Hoffman v. Oregon Mutual Insurance Co.

Filing 36

MEMORANDUM AND ORDER RE: 27 MOTION for Summary Judgment filed by Oregon Mutual Insurance Co. Defendant's motion for summary judgment is DENIED as to plaintiff's claim for breach of contract. Defendants motion for summary ju dgment is GRANTED as to plaintiff's claims for breach of the implied covenant of good faith and fair dealing and insurance bad faith tort. Signed by Judge William B. Shubb. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (ja)

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UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF IDAHO

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----oo0oo----

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THEODORE HOFFMAN, an individual,
NO. CIV. 1:11-120 WBS

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Plaintiff,

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v.

MEMORANDUM AND ORDER RE:
MOTION FOR SUMMARY JUDGMENT

OREGON MUTUAL INSURANCE CO.,
an Oregon corporation,

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Defendant.
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/
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----oo0oo---Plaintiff Theodore Hoffman brought this action against

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his insurer, defendant Oregon Mutual Insurance, Co. (“Oregon

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Mutual”), arising out of defendant’s allegedly wrongful denial of

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coverage following an automobile accident in which plaintiff was

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involved.

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for summary judgment pursuant to Federal Rule of Civil Procedure

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56(c).

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I.

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Presently before the court is Oregon Mutual’s motion

Relevant Facts
Plaintiff, doing business as Hoffman Ranch, purchased a
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business automobile policy from Oregon Mutual (“the Oregon Mutual

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policy”).

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policy, which was policy number IMO 54 1 8552745, was valid from

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March 17, 2009, through March 17, 2010, and contains both

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underinsured motorist and auto medical payment coverages.

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2, Ex. A at OMI 4, OMI 26-27; id. Ex. F at 2.)

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motorist coverage is limited to $1,000,000 per accident and the

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medical payment coverage was limited to $10,000 per person.

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Ex. A at OMI 8.)

This

(Id. ¶

The underinsured

(Id.

The Oregon Mutual policy contains the following notice

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(Budzik Aff. ¶ 2, Ex. A (Docket No. 27).)

provision:
2. Duties In The Event Of Accident, Claim, Suit or Loss
[Oregon Mutual has] no duty to provide coverage under
this policy unless there has been full compliance with
the following duties:
a. In the event of “accident”, “claim”, “suit”, or
“loss”, [the insured] must give [Oregon Mutual]
prompt notice of the “accident” or “loss”.
Include:
(1) How, when and where the “accident” or
“loss” occurred;
(2) The “insured’s” name and address; and
(3) To the extent possible, the names and
addresses
of
any
injured
persons
and
witnesses.

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(Id. § IV (A)(2), at OMI 18.)

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“No one may bring legal action against [Oregon Mutual] under this

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Coverage Form until: (a) there has been full compliance with all

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the terms of this Coverage Form.”

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These provisions apply to both the underinsured motorist coverage

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and the auto medical payment coverage.

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3-6.)

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The policy further cautions that

(Id. § IV (A)(3), at OMI 18.)

(Id. at OMI 27; Ex. F at

The Oregon Mutual policy provides that both
underinsured motorist and auto medical payment coverages are only
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available for “covered autos,” or “Owned ‘Autos’ ONLY,” which the

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policy defines as “Only those autos you own . . . .

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includes those ‘autos’ you acquire ownership of after the policy

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begins.”

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medical payment coverages expand the definition of an “insured”

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to include “[a]nyone ‘occupying’ a covered ‘auto’ or a temporary

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substitute for a covered ‘auto’.

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of service because of its breakdown, repair, servicing, ‘loss’ or

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destruction.”

(Id. at OMI 8, 12.)

This

The underinsured motorist and auto

The covered ‘auto’ must be out

(Id. at OMI 26; id. Ex. F at 4-5.)

On June 26, 2009, plaintiff was driving a 2005 Ford

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Ranger pickup that was owned by Frances Woods, plaintiff’s

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girlfriend, not plaintiff.

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vehicle was not listed in the Schedule of Covered Autos under the

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Oregon Mutual policy.

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Aff. Ex. A (“Hoffman Dep.”) at 58:11-59:8, 61:17-70:24 (Docket

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No. 27).)

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owned and operated by Desiree Fabello.

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95:13; Budzik Aff. Ex. B at 2-3; Hoffman Aff. ¶ 2 (Docket No.

