Ark. Valley Drilling Inc v. Cont'l Western Ins. Co.

• Decision Date: 29 March 2010
• Docket Number: Civil Case No. 09-cv-00546-REB-MEH.
• Citation: 703 F.Supp.2d 1232
• Parties: ARKANSAS VALLEY DRILLING, INC., a Colorado corporation, Plaintiff,v.CONTINENTAL WESTERN INSURANCE COMPANY, an Iowa corporation, Defendant.
• Court: U.S. District Court — District of Colorado

703 F.Supp.2d 1232

ARKANSAS VALLEY DRILLING, INC., a Colorado corporation, Plaintiff,v.CONTINENTAL WESTERN INSURANCE COMPANY, an Iowa corporation, Defendant.

Civil Case No. 09-cv-00546-REB-MEH.

United States District Court D. Colorado.

March 29, 2010.

COPYRIGHT MATERIAL OMITTED

Donald W. Belveal, Belveal Eigel Rumans & Fredrickson, LLC, Canon City, CO, Tracy Marie Rumans, Belveal Eigel Rumans & Fredrickson, LLC, Colorado Springs, CO, for Plaintiff.

Brian John Spano, Hilary Dawn Wells, Joshua Fredrick Bugos, Rothgerber Johnson & Lyons, LLP, Denver, CO, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

BLACKBURN, J.

This matter is before me on the Defendant's Motion for Summary Judgment and Memorandum Brief in Support Thereof [# 14] ¹ filed June 8, 2009. The plaintiff filed a response [# 16] and the defendant filed a reply [# 17]. I grant the motion.²

I. JURISDICTION & CONTROLLING LAW

I have jurisdiction over this case under 28 U.S.C. § 1332 (diversity). The plaintiff asserts claims under the law of the state of Colorado. Colorado law controls the resolution of the substantive issues in this diversity case. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Royal Maccabees Life Insurance Co. v. Choren, 393 F.3d 1175, 1180 (10th Cir.2005). Federal law controls procedural issues. See, e.g., Sims v. Great American Life Ins. Co., 469 F.3d 870, 877 (10th Cir.2006).

II. STANDARD OF REVIEW

Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is “genuine” if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Farthing v. City of Shawnee, 39 F.3d 1131, 1135 (10th Cir.1994). A fact is “material” if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Farthing, 39 F.3d at 1134.

A party who does not have the burden of proof at trial must show the absence of a genuine fact issue. Concrete Works of Colorado, Inc. v. City & County of Denver, 36 F.3d 1513, 1517 (10th Cir.1994) cert. denied, 514 U.S. 1004, 115 S.Ct. 1315, 131 L.Ed.2d 196 (1995). Once the motion has been properly supported, the burden shifts to the nonmovant to show, by tendering depositions, affidavits, and other competent evidence, that summary judgment is not proper. Concrete Works, 36 F.3d at 1518. All the evidence must be viewed in the light most favorable to the party opposing the motion. Simms v. Oklahoma ex rel. Department of Mental Health and Substance Abuse Services, 165 F.3d 1321, 1326 (10th Cir.) cert. denied, 528 U.S. 815, 120 S.Ct. 53, 145 L.Ed.2d 46 (1999). However, conclusory statements and testimony based merely on conjecture or subjective belief are not competent summary judgment evidence. Rice v. United States, 166 F.3d 1088, 1092 (10th Cir.) cert. denied, 528 U.S. 933, 120 S.Ct. 334, 145 L.Ed.2d 260 (1999); Nutting v. RAM Southwest, Inc., 106 F.Supp.2d 1121, 1123 (D.Colo.2000).

III. FACTS

The parties filed a stipulation [# 13] of undisputed facts relevant to the defendant's motion for summary judgment. This statement of facts is drawn from the stipulation. Plaintiff, Arkansas Valley Drilling, Inc., is the owner of certain real property located at 125 Deckers Drive, Penrose, Colorado (the Property). The Property consists of a 5,500 square feet metal building which is built on top of a concrete slab-on-grade floor. Defendant, Continental Western Insurance Company, issued to Arkansas Valley policy no CWP 2575456-22, effective June 1, 2006 through June 1, 2007 (the Policy). A copy of the Policy is attached to the stipulation as exhibit 1. The Policy covers the Property. This case presents a dispute about the scope of the coverage for a certain loss under the Policy.

