Hampden Auto Body Co. v. Auto-Owners Ins. Co.
| Decision Date | 25 March 2019 |
| Docket Number | Civil Action No. 17-CV-1894-MSK-SKC |
| Parties | HAMPDEN AUTO BODY CO., Plaintiff, v. AUTO-OWNERS INSURANCE CO., Defendant. |
| Court | U.S. District Court — District of Colorado |
OPINION AND ORDER ON MOTION FOR SUMMARY JUDGMENT
THIS MATTER comes before the Court upon the Defendant's Motion for Summary Judgment (# 35), the Plaintiff's Response (# 44), and the Defendant's Reply (# 50). For the reasons that follow, the motion is granted in part.
The Court exercises jurisdiction under 28 U.S.C. § 1332.
This is a case in which the Plaintiff, Hampden Auto Body Co (Hampden)., seeks to recover insurance benefits for property damage and loss of business income. Hampden owns a business in Denver, Colorado, that was insured under an insurance policy (Policy) issued by Defendant Auto-Owners Insurance Co. (Owners) In May 2014, Hampden's paint drying system was damaged in a by a lightning strike. Hampden submitted a claim to Owners, but variouscommunications over the course of the next year were ignored. Eventually, Owners inspected the paint-drying system in June 2015 and paid for its repair. With regard to Hampden's business-income claim, Owners determined a loss of $221,193.
Hampden brought this suit in May 2017, asserting the following causes of action: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) a violation of C.R.S. §§ 10-3-1115, 1116 based on unreasonable delay of the claim.2 Owners now moves for summary judgment on all claims (# 35).
Rule 56 of the Federal Rules of Civil Procedure facilitates the entry of a judgment only if no trial is necessary. See White v. York Int'l Corp., 45 F.3d 357, 360 (10th Cir. 1995). Summary adjudication is authorized when there is no genuine dispute as to any material fact and a party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Substantive law governs what facts are material and what issues must be determined. It also specifies the elements that must be proved for a given claim or defense, sets the standard of proof, and identifies the party with the burden of proof. See Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986); Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563, 565 (10th Cir. 1989). A factual dispute is "genuine" and summary judgment is precluded if the evidence presented in support of and opposition to the motion is so contradictory that, if presented at trial, a judgment could enter for either party. See Anderson, 477 U.S. at 248. When considering a summary judgment motion, a court views all evidence in the light most favorable to the non-moving party, thereby favoring the right to a trial. See Garrett v. Hewlett Packard Co., 305 F.3d 1210, 1213 (10th Cir. 2002).
If the movant has the burden of proof on a claim or defense, the movant must establish every element of its claim or defense by sufficient, competent evidence. See Fed. R. Civ. P. 56(c)(1)(A). Once the moving party has met its burden, to avoid summary judgment the responding party must present sufficient, competent, contradictory evidence to establish a genuine factual dispute. See Bacchus Indus. Inc. v. Arvin Indus. Inc., 939 F.2d 887, 891 (10th Cir. 1991); Perry v. Woodward, 199 F.3d 1126, 1131 (10th Cir. 1999). If there is a genuine dispute as to a material fact, a trial is required. If there is no genuine dispute as to any material fact, no trial is required. The court then applies the law to the undisputed facts and enters judgment.
If the moving party does not have the burden of proof at trial, it must point to an absence of sufficient evidence to establish the claim or defense that the non-movant is obligated to prove. If the respondent comes forward with sufficient competent evidence to establish a prima facie claim or defense, a trial is required. If the respondent fails to produce sufficient competent evidence to establish its claim or defense, then the movant is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Owners moves for summary judgment on all claims. In viewing the parties' arguments, it is helpful to keep in mind two provisions of the Policy. First, as to the loss payment:
(# 35-1 at 14.)
Second, the Policy limits legal action taken against the insurer unless there has been full compliance with the Policy and the "action is brought within 2 years after the date on which the direct physical loss or damage occurred." (# 35-1 at 20.)
