Fava v. Liberty Mut. Ins. Corp.

Decision Date10 October 2018
Docket NumberNo. 17cv00456 WJ/LF,17cv00456 WJ/LF
Citation338 F.Supp.3d 1217
Parties Hector FAVA and Barbara Fava, Plaintiffs, v. LIBERTY MUTUAL INSURANCE CORPORATION, Defendant.
CourtU.S. District Court — District of New Mexico

Duff H. Westbrook, Brian L. Moore, Sanders and Westbrook, P.C., Albuquerque, NM, for Plaintiffs.

Meena H. Allen, Allen Law Firm, LLC, Albuquerque, NM, for Defendant.



THIS MATTER comes before the Court upon a Motion for Summary Judgment Regarding Plaintiffs' Emotional Injury Claims and Damages, filed by Defendant Liberty Insurance Corporation ("Liberty" or "Defendant") on June 1, 2018 (Doc. 66) . Having reviewed the parties' briefs and the applicable law, the Court finds that Defendant's motion is well-taken and, therefore, is granted.


In this motion, which is one of several pending in this case, Liberty seeks summary judgment with respect to Plaintiffs' claims for emotional injury claims and damages. The lawsuit arises out of Plaintiffs' claims for damages under a Homeowners Policy ("Policy") issued by Liberty to Mr. Fava. Mr. and Mrs. Fava ("Plaintiffs" or the "Favas") allege property damages to their home stemming from a water leak under their home. Plaintiffs filed the Complaint on July 29, 2016 in the Second Judicial District Court, County of Bernalillo, and Liberty removed the case to federal court under diversity jurisdiction on April 17, 2017. The Complaint asserts four claims for relief against Defendant:

Count I: Breach of Contract and the Covenant of Good Faith and Fair Dealing;
Count II: Violation of Unfair Practices Act;
Count III: Violation of New Mexico Insurance Code; and
Count IV: Negligence.

Defendant moves for summary judgment on Plaintiffs' claims for emotional injury and damages. Defendant argues that emotional distress damages are not recoverable in New Mexico on a breach of contract claim, particularly where such damages allegedly arise from non-intentional property damage.

I. Relevant Facts1

Defendant issued a "LibertyGuard Deluxe" Homeowner's Insurance Policy to Plaintiffs for the policy period of February 10, 2015-February 10, 2016, bearing policy number H37-298-592225-40, insuring Plaintiffs' Albuquerque residence located at 4203 Prince Street SE, Albuquerque, NM 87105.

According to the Complaint, on August 18, 2015, a pipe in the crawlspace underneath Plaintiffs' home burst, flooding the home's crawlspace with several inches of standing water. Plaintiffs took action to stop the leak and report the incident to Plaintiffs' insurer, Liberty. The water from the burst pipe caused the floor in Plaintiffs' kitchen and living room to begin sloping downward and large cracks to form in several load-bearing walls in the home. The Favas reported the damage to Liberty. Plaintiffs assert that Liberty repeatedly denied coverage of Plaintiffs' claim based on inadequate investigations of the cause of the damage to the home as well as its misrepresentations about those investigations. Since August 2015, Plaintiffs' home has had a 10' diameter hole in the living room, made when Liberty performed its inspection of the damage to Plaintiffs' home. Plaintiffs claim that their home continues to deteriorate and they that they have been unable to use a significant portion of their home since that time because of Liberty's improper denial of coverage and mishandling of their claim. Defendant denies Plaintiffs' contentions. Following the reported water loss, Liberty retained independent adjusters to inspect the water loss and also retained an engineer to inspect the water loss and report the findings. Based on those findings and the damages associated with the water leak, Defendant claims it paid what was owed under the policy.

In their Additional Material Facts section, Plaintiffs offer language from the policy to support its claim for emotional distress damages, such as: (1) Liberty's motto in their 2012 introductory letter that reads, "Helping People Live Safe, More Secure Lives." Ex. 3; (2) Liberty letter dated Feb. 9, 2012 stating that the company was "committed to doing our best to exceed your expectations" and that it was "there to provide you with the sense of safety and security you can depend on." Id. Plaintiffs rely on this language to show that they had the reasonable expectation that their Homeowners Policy was intended to ensure their peace of mind that any claim they made would be handled fairly and paid promptly, and without misrepresentations. Defendant contends that such language is irrelevant and immaterial to the legal issue of entitlement to emotional distress damages. The Court finds this information (see Add'l Facts A-F, I, K-L) somewhat relevant to Plaintiffs' argument that the nature of Plaintiffs' contract with Liberty was of the kind where emotional distress damages were contemplated, although that argument ultimately fails.

