Dupre v. Allstate Ins. Co.

• Decision Date: 06 June 2002
• Docket Number: No. 01CA0630.,01CA0630.
• Citation: 62 P.3d 1024
• Parties: Faith DUPRE, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.
• Court: Colorado Court of Appeals

62 P.3d 1024

Faith DUPRE, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.

No. 01CA0630.

Colorado Court of Appeals, Div. III.

June 6, 2002.

Certiorari Denied February 10, 2003.

Elder & Phillips, P.C., Keith Boughton, Grand Junction, Colorado, for Plaintiff-Appellant.

Harris, Karstaedt, Jamison & Powers, P.C., Susan M. Stamm, Englewood, Colorado, for Defendant-Appellee.

Opinion by Judge DAVIDSON.

In this fire insurance case, plaintiff, Faith Dupre, appeals from the trial court judgment determining that the policy on her house issued by defendant, Allstate Insurance Company, precluded coverage for the increased cost of repairs to comply with current building codes. We reverse and remand.

In January 1997, plaintiff purchased an insurance policy with a limit of $100,431 on a ninety-one-year-old house. The house was used as a rental property, but plaintiff planned to occupy it herself beginning sometime in 1998. In September 1997, a fire in the enclosed rear porch caused smoke and fire damage to portions of the house. The tenants apparently had vacated the house some days before the fire.

Defendant's adjuster contacted a builder, who quoted an estimated cost of $60,680.68 to repair the house to its prefire condition. Plaintiff and defendant's claims representative "talked through" calculations based on the estimate and policy coverage, and based on those calculations, plaintiff submitted a proof of loss for $60,932.30 in November 1997. Applying deductions for depreciation, defendant paid plaintiff $36,493.95, representing the "actual cash value" of plaintiff's losses. Defendant withheld the amount representing depreciation pending actual repair or replacement of the damaged portions of the house.

In December 1997, an employee of the Mesa County Building Department and a representative of the builder providing the repair estimate conducted a walk-through of the premises. Several areas were identified in which the house did not comply with current building codes. These areas were categorized as either "fire damage — required code up date" or "non-permitted construction." Examples in the former category were items such as altering the width, pitch, and span rise of the staircase; installing top plates on bearing walls; providing egress from bedrooms damaged by fire; replacing 1×4s with 2×4s in the burned walls; bringing the burned portions of the roof up to code; and bringing all wiring in the area up to code. In the non-permitted construction category were items such as removal of the closed-in porch or bringing it up to code and replacing part of the foundation wall, which had been knocked out to allow access to the sewer line.

Plaintiff was informed that, to receive the necessary permits, any repairs would need to comply with the building codes and that she would not be permitted merely to restore the damaged parts of her house to their former specifications. Plaintiff had filed her proof of loss before she was aware of the upgrade issues, and she notified defendant in December 1997 of the required upgrades. Defendant informed her that there was no coverage for code upgrades. Plaintiff received the same response after she mailed the report of required upgrades to defendant in January 1998.

In May 1998, plaintiff decided to purchase a modular home to place on the property rather than rebuild the damaged house to code at her own expense. The purchase price of the modular home was $47,733.22, and plaintiff informed defendant that additional expenditures were necessary to install the home. Defendant paid plaintiff the $23,932.35 it had been holding for depreciation and for the costs of boarding up the damaged house, which was later condemned. Plaintiff's insurance agent called defendant approximately one week later to relay plaintiff's concerns that she should receive additional compensation, and defendant informed the agent that the policy did not cover building code upgrades.

Subsequently, plaintiff hired an attorney. She questioned defendant's payment calculations, alleging that the policy required defendant to pay the cost of bringing the damaged house up to code because the need for such repairs was caused directly by the fire. Plaintiff made a demand for payment in the amount of the policy limit, which defendant refused, and plaintiff then brought this action for breach of contract and bad faith breach of insurance contract.

Defendant moved for summary judgment, arguing that the policy unambiguously excludes coverage for required building code upgrades and provides only for the cost of returning the house to its prefire condition, building code violations notwithstanding. Plaintiff filed a cross-motion for partial summary judgment, arguing that the house was a total loss because she would not be permitted to occupy it if it were repaired to its prior condition or, alternatively, that the policy language was ambiguous and should be construed in favor of coverage. The trial court agreed with defendant and granted summary judgment.

