MARCIA S. KRIEGER, Senior District Judge.
The Court exercises jurisdiction under 28 U.S.C. § 1332.
This is a case in which the Plaintiff, Hampden Auto Body Co (Hampden)., seeks to recover insurance benefits for property damage and loss of business income. Hampden owns a business in Denver, Colorado, that was insured under an insurance policy (Policy) issued by Defendant Auto-Owners Insurance Co. (Owners) In May 2014, Hampden's paint drying system was damaged in a by a lightning strike. Hampden submitted a claim to Owners, but various communications over the course of the next year were ignored. Eventually, Owners inspected the paint-drying system in June 2015 and paid for its repair. With regard to Hampden's business-income claim, Owners determined a loss of $221,193.
Hampden brought this suit in May 2017, asserting the following causes of action: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) a violation of C.R.S. §§ 10-3-1115, 1116 based on unreasonable delay of the claim.
Rule 56 of the Federal Rules of Civil Procedure facilitates the entry of a judgment only if no trial is necessary. See White v. York Int'l Corp., 45 F.3d 357, 360 (10th Cir. 1995). Summary adjudication is authorized when there is no genuine dispute as to any material fact and a party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Substantive law governs what facts are material and what issues must be determined. It also specifies the elements that must be proved for a given claim or defense, sets the standard of proof, and identifies the party with the burden of proof. See Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986); Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563, 565 (10th Cir. 1989). A factual dispute is "genuine" and summary judgment is precluded if the evidence presented in support of and opposition to the motion is so contradictory that, if presented at trial, a judgment could enter for either party. See Anderson, 477 U.S. at 248. When considering a summary judgment motion, a court views all evidence in the light most favorable to the non-moving party, thereby favoring the right to a trial. See Garrett v. Hewlett Packard Co., 305 F.3d 1210, 1213 (10th Cir. 2002).
If the movant has the burden of proof on a claim or defense, the movant must establish every element of its claim or defense by sufficient, competent evidence. See Fed. R. Civ. P. 56(c)(1)(A). Once the moving party has met its burden, to avoid summary judgment the responding party must present sufficient, competent, contradictory evidence to establish a genuine factual dispute. See Bacchus Indus. Inc. v. Arvin Indus. Inc., 939 F.2d 887, 891 (10th Cir. 1991); Perry v. Woodward, 199 F.3d 1126, 1131 (10th Cir. 1999). If there is a genuine dispute as to a material fact, a trial is required. If there is no genuine dispute as to any material fact, no trial is required. The court then applies the law to the undisputed facts and enters judgment.
If the moving party does not have the burden of proof at trial, it must point to an absence of sufficient evidence to establish the claim or defense that the non-movant is obligated to prove. If the respondent comes forward with sufficient competent evidence to establish a prima facie claim or defense, a trial is required. If the respondent fails to produce sufficient competent evidence to establish its claim or defense, then the movant is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Owners moves for summary judgment on all claims. In viewing the parties' arguments, it is helpful to keep in mind two provisions of the Policy. First, as to the loss payment:
(
Second, the Policy limits legal action taken against the insurer unless there has been full compliance with the Policy and the "action is brought within 2 years after the date on which the direct physical loss or damage occurred." (
In interpreting these provisions, the Court is mindful that Colorado law requires it to construe them according to their ordinary language (absent a showing that the parties jointly intended the language to have a different meaning). Ace Am. Ins. Co. v. Dish Network LLC, 883 F.3d 881, 887 (10th Cir. 2018).
Owners contends that claims for breach of contract are untimely, relying upon the provision in the Policy requiring that any legal action against Owners be "brought within 2 years after the date on which the direct physical loss or damage occurred." (
The Policy language pertinent to filing of an action keys to "direct physical loss or damage", which suggests a definitive date upon which a particular event occurs. Owners argues that the business loss calculation is the same as that for property damage — two years from the lightning strike. Hampden argues that the business-income loss is a form of damage not subject to the limiting words direct physical. Hampden contends that because the Policy provides for a 12-month period of business income coverage, that the damage arose on May 29, 2015, one year after the lightning strike. During that time, Owners was notified of the physical damage and failed to take action to repair it. (
The Court begins with the observation that the Policy does not define the terms loss or damage. However, the Business Income and Extra Expense Rider, which creates and governs coverage for business income losses, provides in pertinent part: "Subject to the Limit of Insurance provisions of this endorsement, we will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration." (
The Court finds no language in the Policy to support Hampden's interpretation — that one should assume that Owners timely attended to the repair of Hampden's machine beginning on the date it was damaged, and that the repair either took one year, or that Hampden is entitled to the maximum payment of benefits — losses over a one-year period.
Instead, following the language of the Policy, the business loss did not arise until the period of restoration was concluded. According to the record, that was in September 2015. Calculating two years from that date, the filing the Complaint in this matter on April 30, 2017, was timely.
Owners also advances an argument that Hampden failed to cooperate by failing to timely submit a "proof of loss" as to the business-income claim as required by the Policy. Hampden produces no evidence that it submitted a proof of loss, and appears to concede that it did not. However, Hampden points to a letter from Owners dated July 8, 2016, in which Owners states that the letter will "serve as your Proof of Loss as what we have paid thus far: . . . Business Income and Extra Expense: $221,193.00".
