RONALD E. BUSH, Chief Magistrate Judge.
Now pending before the Court is Defendant's Motion for Summary Judgment (Docket No. 25). Having carefully considered the record, participated in oral argument, and otherwise being fully advised, the undersigned enters the following Report and Recommendation:
Plaintiff Jennifer Botai carried a homeowners insurance policy with Defendant Safeco Insurance Company of Illinois ("Safeco"), effective from May 2013 through May 2014 (the "Policy"). She and her husband, Plaintiff Michael Botai (collectively "Plaintiffs"), made a claim upon that Policy after their home sustained water damage on December 7, 2013. Plaintiffs are dissatisfied with the manner in which Safeco went about investigating and adjusting, and then paying upon, their claim. Their lawsuit seeks contractual and tort remedies against Safeco, related to the latter's handling of their claim under the terms of the Policy — specifically, (1) breach of contract; (2) negligence; and (3) intentional bad faith.
The case was filed originally in Idaho state court, but then removed to this Court by Safeco. Shortly thereafter, Safeco moved to stay the action and compel Plaintiffs to participate in the Policy's prescribed appraisal process to address and resolve the disputed value of the outstanding amount of Plaintiffs' claimed loss.
Policy at pp. 12-13, attached as Ex. A to Anderson Decl. (Docket No. 25, Att. 2) (emphasis in original).
The undersigned granted Safeco's Motion on July 24, 2015, ordering that "[t]he parties shall take all necessary steps to begin the Policy's appraisal process within 30 days of the date of this Order, and complete the process within 90 days." See 7/24/15 MDO (Docket No. 16).
In ordering the parties to comply with the Policy's appraisal process (and also staying the action, pending the outcome of the ordered appraisal), the Court addressed the potential effect of the parties' participation in the appraisal process on Plaintiffs' asserted claims against Safeco — in particular, whether (or to what extent) the appraisal process resolved all of Plaintiffs' claims against Safeco (including bad faith) or just the proceeds-based claim (breach of contract).
Id. at pp. 5, 7-8 (emphasis in original, internal quotation marks and citations omitted). In other words, the appraisal process addressed only Plaintiffs' breach of contract claim against Safeco, not their bad faith claim. Finally, to monitor the action's progress and ensure its continued momentum, the Court ordered the parties to file a "joint report . . . on the status of the appraisal process no later than October 30, 2015." Id. at p. 9.
On October 20, 2015, the parties stipulated to extend the date to complete the appraisal process from October 22, 2015 to November 23, 2015 (and, likewise, any deadline to submit an update to the Court). See Stip., p. 2 (Docket No. 17) ("[G]iven the busy schedules of the two appraisers and the number of issues to be determined on appraisal, it is anticipated that the appraisal process will extend beyond the October 22, 2015 deadline. The parties agree that the appraisal process should be able to be completed by November 23, 2015 . . . . The parties also anticipate providing a status report to the Court regarding the outcome of the appraisal process by December 1, 2015."). The Court adopted the parties' stipulation the next day. See 10/21/15 DEO, p. 1 (Docket No. 17) ("The deadline to complete the appraisal process shall be extended.
On December 9, 2015, the parties filed a Joint Report RE: Status of Appraisal. See Joint Rpt. (Docket No. 21). Therein, the parties indicated:
Id. at 2.
Following the appraisal, Safeco made an additional payment of $18,273.73 to Plaintiffs (for a total payment of $40,727.88). See Mem. in Supp. of MSJ, p. 14 (Docket No. 25, Att. 1). On May 17, 2016, Safeco filed the pending Motion for Summary Judgment, arguing that it neither breached the Policy when investigating and processing Plaintiffs' claim, nor committed bad faith in the handling of the same. See id. at pp. 14-21.
Summary judgment is appropriate where a party can show that, as to any claim or defense, "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). One of the principal purposes of summary judgment "is to isolate and dispose of factually unsupported claims . . . ." Celotex Corp. v. Catrett, 477 U.S. 317, 323-34 (1986). It is "not a disfavored procedural shortcut," but is instead the "principal tool[ ] by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). There must be a genuine dispute as to any material fact — a fact "that may affect the outcome of the case." Id. at 248.
