Building On Our Best LLC et al v. Sentinel Insurance Company Limited, et al
Filing
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ORDER Donan Engineering Co. Inc.'s motion to dismiss plaintiffs' Fourth and Fifth Claims for Relief is GRANTED. Those claims and this civil action, as to Donan, are dismissed with prejudice. As the prevailing party as to these claims, Donan is awarded its reasonable costs pursuant to Fed. R. Civ. P. 54(d)(1) and D.C.COLO.LCivR 54.1. By Judge R. Brooke Jackson on 11/12/2015.(mlace, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No 15-cv-00669-RBJ
BUILDING ON OUR BEST LLC and
SOULSTICE, LTD,
Plaintiffs,
v.
SENTINEL INSURANCE COMPANY LIMITED and
DONAN ENGINEERING CO., INC.,
Defendants.
ORDER
The case is before the Court on Donan Engineering Co., Inc.’s Rule 12(b)(6) motion to
dismiss plaintiffs’ Fourth and Fifth Claims as to Donan. The motion is granted.
FACTS
In 2014 plaintiffs’ building in Englewood, Colorado was insured under a commercial
property insurance policy issued by the Sentinel Insurance Company, Ltd. Plaintiffs allege that
on June 15, 2014 the roof and other parts of the building were damaged by a hail and wind
storm. After they submitted a claim under the policy, Sentinel’s adjuster hired Donan
Engineering Co. to inspect and report on the claimed damage. Donan’s report concluded that the
roof exhibited minimum evidence of damage. Based on the report Sentinel denied the claim.
Plaintiffs then hired a “public adjuster” to assist them with their insurance claim.
Plaintiffs and the public adjuster determined that Donan’s inspection was inadequate and asked
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Sentinel to have Donan re-inspect the property. Although Sentinel’s adjuster agreed, Donan
refused. Amended Complaint [ECF No. 17] at ¶11.
Plaintiffs’ public adjuster determined that plaintiffs had sustained property damage in the
amount of $47,795.50, and plaintiffs submitted a proof of loss in that amount to Sentinel together
with additional evidence of the claimed damage. The public adjuster also informed Sentinel that
State Farm, which insured another tenant’s portion of the same building, had determined that the
June 15, 2014 hail storm had caused enough damage to the roof to require its replacement.
Sentinel continued to deny the claim.
Plaintiffs therefore filed this lawsuit. The First, Second and Third Claims assert breach
of contract, common law insurance bad faith, and statutory bad faith pursuant to C.R.S. § 10-31115 and 1116. Those claims are asserted against Sentinel and are not the subject of the pending
motion. Rather, the motion addresses plaintiffs’ Fourth Claim (violation of the Colorado
Consumer Protection Act) and Fifth Claim (civil conspiracy) insofar as those claims are asserted
against Donan.
The Amended Complaint contains the following allegations of “fact” with respect to
Donan:
•
“Plaintiffs believe that [Sentinel] hired Donan because they are biased for insurers
and will give insurers result-oriented reports to assist [Sentinel] in either low-balling
or denying an insured’s storm damage insurance claim.” Amended Complaint at ¶8.
•
“True to form, the [Donan] Report concluded that the roof exhibited minimum
evidence of windstorm damage to the wood shakes and metal fixtures on the roof of
the Property and that replacement was not warranted.” Id. at ¶9.
•
“In the Report, Donan makes only conclusions and cites no test or other physical
evidence to support its findings.” Id.
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•
“Based on this biased and unsubstantiated report, in a letter also dated September 18,
2014, [Sentinel’s] adjuster, citing the Donan report and ‘test’ that never occurred,
denied the claim, determining that Plaintiffs had only sustained minor windstorm
damages not covered by [Sentinel’s] Policy.” Id.
•
“In late November 2014 [Sentinel’s adjuster] informed Plaintiffs’ public adjuster that
she agreed with the requests for an inspection, but was frustrated by Donan’s refusal
to reevaluate its findings.” Id. at ¶11.
•
“In response to all of the information provided by Plaintiffs and their representative,
[Sentinel] thereafter orally denied Plaintiffs’ November 24, 2014 proof of loss again
relying on the biased and result oriented conclusions in the Donan report.” Id. at ¶13.
