Taf, L.L.C. v. Hartford Fire Ins. Co.

• Decision Date: 28 February 2008
• Docket Number: Civil No. 06-cv-01822-LTB-BNB.
• Citation: 549 F.Supp.2d 1282
• Parties: TAF, LLC, Plaintiff, v. HARTFORD FIRE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Colorado

549 F.Supp.2d 1282

TAF, LLC, Plaintiff, v. HARTFORD FIRE INSURANCE COMPANY, Defendant.

Civil No. 06-cv-01822-LTB-BNB.

United States District Court, D. Colorado.

February 28, 2008.

COPYRIGHT MATERIAL OMITTED

Derry Beach Adams, William Andrew Wills, II, Wills & Adams, LLP, Colorado Springs, CO, for Plaintiff.

Carla McCord Albers, Craig William Cain, Jennifer Lynn White, Kristine Kay Hayter, Cain & Hayter, LLP, Colorado Springs, CO, Deani Beard Milano, William T. Treas, Nielsen Law Firm, LLC, Metairie, LA, for Defendant.

ORDER

LEWIS T. BABCOCK, Judge.

This matter is before me on a Motion for Summary Judgment [Doc #90] filed by Plaintiff, TAF, L.L.C. In addition, Defendant, Hartford Fire Insurance Co., has filed the following cross motions: Motion for Summary Judgment as to Plaintiff's Breach of Contract Claim [Doc # 96]; Motion for Summary Judgment as to Plaintiffs Claims Alleging Negligence and Negligent Misrepresentation [Doc #94]; and Motion for Clarification or, In the Alternative, Motion to Dismiss Claims for Bad Faith and Exemplary Damages [Doc # 98]. After consideration of the parties' briefs and related attachments, as well as oral argument presented during a hearing on February 26, 2008, I deny TAF's motion seeking summary judgment and I grant Hartford's motions for summary judgment. I also grant Hartford's motion to clarify and, as a result, I order that TAF's complaint shall be dismissed and judgment shall enter in favor of Hartford.

I. FACTS

The facts in this case are undisputed. TAF acquired a Standard Flood Insurance Policy (the "SFIP"), issued by Hartford pursuant to the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001, et seq. (the "NFIA"), for its commercial building located in Colorado Springs. In August of 2005, TAF sustained flood damage and, as such, made a claim on the SFIP for $59,619.43. Hartford ultimately paid a portion of the claim, in the amount of $19,765.66, but denied the remainder on the ground that the lower floor of TAF's building is a basement and, as such, is subject to the basement limitation contained in the SFIP.

TAF then brought this lawsuit against Hartford, the producer of flood insurance services on behalf of Hartford, and the insurance adjustment company that represented Hartford related to the SFIP. I subsequently dismissed the claims asserted against the representative on the basis that the NFIA preempted that claim. [Doc # 52] In addition, the parties stipulated to the dismissal of the insurance adjustment company in May 2007. [Doc # 70] On Hartford's motion to dismiss for failure to state a claim, I further ruled that TAF's equitable estoppel claim against Hartford was dismissed on preemption grounds. [Doc # 69] As a result, TAF's remaining claims against Hartford are for bad faith breach of contract, negligence, and negligent misrepresentation.

II. STANDARD OF REVIEW

The purpose of a summary judgment motion under Fed.R.Civ.P. 56 is to assess whether trial is necessary. White v. York Int'l Corp., 45 F.3d 357, 360 (10th Cir. 1995). Fed.R.Civ.P. 56(c) provides that summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The nonmoving party has the burden of showing that there are issues of material fact to be determined. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

A party seeking summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, interrogatories, and admissions on file together with affidavits, if any, which it believes demonstrate the absence of genuine issues for trial. Id. at 323, 106 S.Ct. 2548; Mares v. ConAgra Poultry Co., Inc., 971 F.2d 492, 494 (10th Cir.1992). Once a properly supported summary judgment motion is made, the opposing party may not rest on the allegations contained in his complaint, but must respond with specific facts showing the existence of a genuine factual issue to be tried. Otteson v. U.S., 622 F.2d 516, 519 (10th Cir.1980); Fed.R.Civ.P. 56(e). These specific facts may be shown "by any of the kinds of evidentiary materials listed in Rule 56(c), except the pleadings themselves." Celotex Corp. v. Catrett, supra, 477 U.S. at 324, 106 S.Ct. 2548.