The evidence must be viewed in the light most favorable to the non-moving party, and the Court must not make credibility findings. Id. at 255. Direct testimony of the non-movant must be believed, however implausible. Leslie v. Grupo ICA, 198 F.3d 1152, 1159 (9th Cir. 1999). On the other hand, the Court is not required to adopt unreasonable inferences from circumstantial evidence. See McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th Cir. 1988).
The moving party bears the initial burden of demonstrating the absence of a genuine dispute as to a material fact. See Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (en banc). To carry this burden, the moving party need not introduce any affirmative evidence (such as affidavits or deposition excerpts) but may simply point out the absence of evidence to support the nonmoving party's case. See Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir. 2000).
This shifts the burden to the non-moving party to produce evidence sufficient to support a jury verdict in his favor. See Devereaux, 263 F.3d at 1076. The non-moving party must go beyond the pleadings and show "by her [ ] affidavits, or by the depositions, answers to interrogatories, or admissions on file" that a genuine dispute of material fact exists. Celotex, 477 U.S. at 324.
Examination of the allegations supporting Plaintiffs' breach of contract and bad faith claims, reveals the originally synergistic relationship between the two causes of action — that is, when Plaintiffs first filed their Complaint in state court, their allegations surrounding their dispute with Safeco supported both claims. For example, on their breach of contract claim, Plaintiffs allege:
Compl., ¶¶ 29-33 (Docket No. 1, Att. 1). Similarly, on their bad faith claim, Plaintiffs allege:
Id. at ¶¶ 38-42.
After those allegations were raised in the Complaint, a critical event took place — Safeco paid in full the balance of the appraisers' agreed-upon loss, following the parties' participation in the Policy's appraisal process. See Joint Rpt. (Docket No. 21). Under the terms of the Policy, the appraisal process was an agreed method of seeking resolution of disputes over the amount of those losses covered under Section I ("Property Coverages") of the Policy. See Policy at pp. 12-13, attached as Ex. A to Anderson Decl. (Docket No. 25, Att. 2). Once determined (that is, once agreed upon as a product of the appraisal process), Safeco is contractually required to pay such an amount under the Policy.
Hence, after Safeco fully paid the appraised amount of the loss (by virtue of its third payment of $18,273.73), nothing more is owed under the express terms of the Policy. As such, there is no longer a basis to support Plaintiffs' breach of contract claim, and, thus, Safeco's Motion for Summary Judgment should be granted in this limited respect.
Plaintiffs' claims, however, extend beyond Safeco's obligation to pay under the Policy, as they are also premised upon Safeco's allegedly wrongful conduct throughout the settlement process itself. Idaho recognizes a tort action, distinct from an action on the contract, for an insurer's bad faith in settling the first party claims of its insured. Insurers have a common law duty to their insureds to settle first party claims in good faith. A breach of that duty will give rise to an action in tort. The imposition of liability in tort for bad faith breach of an insurance contract is based upon the special relationship that exists between the insurer and the insured. See Cummings v. Stephens, 336 P.3d 281, 292 (Idaho 2014) ("This Court has created a tort of bad faith applicable to insurance companies. That tort is not a tortious breach of contract, but a breach of a duty imposed as a consequence of a contractual relationship."); see also Inland Group of Companies, Inc. v. Providence Washington Ins. Co., 985 P.2d 674, 680 (Idaho 1999) ("The duty to act in good faith exists at all times during the settlement process. Furthermore, a claim for breach of the obligation of good faith and fair dealing is independent of a technical breach of the obligation to pay."). This principle was described many years ago in White v. Unigard Mut. Inc. Co., 730 P.2d 1014 (Idaho 1986), in which the Idaho Supreme Court said:
Id. at 1018.
To recover against an insurance company on the tort of bad faith, the insured must show:
(1) the insurer intentionally and unreasonably denied or delayed payment; (2) the insured's claim was not fairly debatable; (3) the insurer's denial or delay was not the result of good faith mistake; and (3) the resulting harm was not fully compensable by contract damages. See Lovey v. Regence BlueShield of Idaho, 72 P.3d 877, 888 (Idaho 2003). Part and parcel with Plaintiffs' original position that Safeco acted in bad faith by denying their claim for coverage, their argument has since pivoted to focus largely on Safeco's alleged delay in investigating and processing the claim. Safeco disagrees.