•
“[Sentinel’s] actions, including but not limited to, conducting an inadequate and
biased investigation, using biased consultants to obtain a result-oriented reports [sic]
and estimates to low-ball Plaintiffs’ storm damage insurance claim, and forcing
Plaintiffs to pursue litigation to recover for a legitimate claim, were done in bad faith
and were unreasonable.” Id. at ¶14.
•
“Donan and [Sentinel] conspired to produce a result-oriented report that would
predicate [Sentinel’s] decision to deny. On information and belief the Report was
assembled in bad faith, relied on inaccurate data and irrelevant sources, and was
created for the sole purpose of misleading Plaintiffs to believe that [Sentinel’s] denial
was justified.” Id. at ¶15.
In addition, in the Fourth and Fifth Claims for Relief, plaintiffs make the following
additional allegations, among others, concerning “Defendants,” meaning Sentinel and Donan:
Fourth Claim
•
“Defendants knowingly made, and caused to be made, false statements as to the
affiliation, connection or association of Donan with [Sentinel].” Id. at ¶20.
•
“Defendants represented that Donan supplied a particular style or model of services,
namely that Donan was hired to perform nonbiased testing, when they knew or should
have known that Donan primarily works for insurance companies to help low-ball or
deny claims.” Id.
•
“Defendants failed to disclose material information concerning goods, services or
property, which information was known at the time of an advertisement or sale, in
order to induce Plaintiffs to accept [Sentinel’s] claims decision.” Id.
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•
“The deceptive trade practice significantly impacted the public as actual or potential
consumers of Defendants’ goods and services. The deceptive practice is directed
toward the market generally, taking the form of widespread public advertisement and
involving the deception of actual and prospective purchasers of Defendants’ services
as well as the general public.” Id.
Fifth Claim
•
“Through an agreement either expressed or implied, [Sentinel] would hire Donan to
obtain result-oriented engineering reports for the purposes of assisting [Sentinel] to
either lowball or deny valid claims for insurance proceeds.” Id. at ¶21.
•
“[Sentinel] and Donan conspired to withhold material information from Plaintiffs
regarding the relationship of the Defendants to induce Plaintiffs to accept the denial
of their insurance claim.” Id.
•
“Donan and [Sentinel] conspired to cut corners on the evaluation of the roof with the
purpose and intent to justify a denial of the Plaintiffs’ claim and, therefore, realize a
greater profit to the detriment of Plaintiffs.” Id.
•
“In this respect, the unlawful, overt act in this civil conspiracy was Donan’s
preparation of a biased, result-orient [sic] report that [Sentinel] would exclusively rely
upon to deny Plaintiff’ [sic] insurance claim.” Id.
•
“Donan and [Sentinel’s] conspiracy and deceit in furtherance of the conspiracy
caused damages to Plaintiffs in an amount to be proven at trial.” Id.
Based on those allegations plaintiffs assert two claims against Donan. In the Fourth
Claim for Relief plaintiffs allege that Donan violated the Colorado Consumer Protection Act,
C.R.S. 6-1-105, in particular by engaging in unfair or deceptive trade practices prohibited by
subsections (c), (e), (g), (i) and (u) of the Act. Id. at ¶20. In the Fifth Claim for Relief plaintiffs
allege that Donan participated in a civil conspiracy with Sentinel to justify a denial of the
insurance claim. Donan allegedly conspired to withhold material information regarding the
relationship between Donan and Sentinel and to cut corners on the evaluation of the roof, the
overt act in implementation of the conspiracy being Donan’s “preparation of a biased, result-
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oriented report that [Sentinel] would exclusively rely upon to deny Plaintiff’ [sic] insurance
claim.” Id. at ¶21.
STANDARD OF REVIEW
In reviewing a motion to dismiss, the Court must accept the well-pleaded allegations of
the complaint as true and construe them in the plaintiffs’ favor. However, the facts alleged must
be enough to state a claim for relief that is plausible, not merely speculative. Bell Atlantic Corp.
v. Twombly, 550 U.S. 544, 555, 570 (2007). A plausible claim is a claim that “allows the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Allegations that are purely conclusory are not
entitled to an assumption of truth. Id. at 681. However, so long as the plaintiff offers sufficient
factual allegations such that the right to relief is raised above the speculative level, he has met the
threshold pleading standard. See, e.g., Twombly, 550 U.S. at 556; Bryson v. Gonzales, 534 F.3d
1282, 1286 (10th Cir. 2008). Allegations of unfair or deceptive trade practices under the
Colorado Consumer Protection Act must be pled with particularity under Rule 9(b). See, e.g.,
Duran v. Clover Club Foods Co., 616 F. Supp. 790, 793 (D. Colo. 1985).