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31).)

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Bureau Mutual Insurance Company (“Farm Bureau”).

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at 94:14-95:13; Budzik Aff. Ex. B at 2-3.)

(Id. Ex. B at 1-2, Ex. C at 1.)

This

(Id. Ex. A at OMI 9, Ex. C at 3-5; Brady

While driving, plaintiff was rear-ended by a vehicle
(Hoffman Dep. at 94:14-

At the time of the accident, Fabello was insured by Farm

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(Hoffman Dep.

Following the accident, plaintiff contacted Farm Bureau

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in order to obtain coverage for the damage to his girlfriend’s

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vehicle.

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experience any medical symptoms that he believed were due to the

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accident and he did not provide Oregon Mutual with any notice of

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the accident.

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(Hoffman Aff. ¶¶ 6-7.)

At the time, he did not

(Id. ¶¶ 5, 15-16.)

Several months later, in December 2009, plaintiff
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learned from his neurosurgeon that he had a bulging disk in his

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back that was attributable to the June accident and that there

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was a possibility that he would require surgery in four to five

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years time.

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of the accident.

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(Id. ¶¶ 8-9.)

He still did not notify Oregon Mutual

(Id. ¶¶ 15-16.)

In the fall of 2010, over a year after the accident,

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plaintiff contacted Farm Bureau again, this time to inquire about

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obtaining coverage for his medical expenses associated with the

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accident.

(Id. ¶ 10.)

Farm Bureau, however, informed plaintiff

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that it would prefer to pay the claim all at once, and that he

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should come back to Farm Bureau once he knew the full extent of

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his damages and medical expenses.

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(Id. ¶ 11.)

In September 2010, plaintiff learned that Fabello’s

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policy with Farm Bureau had a $25,000 limit and that his medical

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expenses would exceed this limit.

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GEICO Insurance Agency, which was the insurer for the vehicle

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owned by his girlfriend that plaintiff had been driving at the

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time of the accident.

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discovered, however, that the GEICO policy on his girlfriend’s

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vehicle had an underinsured motorist limit of $25,000, and

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therefore he could not recover his full medical expenses under

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that policy either.

(Id. ¶ 12.)

He then contacted

(Id. ¶ 13; Brady Aff. Ex. D.)

He

(Hoffman Aff. ¶ 14.)

According to plaintiff, it was at this point that he

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first realized that he might have a viable claim with Oregon

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Mutual.

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Mutual of the accident and his claim.

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B at 9-11.)

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the accident or plaintiff’s claim until October 1, 2010.

(Id. ¶ 15.)

Upon this realization, he notified Oregon
(Id. ¶ 16; Budzik Aff. Ex.

Oregon Mutual, therefore, did not receive notice of

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(Hoffman Aff. ¶¶ 15-16, Hoffman Dep. at 86:25-88:15.)

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Upon receiving notice of the accident, Oregon Mutual

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began an investigation by recording two statements by plaintiff,

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one on October 1, 2010, and a second statement several days

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later.

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made these two statements, plaintiff reported that he could not

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remember why he had been driving his girlfriend’s vehicle at the

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time of the accident rather than one of the vehicles he owned.

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(Id. Ex. C at 1-5.)

(Budzik Aff. Exs. B, C, F at 7.)

At the time that he

When directly asked if he might have been

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driving his girlfriend’s car because “something was wrong with

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one of [his] vehicles,” he responded, “I don’t think so.”

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Ex. C at 4-5.)

(Id.

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Relying on these statements, Oregon Mutual issued a

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letter on October 7, 2010, in which it denied coverage on the

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ground that because plaintiff was not driving a vehicle he owned,

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he was not driving a covered vehicle at the time of the accident.

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(Id. Ex. D; Brady Aff. Ex. B (“Reese Dep.”) at 23:20-24:8, 30:1-

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31:6.)

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report that his girlfriend had reminded him that the reason he

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had used her car the day of the accident was because his own

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vehicle had a flat tire and was therefore unavailable.

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Aff. Ex. G.)

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Mutual was denying coverage before or after he contacted Oregon

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Mutual to report the flat tire.

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Bowers Dep. at 29:9-30:9, 36:13-19; Budzik Aff. Ex. E.)

