Silver v. Colorado Cas. Ins. Co.

• Decision Date: 05 March 2009
• Docket Number: No. 07CA2216.,07CA2216.
• Parties: Joe SILVER, Plaintiff-Appellant, v. COLORADO CASUALTY INSURANCE COMPANY, Defendant-Appellee.
• Court: Colorado Court of Appeals

219 P.3d 324

Joe SILVER, Plaintiff-Appellant, v. COLORADO CASUALTY INSURANCE COMPANY, Defendant-Appellee.

No. 07CA2216.

Colorado Court of Appeals, Div. VII.

March 5, 2009.

Brian A. Murphy & Associates, LLC, Brian A. Murphy, Lee A. Berrish, Arvada, Colorado for Plaintiff-Appellant.

Rothgerber Johnson & Lyons, LLP, Brian J. Spano, Hillary D. Wells, Denver, Colorado, for Defendant-Appellee.

Opinion by Judge J. JONES.

On July 19, 2005, a house in Denver owned by plaintiff, Joe Silver, suffered extensive fire damage. He sued the company that insured the property, defendant, Colorado Casualty Insurance Company, after it denied coverage. The district court granted summary judgment in Colorado Casualty's favor on the basis that Colorado Casualty had lawfully rescinded the insurance policy. Silver appeals, and we reverse and remand.

I. Background

Silver bought the property in July 2003. Shortly thereafter, he contacted Deanna Smith, an employee of the insurance brokerage firm of Brown & Brown, Inc., an authorized agent of Colorado Casualty, for the purpose of obtaining insurance coverage on the property. Silver and Smith spoke on the telephone on a few occasions, following which Smith sent Silver an application for insurance that she had completed.

The application represented that the house was in good housekeeping condition and occupied by a single-family tenant. The application contained an affirmation stating: "I have read the above application and I declare that, to the best of my knowledge and belief, all of the foregoing statements are true, and that these statements are offered as an inducement to the company to issue the policy for which I am applying." Silver signed the application and returned it to Smith, who forwarded it to Colorado Casualty. There, an underwriter, Christy Williams, examined the application and determined that it met Colorado Casualty's underwriting guidelines. Williams, on behalf of Colorado Casualty, issued Silver a policy covering the property.

It appears to be undisputed that the house was vacant and uninhabitable at the time Silver submitted the application for insurance coverage (though two individuals may have occupied the back porch for a time). In fact, two months after Silver submitted his application, the City and County of Denver cited him for maintaining property that was a neighborhood nuisance. The City's reasons included that the property was unsafe, was boarded up, and had not been occupied for at least three consecutive months.

Following the fire, Colorado Casualty learned that the property was not as represented in the application at the time Silver submitted it—for example, it was not in good condition and was uninhabited. Colorado Casualty notified Silver that based on the alleged misrepresentations in the application it was rescinding the policy and would not pay any insurance benefits.

Silver filed suit against Colorado Casualty alleging breach of contract and bad faith breach of insurance contract. Following discovery, Colorado Casualty filed a motion for summary judgment asserting that it had lawfully rescinded the policy, and, therefore, there was no policy on which Silver could base his claims.

The district court granted Colorado Casualty's motion for summary judgment. The court concluded that the undisputed evidence established that Silver had made material misrepresentations in the application, rejecting as unsupported by evidence or contrary to law Silver's arguments in opposition.

II. Discussion

Silver contends that: (1) Colorado Casualty waived its defense of rescission by failing to plead the basis for the defense—fraud— with specificity; (2) the district court erred in granting summary judgment because there are genuine issues of material fact as to Colorado Casualty's entitlement to rescind the policy; and (3) in granting summary judgment, the district court improperly relied on inadmissible evidence. Although we are not persuaded that Colorado Casualty waived its rescission defense, we agree with Silver that there is a genuine issue of material fact as to whether Colorado Casualty is estopped to rescind the policy.

A. Standard of Review

Summary judgment is appropriate if the pleadings and supporting documents show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. C.R.C.P. 56(c); West Elk Ranch, L.L.C. v. United States, 65 P.3d 479, 481 (Colo.2002); Western Innovations, Inc. v. Sonitrol Corp., 187 P.3d 1155, 1158 (Colo.App.2008). The moving party carries the initial burden to show that there is no genuine issue of material fact. AviComm, Inc. v. Colo. Pub. Utils. Comm'n, 955 P.2d 1023, 1029 (Colo.1998). "Once the moving party has met its initial burden, the burden shifts to the nonmoving party to establish that there is a triable issue of fact." Id.; accord Western Innovations, 187 P.3d at 1158. The nonmoving party is entitled to all favorable inferences that reasonably may be drawn from the undisputed facts, West Elk Ranch, 65 P.3d at 481, and similarly the court must resolve all doubts as to the existence of a genuine factual issue in favor of the nonmoving party, id.; AviComm, 955 P.2d at 1029.

