Fairway 16 Heatherridge Association, The v. American Family Mutual Insurance Company
Filing
72
ORDER denying 46 Motion for Partial Summary Judgment by Judge William J. Martinez on 03/14/2016.(cthom, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 14-cv-2717-WJM-NYW
FAIRWAY 16 HEATHERRIDGE ASSOCIATION, THE,
Plaintiff,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY,
Defendant.
ORDER DENYING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT
Plaintiff The Fairway 16 Heatherridge Association (“Fairway 16”) brings this
action against Defendant American Family Mutual Insurance Company (“American
Family”) for alleged breach of insurance contract, common law bad faith breach of
insurance contract, and statutory bad faith breach of insurance contract. (See ECF
No. 4.) Fairway 16, a condominium owners’ association, claims that its insurance policy
with American Family obligates American Family to pay to repair hail damage allegedly
incurred on the condominium roofs in September 2013. (Id.)
Currently before the Court is American Family’s Motion for Partial Summary
Judgment on Plaintiff’s Bad Faith and Statutory Claims. (ECF No. 46.) For the reasons
explained below, this motion is denied.
I. LEGAL STANDARD
Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if 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 also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248–50 (1986). A fact 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). An issue is “g enuine” if
the evidence is such that it might lead a reasonable trier of fact to return a verdict for
the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).
In analyzing a motion for summary judgment, a court must view the evidence
and all reasonable inferences therefrom in the light most favorable to the nonmoving
party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In
addition, the Court must resolve factual ambiguities against the moving party, thus
favoring the right to a trial. See Houston v. Nat’l Gen. Ins. Co., 817 F.2d 83, 85 (10th
Cir. 1987).
II. FACTS
The following facts are undisputed unless otherwise noted.
In September 2013, the Fairway 16 condominium complex was insured by
American Family against certain forms of property damage. (ECF No. 46 at 2–3,
¶¶ 1–3; ECF No. 46-1.) 1 Fairway 16 claims that many or all of its buildings sustained
hail damage from a storm on September 14, 2013. (Id. ¶ 2.)
Fairway 16 reported this claim to American Family in December 2013. (Id. at 3,
1
All ECF page citations are to the page number in the ECF header, which does not
always match the document’s internal pagination, particularly in exhibits.
2
¶ 3.)2 American Family then retained a licensed engineer, Bruno Lutz, P.E. (“Lutz”), to
inspect the Fairway 16 property, particularly the roofs. (Id. ¶ 6.) Lutz inspected the
property in January 2014 and submitted his written report to American Family on
February 5, 2014 (“Lutz Report”). (Id.; ECF No. 46-11.)
The Court will discuss the details of the Lutz Report as they become relevant in
the Analysis section below. For present purposes, it suffices to state that Lutz noted
definite signs of hail damage to fencing, vinyl window trim, window screens, roof vents,
siding, satellite dishes, and fascia boards. (ECF No. 46-11 at 3–6.) However, he
believed that the roofs themselves manifested mostly age-related deterioration and
some “damage that is consistent with older, weathered hail impact.” (Id. at 6.) Lutz
judged the age of these potential impacts based on the “graying” and “whiteness” of the
exposed asphalt layer (i.e., the asphalt beneath the granular surface, which surface had
potentially been stripped away by a hail strike). In other words, Lutz appears to be
saying that the bleaching of the exposed asphalt suggests more sun exposure than
would be expected if the hail damage had happened recently. He ultimately concluded
that “the roofs have not been damaged as the result of hail impact occurring since April
2012.” (Id. at 11.) The April 2012 date is relevant because that is when American
Family began insuring the Fairway 16 property. (Id. at 2.)
2
Much of Fairway 16’s communication with American Family in this matter appears to
have been made through The C3 Group, a public adjuster Fairway 16 engaged to assist it with
the hail-damage claim. (See id. at 3–5.) The C3 Group is not a party and, for all relevant
purposes, appears to have acted as Fairway 16’s agent in this matter. No party makes any
argument that relies on the distinction between Fairway 16 and The C3 Group. Accordingly, for
simplicity, the Court will not distinguish between the two, and will refer only to Fairway 16.
3
American Family sent the Lutz Report to Fairway 16 on February 7, 2014, and
informed Fairway 16 that its claim was denied. (ECF No. 46 at 4, ¶ 7.) Fairway 16 then
engaged a different engineer, Ryan Hardesty, P.E. (“Hardesty”), for a second opinion.