In interpreting these provisions, the Court is mindful that Colorado law requires it to construe them according to their ordinary language (absent a showing that the parties jointly intended the language to have a different meaning). Ace Am. Ins. Co. v. Dish Network LLC, 883 F.3d 881, 887 (10th Cir. 2018).
Owners contends that claims for breach of contract are untimely, relying upon the provision in the Policy requiring that any legal action against Owners be "brought within 2 years after the date on which the direct physical loss or damage occurred." (# 35-1 at 20.) Hampden concedes that its breach-of-contract claim for property-damage losses is untimely, but contends that its breach-of-contract claim based on a loss of business income was timely brought. Hampden argues that the "final day of damage was May 29, 2015" (# 44 at 6), and because this suit was filed on April 30, 2017, it was timely under the Policy.
The Policy language pertinent to filing of an action keys to "direct physical loss or damage", which suggests a definitive date upon which a particular event occurs. Owners argues that the business loss calculation is the same as that for property damage - two years from the lightning strike. Hampden argues that the business-income loss is a form of damage not subject to the limiting words direct physical. Hampden contends that because the Policy provides for a 12-month period of business income coverage, that the damage arose on May 29, 2015, one year after the lightning strike. During that time, Owners was notified of the physical damage and failed to take action to repair it. (# 44-2 ¶¶ 18-26.)
The Court begins with the observation that the Policy does not define the terms loss or damage. However, the Business Income and Extra Expense Rider, which creates and governs coverage for business income losses, provides in pertinent part: "Subject to the Limit of Insurance provisions of this endorsement, we will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration." (# 35-1 at 3 (emphasis added).) This language recognizes that, unlike a physical loss, a business income loss occurs over a period of time. It defines that period as beginning when operations are suspended due to physical loss and continuing until the end of the period of restoration. (# 35-1 at 6.) This makes the claim for loss of business income different from a claim for a physical loss. It cannot arise until restoration is concluded. This makes sense in the context of a breach of contract claim. For there to be a cognizable breach of contract claim for failure to pay for loss of business income, the insurer must have a duty that it did not perform - here, a failure to pay. However, an insurer cannot know the amount to pay until the period of restoration is completed. It makes little sense to interpret the Policy to require the filing of a lawsuit by a date certain, when the claim being asserted may not have arisen. Indeed, such an interpretation would encourage unscrupulous insurers to delay in completing any restoration for more than two years after the physical loss occurs to prevent having to pay for the attendant business loss.
The Court finds no language in the Policy to support Hampden's interpretation - that one should assume that Owners timely attended to the repair of Hampden's machine beginning on the date it was damaged, and that the repair either took one year, or that Hampden is entitled to the maximum payment of benefits - losses over a one-year period.
Instead, following the language of the Policy, the business loss did not arise until the period of restoration was concluded. According to the record, that was in September 2015.Calculating two years from that date, the filing the Complaint in this matter on April 30, 2017, was timely.
Owners also advances an argument that Hampden failed to cooperate by failing to timely submit a "proof of loss" as to the business-income claim as required by the Policy. Hampden produces no evidence that it submitted a proof of loss, and appears to concede that it did not. However, Hampden points to a letter from Owners dated July 8, 2016, in which Owners states that the letter will "serve as your Proof of Loss as what we have paid thus far: . . . Business Income and Extra Expense: $221,193.00".3 (# 44-6 at 1.) This letter, Hampden argues, gave it a reasonable basis to believe that it had complied with its filing requirements under the Policy. The Court agrees. This evidence, construed in the light most favorable to Hampden, shows that Owners either considered Hampden's submissions to constructively make a Proof of Loss or waived compliance with the Policy requirement altogether. A trial is required on this claim.
This claim is colloquially referred to an insurance "bad faith claim". Hampden contends that Owners acted unreasonably in ignoring its communications, failing to investigate...
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