The Court finds that Plaintiffs' Additional Facts H and J (description of damage to house and insomnia/stress suffered by Plaintiffs) are irrelevant to the legal issue of entitlement of emotional distress damages under New Mexico law, and tend to establish that Plaintiffs' claims arise out of damage to property damage—which would not entitle Plaintiffs to emotional distress damages. Finally, Plaintiffs' Additional Fact G purports to use Liberty claim notes (Ex. 5) to prove that the Favas suffered emotional distress, but the notes merely state that the Favas were "not happy" about Liberty's denial of the claim. The Court agrees with Defendant that Additional Fact G is not supported by Plaintiffs' citation to the record and so will not be considered by the Court.

Plaintiffs acknowledge that they allege "garden variety" type emotional distress damages arising from the property loss at their home, but state that they also seek damages in addition to those related to property damages, namely the emotional distress damages related to the "bad faith" handling of their insurance claim. Whether Plaintiffs may recover such damages is the sole question in this motion.

II. Legal Standard

Summary judgment should be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56. The movant bears the initial burden of "show[ing] that there is an absence of evidence to support the nonmoving party's case." Bacchus Indus., Inc. v. Arvin Indus., Inc. , 939 F.2d 887, 891 (10th Cir. 1991) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). Once the movant meets this burden, Rule 56(c) requires the non-moving party to designate specific facts showing that there is a genuine issue for trial. See Celotex Corp. , 477 U.S. at 324, 106 S.Ct. 2548 ; Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When applying this standard, a court must "view the evidence and draw reasonable inferences therefrom in the light most favorable to the nonmoving party." Simms v. Oklahoma ex rel. Dep't of Mental Health & Substance Abuse Serv. , 165 F.3d 1321, 1326 (10th Cir. 1999), abrogated in part on other grounds Eisenhour v. Weber Cty. , 744 F.3d 1220, 1227 (10th Cir. 2014). A mere scintilla of evidence supporting the nonmoving party's theory does not create a genuine issue of material fact. Anderson v. Coors Brewing Co. , 181 F.3d 1171, 1175 (10th Cir. 1999). Instead, the nonmoving party must present facts such that under the applicable law, a reasonable jury could find in its favor. Id. That is, the nonmovant needs to "present evidence from which a jury might return a verdict in his favor." Liberty Lobby , 477 U.S. at 257, 106 S.Ct. 2505.

In this case, the Court finds that the relevant material facts are largely undisputed, but the parties differ on the legal significance of the facts. See Rummel v. Lexington Ins. Co. , 123 N.M. 752, 758, 945 P.2d 970 (1997) (summary judgment is appropriate where no facts are in dispute, but only the legal significance of the facts).


Defendant seeks summary judgment on Plaintiffs' emotional injury claims and damages because emotional distress damages are generally not recoverable for non-intentional damage to property or for breach of contract claims. Plaintiffs contend that New Mexico law does permit recovery of emotional distress for all their claims, including breach of contract and negligence claims, primarily because of the "bad faith" component underlying their claims. See Doc. 75 at 10.2

I. Breach of Contract/Breach of Covenant of Good Faith and Fair Dealing

In Count I, Plaintiffs assert both a breach of contract and the associated covenant of good faith and fair dealing by failing to investigate Plaintiffs' claims and by denying Plaintiffs' claims under the Policy for frivolous or unfounded reasons.

The standard remedy for breach of the covenant is on the contract itself. See Bourgeous v. Horizon Healthcare Corp. , 117 N.M. 434, 439, 872 P.2d 852, 857 (1994). The exception to this rule is in the insurance context: most courts permit a plaintiff to sue in tort for breach of the covenant in insurance actions based on the nature of the "special relationship" between the parties. New Mexico law would therefore govern the availability of emotional distress damages not only for any tort remedy sought under the breach of covenant claim but also for the negligence claim in Count IV. The discussion in this section, however, applies to Plaintiffs' contractual claims.3

New Mexico has limited the availability of emotional distress damages in civil actions to the following circumstances:

... intentional infliction of emotional distress, in connection with certain intentional economic torts, and in

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