Fireman's Fund Ins. Co. v. Steele St. Ltd.

• Decision Date: 13 February 2019
• Docket Number: Civil Action No. 17-cv-01005-PAB-SKC
• Parties: FIREMAN'S FUND INSURANCE COMPANY, a California corporation, Plaintiff, v. STEELE STREET LIMITED II, a Colorado limited partnership, Defendant.
• Court: U.S. District Court — District of Colorado

FIREMAN'S FUND INSURANCE COMPANY, a California corporation, Plaintiff, v. STEELE STREET LIMITED II, a Colorado limited partnership, Defendant.

Civil Action No. 17-cv-01005-PAB-SKC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

February 13, 2019

Judge Philip A. Brimmer

ORDER

This matter is before the Court on Plaintiff Fireman's Fund Insurance Company's Motion for Partial Summary Judgment (Inapplicability of Appraisal Clause to Coverage Issues) [Docket No. 35] and Defendant Steele Street Limited II's Cross Motion for Partial Summary Judgment [Docket No. 43]. The Court has jurisdiction pursuant to 28 U.S.C. § 1332.

I. BACKGROUND¹

This case arises out of an insurance dispute. Plaintiff issued an insurance policy to Oberndorf Properties, providing first party property coverage for a commercial building located at 250 Steele Street in Denver, Colorado. Docket No. 35 at 7, ¶¶ 1-2.² The policy covers "direct physical loss of or damage to" the building. Id., ¶ 3. Thepolicy contains an appraisal provision, which provides that, "[i]f [insurer] and [insured] disagree on the amount of the loss, either may make written demand for an appraisal of the loss." Id. at 7-8, ¶ 4. The policy also includes an "examination under oath" clause, which states that plaintiff "may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records." Docket No. 35-2 at 46.

Defendant made a claim under the policy for over $1 million of damage allegedly caused by a hailstorm on June 24, 2015. Id. at 8, ¶ 5. Among the damages claimed were damage to the building's brick facade (the "brick claim"). Id. According to a public adjuster hired by defendant, the damage caused by the storm required the brick to be removed and replaced in its entirety. Id., ¶ 6. Plaintiff issued payment for some damage caused to the building, but did not make any payment for the brick claim. Docket No. 44-2. In a reservation of rights letter sent to defendant's public adjuster, an employee of plaintiff explained that

"[b]ased on Mr. Peterson's report and [plaintiff's] investigation, [plaintiff] has concluded that the hailstorm caused no identifiable 'direct physical loss of or damage to' the brick facade. Although the hail may have resulted in some flaking of the bricks, it is impossible to identify any particular flaking that was specifically caused by the hail, nor did the building experience any significant amount of flaking in addition to what has naturally occurred from normal exposure to the elements over the past 30 years. In sum the hailstorm does not appear to have demonstrably altered either the appearance or the functionality of the brick facade in any way."

Docket No. 44-2 at 3-4.

On April 21, 2017, plaintiff filed this lawsuit. Docket No. 1. Plaintiff's sole claimfor relief is for a declaratory judgment that the brick claim is not included within the appraisal provision of the insurance policy, that defendant is not entitled to an appraisal of the brick claim under the insurance policy, and that plaintiff is not obligated to participate in an appraisal of the brick claim under the insurance policy. Id. at 9, ¶ 64. In its answer, defendant asserts five counterclaims: (1) enforcement of the policy's appraisal provision; (2) breach of contract; (3) statutory bad faith under Colo. Rev. Stat. §§ 10-3-1115 and 1116; (4) common law bad faith; and (5) a declaratory judgment that defendant is excused from appearing at an examination under oath. Docket No. 11 at 20-27, ¶¶ 19-49.

II. LEGAL STANDARD

Summary judgment is warranted under Federal Rule of Civil Procedure 56 when the "movant shows 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(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed fact is "material" if under the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes over material facts can create a genuine issue for trial and preclude summary judgment. Faustin v. City & Cty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An issue is "genuine" if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

Where "the moving party does not bear the ultimate burden of persuasion at trial,it may satisfy its burden at the summary judgment stage by identifying a lack of evidence for the nonmovant on an essential element of the nonmovant's claim." Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001) (internal quotation marks omitted) (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998)). "Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter." Concrete Works of Colo., Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994). The nonmoving party may not rest solely on the allegations in the pleadings, but instead must designate "specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986) (internal quotation marks omitted). "To avoid summary judgment, the nonmovant must establish, at a minimum, an inference of the presence of each element essential to the case." Bausman, 252 F.3d at 1115. When reviewing a motion for summary judgment, a court must view the evidence in the light most favorable to the non-moving party. Id.