(Id. at 5, ¶ 11.) Hardesty inspected the property on February 13, 2014, and then
produced a report dated March 9, 2014 (“Hardesty Report”). (See ECF No. 46-12 at 2,
9.) Hardesty mostly disagreed with Lutz’s reasoning. He concluded that the hail
damage on the roofs occurred “potentially on September 14, 2013.” (Id. at 8.) At his
deposition in this case, Hardesty admitted that he chose the adverb potentially because
“[t]here’s no way to know” with certainty that hail damage observed on February 7,
2014, took place on September 14, 2013. (ECF No. 48-2 at 7.) “But,” he said, “m y
belief was that it was potentially/most probably on that date.” (Id. at 8.)
Sometime before this lawsuit was filed—no party specifies precisely when—
Fairway 16 transmitted the Hardesty Report to American Family. (See ECF No. 46
at 8.) In addition, on April 15, 2014, Fairway 16 transmitted to American Family a
localized weather report prepared by a third-party meteorology firm. (ECF No. 47 at 6,
¶ 5; ECF No. 47-3.) This report relied on historical weather data to conclude that, in the
late afternoon of September 14, 2013, the Fairway 16 property experienced a 16minute hailstorm with maximum winds of about 29 mph and hail ranging in size from 0.5
inches to 1.5 inches in diameter. (ECF No. 47-3 at 1–2.) As this lawsuit demonstrates,
that information did not persuade American Family to reverse its denial of Fairway 16’s
claim.
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III. ANALYSIS
American Family claims that Fairway 16 can never meet its evidentiary burden to
prove common law bad faith, and that Fairway 16’s statutory bad faith claim is barred
by the language of the relevant statute. The Court will address each argument in turn.
A.
Common Law Bad Faith
In a first-party insurance dispute such as this one, “an insurer acts in bad f aith in
delaying the processing of or denying a valid claim when [1] the insurer’s conduct is
unreasonable and [2] the insurer knows that the conduct is unreasonable or recklessly
disregards the fact that the conduct is unreasonable.” Travelers Ins. Co. v. Savio, 706
P.2d 1258, 1275 (Colo. 1985). The insured (usually the plaintiff) bears the burden to
prove these elements. Id.
One way an insured can prove bad faith is by demonstrating that his or her claim
was not “fairly debatable.” Sanderson v. Am. Family Mut. Ins. Co., 251 P.3d 1213,
1217–18 (Colo. App. 2010). But it is not likewise true that an insurer can entirely
disprove bad faith by demonstrating that the claim was fairly debatable. “[F]air
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. at 1218.
Even if the claim is fairly debatable, the insured could still prove bad faith through
evidence of, for example:
•
total failure to investigate the claim, see 14 Couch on Insurance § 207:24
(3d ed.);
•
failure to conduct a reasonable investigation based on all available
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information, see Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333, 344
(Colo. 2004); see also 14 Couch on Insurance § 207:25 (“Implicit in the
duty to investigate is the requirement that the investigation be adequate
and fair.”);
•
undue delay in handling the claim, see Gold v. State Farm Fire & Cas.
Co., 2013 WL 1910515, at *6 (D. Colo. May 8, 2013);
•
a low settlement offer intended to force litigation, see Sanderson, 251
P.3d at 1220–21;
•
total denial of liability “solely for the purpose of forcing a compromise so
that the insurer will not have to pay the full amount of the claim for its
admitted liability,” 14 Couch on Insurance § 207:28;
•
“not providing a reasonable explanation of a denial of a claim,” Allen, 102
P.3d at 344; or
•
in-house policies that reward employees for defeating claims, see Zolman
v. Pinnacol Assur., 261 P.3d 490, 500 (Colo. App. 2011); see also Zilisch
v. State Farm Mut. Auto. Ins. Co., 995 P.2d 276, 279 (Ariz. 2000).
Fairway 16 grounds its bad faith case in the second example provided above,
i.e., an alleged failure to perform a reasonable investigation. In particular, Fairway 16
criticizes American Family for relying solely on the findings of the engineer it retained
(Lutz), to the exclusion of other information in its possession and the findings of the
engineer Fairway 16 retained (Hardesty). (ECF No. 47 at 8–9.) In other words, Fairway
16 appears to argue that, at least as of the date American Family received Hardesty’s
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report and the historical weather report (approximately March 2014), American Family
had a duty to reevaluate the basis for its denial of Fairway 16’s claim. Cf. Allen, 102
P.3d at 345 (affirming bad faith verdict because, among other things, the evidence
showed that the insurer “concluded its investigation without exploring [certain]
conflicting statements . . . or by talking with [a relevant witness]”).
