Rankin v. USAA Cas. Ins. Co., Civil Action No. 16–cv–0373–WJM–NYW

• Decision Date: 29 August 2017
• Docket Number: Civil Action No. 16–cv–0373–WJM–NYW
• Citation: 271 F.Supp.3d 1218
• Parties: Celia RANKIN, and R. Todd Rankin, Plaintiffs, v. USAA CASUALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Colorado

271 F.Supp.3d 1218

Celia RANKIN, and R. Todd Rankin, Plaintiffs,

v.USAA CASUALTY INSURANCE COMPANY, Defendant.

Civil Action No. 16–cv–0373–WJM–NYW

United States District Court, D. Colorado.

Signed August 29, 2017

Nelson Patrick Boyle, Thomas Willard Henderson, IV, Burg Simpson Eldredge Hersh & Jardine, PC, Englewood, CO, for Plaintiffs.

John Mark Vaught, Michael Norris Mulvania, Jeremy A. Moseley, Wheeler Trigg O'Donnell, LLP, Denver, CO, for Defendant.

ORDER ON PENDING CROSS–MOTIONS FOR SUMMARY JUDGMENT

William J. Martinez, United States District JudgeThis insurance dispute raises a surprisingly contentious question: If a homeowner's policy insures against a particular event (here, water leakage) and that event causes an aesthetic change in the home with no discernible effect on the home's value, is the aesthetic change nonetheless a "loss" entitling the homeowners to compensation? Plaintiffs Celia and R. Todd Rankin (the "Rankins") argue that the answer is yes, while the issuer of their homeowner's policy, Defendant USAA Casualty Insurance Company, takes the opposite view.

The question has now been fully framed in the parties' competing cross-motions for partial summary judgment. (ECF No. 54 (USAA's motion); ECF No. 55 (the Rankins' motion).) For the reasons explained below, the Court agrees with USAA that the aesthetic change was not a "loss" under the relevant homeowner's policy. The Court therefore grants USAA's motion and denies the Rankins' motion. The Court also orders the parties to show cause why they should not be ordered to go to mediation to resolve whatever remains of this dispute in the wake of this Order.

I. LEGAL STANDARD

Summary judgment is warranted under Federal Rule of Civil Procedure 56"if 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 also Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A 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). An issue is "genuine" if the evidence is such that it might lead a reasonable trier of fact to return a verdict for the nonmoving party. Allen v. Muskogee , 119 F.3d 837, 839 (10th Cir. 1997).

In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal–Mart Stores, Inc. , 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). In addition, the Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. See Houston v. Nat'l Gen. Ins. Co. , 817 F.2d 83, 85 (10th Cir. 1987).

II. FACTS

The following facts are undisputed unless attributed to a party or otherwise noted.

The Rankins have owned a vacation home in Mountain Village, Colorado, near Telluride, since 1998. (ECF No. 65 at 9, ¶ 1.)¹ On February 25, 2014, the Rankins learned of water leakage in the home. (Id. at 10, ¶ 8.) Apparently the water leakage had been going on for some time prior to its discovery—the Rankins' water bills show that it amounted to about 148,000 gallons. (ECF No. 59 at 22, ¶ 2.)² The Rankins promptly reported the event to USAA, the issuer of the homeowner's insurance policy for the Rankins' Mountain Village home ("Policy"). (ECF No. 65 at 9–10, ¶¶ 3, 8.)

Among other things, the water leakage caused stains on the interior surface of some of the logs forming the outer wall of the home. (ECF No. 59 at 22, ¶ 3.) The Rankins also claim that the leakage caused new and increased "checking" (lengthwise cracking) in the logs. (Id. at 12, ¶ 8.) USAA disputes this latter assertion, but is willing to admit it for purposes of resolving the legal question presented in the parties' cross-motions. (ECF No. 54 at 8, ¶ 9 n.3.) In any event, the parties do not dispute that "[c]hecking is expected in large wood, including [in] the timbers used to construct [the Rankins' home]." (Id. ¶ 8.) Moreover, checking had existed in the logs before the water leak. (ECF No. 59 at 25, ¶ 19.) Todd Rankin claims that the leakage event caused some pre-existing checks to increase in length by up to eighteen inches, and in width by up to one fourth of an inch. (ECF No. 54–5 at 5.)