III. ANALYSIS

A. Applicability of Appraisal Provision

Plaintiff moves for partial summary judgment, asking the Court to declare that the brick flaking is not "direct physical loss" or "damage" within the meaning of the policy and therefore is not subject to appraisal. Docket No. 35 at 6-8. Defendant moves for partial summary judgment, asking the Court to determine the opposite and to stay all proceedings pending the completion of the appraisal process. Docket No. 43 at 13.

The Court's jurisdiction is founded on diversity of citizenship. 28 U.S.C. § 1332(a). Therefore, the Court applies the substantive law of Colorado. Essex Ins. Co. v. Vincent, 52 F.3d 894, 896 (10th Cir. 1995).³ Under Colorado law, questions of coverage under an insurance policy are generally matters of law reserved for the court. See Fire Ins. Exch. v. Bentley, 953 P.2d 1297, 1300 (Colo. App. 1998). The policy must be enforced as written unless the policy contains an ambiguity. Cary v. United of Omaha Life Ins. Co., 108 P.3d 288, 290 (Colo. 2005). The policy should be construed to give effect to the intent of the parties. Id. "Whenever possible this intent should be ascertained from the plain language of the policy alone." Farmers Ins. Exch. v. Anderson, 260 P.3d 68, 72 (Colo. App. 2010). "[W]ords should be given their plain meaning according to common usage, and strained constructions should be avoided." Compton v. State Farm Mut. Auto. Ins. Co., 870 P.2d 545, 547 (Colo. App. 1993).

Plaintiff contends that the appraisal process does not apply to defendant's claim for brick damage because that dispute is over coverage - whether damage to the bricks is covered by the insurance policy - rather than the "amount of loss." Docket No. 35 at 6-8. Plaintiff argues that the term "amount of loss" precludes consideration of defendant's causation argument. Id. at 8-10. Defendant argues that it does not. Docket No. 43 at 8-10. The policy itself does not define the term "amount of loss." See Docket Nos. 35-2 & 35-3.

The Court agrees with the holding of another case in this district construing the same term that "the plain meaning of . . . 'amount of loss' incorporates the concept ofcausation." See Auto-Owners Ins. Co. v. Summit Park Townhome Ass'n, 100 F. Supp. 3d 1099, 1102 (D. Colo. 2015). Although courts around the country are divided on this question, "[t]he better-reasoned cases . . . hold [that] appraisers necessarily address causation when determining the amount of the loss from an insured event." See Walnut Creek Townhome Ass'n v. Depositors Ins. Co., 913 N.W.2d 80, 92 (Iowa 2018). This is because the "amount of loss" is determined with reference to a particular cause. See Auto-Owners, 100 F. Supp. 3d at 1102. For example, "it would be extraordinarily difficult, if not impossible, for an appraiser to determine the amount of storm damage without addressing the demarcation between 'storm damage' and 'non-storm damage.'" Phila. Indem. Ins. Co. v. WE Pebble Point, 44 F. Supp. 3d 813, 818 (S.D. Ind. 2014).

Plaintiff claims that the brick claim raises a coverage question only. However, its reservation of rights letter demonstrates otherwise. See Docket No. 44-2. Although the letter purports to find no "direct physical loss of or damage to" the brick facade, plaintiff's conclusion is based not on policy definitions but on a causation analysis. See id. at 3. The letter states that "[plaintiff] has concluded that the hailstorm caused no identifiable [damage]," and that, "[a]lthough the hail may have resulted in some flaking of the bricks," the hail "does not appear to have demonstrably altered [the facade]." See id. at 3-4 (emphasis added). Thus, in order to reach its conclusion that no "physical loss" or "damage" occurred under the policy, plaintiff made a causation determination - whether the hailstorm caused flaking or other damage to the brick facade. Plaintiff's causation analysis is therefore of the type that is contemplated by theappraisal process.⁴

Plaintiff's reliance on Insurance Company of North America v. Baker, 268 P. 585 (Colo. 1928), is misplaced. In Baker, the Colorado Supreme Court concluded that "[t]he denial by an insurer of all liability under a policy is a waiver of the right to an apprais[al]." Bake...