To begin, Safeco argues that Plaintiffs "cannot establish a viable tort action in this matter without first establishing that a breach of a contractual duty occurred." Mem. in Supp. of MSJ, p. 20 (Docket No. 25, Att. 1) (citing Robinson v. State Farm Mut. Auto Ins. Co., 45 P.3d 829 (Idaho 2002)). To the extent Safeco is suggesting that, having already made payment on the claim following the appraisal process there can be no breach of contract to anchor Plaintiffs' bad faith claim, the undersigned disagrees. An implied duty of good faith and fair dealing "exists between insurers and insureds in every insurance policy." Mortensen v. Stewart Title Guar. Co., 235 P.3d 387, 395 (Idaho 2010). The covenant requires that "the parties perform in good faith the obligations imposed by their agreement," and a violation of the covenant occurs only when "either party . . . violates, nullifies, or significantly impairs any benefit" of the contract. Idaho First Nat. Bank v. Bliss Valley Foods, 824 P.2d 841, 863 (Idaho 1991). It is this same duty that Plaintiffs may (and do) rely upon in support of their bad faith claim — independent of the fact that Safeco has now "made good" on its obligation to account for Plaintiffs' covered claims. See, e.g., White, 730 P.2d at 1020 ("The tort of bad faith breach of insurance contract, then, has its foundations in the common law covenant of good faith and fair dealing and is founded upon the unique relationship of the insurer and the insured, the adhesionary nature of the insurance contract including the potential for overreaching on the part of the insurer, and the unique, `non-commercial' aspect of the insurance contract.").
More substantively, Safeco contends that its initial response to Plaintiffs' notice of loss, subsequent investigation, and ultimate processing of their claim to final payment, took place in a timely fashion and was at all times consistent with the terms of the Policy and industry norms. See generally Mem. in Supp. of MSJ, pp. 16-21 (Docket No. 25, Att. 1). In fact, according to Safeco, any delays in making payments on the claim were the result of Plaintiffs'
See generally Opp. to MSJ, pp. 3-8, 11-12 (Docket No. 29).
These conflicting accounts necessarily speak to the elements undergirding Plaintiffs' bad faith claim — in particular, whether Safeco intentionally and unreasonably denied payment (to include the allegation by Plaintiffs that Safeco rigged the appraisal process by not naming a "disinterested" appraiser as the Policy requires) and whether Plaintiffs' claim was not fairly debatable (along with the remaining elements that may/may not fall in line pending resolution of the first two inquiries). At the summary judgment stage, such a dispute cannot be resolved. While it is undisputed that Safeco had a duty to act in good faith when processing and adjusting Plaintiffs' claim pursuant to the Policy, whether it breached that duty involves unresolved questions of fact. It is certainly possible that Safeco's understanding of those facts is correct and that Plaintiffs' bad faith claim is more smoke than fire. However, viewing the facts (and all reasonable inferences to be drawn from such facts) most favorably to Plaintiffs in these regards (as the Court is required to do at this stage of the litigation), it could be said that Safeco breached such a duty and did so in bad faith. In short, these factual questions prevent the entry of summary judgment on Plaintiffs' bad faith claim. Accordingly, Safeco's Motion for Summary Judgment should be denied in this limited respect.
Based on the foregoing, IT IS HEREBY RECOMMENDED that Defendant's Motion for Summary Judgment (Docket No. 25) be GRANTED, in part, and DENIED, in part, as follows:
1. Plaintiffs' breach of contract claim be dismissed and, in this respect, Defendant's Motion for Summary Judgment on the breach of contract be GRANTED; and
2. Plaintiffs' intentional bad faith claim not be dismissed and, in this respect, Defendant's Motion for Summary Judgment be DENIED.
Pursuant to District of Idaho Local Civil Rule 72.1(b)(2), a party objecting to a Magistrate Judge's recommended disposition "must serve and file specific, written objections, not to exceed twenty pages . . . within fourteen (14) days. . ., unless the magistrate or district judge sets a different time period." Additionally, the other party "may serve and file a response, not to exceed ten pages, to another party's objections within fourteen (14) days after being served with a copy thereof."
stated that Plaintiffs' negligence claim was subsumed within the bad faith claim.
