8665 North Cove v. American Family Mutual Insurance

Filing 48

MEMORANDUM DECISION AND ORDER granting 30 Motion for Summary Judgment. Case Closed. Magistrate Judge Brooke C. Wells no longer assigned to case. Signed by Judge Dale A. Kimball on 6/19/14. (jlw)

______________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

8665 NORTH COVE, LLC,
Plaintiff,

MEMORANDUM DECISION
AND ORDER

vs.
Case No. 2:12CV237DAK
AMERICAN FAMILY MUTUAL
INSURANCE COMPANY,

Judge Dale A. Kimball

Defendant.

This matter is before the court on Defendant American Family Mutual Insurance
Company’s Motion for Summary Judgment. On May 29, 2014, the court held a hearing on the
motion. At the hearing, Plaintiff was represented by John W. Holt and Defendant was
represented by Sadé A. Turner. The court took the motion under advisement. The court has
carefully considered all pleadings, memoranda, and other materials submitted by the parties. The
court has further considered the law and facts relevant to the parties’ motions. Now being fully
advised, the court enters the following Memorandum Decision and Order.
BACKGROUND
8665 North Cove LLC (“North Cove”) brought this case alleging a breach of contract
relating to insurance coverage for alleged damage to a home located at 8665 North Cove (“the
Property”). North Cove owns the property and has a Homeowners insurance policy (“the
Policy”) on the Property with Defendant American Family Insurance. The named insureds under

