Stone Flood & Fire Restoration, Inc. v. Safeco Ins. Co. of America

• Decision Date: 30 December 2011
• Docket Number: No. 20100175.,20100175.
• Citation: 268 P.3d 170,699 Utah Adv. Rep. 72,2011 UT 83
• Parties: STONE FLOOD AND FIRE RESTORATION, INC., James K. Stone and Patrice Stone, Plaintiffs and Appellants, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant and Appellee.
• Court: Utah Supreme Court

2011 UT 83

268 P.3d 170

699 Utah Adv. Rep. 72

STONE FLOOD AND FIRE RESTORATION, INC., James K. Stone and Patrice Stone, Plaintiffs and Appellants,

v.SAFECO INSURANCE COMPANY OF AMERICA, Defendant and Appellee.

No. 20100175.

Supreme Court of Utah.

Dec. 30, 2011.

L. Rich Humpherys, Karra J. Porter, Sarah E. Spencer, Salt Lake City, for plaintiff.

Matthew L. Lalli, Troy L. Booher, J. Elizabeth Haws, Salt Lake City, for defendant.

Chief Justice DURHAM, opinion of the Court:

INTRODUCTION

¶ 1 In 2000, a fire destroyed a business location of Stone Flood and Fire Restoration Inc., spurring years of litigation with its insurer, Safeco Insurance Company of America. After Stone Flood and its two shareholders, James and Patrice Stone, sued Safeco in 2007, the district court dismissed all claims against Safeco. The court concluded that Stone Flood's claims on the insurance policy were filed three days beyond the applicable statute of limitations and were therefore barred. As to the Stones, the court held that they were not insureds and lacked standing to bring individual claims under the policy. It also held that they lacked standing to bring a claim of intentional infliction of emotional distress because their alleged injuries were merely derivative of the corporation's. On appeal, Stone Flood and the Stones ask us to reverse the district court's grant of summary judgment.

¶ 2 After reviewing the district court's application of the relevant statute of limitations, we conclude that its calculation of the tolling of the limitations period was incorrect and that a correct calculation saves Stone Flood's claims under the insurance policy. As to the Stones' claims, however, we affirm the district court's grant of summary judgment. It properly concluded that the Stones were not insureds and lacked standing to sue under the insurance policy, and that their claim of intentional infliction of emotional distress failed for lack of a distinct, non-derivative injury. We therefore reverse in part and affirm in part the district court's grant of summary judgment.

BACKGROUND

¶ 3 A fire broke out at Stone Flood's Utah County location on November 16, 2000, and continued into the next day. The blaze destroyed Stone Flood's office equipment, supplies, inventory, vehicles, personal property, and most of its building.

¶ 4 On November 17, Stone Flood's owners, James and Patrice Stone, gave notice of the fire damage to Safeco, which had issued Stone Flood a comprehensive commercial insurance policy. The Stones told Safeco's insurance adjuster that they needed money immediately to cover upcoming payroll and other business expenses. According to the Stones, Safeco did not immediately tender payment under the policy, but instead made accusations of arson even though city and state fire marshals had ruled out arson as the fire's cause.

¶ 5 After conducting an investigation into the fire, Safeco made a payment of $25,000 to Stone Flood on December 4, 2000. In return for the payment, Safeco required that the Stones sign a non-waiver agreement in which Safeco declared it was not waiving its right to deny coverage under the policy and that it needed to investigate the loss further. James Stone signed the non-waiver agreement on the line for “Named Insured,” and Patrice Stone signed on the line for “Spouse.” Safeco ultimately made payments to Stone Flood under the policy totaling $225,000 within twelve weeks of the fire, $1 million within seven months of the fire, and $1.17 million within ten months of the fire.

¶ 6 A series of lawsuits ensued and were principally based on allegations that Safeco delayed payments under the insurance policy, which resulted in Stone Flood's and the Stones' financial collapse. On November 15, 2002, Stone Flood sued Safeco for wrongful conduct and sought additional payments under the policy, consequential damages for delayed payment, and punitive damages. The district court eventually dismissed Stone Flood's lawsuit without prejudice for failure to prosecute. About a year later, the Stones filed a lawsuit in their personal capacity against Safeco alleging intentional infliction of emotional distress and breach of contract. This lawsuit also was later dismissed without prejudice.

