Arreguin v. Farmers Ins. Co. of Idaho

• Decision Date: 31 March 2008
• Docket Number: No. 33305.,33305.
• Citation: 180 P.3d 498,145 Idaho 459
• Parties: Miguel ARREGUIN, Plaintiff-Appellant, v. FARMERS INSURANCE COMPANY OF IDAHO, Defendant-Respondent.
• Court: Idaho Supreme Court

180 P.3d 498

145 Idaho 459

Miguel ARREGUIN, Plaintiff-Appellant, v. FARMERS INSURANCE COMPANY OF IDAHO, Defendant-Respondent.

No. 33305.

Supreme Court of Idaho, Idaho Falls, October 2007.

March 31, 2008.

Rehearing Denied April 9, 2008.

Baker & Harris, Blackfoot, for appellant. Jonathan William Harris argued.

Elam & Burke, Boise, for respondent. Jeffrey A. Thomson argued.

SUBSTITUTE OPINION.

THE PRIOR OPINION ISSUED JANUARY 31, 2008 IS HEREBY WITHDRAWN.

BURDICK, Justice.

This case arises from an unpaid claim on a homeowners insurance policy. We must decide whether an exclusionary provision in the homeowners insurance policy is ambiguous.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellant Miguel Arreguin obtained a homeowners insurance policy from Respondent Farmers Insurance Company of Idaho (Farmers). Subsequent to the issuance of the policy, an agent of Farmers inspected the property and decided a detached garage on the property, which would normally be covered under the "Separate Structure" provision, should be excluded from coverage. As a result of that affirmative action, Farmers added an "Outbuilding" exclusionary provision to the policy and sent it to Arreguin. "Outbuilding" was not defined anywhere in the policy.

Arreguin made a claim on his policy after the detached garage sustained damage from a fire. Farmers denied Arreguin's fire damage claim based on its conclusion that the detached garage was an "outbuilding" and, therefore, excluded from coverage under the policy.

Prior to the claim for fire damage, Arreguin made a claim for wind damage to the same detached garage. Though Farmers first denied the claim as to the structural damage based on the "Outbuildings" exclusionary provision, it ultimately covered the damage.

Arreguin sued Farmers for breach of contract and insurance bad faith for failure to pay for the structural damage to the garage caused by the fire. The district court granted Farmers's motion for summary judgment. Arreguin timely appealed to this Court.

II. STANDARD OF REVIEW

When reviewing a district court's grant of summary judgment, this Court uses the same standard a district court uses when it rules on a summary judgment motion. Jordan v. Beeks, 135 Idaho 586, 589, 21 P.3d 908, 911 (2001). Summary judgment shall be rendered when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." I.R.C.P. 56(c). This Court will liberally construe the record in favor of the party opposing the motion for summary judgment and will draw all reasonable inferences and conclusions in favor of that party. Farmers Ins. Co. of Idaho v. Talbot, 133 Idaho 428, 431, 987 P.2d 1043, 1046 (1999).

"When interpreting insurance policies, this Court applies the general rules of contract law subject to certain special canons of construction." Clark v. Prudential Prop. & Cas. Ins. Co., 138 Idaho 538, 540, 66 P.3d 242, 244 (2003). "The general rule is that, because insurance contracts are adhesion contracts, typically not subject to negotiation between the parties, any ambiguity that exists in the contract `must be construed most strongly against the insurer.'" Talbot, 133 Idaho at 432, 987 P.2d at 1047 (quoting Mut. of Enumclaw Ins. Co. v. Roberts, 128 Idaho 232, 235, 912 P.2d 119, 122 (1996)). Whether an insurance policy is ambiguous is a question of law over which we exercise free review. Id.

III. ANALYSIS

Arreguin argues the "Outbuildings" exclusion in his homeowners insurance policy is ambiguous and, therefore, cannot be a basis for denial of coverage for the damage to the detached garage. Farmers argues the "Outbuildings" exclusion is unambiguous and that in any case Arreguin had notice the detached garage was an "outbuilding." Finally, both parties assert they are entitled to an award of attorney fees on appeal. Each issue is addressed in turn.

A. The "Outbuildings" exclusionary provision is ambiguous.

Both parties agree that the detached garage is a "separate structure" within the meaning of the contract. However, Farmers denied coverage for the fire damage to the garage because it read the "Outbuildings" exclusionary provision to include the detached garage. Arreguin argues the "Outbuildings" exclusion is ambiguous and thus cannot be used to deny him coverage for the fire damage.

