Melichar v. State Farm Fire and Cas. Co.

• Decision Date: 26 January 2007
• Docket Number: No. 31714.,31714.
• Citation: 143 Idaho 716,152 P.3d 587
• Parties: Charles MELICHAR and Karen Melichar, husband and wife, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant-Respondent, and Western Building Maintenance, Inc., an Idaho corporation, Defendant.
• Court: Idaho Supreme Court

152 P.3d 587

143 Idaho 716

Charles MELICHAR and Karen Melichar, husband and wife, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant-Respondent, and Western Building Maintenance, Inc., an Idaho corporation, Defendant.

No. 31714.

Supreme Court of Idaho, Boise, December 2006 Term.

January 26, 2007.

Angstman Law, PLLC, Boise, for appellants. Wyatt B. Johnson argued.

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

JONES, Justice.

This case involves an alleged breach of a homeowner's insurance policy. Appellants, Charles and Karen Melichar, sued Respondent, State Farm Fire and Casualty Company ("State Farm"), for breach of contract, breach of implied warranty, and breach of express warranty after State Farm failed to pay for mold related damages to their home resulting from an accident. The district court issued a directed verdict in favor of State Farm. We affirm.

I.

The Melichars are homeowners in Boise. They previously maintained homeowner's insurance through State Farm. Two of the Melichars' past homeowner's policies are relevant to this case. The first relevant policy had a policy period of July 12, 2001, to July 12, 2002 ("first homeowner's policy"). The second relevant policy had a policy period of July 12, 2002 to July 12, 2003 ("second homeowner's policy"). The two policies were identical except that the second homeowner's policy contained a mold exclusion endorsement, which excluded coverage of mold related losses occurring during the policy period.

On March 25, 2002, while the Melichars were vacationing in Arizona, their son checked on their house and discovered the toilet had overflowed, which caused water damage to the property ("March accident"). Laurie Burlile, the Melichars' daughter-in-law, called the Melichars that day to advise them of the situation. The Melichars immediately contacted State Farm and informed it of the problem. State Farm proceeded to open a claim and determined that the damages were covered under the Melichars' policy. The Melichars' insurance agent advised them that the released water needed attention immediately. In response, the Melichars asked if State Farm "had anybody that did that kind of thing." State Farm informed them that it had someone who could take care of it, and the Melichars verbally authorized State Farm to begin work on the house. At the time, State Farm maintained a "Premier Service Program," which provided insureds who did not wish to procure their own contractor the option of selecting a participating State Farm-approved Premier Service Program contractor to perform repair work.

The next day, March 26, 2002, Laurie met at the Melichars' home with a State Farm insurance adjustor who recommended hiring a disaster company. When Laurie voiced no preference for a particular company, the adjustor contacted Western Building Maintenance ("Western"), a State Farm-approved Premier Service Program contractor, to perform the repairs. Western arrived shortly thereafter, and either a representative of Western or State Farm asked Laurie to sign an "authorization to repair" form. Laurie signed the form using her mother-in-law's signature, "Karen Melichar," and Western began performing repairs.

The Melichars returned home on April 6, 2002, to find ongoing construction and repairs. Upon their return, they found a letter from State Farm, dated March 27, 2002, explaining the Premier Service Program ("March 27 letter"). The letter stated that the Melichars selected Western as the Premier Service Program contractor to perform the repairs on their home. On April 29, 2002, Charles Melichar signed an "authorization to repair" form, which acknowledged that the Melichars agreed to use the State Farm Premier Service Program and authorized Western to repair the damages resulting from the March accident.

Near the end of July 2002, the Melichars informed State Farm and Western of their concern regarding an outbreak of mold in their home. State Farm arranged for an industrial hygienist, Summit Environmental, Inc., to perform a mold and fungal evaluation of the house. Summit Environmental conducted the evaluation and prepared a report stating that portions of the home were impacted with mold growth, and recommended mold remediation. In August, Western began conducting the mold remediation and on December 13, 2002, Summit Environmental issued a post remedial report which stated that the mold was fully remediated. State Farm paid all expenses associated with the repairs and remediation resulting from the March accident up to this point.