In April 2014, Celia Rankin consulted with two contractors and "the impression [she] was left with after talking to [them]" was that the house might need to be entirely rebuilt because the contractors were "concerned about whether there was structural damage to the logs." (ECF No. 54–2 at 4–5.) But all parties agree now that the logs remain structurally sound. (ECF No. 59 at 11–12, ¶ 7.) Apparently this was agreed on fairly quickly because by June 2014 the Rankins' insurance claim, as it related to the log walls, became focused on the walls' "aesthetic condition," meaning the purely visual consequences of the staining and the checking. (ECF No. 54 at 8, ¶ 9; ECF No. 59 at 14.)³

Around this time, the Rankins began communicating with USAA through one of its adjusters, Sabra Johnson ("Johnson"). Johnson's claim notes for July 11, 2014 show that she reviewed the report of an engineer who had recently inspected the home, and that the report prompted her to approve coverage to some extent: "[E]ngineer notes areas w/water stains[;] confirms water can cause dmgs as shown. [N]otes indicate the cracking is throughout home.... [A]s engineer confirms water staining and that water can cause cracks, will allow coverage for areas that were in direct contact w/water[.]" (ECF No. 54–9 at 5.) Johnson's notes for that day also state that she called Celia Rankin and left a message, the content of which Johnson summarized as "coverage for water dmgs, need her ctr [contractor] to provide estimate[.]" (Id. ) According to Celia Rankin, Johnson specifically said on the telephone, "[Y]es, we'll replace the logs that have been damaged by the water." (ECF No. 59–7 at 18–19.) Moreover, in a July 22, 2014 e-mail to Joe Pace, an independent adjuster assisting USAA on the claim, Johnson announced, "We have agreed to remove and replace the logs in the areas that had direct water damage. Mrs. Rankin told me that her contractor discussed what work would be required in order to remove and replace the logs. We need to update the estimate to include these repairs...." (ECF No. 59–20 at 1.) Finally, in a letter to the Rankins also dated July 22, 2014, Johnson wrote that she had "sent an email to Joe Pace requesting his assistance in updating the estimate. I have requested that he add [to the estimate] 'remov[al] and replacement of the logs in areas where they were damaged by water.' " (ECF No. 59–11 at 1 (internal quotation marks inserted for clarity).)

"Given the interlocking method of construction, the only way" to actually replace damaged logs in a home such as the Rankins' is "to take off the roof and remove every layer of logs above the lowest damaged log—essentially requiring a tear down." (ECF No. 59 at 12–13, ¶ 9.) It is not clear whether Johnson was aware of this at the time she informed the Rankins that the logs would be replaced.⁴ USAA claims that a phone call took place on August 6, 2014, in which it became clear that removal and replacement involved, in essence, a complete re-build. (ECF No. 61 at 10, ¶ 12.)

Not long after Johnson's communications with the Rankins in late July 2014, a new USAA adjuster named Mike Buettner ("Buettner") took over the claim from Johnson. (ECF No. 59 at 24, ¶ 12.) The Rankins claim that Buettner agreed to abide by all of Johnson's commitments. (Id. ) Buettner, at his deposition in this case, did not recall ever making such a commitment. (ECF No. 61 at 10, ¶ 12.)

From August through November 2014, Buettner and the Rankins went back and forth regarding an apparently new aspect of their claim relating to the home's in-floor radiant heating system, and when a test of that system would be conducted. (See generally id. ¶¶ 13–15; ECF No. 61 at 10–11, ¶¶ 13–15.) The particulars of whether this test was truly necessary, and if so, why it took so long to perform, are highly disputed, but not presently relevant.

In December 2014, Buettner approved an estimate for the Rankins' claim as a whole. (ECF No. 54–7.) Through that estimate, "USAA agreed to pay for sanding, staining, and refinishing the log walls, as well as removing and replacing the chinking of the log walls [i.e. , the mortar between the logs]." (ECF No. 54 at 9, ¶ 13.) These methods would address water staining, but not checking. (ECF No. 54–8 at 3.)

USAA's December 2014 estimate totaled more than $114,000, inclusive of the steps to address water staining. (ECF No. 54 at 9, ¶ 14.) USAA in fact issued a series of checks to the Rankins totaling the amount of the estimate. (Id. ¶ 15.)⁵

By March 2015, the Rankins had retained an attorney to dispute USAA's resolution of their claim. (See ECF No. 54–10.) Two months later, the Rankins hired a Telluride contractor, Bill de Alva ("de Alva"), who evaluated the Rankins' expectations for the home and then wrote to them as follows (in pertinent part) in a May 20, 2015 e-mail:

I understand your expectation is that the completed restoration or reconstruction will have equal or better aesthetics, function and appraised value. I also understand that the natural log finish may be a very important aspect of the aesthetics to you personally. I believe it will be difficult if not impossible to restore that appearance with the existing water damaged logs. That said, I also believe the existing logs and timber window and door bucks could be restored to an aesthetic condition that would also restore the asset value of the home.

Assuming the ground floor slab can be replaced without demolition of the log structure, it is

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