Morley v. United Servs. Auto. Ass'n

• Decision Date: 14 November 2019
• Docket Number: 18CA2005,Court of Appeals Nos. 18CA1374
• Citation: 465 P.3d 71
• Parties: Richard MORLEY and Connie Morley, Plaintiffs-Appellants, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Defendant-Appellee.
• Court: Colorado Court of Appeals

465 P.3d 71

Richard MORLEY and Connie Morley, Plaintiffs-Appellants,

v.UNITED SERVICES AUTOMOBILE ASSOCIATION, Defendant-Appellee.

Court of Appeals Nos. 18CA1374

18CA2005

Colorado Court of Appeals, Division II.

Announced November 14, 2019

As Modified on Denial of Rehearing December 26, 2019

Lee N. Sternal, P.C., Lee N. Sternal, Pueblo, Colorado, for Plaintiffs-Appellants

Morgan Rider Riter Tsai, P.C., Tory D. Riter, Denver, Colorado, for Defendant-Appellee

Opinion by JUDGE BROWN

¶1 In this consolidated action, plaintiffs, Richard Morley and Connie Morley, appeal the district court's entry of summary judgment and its order awarding costs in favor of defendant, United Services Automobile Association (USAA).

¶2 Applying the unambiguous definition of "surface water" articulated in Heller v. Fire Insurance Exchange , 800 P.2d 1006, 1008 (Colo. 1990), we distinguish this case from Martinez v. American Family Mutual Insurance Co. , 2017 COA 15, 413 P.3d 201, and conclude that when precipitation falls or leaks into the insured's dwelling through holes in a roof damaged by hail (or some other covered peril), it does not fall within the plain meaning of the term "surface water" because it was never water "lying or flowing naturally on the earth's surface." Therefore, we reverse the entry of summary judgment and award of costs and remand to the district court for further proceedings.

I. Background

¶3 The Morleys purchased a home in Colorado that they used as a vacation property and visited, on average, four times a year. They allege that in early June 2015, a severe hailstorm damaged the flat roof of the home, which allowed rainwater to leak through the roof, causing damage to the interior.

¶4 At the time, USAA insured the home under an all-risk property insurance policy (the Policy). Upon being notified of the claim, USAA retained an independent insurance adjuster to inspect the Morleys’ home and estimate the cost to repair the damage. Based on the estimate, USAA approved and paid for a full roof replacement. USAA also sent a settlement letter to the Morleys and authorized an additional payment to repair the interior water damage that had been identified by the adjuster.

¶5 However, in March 2016, the Morleys told USAA that, while performing repairs, their contractor had found additional water damage to the interior of the home. The contractor removed drywall, carpet, cabinets, and insulation, which significantly increased the scope and cost of the repairs. USAA denied the majority of the Morleys’ claim for additional interior damage, but did not cite the surface water exclusion in the Policy as a reason for the denial.

¶6 The Morleys filed suit, asserting breach of contract and bad faith claims based on USAA's failure to pay the additional claim for interior water damage. USAA moved for summary judgment, arguing, in relevant part, that even if the damage to the interior of the home was caused by rainwater that had accumulated on and then penetrated the roof, under Martinez , the Morleys’ claims were barred by a surface water exclusion in the Policy. The district court agreed and granted the motion. It also awarded USAA $23,533.91 in costs as the prevailing party under C.R.C.P. 54(d). The Morleys appeal.

II. Analysis

¶7 The Morleys contend that the district court erred by granting USAA's motion for summary judgment because (1) the surface water exclusion in the Policy does not apply and (2) USAA waived its right to rely on the surface water exclusion. Because we conclude that the district court erred by granting summary judgment based on the plain language of the surface water exclusion, we need not address waiver.¹

¶8 USAA contends that, even if the surface water exclusion does not bar coverage, we may affirm on the alternative ground that the claims are precluded because the Morleys violated the Policy's fraud clause. Because we conclude that material disputes of fact exist as to whether the Morleys breached the fraud clause, we cannot affirm on this alternative ground.

¶9 For these reasons, we reverse the order entering summary judgment and the award of costs and remand to the district court for further proceedings.

A. The District Court Erred by Entering Summary Judgment Based on the Surface Water Exclusion

¶10 We understand the Morleys to argue that the surface water exclusion in the Policy does not preclude their claims because (1) based on the Policy's plain language and Colorado case law, water seeping through a storm-damaged roof is not "surface water"; (2) even if the water on the roof was "surface water," it lost that character when it was diverted by the roof structure; and (3) the surface water exclusion is ambiguous and extrinsic evidence confirms that it does not apply in this case.