A party is entitled to summary judgment only upon demonstrating that there is no genuine issue of material fact and that the party is entitled to judgment as a matter of law. See C.R.C.P. 56(c); Churchey v. Adolph Coors Co., 759 P.2d 1336 (Colo.1988). Review of a grant of summary judgment is de novo. Aspen Wilderness Workshop, Inc. v. Colo. Water Conservation Bd., 901 P.2d 1251 (Colo.1995).

Interpretation of an insurance policy is also a question of law that is subject to de novo review, and policy language should be enforced as written if it is unambiguous. See Hyden v. Farmers Ins. Exch., 20 P.3d 1222 (Colo.App.2000). Language is ambiguous if it is susceptible of more than one reasonable interpretation, and if the policy language is ambiguous or inconsistent, it must be construed against the insurer and in favor of coverage. See Union Ins. Co. v. Houtz, 883 P.2d 1057 (Colo.1994).

"Exclusionary language that conflicts with the objectively reasonable expectations of the insured is not enforceable, even if a `painstaking study of the policy provisions would have negated those expectations.'" Tepe v. Rocky Mountain Hosp. & Med. Servs., 893 P.2d 1323, 1328 (Colo.App.1994)(quoting State Farm Mut. Auto. Ins. Co. v. Nissen, 851 P.2d 165, 168 (Colo.1993)). See also Am. Family Mut. Ins. Co. v. Johnson, 816 P.2d 952, 953 (Colo.1991)("Exclusionary clauses designed to insulate particular conduct from general liability coverage provisions must be drafted in clear and specific language."). However, the doctrine of reasonable expectations will be applied only if the contract is ambiguous. See Pub. Serv. Co. v. Wallis & Cos., 986 P.2d 924 (Colo.1999); Spaur v. Allstate Ins. Co., 942 P.2d 1261, 1265 (Colo.App.1996)("[t]he doctrine of reasonable expectations supplements, but does not substitute for, the rule that insurance policies are to be considered according to well-settled principles of contract construction," and insured has duty to read policy).

The declarations page of plaintiff's policy indicates that she had special form coverage. The provision of the policy describing that type of coverage states: "We will pay for direct loss to the property described in the Dwelling Protection coverage . . . from all risks of physical loss. Specific limitations and exclusions, including any deductible shown on the declarations page, will apply."

The General Exclusions portion of the policy provides, inter alia:

We do not cover loss or damage resulting directly or indirectly from: . . . Enforcement of any ordinance or law regulating the construction, repair or demolition of dwellings. If the loss is caused by actions of a civil authority to prevent the spread of fire, we will provide coverage unless the cause of the fire loss is specifically excluded.

Under the payment provisions of the policy and an amendatory endorsement, if the insured does not repair or replace the damaged property, a deduction for depreciation will be subtracted from the amount of the loss to determine the "actual cash value." The amount to be paid for "actual cash value" is limited to the lesser of the policy limit or "the amount necessary to repair or replace the damaged property with equivalent construction for similar use on the same property."

If the insured does repair or replace the damaged property, the policy and endorsement provide for "replacement cost" coverage: "This means the cost to repair, rebuild or replace the damaged or destroyed part(s) of the building(s) without deduction for depreciation" in an amount not to exceed the smaller of the policy limit, the "replacement cost of the part(s) of the building(s) damaged or destroyed for equivalent construction for similar use on the same premises," or the actual amount expended to repair or replace the property with "equivalent construction for similar use on the same premises."

I.

We first reject defendant's contention that plaintiff's contract action is barred by the language of the policy providing, "No suit or actions may be brought against [insurer] unless there has been full compliance with all the terms of this policy. Any suit or action must be brought within one year after the loss." This argument was raised in the trial court, but was not referenced in the trial court's order, which implicitly ruled that plaintiff's action could be considered on the merits. Presumably, the trial court accepted plaintiff's contention that material questions of fact remained as to whether defendant should be estopped by its actions from relying on the one-year limitations period. We find no error.

Initially, we note that the limitations provision is applicable, if at all, only to the contract action and not to the bad faith tort action. See Emenyonu v. State Farm Fire & Cas. Co., 885 P.2d 320 (Colo.App.1994).

Additionally, the duty of good faith owed by the insurer to the insured requires that it not act to prevent the occurrence of...