Several days later, plaintiff contacted Oregon Mutual to

(Budzik

It is not clear if plaintiff had notice that Oregon

(Hoffman Dep. at 91:11-93:8;

A month later, Oregon Mutual issued a second letter

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dated November 10, 2010, again denying coverage.

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Ex. F.)

(Budzik Aff.

While the letter denying coverage discussed the lack of
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evidence that plaintiff was operating a “temporary substitute for

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a covered ‘auto’” that was “out of service because of its

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breakdown, repair, servicing, ‘loss’ or destruction” at the time

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of the accident, in denying coverage Oregon Mutual relied on

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plaintiff’s failure to provide it with prompt notice of the

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accident as required under the terms of the policy.

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13.)

(Id. at 11,

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Meanwhile, plaintiff had been engaged in settlement

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talks with Fabello and Farm Bureau and, on December 20, 2010,

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plaintiff contacted Oregon Mutual requesting approval of a

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$25,000 settlement, the bodily damage limit under Fabello’s

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policy.

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informed Oregon Mutual that if it “continue[d] to deny coverage,”

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he would “file suit against Oregon Mutual for the damages

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sustained . . ., compensatory damages, bad faith damages and

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applicable attorney fees.”

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(Id. Ex. B at 9, Ex. G.)

At the same time, plaintiff

(Id. Ex. G.)

In response, Oregon Mutual stated that “With respect to

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the proposed settlement, [Oregon Mutual] having denied coverage

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cannot and does not object to the proposed settlement and will

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waive any potential subrogation claim it might have against Ms.

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Fabello if there was coverage.”

(Id. Ex. H.)

Plaintiff settled with Fabello for $25,000, and filed

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suit against Oregon Mutual on March 24, 2011, stating claims for

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breach of contract, breach of the implied covenant of good faith

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and fair dealing, and insurance bad faith tort.

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II.

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(Docket No. 1.)

Discussion
Summary judgment is proper “if the movant shows that

there is no genuine dispute as to any material fact and the
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movant is entitled to judgment as a matter of law.”

Fed. R. Civ.

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P. 56(a).1

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of the suit, and a genuine issue is one that could permit a

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reasonable jury to render a verdict in the non-moving party’s

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favor.

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(1986).

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burden of establishing the absence of a genuine issue of material

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fact and can satisfy this burden by presenting evidence that

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negates an essential element of the non-moving party’s case.

A material fact is one that could affect the outcome

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
The party moving for summary judgment bears the initial

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Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

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Alternatively, the moving party can demonstrate that the non-

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moving party cannot produce evidence to support an essential

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element upon which it will bear the burden of proof at trial.

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Id.

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Once the moving party meets its initial burden, the

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burden shifts to the non-moving party to “designate ‘specific

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facts showing that there is a genuine issue for trial.’”

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324 (quoting then-Fed. R. Civ. P. 56(e)).

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the non-moving party must “do more than simply show that there is

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some metaphysical doubt as to the material facts.”

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Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

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“The mere existence of a scintilla of evidence . . . will be

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insufficient; there must be evidence on which the jury could

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reasonably find for the [non-moving party].”

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at 252.

Id. at

To carry this burden,

Matsushita

Anderson, 477 U.S.

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Federal Rule of Civil Procedure 56 was revised and
rearranged effective December 1, 2010. However, as stated in the
Advisory Committee Notes to the 2010 Amendments to Rule 56,
“[t]he standard for granting summary judgment remains unchanged.”
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In deciding a summary judgment motion, the court must

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view the evidence in the light most favorable to the non-moving

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party and draw all justifiable inferences in its favor.

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255.

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and the drawing of legitimate inferences from the facts are jury

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functions, not those of a judge . . . ruling on a motion for

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summary judgment.”

Id. at

“Credibility determinations, the weighing of the evidence,

Id.

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A.

Breach of Contract

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When interpreting insurance policies, Idaho courts

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“appl[y] the general rules of contract law subject to certain

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special canons of construction.”

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Idaho, 145 Idaho 459, 461 (2008) (citing Clark v. Prudential

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Prop. & Cas. Ins. Co., 138 Idaho 538, 540 (2003)).

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contract’s language is clear and unambiguous, its interpretation

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and legal effect are questions of law.

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993, 996 (1992).

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is a question of law to be answered by the court.

