Skinner v. U.S. Bank Home Mortg.

• Decision Date: 22 January 2016
• Docket Number: No. 42065.,42065.
• Citation: 365 P.3d 398,159 Idaho 642
• Court: Idaho Supreme Court
• Parties: Greg L. SKINNER and Jessica L. Skinner, husband and wife, Plaintiffs–Appellants, v. U.S. BANK HOME MORTGAGE, a United States corporation, Defendant–Cross Claimant–Respondent, and Albert D. Peterson and Babette Peterson, husband and wife, individually and d/b/a PCS Company and PCS Company, Inc., Defendants–Cross Defendants, and Safeguard Properties, LLC, a Delaware corporation, Jane Does and/or John Does I–X, who may be individuals employed by defendants, Defendants.

159 Idaho 642

365 P.3d 398

Greg L. SKINNER and Jessica L. Skinner, husband and wife, Plaintiffs–Appellants,

v.U.S. BANK HOME MORTGAGE, a United States corporation, Defendant–Cross Claimant–Respondent,andAlbert D. Peterson and Babette Peterson, husband and wife, individually and d/b/a PCS Company and PCS Company, Inc., Defendants–Cross Defendants,

and

Safeguard Properties, LLC, a Delaware corporation, Jane Does and/or John Does I–X, who may be individuals employed by defendants, Defendants.

No. 42065.

Supreme Court of Idaho, Moscow, August 2015 Term.

Jan. 22, 2016.

Aherin, Rice & Anegon, Lewiston, for appellants. Darrel Aherin argued.

Bohrnsen Stocker Smith Luciani PLLC, Spokane, Washington, for respondent. Scott R. Smith argued.

HORTON, Justice.

Greg and Jessica Skinner (the Skinners) appeal from the judgment dismissing the Skinners' claim of negligence against U.S. Bank Home Mortgage (U.S. Bank or the Bank). U.S. Bank retained insurance funds received after the Skinners' home was destroyed by fire and released a portion of the funds as the home was rebuilt. There were serious defects in the new construction that ultimately culminated in the project being abandoned. The Skinners assert that the district court improperly granted summary judgment because U.S. Bank owed the Skinners fiduciary duties regarding the disbursement of the insurance proceeds. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

On October 23, 2006, the Skinners' home in Idaho County was destroyed by fire. The home was insured. At the time of the fire, U.S. Bank held a deed of trust on the Skinners' home which secured a $333,700 loan. Under the terms of the deed of trust:

In the event of loss ... [,] [u]nless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repairs is economically feasible and Lender's security is not lessened. During such repair and restoration period, Lender shall have the right to hold such insurance proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender's satisfaction, provided that such inspection shall be undertaken promptly. Lender may disburse proceeds for the repairs and restoration in a single payment or in a series of progress payments as the work is completed .... If the restoration or repair is not economically feasible or Lender's security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower.

On October 31, 2006, U.S. Bank sent the Skinners a letter outlining U.S. Bank's procedures for processing the insurance proceeds. The letter stated that, after the Skinners forwarded their endorsed insurance checks to the Bank, the funds would be placed in a "restricted escrow account." Thereafter, one-third of the insurance proceeds were to be immediately disbursed to the Skinners and their general contractor, another one-third of the funds would be released to the Skinners and their contractor "upon notification from the [Skinners] that 66% of the repairs have been completed and an inspection has been performed to verify the status of repairs," and the final one-third would be released upon receipt of an inspection report verifying that the construction was completed and lien releases from the contractor and subcontractors.

On June 5, 2007, the Skinners executed an "Affidavit of Intention to Complete Repairs" which had been prepared by U.S. Bank. In pertinent part, the affidavit states:

The undersigned further states that the repairs in connection with the damage that occurred on 10/23/06 due to Fire will be completed and the property will be restored to as good a condition, or better than it was previous to loss. The claim proceeds in the amount of $358280.97 will be used for the restoration of the property. The undersigned also agrees to indemnify and hold U.S. Bank Home Mortgage harmless against any and all claims which may arise as a result of funds being paid in advance for the above work or claim.

On June 18, 2007, U.S. Bank provided the first one-third draw ($119,426.99) by way of a check made jointly payable to the Skinners and their contractor. In an accompanying letter, U.S. Bank explained:

The next draw will be released once the repairs are 66% complete. Please contact our office to request an inspection once your repairs are to this point. The inspection performed is a visual inspection to confirm the work is completed; it does not verify that building codes are met.