Fairway 16 has raised a triable issue of fact in this regard. Fairway 16 points out
several alleged weaknesses in the Lutz Report. (ECF No. 47 at 8–9.) A reasonable
jury could conclude from these weaknesses that American Family had, objectively
speaking, improperly discharged its duty to investigate, and, subjectively speaking, was
at least reckless in its disregard for facts potentially favoring Fairway 16. For example,
Lutz states that “[a] square (100 square foot area) was marked off on each exposure of
[certain] buildings [in the Fairway 16 complex] and inspected for hail damage.” (ECF
No. 46-11 at 6.) Lutz, however, does not go on to describe what he observed within
those 100-square-foot regions. Instead, he discusses an alleged lack of even
distribution of potential hail damage “over numerous adjacent buildings” and
“throughout larger areas of the complex.” (Id.) Hardesty points out Lutz’s failure to
report what he found in the 100-square-foot regions. (ECF No. 46-12 at 6.) Moreover,
Hardesty states that marking off 100-square-foot regions (known as “test squares”) and
documenting the damage within them, is an insurance industry standard practice. (ECF
No. 46-12 at 5.) Hardesty himself marked off four test squares on various faces of
various buildings and counted the likely hail strikes within each, finding approximately
21, 14, 20, and 14 hits in those squares, respectively. (ECF No. 46-12 at 5–6.)
The Lutz Report could also be viewed as somewhat inconsistent regarding the
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recency of the hail damage. Lutz states that “spatter marks are temporary indicators of
hail strikes,” as opposed to “broken window trim and dented metal,” which are
“permanent indicators” of hail strikes; and Lutz includes a photograph of what he
describes as “[s]patter marks” on a satellite dish located somewhere on the Fairway 16
property. (ECF No. 46-11 at 3.) Lutz further states that the spatter marks were caused
by “high-frequency, small to moderate diameter hail.” (Id.) Accordingly, some hailstorm
must have occurred with sufficient recency such that these “temporary indicators” of hail
strikes did not have time to fade. Nonetheless, when it comes to potential hail damage
on the roof, he opines that all of it must have occurred before April 2012. This is not
necessarily contradictory—perhaps Lutz would be willing to concede that a hailstorm
happened fairly recently before his inspection, but only with sufficient force to cause
spattering, not roof damage. Nonetheless, Lutz’s failure to address this potential gap in
his report naturally raises questions.
Finally, American Family has arguably ignored pertinent weather information.
American Family admits that, in January 2014, it commissioned a third-party vendor to
produce an analysis of the weather at the Fairway 16 property on September 14 and
September 15, 2013. (ECF No. 47 at 6, ¶ 3; ECF No. 47-8.) Am erican Family has not
produced to Fairway 16 whatever it received from that vendor (see ECF No. 47 at 3
n.1), which could be perceived by a jury as suspicious.3 Furthermore, Fairway 16
produced to American Family in March 2014 its own third-party weather report stating
3
Since this litigation commenced, Fairway 16 independently obtained a weather report
from American Family’s vendor stating that “[a] significant hail event” with golf ball-sized hail
“occurred at the address on the date inquired.” (ECF No. 47 at 3 n.1; ECF No. 47-7 at 2, 3.)
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that
hail with size ranging from 0.50 inches to 1.50 inches in
diameter is estimated to have been observed at the [Fairway
16 property] from approximately 3[:]56 PM September 14th,
2013 until approximately 4[:]12 PM on September 14th,
2013. . . . The hailstones were dense, composed of solid ice.
The peak wind velocity that accompanied the hail was out of
the south at approximately 29 mph.
(Id. at 6, ¶ 5; ECF No. 47-3 at 2.)