If a reasonable juror could not return a verdict for the non-moving party, summary judgment is proper and there is no need for a trial. Id. at 323, 106 S.Ct. 2548. The operative inquiry is whether, based on all documents submitted, reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). However, summary judgment should not enter if, viewing the evidence in a light most favorable to the nonmoving party and drawing all reasonable inferences in that party's favor, a reasonable jury could return a verdict for that party. Id. at 252, 106 S.Ct. 2505; Mares v. ConAgra Poultry Co., supra, 971 F.2d at 494.

III. TAF's MOTION FOR SUMMARY JUDGMENT

In its motion for summary judgment, TAF seeks judgment on two questions: first, is the definition of "basement" in the SFIP clear and unambiguous and, second, if so, does the lower floor of TAF's building constitute a basement pursuant to that definition.

In order to ensure consistent application, federal common law controls the interpretation of insurance policies issued pursuant to the National Flood Insurance Program, and standard insurance law principles apply. Nelson, v. Becton, 732 F.Supp. 996, 999 (D.Minn.1990), aff'd, 929 F.2d 1287 (8th Cir.1991). As a result, if the policy language is clear and unambiguous, its natural meaning controls. Sodowski v. Nat'l Flood Ins. Program of Fed. Emergency Management Agency, 834 F.2d 653, 656 (7th Cir.1981)(quoting Hanover Bldg. Materials, Inc. v. Guiffrida, 748 F.2d 1011, 1013 (5th Cir.1984)). The terms of the SFIP are strictly construed and enforced because such claims directly affect the United States Treasury. Forman v. FEMA, 138 F.3d 543, 545 (5th Cir.1998) (citations omitted). However, if the language is susceptible to two constructions, the one more favorable to the insured will be adopted because insurance contracts are written by the insurer and offered to the insured in a fixed form. Nelson v. Becton, supra, 732 F.Supp. at 999 (citing Aschenbrenner v. United States Fidelity & Guar. Co., 292 U.S. 80, 84-85, 54 S.Ct. 590, 78 L.Ed. 1137 (1934)).

Article 11(A)(5) of the SFIP defines a basement as:

Any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.

Both parties maintain that the SFIP's definition of a basement in this case is clear and unambiguous. They rely upon three cases which have reviewed the issue and have concluded as such. In Nelson v. Becton, supra, 732 F.Supp. at 998, the district court reviewed an SFIP which provided that a "basement" was "the lowest level or story which has its floor subgrade (below ground level) on all sides." The court ruled that the SFIP "unambiguously excludes from coverage certain losses to a homes lowest level when its floor is subgrade on all sides." Id. at 999. The court further determined that the plaintiffs' lower floors in that case were not true "walkouts"—defined as when the home's lowest level may be below grade on as many as three sides but on at least one side an exit is at ground level—because "their homes can only be exited by stepping up to reach ground level," and thus were basements as defined by the SFIP. Id. (rejecting the plaintiffs' contention that "since their homes' lower levels exited with only one or a few upward steps to their backyards" the basement exclusion did not apply).

The Eighth Circuit affirmed in Nelson v. Becton, supra, 929 F.2d at 1289, and held that because it was necessary to go up at least one step at the rear exit, the floors of the lower levels of the appellants' homes were subgrade on all sides. The court noted that "[t]he extent to which they were subgrade, whether 6, 8, or 40 inches, is immaterial under the policy" and, because the grade at the rear of the houses "was below the ground level at the point of exit," the floor level was subgrade and the SFIP definition of basement applied. Id.

In Unger v. Liberty Mut. Ins. Co., 849 F.Supp. 839, 846 (E.D.N.Y.1994), the court reviewed the "reverse factual situation" presented in Nelson v. Becton, supra, in that the lower level of the plaintiffs home in that case "was above the level of the ground near that entrance." Specifically, the plaintiffs driveway "gradually slopes down from the street to a garage and a door to the lower level of his home ... and that the lower door leading to the lower level is above ground level." Id. at 841. Although it was undisputed that the sloping driveway was excavated during construction "thereby altering the natural grade" and that "the bottom of the lower level doorway is approximately two feet lower than the sidewalk, roadway, and surrounding property," the Unger court determined that "it is obvious from Becton that the `ground level' referred to in the policy definition, is intended to be that area close and adjacent to the lower level door and not the area of the sidewalk and street, a substantial distance away from the lower level." Id. at 846. As a result, court found that because the lower level of the plaintiffs residence was not subgrade or below ground level on all four sides, in that a person must step up from the ground "immediately adjacent to" the lower level door, it was not a "basement" within the purview of the SFIP. Id.

Finally, in Linder & Associates, Inc. v. Aetna Cas. & Sur. Co., 166 F.3d 547, 550 (3rd Cir.1999), the Third Circuit reviewed the...