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Farmers Ins. Co. of Idaho, 147 Idaho 67, 69 (2009) (citing Purvis

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v. Progressive Cas. Ins. Co., 142 Idaho 213, 216 (2005))

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(citation omitted).

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Arreguin v. Farmers Ins. Co. of

When a

Bondy v. Levy, 121 Idaho

Whether a given insurance policy is ambiguous
Armstrong v.

A breach of contract occurs when a party fails to

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perform, without legal excuse, a promise required of it by the

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terms of a contract.

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Idaho 738, 747 (2000).

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coverage if conditions are met under the insurance contract.”

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Robinson v. State Farm Mut. Auto Ins. Co., 137 Idaho 173, 179

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(2002).

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of a contract and fact of its breach is upon the plaintiff.”

Idaho Power Co. v. Cogeneration, Inc., 134
An “insurer has a duty to provide

Under Idaho law, “[t]he burden of proving the existence

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Idaho Power Co., 134 Idaho at 747.

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The insurance contract here clearly states that prompt

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notice is required in the event of an accident, claim, suit, or

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loss and that in the absence of such prompt notice, Oregon Mutual

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has no duty to provide plaintiff coverage under the policy.

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court cannot find, and plaintiff does not argue that there is,

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any ambiguity in this language.

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Lake CDA Dev. LLC, No. CV-07-505, 2008 U.S. Dist. LEXIS 69020, at

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*5-6 (D. Idaho Sept. 10, 2008) (finding similar language in a

The

See Axis Surplus Ins. Co. v.

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builder’s risk insurance policy “unambiguously require[d] prompt

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notice of loss or damage”).

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complied with this provision and the effect of a failure to

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comply under Idaho law.

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At issue are whether plaintiff

Viani v. Aetna Insurance Co., 95 Idaho 22 (1972),

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overruled on other grounds by Sloviaczek v. Estate of Puckett, 98

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Idaho 371 (1977), involved an insurance policy that required the

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insured to provide the insurer with written notice of an accident

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“as soon as practicable.”

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had waited until after a judgment against him became final before

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contacting his insurer to seek coverage.

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that this complete failure to notify his insurer constituted a

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breach of the condition precedent found in the insurance policy.

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Id. at 28.

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Id. at 26.

The insured in that case

Id.

The court held

Having reached this conclusion, the court then had to

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determine the effect of this breach.

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previous Idaho Supreme Court decision had announced that

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“[v]iolations of conditions by the assured will not release the

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insurer unless it is prejudiced by the violation,” id. (quoting
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Although recognizing that a

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Leach v. Farmer’s Auto. Interinsurance Exch., 70 Idaho 156, 160

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(1950)), after surveying the approaches of various states, the

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court announced that “[t]o settle the state of Idaho law [it had]

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concluded the majority rule as expressed in the Nevada and

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Washington cases is the better reasoned rule and is fair to the

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various interests.”

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provided that “lack of prejudice to the insurer was immaterial

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where the insured failed to perform the condition precedent of

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giving notice of the suit . . . within a reasonable time,” id. at

Id. at 30.2

The majority rule referred to

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29, and that “the failure to give a reasonable timely notice of

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the accident . . . will release the insurer from the obligations

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imposed by the contract, although no prejudice may have

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resulted,” id. at 28 (quoting Sears, Roebuck & Co. v. Hartford

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Accident & Indem. Co., 313 P.2d 347, 353 (Wash. 1957)).

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In adopting this rule, the court noted that the rule

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balanced the competing interests of the insurer and insured.

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one hand, the court recognized that “an insurer has certain

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On

business interests which it is entitled to protect” and is

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The court acknowledges that Nevada, New York, and
Colorado, three of the states the Viani court cited as following
the no-prejudice rule, have since begun to require insurers to
show prejudice before disclaiming coverage on late notice
grounds. These changes came about as a result of changes to
applicable statutes and regulations in those states or an
explicit decision by the state supreme court to overrule the
prior no-prejudice rule. Las Vegas Metro. Police Dep’t v.
Coregis Ins. Co., 256 P.3d 958, 963-64 (Nev. 2011)(explaining
that the no-prejudice rule was abrogated by regulation); N.Y.
Ins. Law § 3420(a)(5) (providing that “failure to give any notice
required . . . shall not invalidate any claim made by the insured
. . . unless the failure to provide timely notice has prejudiced
the insurer”); Friedland v. Travelers Indem. Co., 105 P.3d 639,
644-49 (Colo. 2005)(overruling prior caselaw establishing noprejudice rule). Idaho, by contrast, has not enacted any state
statutes or regulations that would require a showing of
prejudice, nor has the Idaho Supreme Court overruled Viani.