CONCLUSIONS
A. Fourth Claim – Violation of the Colorado Consumer Protection Act.
Donan’s motion basically argues that plaintiffs lack standing to complain about the work
Donan did in performance of its contractual obligation to Sentinel. Much of Donan’s argument
either is or should be uncontroversial. Specifically, I agree with each of the following
propositions:
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•
Plaintiffs must have constitutional standing, including (1) an injury to plaintiffs’
legally protected interest, (2) a causal relationship between the injury and the
challenged conduct, and (3) a likelihood that the injury will be redressed by a
favorable decision. See Turner v. McGee, 681 F.3d 1215, 1218 (10th Cir. 2012).
•
Persons who are actual or potential consumers of a defendant’s services and who in
the course of the person’s business or occupation are injured as a result of a deceptive
trade practice may bring a private cause of action for damages under the Colorado
Consumer Protection Act (“CCPA”). C.R.S. § 6-1-113(1).
•
The term “consumer” means “any actual or potential consumer” of the defendant’s
goods or services. Hall v. Walter, 969 P.2d 224, 231 (Colo. 1998).
•
Plaintiffs were neither actual nor potential consumers of Donan’s services. The
consumer was Sentinel. Cf. Martinez v. Lewis, 969 P.2d 213, 222 (Colo. 1998) (in a
suit against a physician whose “Independent Medical Examination” was relied upon
by the insurer to deny plaintiff’s insurance claim, the “sole consumer” of the
physician’s services was the insurer which hired him to perform the examination).
•
However, because a civil action under the CCPA can be brought “for any claim
against any person who has engaged in or caused another to engage in any deceptive
trade practice,” C.R.S. § 6-1-113(1) (emphasis added), nonconsumers can sometimes
bring actions under the CCPA. Hall, 969 P.2d at 230-32.
•
The nonconsumer must prove that (1) the defendant engaged in an unfair or deceptive
trade practice; (2) the challenged practice occurred in the course of defendant’s
business, vocation, or occupation; (3) the practice significantly impacts the public as
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actual or potential consumers of the defendant’s services; (4) the plaintiff suffered
injury in fact to a legally protected interest; and (5) the challenged practice caused the
plaintiff’s injury. Id. at 234-35.
The essence of plaintiffs’ claim is that Donan has a practice of generating phony
engineering reports on which its insurance customers rely to lowball or deny insurance claims. It
is hard to deny that such a practice, if it occurred, would amount to an unfair or deceptive trade
practice. Similarly, if such a practice occurred, it was in the course of Donan’s business. If one
assumes, to plaintiffs’ benefit at this stage of the case, that Sentinel denied a valid insurance
claim, then plaintiffs suffered an injury in fact to a legally protected interest. Similarly, if one
assumes, to plaintiffs’ benefit, that Sentinel denied the claim because of the Donan report, then
one could say that the challenged practice was a cause of plaintiffs’ injury.
However, there are at least two fundamental problems with plaintiffs’ CCPA claim. One
is the public impact requirement. I agree with plaintiffs that, unlike the facts in Martinez v.
Lewis, wherein the plaintiff complained only about the IME doctor’s qualification to render his
opinion as to the plaintiff’s specific injuries, plaintiffs here assert that Donan’s preparation of
insurer-friendly reports is a regular business practice. As such, one might jump to the conclusion
that plaintiffs have satisfied the public impact requirement because numerous persons who have
the (alleged) misfortune of being insured by a company that hires Donan to investigate claimed
losses are potentially impacted by Donan’s practices. However, that would be a misapplication
of the public impact requirement. In Hall the Court was careful to emphasize that the public
impact must be to “actual or potential consumers” of the defendant’s goods or services. 969 P.2d
at 234. By plaintiffs’ own allegations, the consumers of Donan’s services are insurance
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companies like Sentinel. It would strain the CCPA beyond the breaking point to conclude that
the public impact requirement is met because Donan’s unsavory practices enable numerous
insurance companies to deny valid insurance claims.
