Sprinkler Irrigation Co., Inc. v. JOHN DEERE INS. COMPANY, INC.

• Decision Date: 11 February 2004
• Docket Number: No. 28558.,28558.
• Citation: 85 P.3d 667,139 Idaho 691
• Parties: SPRINKLER IRRIGATION COMPANY, INC., an Idaho corporation, d/b/a Sprinkler Irrigation Sales and Sprinkler Irrigation Company; and Idaho Farmway, Inc., an Idaho corporation, and such other parties and entities, Does I Thru X, holding an insurable interest or beneficial right to the subject matter in dispute, Plaintiffs-Appellants, v. JOHN DEERE INSURANCE COMPANY, INC., a foreign corporation doing business in Idaho, Defendant-Respondent.
• Court: Idaho Supreme Court

85 P.3d 667

139 Idaho 691

SPRINKLER IRRIGATION COMPANY, INC., an Idaho corporation, d/b/a Sprinkler Irrigation Sales and Sprinkler Irrigation Company; and Idaho Farmway, Inc., an Idaho corporation, and such other parties and entities, Does I Thru X, holding an insurable interest or beneficial right to the subject matter in dispute, Plaintiffs-Appellants, v. JOHN DEERE INSURANCE COMPANY, INC., a foreign corporation doing business in Idaho, Defendant-Respondent.

No. 28558.

Supreme Court of Idaho, Boise, December 2003 Term.

February 11, 2004.

Vernon K. Smith Jr., Boise, argued for appellants.

Anderson, Julian & Hull, Boise, for respondent. Michael P. Stefanic II argued.

BURDICK, Justice.

NATURE OF THE CASE

This case arises from a dispute between Sprinkler Irrigation Company ("Sprinkler"), Idaho Farmway, Inc. ("Idaho Farmway"), and their insurer, John Deere Insurance Company, Inc. ("John Deere"), as to the amount of money paid under an insurance contract following a fire at Sprinkler's place of business. Sprinkler and Idaho Farmway sued John Deere for breach of contract and for bad faith in the adjustment of their claim. This is an appeal from the district court's decision granting summary judgment to John Deere after striking Sprinkler's affidavits of Daniel P. Weitz and Donald Ferron.

FACTUAL AND PROCEDURAL BACKGROUND

Sprinkler operated a sprinkler and irrigation retail sales and steel products business in Idaho. Sprinkler had two (2) locations: one in Nampa, the other in Weiser. Sprinkler's president and stockholder is Dan Weitz. On April 28, 1997, Sprinkler's Nampa place of business was seriously damaged by fire, which caused structural damage to the building, destruction of inventory, and interruption in the flow of business. The real property located at Sprinkler Nampa was owned, mortgaged, and leased to it by Idaho Farmway.

At the time of the fire, Sprinkler possessed an insurance policy with John Deere, effective January 1, 1997. Key Bank was named in the policy as a loss payee. Sprinkler and Idaho Farmway asserted three claims under the policy: (1) building coverage, (2) business interruption and extra expense, and (3) contents.

A. Facts Relating to the Building Coverage Claim

John Deere began investigating the claims after the fire. In order to assess the damage caused by the fire, on May 1, 1997, a structural engineer inspected the premises and determined that the building was only partially damaged and that most of the structure was salvageable. However, the City of Nampa would not permit any repair or rebuilding of the structure unless it complied with setback requirements and the city's 100-year flood plain requirements.

Prior to discovering the City of Nampa's position, Sprinkler suggested the use of contractor, Hanson Rice Construction ("Hanson Rice"), to develop the cost of repairs for the structure. On June 9, 1997, John Deere advanced a $50,000 payment to the Insured under the building coverage. On June 20, 1997, Hanson Rice provided a proposal for repair of the structure in the amount of $194,646.00. Sprinkler also asked Wright Brothers to bid the project to completely demolish the building and relocate it to meet the zoning requirements. On June 20, 1997, Wright Brothers provided a bid in the amount of $276,938.00. This bid did not include $32,897.00 for the wooden mezzanine shelving, which would have brought the bid to $309,835.00. Nearly one month later, on July 21, 1997, Hanson Rice provided another bid in the amount of $361,462.00. Since John Deere had never received information that Sprinkler elected to have the building rebuilt, John Deere calculated the actual cash value of the building using Hanson Rice's original repair proposal in the amount of $194,646.00. John Deere's independent adjuster, Bill Goodner of Intermountain Claims, applied a 37% depreciation factor to arrive at an actual cash value of the building of $122,627.00. After subtracting the advance of $50,000 and the $500.00 deductible, on August 6, 1997, John Deere paid Sprinkler $72,127.00, which was accepted.