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entitled to ensure that it has the opportunity to investigate and

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examine all matters relevant to determining coverage.

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The rule the court announced protects insurers in that it “not

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only recognizes the legitimate business interests of insurers but

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it also recognizes, and gives effect to, the express provisions

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of the insurance contract which we are admonished to do by

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statute.”

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hand, by requiring notice only within a “reasonable time,” the

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rule also provides insureds with some leeway because it “allows

Id. at 30 (citing Idaho Code § 41-1822).

Id. at 29.

On the other

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the insured opportunity to offer various excuses for non-

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compliance as well as a factual determination as to whether

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notice was given ‘as soon as practical’ or ‘immediately’

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depending on the specific language of the condition.”

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Therefore, while prejudice to the insurer is immaterial under

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Idaho law, to prevail on its motion for summary judgment, Oregon

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Mutual still must demonstrate that the undisputed facts show as a

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matter of law that plaintiff violated the prompt notice

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requirement of the policy.

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Id.

Unfortunately, the case most on point here, Sparks v.

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Transamerica Ins. Co.,

No. 96-36110, 1998 WL 166282 (9th Cir.

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Apr. 6, 1998), is an unpublished Ninth Circuit case that this

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court cannot rely on under the rules of the Ninth Circuit, 9th

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Cir. Rule 36-3.

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policies with the insurer that required the insured to notify the

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insurer “immediately” of any “claim . . . or suit.”

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WL 166282, at *2.

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years before notifying his insurer that he had received a letter

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from the Environmental Protection Agency (“EPA”) naming him as a

In that case, the insured held general liability

Sparks, 1998

The insured, however, delayed for over two

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potentially responsible party under the Comprehensive

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Environmental Response, Compensation, and Liability Act.

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*1.

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Id. at

Citing Viani, the Ninth Circuit in Sparks held that “a

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showing of prejudice is not required [under Idaho law] where an

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insured breaches a notice provision of the policy,” without

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making any distinction between late notice and total lack of

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notice or discussing how it made the factual determination that

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the insured’s notice was not in compliance with the terms of his

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insurance policy beyond observing that a “two-year delay in

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notifying [the insurer] of the initial EPA letter failed to

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satisfy the notice condition.”

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affirmed the district court’s conclusion that a delay of almost

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two years was sufficient as a matter of law to release the

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insurer from liability.

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Ninth Circuit precedent, Sparks would lead to the inescapable

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conclusion that plaintiff’s late notice was fatal to his attempt

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to recover under the policy.

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Id.

Id. at *3-4.

The court then

Were the court bound to follow this

Because the court cannot rely on Sparks, however, the

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court must look to other cases.

Both parties attempt to rely on

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Axis Surplus Insurance Co.

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district of Idaho found that an insurer who failed to notify his

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insurer of damage to a retaining wall for almost a year, during

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which time he tore down the damaged portion of the wall and

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installed a new one, had not complied with the notice

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requirements of the insurance policy.

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2008 U.S. Dist. LEXIS 69020, at *6.

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Idaho law, “[p]rejudice to the insurer is not material” to the

In that case, Judge Windmill of the

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Axis Surplus Ins. Co.,

The court stated that under

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question of whether the insured’s failure to comply with the

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notice provision excused the insurer’s performance under the

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policy.

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Id. at *7.3
The parties agree that plaintiff first provided Oregon

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Mutual with notice of his accident and claim fifteen months after

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the accident occurred and nine months after he discovered he had

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been injured in the accident.

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was still prompt because he notified Oregon Mutual as soon he

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discovered that he had an underinsured motorist claim with Oregon

Plaintiff argues that his notice

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Mutual.

(Hoffman Aff. ¶¶ 15-16.)

He explains that he initially

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believed that the accident had only caused damage to the car he

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was driving, and that even once he realized that he had medical

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damages, he did not realize that Fabello’s Farm Bureau policy

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would not cover all of his medical expenses.

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was not until he learned that Fabello’s policy had a limit of

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$25,000, less than his medical expenses, that he realized that

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Oregon Mutual might be required to cover the additional expenses

(Id. ¶¶ 5-12.)