Moreover, plaintiffs have not alleged facts that make out a plausible claim that Donan has
engaged in an unfair or deceptive trade practice. To begin, plaintiffs allege that they “believe”
that Donan is a company that Sentinel and other insurers hire because it is known to be biased in
favor of insurance companies. Amended Complaint ¶8. The Tenth Circuit has held in various
contexts that allegations, even allegations of fraud, may be made on information and belief so
long as the complaint sets forth the factual basis of the belief. See, e.g., Scheidt v. Klein, 956 F.
2d 963, 967 (10th Cir. 1992). But even if plaintiffs’ Amended Complaint set forth the factual
basis for their belief regarding Donan’s bias (which it did not), and even if the Court assumed the
alleged fact to be true, it would not establish that Donan has engaged in an unfair or deceptive
trade practice, any more than an insured’s retention of a “public adjuster” known to be favorable
to insureds would necessarily establish actionable wrongdoing on the public adjuster’s part.
Plaintiffs also allege that they “believe” that Donan “will give insurers result-oriented
reports to assist [Sentinel and other insurers] in either low-balling or denying an insured’s storm
damage insurance claim.” Amended Complaint ¶8. They allege that Donan and Sentinel
“conspired to produce a result-oriented report that would predicate [Sentinel’s] decision to deny
[the claim].” Id. at ¶15. And, “on information and belief,” Donan’s report “was assembled in
bad faith, relied on inaccurate data and irrelevant sources, and was created for the sole purpose of
misleading Plaintiffs to believe that [Sentinel’s] denial was justified.” Id. These allegations (and
all the similar allegations repeated under the headings of the Fourth and Fifth Claims for Relief)
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are conclusory. The Amended Complaint does not set forth the factual basis for plaintiffs’
beliefs. While this Court must construe well-pleaded facts in plaintiffs’ favor when deciding a
Rule 12(b)(6) motions, these allegations are not entitled to that favorable construction.
B. Fifth Claim -- Civil Conspiracy.
“To state a claim for civil conspiracy, [plaintiffs] must allege: (1) two or more persons;
(2) shared an object to be accomplished; (3) had a meeting of the minds on the object or course
of action; (4) committed an unlawful overt act, such as fraud; and (5) this caused [plaintiffs] to
sustain damages.” Cavitat Medical Technologies v. Aetna, Inc., No. 04-CV-1849, 2006 WL
218018 at *5 (D. Colo. Jan. 27, 2006) (citing Nelson v. Elway, 908 P.3d 101, 106 (Colo. 1995)).
For the same reasons as discussed in connection with the Colorado Consumer Protection Act
claim, I conclude that plaintiffs’ Amended Complaint falls well short of alleging facts that state a
claim that is plausible, not just speculative. 1
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Yet another potential problem with the claims against Donan arises from the fact that, in my judgment,
the claims necessarily imply that Donan’s investigation was performed poorly, and that its conclusion
about the lack of damage by the storm was wrong. After all, if Donan did a competent job and reached
the right conclusion, the complaints about deceptive trade practices and conspiracy would be moot. But if
a claim necessarily assumes a professional engineer’s negligence, plaintiffs would need expert
engineering testimony to establish that the engineer’s work did not meet the standard of care. In that
event, plaintiffs must comply with the certificate of review requirement of C.R.S. § 13-20-602. Compare,
e.g., Teiken v. Reynolds, M.D., 904 P.2d 1387, 1388-89 (Colo. App. 1995) (certificate of review required
even though claims were based on violation of the Colorado Consumer Protection Act) with Baumgarten
v. Coppage, 15 P.3d 304, (Colo. App. 2000) (certificate of review required only as to certain of the
claimed CCPA violations). Cf. Martinez v. Badis, 842 P.2d 245, 252 (Colo. 1995) (certificate of review
might be required for claims based on breach of fiduciary duty or contract). However, Donan did not
raise the issue, nor has Donan moved for an order requiring plaintiffs to file such a certificate. See C.R.S.
§ 13-20-602(2). It is a moot point in light of the Court’s disposition of the motion to dismiss on other
grounds.
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ORDER
Donan Engineering Co. Inc.’s motion to dismiss plaintiffs’ Fourth and Fifth Claims for
Relief is GRANTED. Those claims and this civil action, as to Donan, are dismissed with
prejudice. As the prevailing party as to these claims, Donan is awarded its reasonable costs
pursuant to Fed. R. Civ. P. 54(d)(1) and D.C.COLO.LCivR 54.1.
DATED this 12th day of November, 2015.
BY THE COURT:
___________________________________
R. Brooke Jackson
United States District Judge
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