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Sable Cove Condominium Association and Edge Construction, LLC v. Owners Insurance Co.

United States District Court, D. Colorado

September 5, 2014

SABLE COVE CONDOMINIUM ASSOCIATION and EDGE CONSTRUCTION, LLC, Plaintiffs,
v.
OWNERS INSURANCE COMPANY, Defendant.

ORDER ON DEFENDANT OWNERS INSURANCE COMPANY'S PARTIAL MOTION TO DISMISS (DKT. NO. 12)

MICHAEL J. WATANABE, Magistrate Judge.

This case is before this court for all purposes pursuant to the Court's Pilot Program and 28 U.S.C. § 636(c) upon consent of the parties and the Order of Reference Upon Consent to Jurisdiction of Magistrate Judge issued by Chief Judge Marcia S. Krieger on May 8, 2014 (Docket No. 17; see Docket No. 15 - Consent).

Now before the court is Defendant Owners Insurance Company's Partial Motion to Dismiss (Docket No. 12). Plaintiffs filed a Response (Docket No. 14), and defendant filed a Reply (Docket No. 16). The court has carefully considered these motion papers as well as applicable Federal Rules of Civil Procedure and case law. In addition, the court has taken judicial notice of the court file. The court now being fully informed makes the following findings, conclusions of law, and order.

Plaintiffs' Allegations

This action was removed from Arapahoe County District Court. (See Docket No. 1). The two plaintiffs in this action, Sable Cove Condominium Association ("Sable Cove") and Edge Construction, LLC ("Edge"), which was the contractor that completed construction at the condominium community, have each pled the same three claims in this case: (1) insurance bad faith, (2) breach of contract, and (3) statutory bad faith pursuant to §§ 10-3-1113(3), 1115, 1116, C.R.S. These claims are based upon damage from a hail and wind storm on June 6, 2012, for which Sable Cove filed an insurance claim with its insurer, defendant Owners Insurance Company ("defendant"). Plaintiffs allege the following in the Complaint (Docket No. 4).

Defendant investigated the loss and agreed to pay for it. Defendant's field adjuster calculated the loss in an estimate that included overhead and profit charges for a total of $891, 963.66, not including the cost of the permits the defendant agreed to pay. The total overhead and profit charges for this loss totaled $153, 417.02. Sable Cove contracted with Edge to complete the roof repairs according to the defendant's estimate. Edge completed the work, but defendant's in-house adjuster then refused to pay for any overhead and profit charges. As a result, Edge was not paid $153, 417.02 due under its contract with Sable Cove. Defendant in bad faith unreasonably denied this portion of Sable Cove's claim. Both Sable Cove and Edge complained to defendant about this wrongful failure to pay.

On February 7, 2014, Sable Cove and Edge entered into a Post-Loss Assignment of Insurance Proceeds wherein Sable Cove assigned to Edge its unpaid, post-loss policy benefits of $153, 417.02 for the subject overhead and profit for the work that has already been completed. (See Ex. B to Compl., Docket No. 4). In addition, Edge qualifies as a "first-party claimant" under § 10-3-1115, C.R.S., and is entitled to sue defendant under § 10-3-1116, C.R.S.

Defendant's conduct was done in bad faith, with the intent of delaying payment and reducing the covered benefit owed by defendant to Sable Cove and Edge for the repair of the storm damage on Sable Cove's covered claim. Defendant's actions constitute a breach of the express duties set forth in Sable Cove's insurance policy as well as the implied contractual duties of good faith and fair dealing that defendant owes Sable Cove.

Defendant's Motion to Dismiss

Defendant seeks dismissal of the Edge's claims in their entirety. Defendant asserts that Edge is not the real party in interest and lacks standing to pursue at least the breach of contract and "insurance bad faith" claim and perhaps as to the unreasonable delay/denial claim as well. As such, defendant submits that a dismissal as to all claims brought by Edge is the appropriate remedy. However, to the extent Edge remains in the case to any degree, defendant asserts that dismissal of Edge should occur at least with respect to the breach of contract and "insurance bad faith" claims, and only one plaintiff should be permitted to pursue the "statutory bad faith claim." Furthermore, to the extent the court may determine that plaintiff Sable Cover has validly assigned any claims to Edge, Sable Cove is not the real party in interest, and its claims must be dismissed. In addition, defendant asserts that plaintiffs have attempted to expand the "statutory bad faith" claim to include not only a claim made pursuant to §§ 10-3-1115 and 1116, C.R.S., but also made pursuant to § 10-3-1113(3), C.R.S., which allegedly does not give rise to any right of action but instead merely addresses the court's options for instructing the trier of fact at trial on various insurance-related claims. As such, defendant contends that the portion of plaintiffs' "statutory bad faith" claim predicated upon that section should likewise be dismissed.

In response, Edge asserts that it has standing to pursue its contract and statutory bad faith claims, but it agrees it lacks standing to assert a common law bad faith claim. (Docket No. 14 at 2). Therefore, Edge's common law bad faith claim shall be dismissed. With regard to the two remaining claims, Edge asserts the following. It has standing to pursue its contract claims through Sable Cove's post-loss assignment of its insurance proceeds. Furthermore, Edge has independent standing to pursue its statutory bad faith claims because the legislature deliberately chose to expand the class of plaintiffs for such claims by defining a "first party claimant" as a person or entity that asserts a claim "on behalf of" an insured. (Docket No. 14 at 5, citing Larson v. Allstate, 305 P.3d 409 (Colo. 2012) (roofer or general contractor can assert statutory bad faith claims under §§ 10-3-1115 and 10-3-1116, C.R.S.)). Finally, both plaintiffs properly pleaded for relief under § 10-3-1113(3), C.R.S. They do not contend that that provision provides an independent cause of action but instead have specifically pleaded the jury instructions contained therein to avoid potential arguments about the specificity of the pleadings or waiver.

Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). A motion to dismiss pursuant to Rule 12(b)(6) alleges that the complaint fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). "A complaint must be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) if it does not plead enough facts to state a claim to relief that is plausible on its face.'" Cutter v. RailAmerica, Inc., 2008 WL 163016, at *2 (D. Colo. Jan. 15, 2008) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007)). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ... a plaintiff's obligation to provide the grounds' of his entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do...." Bell Atlantic Corp., 550 U.S. at 555 (citations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level." Id . "[A] plaintiff must nudge [] [his] claims across the line from conceivable to plausible' in order to survive a motion to dismiss.... Thus, the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims." Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atlantic Corp., 127 S.Ct. at 1974).

The Tenth Circuit Court of Appeals has held "that plausibility refers to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible.'" Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012). The Circuit court has further "noted that [t]he nature and specificity of the allegations required to state a plausible claim will vary based on context.'" Id . The court thus "concluded the Twombly/Iqbal standard is a wide middle ground between heightened fact pleading, which is expressly rejected, and allowing complaints that are no more than labels and conclusions or a formulaic recitation of the elements of a cause of action, which the Court stated will not do.'" Id.

For purposes of a motion to dismiss pursuant to Rule 12(b)(6), the court must accept all well-pled factual allegations in the complaint as true and resolve all reasonable inferences in the plaintiff's favor. Morse v. Regents of the Univ. of Colo., 154 F.3d 1124, 1126-27 (10th Cir. 1998); Seamons v. Snow, 84 F.3d 1226, 1231-32 (10th Cir. 1996). However, "when legal conclusions are involved in the complaint the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to [those] conclusions'...." Khalik, 671 F.3d at 1190 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009)). "Accordingly, in examining a complaint under Rule ...


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