It

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Both parties additionally cite Blue Cross of Idaho
Health Service, Inc. v. Atlantic Mutual Insurance Co., No.
1:09-CV-246-CWD, 2011 U.S. Dist. LEXIS 4892 (D. Idaho Jan. 19,
2011). In that case, the court stated that while a complete or
late failure to comply with a notice provision may “provide[]
grounds upon which an insurer can refuse to honor its . . . duty
to indemnify,” “an insurer may be estopped from relying on a
policy defense such as late notice or waive[] its right to do
so.” Id. at *46. Because the court found that by its conduct,
the insurer had waived its right to assert late notice as a
defense to its duty to indemnify, and “also [was] estopped from
relying on the policy defense of late notice,” the court
explicitly declined to reach the issue of prejudice with respect
to plaintiff’s late notice, although it noted that it might
ultimately be relevant to the separate bad faith claim. Id. at
*46 n.15. It also did not address the question whether
plaintiff’s six-month delay before providing notice of suit was
in fact a violation of the notice requirement of the policy in
question.
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under his underinsured motorist policy.

(Id. ¶ 12.)

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realization, he immediately contacted Oregon Mutual.

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Upon that

16.)

(Id. ¶¶ 15-

Whether notice is prompt in accordance with the terms

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of the policy is a question of fact.

Viani, 95 Idaho at 30.

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Because plaintiff contacted Oregon Mutual before entering into a

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settlement with Farm Bureau, the facts in this situation are

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unlike those in Viani, where notice of the suit was not given to

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the insurer until after judgment was entered.

Id. at 26.

They

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are also unlike the facts in Axis, where the plaintiff completely

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replaced his damaged property before notifying his insurance

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company.

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Viani, the judges were able to hold as a matter of law that the

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plaintiffs had not complied with the notice provisions of their

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policies because no meaningful notice ever occurred.

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the case here.

Axis, 2008 U.S. Dist. LEXIS 69020, at *7.

In Axis and

That is not

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Plaintiff has introduced facts which viewed in the

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light most favorable to him suggest that he contacted Oregon

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Mutual as soon as he realized that he had a claim under his

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underinsured motorist provision.

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in accordance with the language of his policy is a question of

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fact that must be decided by a jury.

Whether that notice was prompt

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Having determined that there is a genuine issue for

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trial as to whether plaintiff complied with the prompt notice

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requirement, the court must also address Oregon Mutual’s

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contention that coverage did not exist because plaintiff was not

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driving a covered vehicle at the time of the accident.

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time plaintiff initially notified Oregon Mutual of the June 2010
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At the

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accident, he could no longer remember why he had decided to drive

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his girlfriend’s vehicle that day.

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because of a problem with his car, he stated that he did not

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believe that was the case.

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informed Oregon Mutual that his girlfriend had been able to

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refresh his memory and he now remembered that he had driven her

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car because his own car had had a flat tire.

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dispositive, a reasonable jury presented with these facts could

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conclude that plaintiff was driving a covered vehicle at the time

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When asked if it was perhaps

However, several days later, he

While not

of the accident.
There is at least a genuine issue for trial as to

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whether he complied with the policy’s prompt notice requirement

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and whether coverage existed.

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grant summary judgment on the breach of contract claim.

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B.

Accordingly, the court may not

Breach of the Implied Covenant of Good Faith and
Fair Dealing and Insurance Bad Faith

At oral argument, plaintiff confirmed his intention to

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dismiss his claims for breach of the implied covenant of good

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faith and fair dealing and for insurance bad faith tort.

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also Opposition at 18 n.3 (“Dr. Hoffman will not pursue a cause

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of action for the breach of the implied covenant of good faith

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and fair dealing or the insurance bad faith tort.”).)

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Accordingly, the court will grant defendant’s motion for summary

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judgment as to these claims.

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(See

IT IS THEREFORE ORDERED that defendant’s motion for

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summary judgment be, and the same hereby is, DENIED as to

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plaintiff’s claim for breach of contract.

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IT IS FURTHER ORDERED that defendant’s motion for
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summary judgment be, and the same hereby is, GRANTED as to

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plaintiff’s claims for breach of the implied covenant of good

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faith and fair dealing and insurance bad faith tort.

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DATED: May 29, 2012

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