the Policy are John and Heidi Carnesale.
On or about August 30, 2007, North Cove entered into a contract with S&S Roofing, Inc.
to install a roof on the Property. S&S performed roofing work on the Property in 2008. In the
spring of 2008, before S&S completed performance of its construction work, Carnesale
discovered that problems with the construction were causing water leakage and resulting damage
to his home.
As a result of the alleged damage, in April 2009, North Cove brought counterclaims
against S&S, alleging defective construction (“S&S Suit”). S&S had initiated the lawsuit
seeking compensation for the work it performed on the Property. In February 2013, S&S filed a
Rule 68 Offer of Judgment in the amount of $30,000.00 and gave North Cove ten days to accept
the offer. North Cove accepted the offer, which concluded the lawsuit.
On April 7, 2011, North Cove made a claim for coverage to American Family for
coverage under the Policy for the water damage done to the Property. On May 10, 2011,
American Family denied North Cove’s claim for coverage based in part on North Cove’s failure
to comply with the terms and conditions of the Policy relating to notice. American Family also
reserved the right to deny coverage for any additional reasons that may be brought to American
Family’s attention. As a result of the denial, North Cove brought this lawsuit against American
Family on January 27, 2012.
In April 2009, Carnesale entered into an Assignment with North Cove, assigning any
claims Carnesale may have against American Family based on the Policy. American Family did
not learn of the assignment of claims until discovery in this case in July, 2012.
North Cove admits that the damages alleged in the Complaint are the result of faulty,
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inadequate, and/or defective construction, materials, design, workmanship, and/or specifications.
North Cove took the position in the S&S Suit that S&S was responsible for the damages from the
defective construction work which are now the subject of this lawsuit. Because S&S was also
insured by American Family Insurance, American Family had a duty to defend S&S in the S&S
Suit. In that case, S&S asserted that it did not provide defective workmanship. American Family
was not a party to the S&S Suit and thus could not assert a position, but it paid for S&S’s
defense.
The relevant provisions of North Cove’s Policy on the Property include an exclusion for
workmanship and a notice requirement in the event of a loss. The exclusion applies to faulty,
inadequate, or defective construction, reconstruction, repair, remodeling, renovation, design, or
workmanship. However, the exclusion has a resulting loss provision that would provide
coverage for “any resulting loss to property . . . not excluded or excepted in this policy.” The
notice requirement states that “[i]n the event of a loss to property that this insurance may cover”
the insured must “give notice as soon as reasonably possible” to American Family or its agent.
DISCUSSION
American Family seeks summary judgment on North Cove’s breach of contract, implied
covenant of good faith and fair dealing, punitive damages, and unjust enrichment claims.
1. Breach of Contract Claim
American Family seeks summary judgment on North Cove’s breach of contract, arguing
that it did not breach the Policy when it denied coverage based on the Policy’s notice provision
and the Policy’s workmanship exclusion. “A breach of express contract claim arises out of the
express terms of the contract, and the breach is proven in relation to those terms.” Christiansen
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v. Farmers Ins. Exchange, 2005 UT 21, 116 P.3d 259, 261 (Utah 2005).
A. Notice
First, American Family argues that it did not breach the Policy when it denied coverage
based on North Cove’s failure to meet the Policy’s provision regarding notice. The Policy
provides that “[i]n the event of a loss to property that this insurance may cover” the insured must
“give notice as soon as reasonably possible” to American Family or its agent.
The parties do not dispute that the alleged loss occurred in the spring of 2008. However,
the parties dispute when North Cove provided notice. On April 7, 2011, North Cove made a
claim for coverage to American Family for coverage under the Policy for the water damage done
to the Property. While the official written notice occurred in April 2011, American Family’s
agent, Jordan Mehl, testified that his records showed that he received notice of the loss on
December 16, 2010.
North Cove, however, claims that American Family received notice of the loss even
earlier because it would have received notice of the potential loss through its defense of S&S in
the S&S Suit, which began in April 2009. Although North Cove attempts to argue that the S&S
Suit was a type of constructive notice to American Family, the S&S Suit would not provide
American Family with notice that North Cove planned to seek coverage for the damages under
its policy with American Family. The S&S Suit only provided American Family with notice of
the dispute between S&S and North Cove. Throughout the briefing, North Cove attempts to treat
American Family as the same party as S&S based on the S&S Suit. However, American Family
was not a party in that lawsuit and its interests were not represented in that lawsuit. The S&S
Suit was between S&S and North Cove. While American Family paid for S&S’s defense
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pursuant to an insurance policy, American Family’s interests were not being represented.
Counsel for S&S was acting only in S&S’s interest. Moreover, S&S’s duty to indemnify S&S
under its policy would focus on S&S’s policy, not North Cove’s policy. There is no basis for
concluding that American Family’s involvement in defending S&S in the S&S Suit would
provide American Family with notice that North Cove would make a claim against its own
insurance policy based on the loss. Therefore, the earliest possible notice was December 16,
2010, when American Family’s agent received notice of the loss.
North Cove also argues that a reasonable amount of time should not be determined as a
matter of law by the court. The Policy provides no specific time limit, only that notice of loss be
given “as soon as reasonably possible.” North Cove contends that a determination of what was
reasonable does not lend itself to a determination as a matter of law. American Family agrees
that reasonableness may generally be a question of fact, but it asserts that what constitutes
“giving notice as soon as reasonably possible” under the Policy can be determined as a matter of
law in this case. Moreover, the question of whether there is coverage under an insurance contract