When we determine whether a policy is ambiguous we ask "whether the policy `is reasonably subject to conflicting interpretation.'" Talbot, 133 Idaho at 432, 987 P.2d at 1047 (quoting Mut. of Enumclaw v. Box, 127 Idaho 851, 853, 908 P.2d 153, 155 (1995) (quoting City of Boise v. Planet Ins. Co., 126 Idaho 51, 55, 878 P.2d 750, 754 (1994))). A provision that seeks to exclude the insurer's coverage must be strictly construed in favor of the insured. Moss v. Mid-America Fire & Marine Ins. Co., 103 Idaho 298, 300, 647 P.2d 754, 756 (1982). The "burden is on the insurer to use clear and precise language if it wishes to restrict the scope of its coverage." Id.

The insurance contract provides:

Coverage B — Separate Structures

We cover other structures on the residence premises separated from the dwelling, or connected to the dwelling by only a fence, utility line, sidewalk, driveway, patio or similar connection.

Wall-to-wall carpeting attached to the structure is part of the structure.

We do not cover land or the value of land, including land on which the separate structure is located or the cost to restore, replace, repair or rebuild land. If a covered loss causes damage to a separate structure and to the land on the residence premises, we do not cover any increased cost to repair or rebuild the separate structure because of damage to the land. We do not cover separate structures which are intended for use in business or which are actually used in whole or in part for business purposes.

* * *

RESTRICTIVE ENDORSEMENT

We agree not to cancel this policy for 30 days from the date shown above. You and we agree that this policy does not cover loss by/to:

1. ALL OUTBUILDINGS.

. . .

This endorsement is part of your policy. It supersedes and controls anything to the contrary. It is otherwise subject to all other terms of the policy.

(Emphasis in original).

An insurance policy is ambiguous when it is reasonably subject to differing interpretations. Armstrong v. Farmers Ins. Co. of Idaho, 143 Idaho 135, 137, 139 P.3d 737, 739 (2006). "Outbuildings" is not defined anywhere in the contract. Here "outbuildings" is reasonably subject to at least two differing interpretations and thus is ambiguous.¹ Its definition may reasonably encompass all structures on the property, including all the described structures under "separate structures" as well as attached structures to the dwelling.² Another reasonable definition might encompass only those structures within the definition of "separate structures."

Farmers cites various "outbuilding" definitions in an attempt to show that all definitions of "outbuildings" include a detached garage. These various definitions demonstrate that "outbuildings" is not necessarily subject to a single reasonable definition. For instance, one source defines "outbuilding" to include buildings both adjoining to and separate from the dwelling, and a different source defines "outbuilding" only as a detached building. Furthermore, during oral argument, Farmers was unable to say whether the pump house on Arreguin's property would qualify as an "outbuilding." An additional indication of ambiguity in this particular contract is that it defines many terms such as: aircraft, occurrence, residence premises, and water, but does not define "outbuilding" anywhere in the contract. See Moss, 103 Idaho at 301, 647 P.2d at 757 (noting that an indication of vagueness and ambiguity of the undefined terms in question was that more than forty terms were defined in the policy and thus address questions the insured might have about coverage).

Furthermore, a provision excluding coverage is strictly construed in favor of the insured and the insurer has the burden to use clear and precise language if it is restricting the scope of its coverage. Moss, 103 Idaho at 300, 647 P.2d at 756. "[E]xclusions not stated with specificity will not be presumed or inferred." Clark, 138 Idaho at 541, 66 P.3d at 245. If Farmers intended the "Outbuildings" provision to exclude coverage for the detached garage it could have simply used the word "garage" or similar clear and precise language to that used when it defined the "separate structures" covered under the contract.

Additionally, the fact that the policy's other exclusions use clear and precise language and indicate to which part of the policy coverage they correspond, further bolsters our conclusion that the "Outbuildings" exclusion is ambiguous. For example, the "Sewer and Drain Water Damage Coverage Endorsement" specifically articulates that it applies to the coverage extended under: Coverage A — Dwelling, Coverage B — Separate Structures, and Coverage C — Personal Property. Contrarily, the "Outbuildings provision" lacks a reference to any portion of the existing contract and instead it is left to the imagination of the insured as to what the exclusion applies to with only the aid of the additional unspecific language that the exclusion "supersedes and controls anything to the contrary."

We are compelled to strictly construe the exclusionary provision in favor of the insured and the insurance company bears the burden to use clear and precise language when restricting the scope of coverage. Moss, 103 Idaho at 300, 647 P.2d at 756. It is unclear whether "outbuildings" covers the buildings defined in separate structures or the attached structures defined under dwelling. Unlike the other clear and detailed exclusionary provisions, the "Outbuildings" provision fails to reference any other part of the contract. Therefore,...