The contractor began construction of the Skinners' new home in June of 2007.

As construction progressed, the Skinners requested that U.S. Bank perform an inspection required for the release of the second one-third of the insurance proceeds. On September 25, 2007, the Bank contracted with Safeguard Properties, Inc. (Safeguard), to inspect the home to determine the percentage of completion. Safeguard assigned Karen Smith to conduct the inspection. Smith met with the general contractor at the construction site, and the Skinners indicated that they were satisfied with the work performed up until that time. Smith then reported to U.S. Bank that the project was 65% completed. After receiving Smith's report, the Bank issued a check for $139,400.62, made jointly payable to the Skinners and their contractor.

On November 1, 2007, although construction of the home was not yet complete, the contractor walked off the job and informed the Skinners they had to pay the subcontractors. The Skinners contacted U.S. Bank about the problem, and the Bank issued checks made jointly payable to the Skinners and the subcontractors. In a letter dated August 22, 2008, the Skinners notified U.S. Bank that the contractor had failed to install foundation drains and had not sealed the basement walls. Consequently, water seeped into the basement during the winter and spring months and caused significant damage. The Skinners informed U.S. Bank that they could not complete construction of the home because of the problems with the foundation and that they believed the best course was to demolish the partially constructed home and begin anew. Because the construction was not completed, the Bank continued to hold the remaining insurance proceeds.

In September of 2008, after construction had ceased, Smith performed another inspection for Safeguard and determined that her earlier report had overstated the degree of completion and that the home was only 40% completed.¹

On March 28, 2008, the Skinners brought suit against the contractor, Albert D. Peterson and Babette Peterson (the Petersons), doing business as PCS Company, Inc., for breach of contract. On October 19, 2008, the Skinners amended their complaint to add U.S. Bank as a defendant. The Skinners' amended complaint asserted a claim of negligence against U.S. Bank, alleging the Bank was negligent in its handling of the insurance proceeds by paying the Petersons for work that was not properly performed. The Skinners also alleged that U.S. Bank improperly administered the funds and that the Bank owed a fiduciary duty to the Skinners to "not overpay the contractor."

On February 12, 2010, U.S. Bank moved for summary judgment. Following oral arguments, on May 24, 2010, the district court issued its memorandum opinion and order granting U.S. Bank's motion for summary judgment. The district court reasoned that U.S. Bank did not owe the Skinners a fiduciary duty because the Bank did not retain exclusive control over the insurance proceeds. The district court also concluded that the language in the deed of trust providing for an inspection to determine the degree of completion of repairs was for the benefit of U.S. Bank and that the inspection called for by the deed of trust was not for the benefit or protection of the Skinners. Thus, the district court concluded that U.S. Bank did not owe a duty to the Skinners.

On June 23, 2010, the district court granted the Skinners' motion to amend their complaint. The Skinners filed their Third Amended Complaint on June 28, 2010, naming Safeguard as an additional defendant and alleging a breach of contract based on Safeguard's failure to hire a qualified home inspector. Safeguard moved for summary judgment, which the district court initially denied because it could not determine whether the Skinners were third-party beneficiaries of the contract between U.S. Bank and Safeguard without reviewing the contract. The parties then stipulated that the contract between the Bank and Safeguard was confidential and that the contract could be provided to the district court under seal. The Skinners once again moved to amend their complaint, this time to add a claim against Safeguard for negligence. Safeguard objected and moved for reconsideration of the denial of its motion for summary judgment.

The Skinners moved for reconsideration of the district court's grant of summary judgment in U.S. Bank's favor, arguing that the Bank had a fiduciary duty to sue Safeguard. The district court found that there was no basis for this claim and denied the motion. The district court also denied the Skinners' motion to amend their complaint, concluding that the statute of limitations had run on their negligence claim against Safeguard and that the notice requirements of Idaho Rule of Civil Procedure 15(c) had not been satisfied, resulting in the Skinners' negligence claim against Safeguard being barred by the statute of limitations. The district court granted Safeguard's motion for reconsideration and granted summary judgment in Safeguard's favor because its review of the contract showed that the Skinners were not third-party beneficiaries of the contact between U.S. Bank and Safeguard.

The Skinners timely appealed. In this appeal, the Skinners only challenge the district court's dismissal of their...