is a question of law. S.W. Energy Corp. v. Cont’l Ins., 974 P.2d 1239, 1242 (Utah 1999).
Under Utah law, “failure to give any notice or file any proof of loss required by the policy
within the time specified in the policy does not invalidate a claim made by the insured, if the
insured shows that it was not reasonably possible to give the notice or file the proof of loss
within the prescribed time and that notice was given or proof of loss filed as soon as reasonably
possible.” Utah Transit Auth. v. Liberty Mut. Ins., 2006 U.S. Dist. LEXIS 76694, *16 (D. Utah
2006). The court determined that an insurer is prejudiced by an untimely claim when it does not
have an opportunity to investigate a current claim, participate in replacement decisions, or defend
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its position against the loss. Id. at 20.
In this case, North Cove did not report a claim for loss under the Policy for over two and
a half years after its alleged loss. North Cove brought legal counterclaims against S&S for these
alleged damages in April 2009 but chose not to make a claim on the Policy until almost two years
later. North Cove has not presented any evidence explaining why it waited over two years to
make a claim for the alleged loss. North Cove also made substantial repairs to the property prior
to providing notice. By the time North Cove made the claim under the Policy, North Cove had
replaced and repaired the allegedly damaged property, depriving American Family of the
opportunity to examine the alleged damages, investigate the damage properly, or to participate in
any repair decisions. Despite North Cove’s assertions to the contrary, this constitutes prejudice.
North Cove further argues that it paid insurance premiums in good faith to assure that it
had coverage for the Property and it is entitled to the broadest protection reasonably understood
to be provided by the Policy. North Cove relies on case law stating that “Utah law prevents an
insurance company from relying on certain technical policy breaches as a basis for denying
coverage.” State Farm Mut. Auto Ins. v. Green, 89 P.3d 97, 104 (Utah 2003). This case law
would be applicable if an insurance company denied a claim when the delay was minor and there
was no prejudice. However, the court finds it inapplicable to the factual circumstances in this
case. North Cove’s significant and prejudicial delay in making a claim was not merely a
technical policy breach.
The court concludes that North Cove’s delay in making a claim bars coverage under the
Policy for the claimed damages. North Cove’s claim did not meet the Policy requirement to
provide notice in the event of a loss as soon as reasonably possible. Based on North Cove’s
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prolonged delay in reporting the claim, and its prejudicial actions prior to making the claim, the
court concludes that there is no coverage under the Policy. Accordingly, American Family did
not breach the Policy when it denied coverage based on the notice provision. The court,
therefore, grants American Family summary judgment on North Cove’s breach of contract cause
of action.
B. Workmanship Exclusion
Because of the court’s decision granting summary judgment on the notice provision, the
court need not address American Family’s separate basis for summary judgment under the
Policy’s workmanship exclusion.
2. Implied Covenant of Good Faith and Fair Dealing
American Family also seeks summary judgment on North Cove’s claim for breach of the
implied covenant of good faith and fair dealing. Based on the court’s ruling above regarding the
Policy’s notice requirement, American Family could not have breached the implied covenant of
good faith and fair dealing because the undisputed facts show that North Cove’s claim for
coverage was precluded by the Policy. In first-party insurance claims, the Utah Supreme Court
has explained the “implied covenant of good faith performance contemplates, at the very least,
that the insurer will diligently investigate the facts to enable it to determine whether a claim is
valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting
or settling the claim.” Prince v. Bear River Mut. Ins., 2002 UT 68, ¶ 27. If an insurer denies an
insured’s claim that is “fairly debatable, the insurer is entitled to debate it and cannot be held to
have breached the implied covenant if it chooses to do so.” Id. at ¶ 28.
In this case, American Family rightly denied coverage under the Policy based on North
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Cove’s delay in making the claim. Therefore, there can be no breach of the implied covenant of
good faith and fair dealing, and the court grants American Family summary judgment on this
claim.
3. Punitive Damages
American Family asserts that North Cove’s punitive damages claim is improper and must
be dismissed as a matter of law. In Utah, “the relationship between an insurer and its insured in
the first-party context is contractual rather than fiduciary.” Billings v. Union Bankers, Inc. Co.,
918 P2d 461, 464-65 (Utah 1996). An alleged “breach of those implied or express duties can
give rise only to a cause of action in contract, not one in tort.” Beck v. Farmers Ins. Exchange,
701 P.2d 795, 801 (Utah 1985). “[P]unitive damages are recoverable only for torts, not for
breach of contract.” Smith v. Grand Canyon Expeditions Co., 2003 UT 57, ¶ 29m 84 P.3d 1154.
Therefore, Utah law does not allow for punitive damages in a first-party bad faith action. Any
duty American Family owed to North Cove was contractual rather than fiduciary. Accordingly,
the court grants American Family’s motion for summary judgment.
4. Unjust Enrichment
Finally, American Family argues that North Cove cannot recover under unjust enrichment
when a written contract exists between the parties. Five F, LLC v. Heritage Sav. Bank, 2003 UT
App. 373, ¶ 24, 81 P.3d 105. North Cove alleges that American Family was unjustly enriched
because it accepted insurance premiums but denied coverage under the Policy. However, the
enforceable written contract makes the claim for unjust enrichment unavailable. Therefore, the
court grants American Family’s motion for summary judgment on North Cove’s unjust
enrichment claim.
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CONCLUSION
Based on the above reasoning, American Family’s Motion for Summary Judgment is
GRANTED. Because this decision rules on all of North Cove’s claims, the Clerk of Court is
directed to close the case and enter judgment in favor of American Family.
Dated this 19th day of June, 2014.
BY THE COURT:

_______________________________
Dale A. Kimball,
United States District Judge

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