We review an order granting a motion for summary judgment de novo. West Elk Ranch, 65 P.3d at 481; Western Innovations, 187 P.3d at 1158. In conducting that review, we apply the same standards as those governing the district court's consideration of the motion. Smith v. Boyett, 908 P.2d 508, 514 (Colo.1995); Williams v. State Farm Mut. Auto. Ins. Co., 195 P.3d 1158, 1160 (Colo.App.2008).

B. Waiver of Defense

As a threshold matter, we address and reject Silver's contention that Colorado Casualty waived the defense of rescission by failing to plead fraud specifically in its answer to the complaint.

In its answer, Colorado Casualty asserted, as affirmative defenses, that it had properly rescinded the policy and that Silver could not recover on the policy because he had made "material misrepresentations" in the application. Almost eleven months later, after Colorado Casualty's motion for summary judgment was at issue, Silver filed an objection to the motion and moved to strike it, claiming, for the first time, that because Colorado Casualty's rescission defense was based on an allegation of fraud, and Colorado Casualty had failed to plead fraud with particularity in its answer as required by C.R.C.P. 9(b), Colorado Casualty had waived the defense. The court did not address Silver's waiver argument in its order granting Colorado Casualty's motion for summary judgment.

On appeal, Silver again argues that Colorado Casualty waived its rescission defense by failing to plead it with particularity as required by Rule 9(b). Colorado Casualty responds that Silver waived his right to assert its noncompliance with the rule. We agree with Colorado Casualty.

Rule 9(b) provides that "[i]n all averments of fraud ..., the circumstances constituting fraud ... shall be stated with particularity." Although the rule does not require that the party claiming fraud provide detailed allegations of evidentiary fact, Northwest Dev., Inc. v. Dunn, 29 Colo.App. 364, 368, 483 P.2d 1361, 1363 (1971), the claimant "must at least state the main facts or incidents which constitute the fraud...." State Farm Mut. Auto. Ins. Co. v. Parrish, 899 P.2d 285, 289 (Colo.App.1994); see Coon v. Dist. Court, 161 Colo. 211, 215, 420 P.2d 827, 829 (1966) (party must plead facts establishing the elements of fraud).

For the purpose of addressing Silver's argument, we assume, without deciding, that a defense of rescission based on an allegation of fraud is subject to the pleading requirements of Rule 9(b). See generally 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1297, at 182-83 & n. 28 (3d ed.2004) (all defenses based on fraud are subject to Fed.R.Civ.P. 9(b)); 2 James Wm. Moore et al., Moore's Federal Practice § 9.03[1][d], at 9-21 (3d ed.2008) (same).

In O.K. Uranium Dev. Co. v. Miller, 140 Colo. 490, 345 P.2d 382 (1959), the defendants argued on appeal that the plaintiff had failed to plead his fraud claim with particularity as required by Rule 9(b), and therefore they were entitled to judgment as a matter of law. In rejecting that argument, the court observed:

While a motion to dismiss was filed in the trial court, it was not argued or ruled upon and the defendants thereafter filed an answer in which the motion to dismiss was not repeated. Trial proceeded on the issues made by the complaint and answer without objection, and without the sufficiency of the complaint being again challenged.

Id. at 492-93, 345 P.2d at 383. In effect, the court concluded that the defendants had waived their Rule 9(b) objection by failing to raise it timely. See also Alien, Inc. v. Futterman, 924 P.2d 1063, 1068 (Colo.App.1995) ("an improper assertion of an affirmative defense must be objected to or such defect is waived"); cf. Cox v. Pearl Investment Co., 168 Colo. 67, 70-71, 450 P.2d 60, 61-62 (1969) (parties waived right to object to the defendant's failure to assert the affirmative defense of release in its answer, as required by C.R.C.P. 8(c), by failing to object when the defendant raised it in a motion for summary judgment).

The federal courts, in applying Fed. R.Civ.P. 9(b), have consistently held that a party waives its right to object to another party's failure to comply with the rule by neglecting to raise the objection in a responsive pleading or a timely motion. See, e.g., Prakash v. Pulsent Corp. Employee Long Term Disability Plan, 2008 WL 3905445, at *2 (N.D. Cal. No. C-06-7592 SC, Aug. 20, 2008) (unpublished order); Davsko v. Golden Harvest Products, Inc., 965 F.Supp. 1467, 1473-74 (D.Kan.1997); Todaro v. Orbit Int'l Travel, Ltd., 755 F.Supp. 1229, 1234 (S.D.N.Y.1991); United Nat'l Records, Inc. v. MCA, Inc., 609 F.Supp. 33, 38-39 (N.D.Ill. 1984); see generally Moore's Federal...