On or about December 24, 2002, the Melichars noticed that the floor near the washing machine was beginning to ridge and buckle. On December 26, they notified State Farm of the problem, and upon inspection State Farm learned that Western had improperly inserted a drain hose from the Melichars' washing machine into a wall cavity where there was no drain pipe. As a result, water from the washing machine had drained into the wall cavity causing structural and mold damage to the Melichars' property ("December accident"). On December 27, 2002, State Farm sent the Melichars a letter stating that the December accident resulted in a second loss that was subject to the Melichars' second homeowner's policy and, because it contained a mold exclusion endorsement, no coverage would be provided for "testing, remediation, or any other repairs in reference to mold or mildew damage in respect to the second loss." State Farm subsequently paid or offered to pay for the non-mold related damages arising from the December accident. However, when State Farm failed to pay for mold related damages resulting from the December accident, the Melichars sued, alleging breach of contract, breach of implied warranty, and breach of express warranty.¹

The case went to trial and, upon the conclusion of the Melichars' case-in-chief, State Farm moved for a directed verdict. The district court granted State Farm's motion, finding that the damages sought — the cost associated with remediation of mold-related damage resulting from the December accident — constituted a second loss subject to the second homeowner's policy, which excluded coverage for such damages. The court further held that the Melichars presented no evidence that State Farm breached either an express or implied warranty.

II.

We will address four issues in this opinion: (1) whether State Farm's failure to pay for remediation of the mold damage associated with the December accident constituted a breach of contract; (2) whether State Farm's failure to pay for such remediation constituted a breach of warranty; (3) whether the district court's award of costs to State Farm should be reversed; and (4) whether either party is entitled to an award of attorney fees or costs on appeal.

A.

When reviewing a district court's decision to grant or deny a directed verdict, this Court applies the same standard as does the trial court. Gunter v. Murphy's Lounge, LLC, 141 Idaho 16, 27, 105 P.3d 676, 687 (2005). This Court does not defer to the district court's findings, but rather conducts an independent review of the evidence. Id. This Court "must determine whether, admitting the truth of the adverse evidence and drawing every legitimate inference most favorably to the opposing party, there exists substantial evidence to justify submitting the case to the jury." General Auto Parts Co., Inc. v. Genuine Parts Co., 132 Idaho 849, 855, 979 P.2d 1207, 1213 (1999). A directed verdict will only be granted in favor of the moving party if the evidence presented is so clear that "all reasonable minds would reach only one conclusion: that the moving party should prevail." Powers v. American Honda Motor Co., Inc., 139 Idaho 333, 335, 79 P.3d 154, 156 (2003).

B.

The district court did not err in directing a verdict in favor of State Farm with respect to the breach of contract claim because under the policies' terms, the loss resulting from the December accident was subject to the second homeowner's policy. The Melichars argue that the district court erred in finding that two separate losses occurred under the policies' terms because it is reasonable to interpret all the damages in this case as a single, continuing loss resulting from the March accident, which State Farm is obligated to repair and replace under the first homeowner's policy. The Melichars' interpretation is contrary to the clear and unambiguous terms of the Melichars' homeowner's policies.

i.

Whether an insurance policy is ambiguous is a question of law, which this Court freely reviews. AMCO Ins. Co. v. Tri-Spur Inv. Co., 140 Idaho 733, 739, 101 P.3d 226, 232 (2004). A policy "is ambiguous if `it is reasonably subject to conflicting interpretations.'" Cascade Auto Glass, Inc. v. Idaho Farm Bureau Ins. Co., 141 Idaho 660, 663, 115 P.3d 751, 754 (2005). Any ambiguities in an insurance policy must be construed against the insurer. Farmers Ins. Co. of Idaho v. Talbot, 133 Idaho 428, 435, 987 P.2d 1043, 1050 (1999). However, where the policy language is clear and unambiguous, "coverage must be determined in accordance with the plain meaning of the words used." Mutual of Enumclaw Ins. Co. v. Roberts, 128 Idaho 232, 235, 912 P.2d 119, 122 (1996).

The parties dispute the meaning of the term "loss" within the context of the homeowner's policies. Although the term "loss" is not defined in the "definitions" section of either policy, the types of losses that will be covered under the policies are addressed in the "losses insured" section:

COVERAGE A — DWELLING

We insure for accidental direct physical loss to the property described in Coverage A, except as provided in SECTION I — LOSSES NOT INSURED.

(italics added). The plain language of this section unambiguously establishes that the term "loss" is contemplated by the policies to mean the resulting physical and direct damage caused by an accident.

Additionally, the Melichars contend that...