (citing Heller v. Fire Ins. Exchange, 800 P.2d 1006, 1008-09 (Colo.
1990)). Multiple courts – including the Colorado Supreme Court – that have considered
this issue adopted the construction offered by plaintiff. See, e.g., Heller, 800 P.2d at
6
Since the Court agrees with defendant that the ACC applies to Exclusion B.1.g
as modified, defendant’s argument in Section B of its motion for summary judgment is
moot. See Docket No. 52 at 11-13.
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1009; Surabian Realty Co., Inc., 462 Mass. at 722 (“[N]either the surface water
exclusion nor the anticoncurrent cause provision would bar coverage when heavy rain
enters a sewer system, is diverted out of the system, and is then the sole cause of
damage to property. The water would have lost its character as surface water on
entering the sewer system and, at the moment of damage, the water would have been
defined solely as drain or sewer water.”). In Heller, 800 P.2d at 1009, the Colorado
Supreme Court found that surface water from runoff of melted snow “lost its character
as surface water when it was diverted” into man-made trenches. The court noted that
the trenches were “‘defined channels’ that diverted the regular flow of water, preventing
‘percolation, evaporation, or natural drainage.’” Id. In Surabian Realty Co, Inc., 462
Mass. at 716, a parking lot drain became clogged during a strong rain storm, causing
flooding and damage to the lower level of a building. The parties agreed that the
damage “resulted from the combination of water that backed up after entering the
parking lot drain and water that, as a result of the blockage, never entered the drain and
remained surface water.” Id. at 718. The building was covered by an insurance policy
containing an ACC and an exclusion for surface water. Id. at 716-17. The insured
purchased an endorsement to the policy that provided additional coverage for “loss or
damage caused by water that backs up or overflows from a sewer, drain, or sump.” Id.
at 717. The insurer denied the claim on the grounds that the damage to the building
was caused by surface water. Id. In construing the term “water that backs up or
overflows from a sewer, drain or sump,” the court found that the policy, as amended by
the endorsement, excluded “damage caused by flood waters that spread over the
14
surface of the ground without having entered a drain, but [does] cover damage caused
by water that backed up after entering a drain.” Id. at 719. Defendant cites no authority
for its position that surface water that enters a sewer system retains its character as
surface water and is not considered sewer water. The Court finds that surface water
that enters a sewer system and backs up through or overflows from a sewer or drain is
covered by the policy.7
Having rejected defendant’s theory regarding the character of water that backs
up out of a sewer, the Court turns to the issue of the character of water that damaged
Chateau Village Condos. Although the parties discuss many facts in connection with
the briefing, they do ask the Court to enter summary judgment based on these facts.
See, e.g, Docket No. 52 at 11 (“If the jury finds that surface water or groundwater
contributed to the damage [p]laintiff alleges . . .”). In the event that the parties ask the
Court to enter summary judgment on the facts, the Court finds that there are genuine
issues of material fact regarding the character of the water that caused the damage to
Chateau Village Condos that preclude summary judgment. See, e.g., Docket No. 52 at
6, SUMFs 14, 17, 19. The Court also finds that there are genuine issues of material
fact as to whether the damage to Chateau Village Condos was exclusively caused by
sewer water backup. See id.
D. Common Law and Statutory Bad Faith Breach of an Insurance Contract
Plaintiff brings both common law and statutory bad faith claims. Docket No. 3 at
7
Defendant’s response to plaintiff’s motion for partial summary judgment also
discusses the term “flood,” Docket No. 69 at 13, but defendant did not seek summary
judgment as to the meaning of “flood” and therefore the Court will not consider it.
15
3, 5. To establish the common law “tort of bad faith breach of an insurance contract, a
plaintiff must show that the insurer acted both unreasonably and with knowledge of or
reckless disregard of its unreasonableness.” Hyden v. Farmers Ins. Exchange, 20 P.3d
1222, 1226 (Colo. App. 2000) (citing Dale v. Guaranty National Insurance Co., 948
P.2d 545 (Colo. 1997)).
Plaintiff’s statutory bad faith claim is based on Colo. Rev. Stat. § 10-3-1115(1),
which provides 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
first-party claimant.”
American Family seeks summary judgment on plaintiff’s bad faith claims on the
ground that its denial of coverage was based on “fairly debatable” reasons. Docket No.
52 at 2. Specifically, American Family argues that its denial of the Association’s claim
was timely and reasonable in light of the facts and circumstances known to American
Family at the time of its denial. Id. at 16. The Association asserts that American
Family’s denial was not reasonable and that a jury could conclude that American Family
could not reasonably rely on the statements offered by Ms. Feldman and Mr.
McConnell. Docket No. 70 at 12-13. 8
8
The Association attaches a 27-page expert opinion from Professor Garth H.
Allen that American Family acted unreasonably in handling Chateau Village’s claims.
Docket No. 70-6. The Association does not offer any argument based on this report or
cite any references to genuine factual disputes elucidated in the report. See Docket
No. 70 at 13. The Court notes that Prof. Allen’s interpretation of the policy is that “the
anti-concurrent causation language is not included in the Enhancement Endorsement
and thus does not apply to sewer-back up coverage.” Docket No. 70-6 at 7. This
interpretation of the policy is contrary to the Court’s interpretation of the policy and is
therefore irrelevant.
16
Regarding plaintiff’s common law bad faith claim, “[u]nder Colorado law, it is
reasonable for an insurer to challenge claims that are ‘fairly debatable.’” Vaccaro v.
Am. Family Ins. Group, 275 P.3d 750, 759 (Colo. App. 2012) (citing Zolman v. Pinnacol
Assur., 261 P.3d 490, 496 (Colo. App. 2011). T he issue for liability under a statutory
bad faith claim is “whether an insurer denied benefits without a reasonable basis.”
Vaccaro, 275 P.3d at 760. However, “‘if a reasonable person would find that the
insurer’s justification for denying or delaying payment of a claim was ‘fairly debatable’
(i.e., . . . reasonable minds could disagree as to the coverage-determining facts or law),
. . . this weighs against a finding that the insurer acted unreasonably.” Fisher v. State
Farm. Mut. Auto. Ins. Co., --- P.3d ----, 2015 WL 2198515, at *4 (Colo. App. May 7,
2015) (citing Sanderson v. Am. Family Mut. Ins. Co., 251 P.3d 1213, 1217 (Colo. App.
2010)).
When resolving claims, “[a]n insurer is under no obligation to negotiate a
settlement when there is a genuine disagreement as to the amount of compensable
damages payable under the terms of an insurance policy.” Vaccaro, 275 P.3d at 759
(citing Bucholtz v. Safeco Ins. Co., 773 P.2d 590, 593 (Colo. App. 1988). Here, there
are disputed issues about what defendant’s investigators were told and about what
conclusions the investigators reached that a reasonable jury may find material in
determining whether plaintiff can prove its bad faith claims. “What constitutes
reasonableness under the circumstances is ordinarily a question of fact for the jury.” Id.
(citing Zolman, 261 P.3d at 497). Accordingly, the Court finds that defendant is not
entitled to summary judgment on plaintiff’s statutory and common law bad faith claims.
17
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that plaintiff’s Partial Motion for Judgment as a Matter of Law
Pursuant to F.R.C.P. 56 [Docket No. 51] is GRANTED in part and DENIED in part. It is
further
ORDERED that defendant’s Motion for Summary Judgment [Docket No. 52] is
GRANTED in part and DENIED in part.
DATED March 16, 2016.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
18
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