1. Preservation

¶11 USAA contends that several of the Morleys’ arguments are unpreserved and are being raised for the first time on appeal. Recall that USAA's primary argument in its motion for summary judgment was that the surface water exclusion precluded coverage because all of the interior damage to the Morleys’ home was caused by surface water. In their response to the motion for summary judgment, the Morleys argued that "[m]aterial questions of fact do exist over whether the water which entered plaintiffs’ home from the roof ... really can be said to have been ‘surface water.’ "

¶12 The district court entered summary judgment based on its interpretation of the surface water exclusion in the Policy and its application of Colorado case law. In so doing, it said that "[t]he parties agree that the damage was caused by rainwater/hail penetrating the roof of the home." Based on that fact, the court concluded, as a matter of law, that the damage to the interior of the Morleys’ home was caused by surface water and that the surface water exclusion in the Policy barred their recovery.

¶13 Thus, the dispositive issues before the district court were the meaning of the surface water exclusion in the Policy and whether the water that caused the damage to the interior of the Morleys’ home was "surface water" such that the surface water exclusion applied. The Morleys’ argument on appeal based on the plain language of the policy is preserved. See Berra v. Springer & Steinberg, P.C. , 251 P.3d 567, 570 (Colo. App. 2010) ("[T]o preserve the issue for appeal all that was needed was that the issue be brought to the attention of the trial court and that the court be given an opportunity to rule on it.").²

2. Standard of Review and Applicable Law

¶14 We review the entry of summary judgment de novo. Shelter Mut. Ins. Co. v. Mid-Century Ins. Co. , 246 P.3d 651, 657 (Colo. 2011). Summary judgment is appropriate where the pleadings and supporting documents clearly demonstrate that no issues of material fact exist and the moving party is entitled to judgment as a matter of law. C.R.C.P. 56(c) ; Cotter Corp. v. Am. Empire Surplus Lines Ins. Co. , 90 P.3d 814, 819 (Colo. 2004). For purposes of summary judgment, a "material fact" is one that will affect the outcome of the case. Olson v. State Farm Mut. Auto. Ins. Co. , 174 P.3d 849, 853 (Colo. App. 2007). We afford all favorable inferences that may be drawn from the undisputed facts to the nonmoving party, and we resolve all doubts as to the existence of a triable issue of fact against the moving party. Cotter Corp. , 90 P.3d at 819.

¶15 An insurance policy is a contract and its meaning is a question of law that we review de novo. Allstate Ins. Co. v. Huizar , 52 P.3d 816, 819 (Colo. 2002). We construe an insurance policy according to well-settled principles of contract interpretation. Id. In interpreting a contract, we give effect to the intent and reasonable expectations of the parties. Sachs v. Am. Family Mut. Ins. Co. , 251 P.3d 543, 546 (Colo. App. 2010). We read the provisions of a policy as a whole, construing the policy so that all provisions are harmonious and none are rendered meaningless. Martinez , ¶ 8.

¶16 We enforce an insurance policy as written unless the relevant policy language is ambiguous. Cary v. United of Omaha Life Ins. Co. , 108 P.3d 288, 290 (Colo. 2005). Policy language is ambiguous if it is susceptible on its face to more than one reasonable interpretation. Id. Mere disagreement between the parties about the meaning of a term in a policy does not create an ambiguity. Kane v. Royal Ins. Co. of Am. , 768 P.2d 678, 680 (Colo. 1989).

¶17 An unambiguous limitation or exclusion in an insurance policy must be enforced as written. Bolejack v. Travelers Ins. Co. , 64 P.3d 939, 940 (Colo. App. 2003). But the insurer bears the burden of proving that a particular loss falls within an exclusion in the contract. Colo. Intergovernmental Risk Sharing Agency v. Northfield Ins. Co. , 207 P.3d 839, 842 (Colo. App. 2008).

3. Relevant Policy Language

¶18 The Policy is an all-risk policy designed to cover a wide range of damages to the Morleys’ property unless coverage for a particular type of loss is expressly excluded. The policy provides the following coverage: "We insure against ‘sudden and accidental’ direct physical loss to [the dwelling] unless excluded in SECTION I – LOSSES WE DO NOT COVER."³

¶19 As relevant here, USAA relied on the surface water exclusion as the basis for its motion for summary judgment. This exclusion provides as follows:

We do not insure for loss or damage consisting of, caused directly or indirectly by ...

....

c. Water damage arising from, caused by or resulting from human or animal forces, any act of nature, or any other source. Water damage means damage caused by or consisting of:

(1) Flood, surface water , waves, tidal water, storm surge, tsunami, any overflow of a body of water, or spray from any of these, whether or not driven by wind.

(Emphasis added.)⁴

4. Discussion

¶20 This appeal requires us to interpret the term "surface water" in the Policy. If the water that caused the damage to the interior of the Morleys’ home was surface water, the surface water exclusion applies to bar...