¶ 7 During much of this time, Stone Flood and Safeco engaged in an appraisal of the damage to Stone Flood's property. The insurance policy contains a provision stating, in relevant part, “If [Safeco] and [Stone Flood] disagree on the amount of Net Income and operating expenses or the amount of loss, either party may make a written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser.” Safeco sent Stone Flood a letter invoking this provision on February 3, 2003, shortly after it answered the complaint filed in Stone Flood's first lawsuit. Safeco then filed an unopposed motion for the court to order an appraisal and stay the litigation, which the court did on July 11, 2003. Consistent with the insurance policy, the parties selected their respective appraisers. On January 9, 2007, the appraisers issued a written opinion, which concluded that Safeco had paid all but $39,571 owed under the policy within ten months of the fire.

¶ 8 Stone Flood then filed a second lawsuit against Safeco on May 22, 2007, alleging breach of contract, breach of the covenant of good faith and fair dealing, breach of statutory duties under the insurance code, misrepresentation and fraud, deceptive advertising, and negligent misrepresentation.¹ The complaint was later amended to add the Stones as individual plaintiffs alleging the same causes of action, as well as intentional infliction of emotional distress. Safeco moved for summary judgment, arguing that the claims by Stone Flood were barred under Utah Code section 31A–21–313(1), which provides a three-year limitations period on “action[s] on a written policy or contract of first party insurance.” Additionally, Safeco argued that the Stones lacked standing to bring their contract and intentional infliction of emotional distress claims.

¶ 9 The district court granted Safeco's motion for summary judgment. As to Stone Flood's claims on the insurance policy, the court concluded that the limitations period began to run on November 1617, 2000, the date of the fire. The court tolled the limitations period during the time in which Safeco and Stone Flood conducted an appraisal of the loss, as provided in Utah Code section 31A–21–313(5). It calculated this tolling period as occurring between July 11, 2003, and January 9, 2007—the time that elapsed between the date of the court's appraisal order in Stone Flood's first lawsuit and the date the appraisers submitted a written decision. Accounting for the appraisal tolling period, the court determined that 1,098 days had elapsed between the date of the fire and the date Stone Flood filed its lawsuit, which was three days beyond the three-year (1,095–day) limitations period for claims on first-party insurance contracts.

¶ 10 As to the Stones, the court dismissed their contract claims because they were not named insureds under the Safeco policy and thus lacked standing. The court rejected the Stones' argument that they had become insureds after signing the non-waiver agreement, in which they agreed that Safeco was not waiving its right to ultimately deny coverage by making an initial payment under the policy.

¶ 11 The court also held that although a material issue of fact precluded summary judgment on the Stones' claim of intentional infliction of emotional distress, they lacked standing to assert such a claim under the reasoning set forth in Stocks v. United States Fidelity & Guaranty Co., 2000 UT App 139, 3 P.3d 722. In Stocks, the Utah Court of Appeals held that “[a] shareholder may bring an individual cause of action if the harm to the corporation also damaged the shareholder as an individual rather than a shareholder” Id. ¶ 11 (internal quotation marks omitted). The district court concluded that the Stones, as shareholders of Stone Flood, alleged emotional distress that had “arisen derivatively from the damage suffered by the corporation” because they had argued the distress was “caused by Safeco's alleged failure to make timely payments ... for Stone Flood's losses and the resulting collapse of Stone Flood.” ²

¶ 12 Stone Flood and the Stones appealed the court's order granting summary judgment. We have jurisdiction under section 78A–3–102(3)(j) of the Utah Code.

STANDARD OF REVIEW

¶ 13 Summary judgment is appropriate only where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. UTAH R. CIV. P. 56(c). “We review a district court's grant of summary judgment for correctness and afford no deference to the court's legal conclusions.” Salt Lake City Corp. v. Big Ditch Irrigation Co., 2011 UT 33, ¶ 18, 258 P.3d 539.

ANALYSIS

¶ 14 The appellants have placed two issues squarely before us. First, we must decide whether the district court erred when it held that a three-year statute of limitations barred Stone Flood's contract claims under the insurance policy. Second, we must review the district court's ruling that the Stones lacked standing to pursue claims under the policy as well as a claim for intentional infliction of emotional distress.

¶ 15 On the first issue, we hold that the district court erroneously calculated the time that elapsed under the limitations period. The district court started the tolling on July 11, 2003, the date of the court's appraisal order. This was error. The tolling period began February 3, 2003, when Safeco sent a written demand to Stone Flood expressing its intent to invoke an appraisal of the loss under the policy. Under this calculation, Stone Flood's contract claims under the policy are not barred, and we therefore reverse.

¶ 16 On the second issue, we agree with the district court that the Stones were not named insureds and...