These examples, taken together, would be sufficient to submit both the objective
an subjective elements of Fairway 16’s bad faith cause of action to the jury. Cf. 14
Couch on Insurance § 207:25 (“the insurer has a duty to diligently search for evidence
which supports insured’s claim and not merely seek evidence upholding its own
interests”); see also id. (“Investigations have been deemed in bad faith where the
insurer * * * [i]gnored evidence contrary to its position.”). Accordingly, the Court may
not enter summary judgment on Fairway 16’s common law bad faith claim.4
4
In its Reply brief, American Family “note[s] that Plaintiff has not identified any expert
that will testify to [the] issue [of reasonableness].” (ECF No. 48 at 5.) If this observation was
intended as an implicit argument that expert evidence is required, American Family raised it too
late to be considered. See Colo. Rail Passenger Ass’n v. Fed. Transit Admin., 843 F. Supp. 2d
1150, 1171 (D. Colo. 2011) (argument raised for the first time in reply brief is waived). In any
event, the Colorado Supreme Court has held that an insurance bad faith plaintiff does not need
expert testimony regarding reasonableness in all cases. Allen, 102 P.3d at 344–45. Rather, in
some cases the reasonableness of an investigation is within a lay juror’s competency to judge.
See id. at 345 (holding, in the context of a car accident investigation, that “[t]he reasonableness
of an insurer’s investigation into the underlying events . . . is not a technical question and does
not require additional professional training beyond the knowledge of the average juror”). This
could be perceived as a question of evidence, meaning that the Colorado Supreme Court’s
holding usually would not bind this Court. See Blanke v. Alexander, 152 F.3d 1224, 1231 (10th
Cir. 1998) (“The admissibility of evidence in diversity cases in federal court is generally
governed by federal law.”). But even if Allen is not binding, the undersigned finds it persuasive,
as have other judges in this District. See, e.g., Windsor Court, LLC v. Am. Family Mut. Ins. Co.,
2013 WL 799589, at *4 n.3 (D. Colo. Mar. 5, 2013) (Arguello, J.).
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B.
Statutory Bad Faith
Fairway 16 also seeks to hold American Family liable under Colorado Revised
Statutes §§ 10-3-1115 and -1116. These statutes permit a first-party insured to
“recover reasonable attorney fees and court costs and two times the covered benefit,”
id. § 10-3-1116(1), if the insurer “unreasonably delay[s] or den[ies] payment of a claim
for benefits owed,” id. § 10-3-1115(1)(a). American Family focuses on the “benefits
owed” phrase and argues that
[t]he amount of benefits owed—or stated differently, the
extent of damages caused by the September 13, 2014 hail
event—has not been determined. While [Fairway 16]
disagrees with American Family’s position and contends that
replacement of the roofs are [sic] warranted, [Fairway 16]
has commenced this lawsuit to have a jury make that
determination. Until the jury makes such a determination,
there are no benefits “owed” to [Fairway 16].
(ECF No. 46 at 10.)
Insurers have raised this argument numerous times in this District, and it has
never succeeded. See, e.g., Peden v. State Farm Mut. Auto. Ins. Co., 2014 WL
4696401, at *2 (D. Colo. Sept. 22, 2014); Baumann v. Am. Family Mut. Ins. Co., 2012
WL 122850, at *5 (D. Colo. Jan. 17, 2012); Tadehara v. State Farm Mut. Auto. Ins. Co.,
2011 WL 4048782, at *5 (D. Colo. Sept. 12, 2011). Indeed, the sam e law firm that
represents American Family here presented this precise argument to the undersigned
in a previous lawsuit, and the undersigned rejected it. (See Fiechtner v. Am. Family
Mut. Ins. Co., Case No. 09-cv-2681 (D. Colo.), ECF No. 363 at 1–6; ECF No. 437 at
245–46; ECF No. 439 at 230–33.) The Court stands by its previous reasoning, and
American Family’s counsel’s decision to resurrect this repudiated argument once again
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to this Court comes perilously close to sanctionable bad faith.
As has been stated before, American Family’s interpretation makes the statute
either a nullity (because the likelihood of an insurance company refusing to satisfy a
duly entered judgment is vanishingly small) or an absurdity (because it is inconceivable
that the General Assembly would require the insured to bring two lawsuits, one to
establish “benefits owed” and the other to recover the penalty). Summary judgment for
American Family is denied on this issue.
IV. CONCLUSION
For the reasons set forth above, American Family’s Motion for Partial Summary
Judgment on Plaintiff’s Bad Faith and Statutory Claims (ECF No. 46) is DENIED. This
matter REMAINS SET for a 5-day jury trial scheduled to begin on July 18, 2016, with a
Final Trial Preparation Conference set for July 1, 2016, at 10:00 a.m. in Courtroom
A801.
Dated this 14th day of March, 2016.
BY THE COURT:
William J. Martínez
United States District Judge
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