This claim is colloquially referred to an insurance "bad faith claim". Hampden contends that Owners acted unreasonably in ignoring its communications, failing to investigate its claim for nine months, resulting in an effective denial of its claim for replacement. (
In Colorado, every insurance policy has an implied duty of good faith and fair dealing. See Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003). Breach of this duty gives rise to an action in tort to recover economic and noneconomic compensatory damages and punitive damages where appropriate. Goodson v. Am. Standard Ins. Co., 89 P.3d 409, 414-15 (Colo. 2004). To establish liability for bad-faith breach of the Policy, Hampden must prove that (1) a reasonable insurer under the circumstances would have paid or otherwise settled the claim, (2) Owners either knowingly or recklessly disregarded the claim's validity, and (3) Hampden suffered a loss as a result of Owners' conduct. Id. at 415.
In assessing a bad faith claim, the reasonableness of an insurer's conduct is measured objectively based on industry standards. Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333, 342, 343 (Colo. 2004). It is reasonable for an insurer to challenge claims that are "fairly debatable." See Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1275 (Colo. 1985); Pham v. State Farm Mut. Auto. Ins. Co., 70 P.3d 567, 572 (Colo. App. 2003); Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550, 556-57 (Colo. App. 1998) (affirming dismissal of insured's bad-faith claims because insured's claims were fairly debatable); Brandon v. Sterling Colo. Beef Co., 827 P.2d 559, 561 (Colo. App. 1991). Thus, an insurer will be found to have acted in bad faith only if it has intentionally denied, failed to process, or failed to pay a claim without a reasonable basis. Savio, 706 P.2d at 1275; Brandon, 827 P.2d at 561.
The Court turns to each theory of relief and the elements upon which Hampden has the burden of proof.
Although Hampden's claim is that Owners acted unreasonably in denying its "claim for replacement by ignoring its requests and failing to investigate the claim further" it is undisputed that the Policy gives Owners the option to pay the cost of repair or replacement such that choosing one over the other is not a denial. See (
Hampden refers to the Colorado Unfair Claims Settlement Practices Act, C.R.S. § 10-3-1104, as possible evidence of industry standards. Specifically, Hampden enumerates the following practices and submits evidence that corresponds to them: failure to acknowledge and act reasonably prompt upon communications, refusal to pay claim without a reasonable investigation, failure to affirm or deny coverage within a reasonable time, and not attempting in good faith to effectuate a prompt and fair settlement. See C.R.S. § 10-3-1104(1)(h)(II)-(VI). Though the Act "does not establish a standard of care actionable in tort, it may be used as valid, but not conclusive, evidence of industry standards". Allen, 102 P.3d at 344. Thus, Hampden must couple the Act's provisions with actual evidence to establish industry standards.
The affidavit of Mike Ross is evidence that Owners ignored multiple communications from Hampden. Mr. Ross states that he made "phone calls throughout the fall and winter of 2014-2015" to Owners' adjusters to "request their help", and that at times, "phone calls were not returned". (
Though Hampden does not produce an objective standard as to what a reasonable insurer would have done under the same or similar circumstances in 2014 and 2015, Owners acknowledgment in the email it which it admits that its conduct from September 2014 to June 2015 was not normal in the insurance industry. Hampden has thus proffered evidence of what insurance industry standards or practices were — settling or otherwise handling the claim in a timely manner — and how Owners deviated from them when it failed to process Hampden's claim for months on end.
The second element that Hampden must prove is that Owners acted knowingly or recklessly in disregarding Hampden's claim. This element focuses on Owners' knowledge, evidence of which is found in the same email acknowledging the untimely processing of Hampden's claim. (
With regard to this claim, the parties have a valuation dispute. Hampden again cites the Unfair Claims Practices Act as evidence for what the industry standards are, and refers to the report of Dr. Asaf Bernstein (
A Rule 702 hearing was held on January 2, 2019, at which time the Court considered both Dr. Bernstein's testimony and Owner's objections. The Court found that although Dr. Bernstein's opinion may not be very persuasive at trial, Owner's objections went to weight and did not preclude its admission.
Hampden also brings statutory bad-faith/unreasonable-delay claims pursuant to C.R.S. § 10-3-1115 based on both property damage and a loss of business income. Because Owners conceded that Hampden's losses were covered under the Policy, these claims are properly treated as claims for delay in the payment of benefits. Soicher v. State Farm Mut. Auto. Ins. Co., 351 P.3d 559, 568 (Colo. App. 2015). Under C.R.S. § 10-3-1115, an insurer who delays payment to an insured without a reasonable basis for its delay breaches its statutory duty of good faith and fair dealing. To prove a claim under the statute, Hampden must demonstrate that: (1) Owners delayed payment of benefits to it, and (2) that delay was without a reasonable basis. See Am. Family Mut. Ins. Co. v. Barriga, 418 P.3d 1181, 1185-86 (Colo. 2018).
Hampden incorporates its arguments and evidence advanced for its common-law claim for bad-faith breach. As discussed above, this evidence shows that Hampden contacted Owners on numerous occasions and Owners either did not return calls and emails or said it would look into things and did not. And for the same reasons, Hampden has come forward with prima facie evidence of a payment delay without a reasonable basis sufficient to merit a trial on this claim.
Hampden also incorporates its arguments and evidence advanced for its common-law claim for bad-faith breach. Even granting that this evidence establishes unreasonable conduct, none of this evidence speaks to a delay in processing the business-income claim, as the theory for recovery presented for the bad-faith breach relies primarily on Owners acting inconsistently with the Policy in determining loss.
For the foregoing reasons, the Defendant's Motion for Summary Judgment (