B. Facts Relating to the Business Interruption and Extra Expense Claim

John Deere began investigating the claims in cooperation with Sprinkler's accountant, Brian Nye. On May 4, 1997, Nye provided partial sales records to support Sprinkler's claim for business income loss. Because there was a discrepancy in the figures due to sales tax issues, additional records were needed. During the month of May, some additional records were provided, but they did not distinguish between Sprinkler's Weiser and Nampa locations or give details about the loss at the Nampa location.

On June 3, 1997, John Deere engaged Paul Sutphen of the accounting firm RGL Gallagher to assist in the assessment of business income due under the policy. Sutphen requested additional documentation from Nye to support Sprinkler's sales projections.

On or about June 26, 1997, John Deere advanced the sum of $25,000 to Sprinkler for partial business income loss, which was accepted. For the next few months, John Deere and Paul Sutphen continued working with Nye to determine Sprinkler's business interruption loss. On August 5, 1997, payment was made to Sprinkler in the amount of $9,357.00 for extra expenses incurred in transferring undamaged inventory to the Weiser location.

On October 17, 1997, Weitz, the accountants, and the independent adjuster met at Sprinkler's Weiser location to discuss business income and inventory issues. Sutphen calculated the eight-month business interruption loss for Sprinkler to be $47,246.00. The time period for business interruption was calculated from the date of the fire (the date of loss) through December, 1997 (the period of restoration), which was the projected period used in the contractors' bids to demolish and rebuild Sprinkler's building.

C. Facts Relating to the Contents Claim

Bill Goodner retained R.D. Powers Company, Inc. ("R.D.Powers") (a professional salvage and appraisal firm) to assist in verifying Sprinkler's stock inventory for the contents claim. R.D. Powers' representative spent four days working with Dan Weitz to physically inventory the damaged stock. The R.D. Powers representative was not able to physically inventory several sections on the mezzanine level because the merchandise was so badly damaged by fire. The inventory had to be reconstructed from Sprinkler's records. At the time of this inventory, Sprinkler agreed that none of the equipment in the manufacturing area was damaged; and there was no damage to the IRSCO¹ inventory of bolts and fasteners. In August 1997, John Deere did pay $9,357.00 as an extra expense to transfer these and other parts to Sprinkler's Weiser location.

On April 29, 1997, Wendy Blevins from Sprinkler informed Bill Goodner that the last physical inventory for Sprinkler was performed on February 28, 1997, and totaled $92,521.18. She also indicated that the last IRSCO physical inventory was performed on March 7, 1997, and totaled $91,243.55. Later in June 1997, Sprinkler forwarded another inventory from its computer records totaling $217,468.63 for Sprinkler Nampa only. Dan Weitz explained the discrepancy in the amounts as the result of Blevins' lack of knowledge about the Nampa operation and incorrect information. Due to the discrepancy, John Deere's accountant, Paul Sutphen, was requested to assist in evaluating the inventory claim. On June 9, 1997, John Deere made a partial payment of $50,000 to Sprinkler, as an advance and partial payment on Sprinkler's contents claim, which was accepted.

For the next few months, Sutphen requested information from Sprinkler's accountant, for price testing certain items in the stock inventory. On October 17, 1997, Sutphen and Nye met at the Weiser facility. Nye agreed that the perpetual inventory that had been earlier provided in the approximate amount of $217,000 included both the Sprinkler inventory and the IRSCO inventory. Sprinkler's trial balance and tax records revealed the inventory had consistently been between $90,000 to $95,000. After the fire, Sprinkler transferred $11,632.00 worth of inventory to the Weiser facility. Nye and Sutphen agreed to deduct ten percent to accommodate inventory errors and $1,500 salvage value. The remaining stock value was $71,301.00. In addition, John Deere agreed to add $5,000 for an estimated computer repair and $13,426.02 for the actual cash value for items other than stock. The total contents loss paid to Sprinkler and accepted was $89,727.02.

As to all of the claims, on December 2, 1997, Bill Goodner sent a letter to Dan Weitz of Sprinkler in care of his counsel, and to Idaho Farmway, with enclosed worksheets regarding the calculation of losses under the various portions of the policy. Goodner inquired whether there was any additional information John Deere should consider in adjusting the loss and requested such information be forwarded as soon as possible. Although the time period had already expired, John Deere extended the time period for notification of intent to replace the building repair until March 1, 1998. John Deere wrote that if it did not hear anything by March 1, 1998, it would assume that Sprinkler accepted the payment amounts in full and had no further information for John Deere to consider.

No further information was ever provided by Sprinkler. Idaho Farmway did not timely notify John Deere of its intent to have the building replaced. All checks were cashed without objection, including the ones written to joint-payees, Sprinkler and Key Bank.

D. Course of Proceedings

On April 28, 1999, Sprinkler and Idaho Farmway Inc. (hereinafter "Sprinkler") filed suit against John Deere for breach of contract and for bad faith. On May 25, 2001, John Deere filed its motion for summary judgment and motion to dismiss. On July 27, 2001, the district court struck the affidavit of Daniel Weitz because it was conclusory and failed to reference the attachments with any...