A. ARKANSAS VALLEY'S LOSSES & CLAIMS

On or about January 6, 2007, Arkansas Valley submitted its first claim, no. 10086438, to Continental Western for damage to an office area at the Property resulting from the rupture of an indoor frozen pipe located in the northwest corner of the first floor of the Property. Stipulation [# 13], Exhibit 2 (First Notice of Loss). Continental Western adjusted and paid Arkansas Valley $11,844.35 for this claim.

On or about January 19, 2007, Arkansas Valley notified Continental Western of a second claim, no. 10100780, that occurred when an underground water pipe ruptured, causing sinking and heaving of the concrete slab-on-grade floor at the property. Arkansas Valley submitted a Second Notice of Loss that indicates “while doing repairs a break in the water main was discovered it (sic) was determined it had been leaking for months causing damage in the foundation.” Stipulation [# 13], Exhibit 3 (Second Notice of Loss).

Arkansas Valley theorizes that the soil under the building's concrete slab-on-grade floor was saturated by water that escaped from the indoor frozen pipe that ruptured in the building's first floor office on January 6, 2007. Arkansas Valley theorizes further that the water below the surface of the ground that emanated from the indoor frozen pipe, underwent a cycle of freezing and thawing, and that the contraction and expansion associated with the freezing and thawing cycle exerted pressure on the underground water pipe, thereby causing the underground pipe to break, resulting in the second loss reported on January 19, 2007. For the purpose of its motion for summary judgment only, Continental Western accepts as undisputed Arkansas Valley's theories about the sequence of causative events that led to the second loss. By letter, dated August 21, 2007, Continental Western denied coverage for Arkansas Valley's second claim, citing the Policy's exclusions.

B. RELEVANT POLICY PROVISIONS

The Policy provides replacement cost coverage for the Property, subject to certain limitations and exclusions, up to the Policy's limit of $537,000. The Policy provides:

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

Stipulation [# 13], Exhibit 1 (Policy) at POL 000020.

Paragraph 2 of the Building and Personal Property Coverage Form excludes certain property from the definition of Covered Property under the Policy. The Form provides, in pertinent Part:

Covered Property does not include:

* * * * * *

m. Underground pipes, flues or drains....

Policy at POL 000021.

In addition, the Policy contains certain exclusions. The Commercial Property Causes of Loss-Special Form provides, in pertinent part:

B. Exclusions

* * * * * *

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other causes or event that contributes concurrently or in any sequence to the loss.

* * * * * *

b. Earth Movement

(1) Earthquake, including any earth sinking, rising or shifting related to such event;

(2) Landslide, including any earth sinking, rising or shifting related to such event;

(3) Mine subsidence, meaning subsidence of a man-made mine, whether or not mining activity has ceased;

(4) Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.

But if Earth Movement, as described in b.(1) through (4) above, results in fire or explosion, we will pay for the loss or damage caused by that fire or explosion.

* * * * * *

g. Water

(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;

(2) Mudslide or mudflow;

(3) Water that backs up or overflows from a sewer, drain or sump; or

(4) Water under the ground surface pressing on, or flowing or seeping through:

(a) Foundations, walls, floors or paved surfaces;

(b) Basements, whether paved or not; or

(c) Doors, windows or other openings....

But if Water, as described in g.(1) through g.(4) above, results in fire, explosion or sprinkler leakage, we will pay for the loss of damage caused by that fire, explosion or sprinkler leakage.

2. We will not pay for any loss or damage caused by or resulting from any of the following:

* * * * * *

d.(4) Settling, cracking, shrinking or expansion;

* * * * * *

f. Continuous or repeated seepage or leakage of water, or the presence of condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more.

Policy at POL 000036-POL 000038.

In its Complaint [# 1-5], Arkansas Valley asserts three claims for relief. First, Arkansas Valley seeks a declaratory judgment under § 13-51-105, C.R.S., and C.R.C.P. 57, declaring that the Policy provides coverage for the losses claimed in the Second Notice of Loss. Second, Arkansas Valley asserts a claim for breach of contract, alleging that Continental Western breached its contract i.e., the Policy, with Arkansas Valley when Continental Western refused to provide coverage for the losses claimed in the Second Notice of Loss. Third, Arkansas Valley asserts a claim for bad faith breach of insurance contract. Continental Western seeks summary judgment on all three claims.

IV. INTERPRETATION OF INSURANCE CONTRACTS

This case hinges on an interpretation of the Policy. In this diversity action, Colorado law provides the principles by which the Policy must be interpreted. Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287 (10th Cir.2006). Under Colorado law, insurance contracts are to be construed in accordance with the general laws of...