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Sunflower Condominium Association, Inc. v. Owners Insurance Co.

United States District Court, D. Colorado

May 14, 2018

SUNFLOWER CONDOMINIUM ASSOCIATION, INC., a Colorado nonprofit corporation, Plaintiff,


          William J. Martínez United States District Judge

         In this insurance dispute, Plaintiff Sunflower Condominium Association (Plaintiff) brings claims for breach of contract, declaratory judgment, statutory bad faith under Colorado Revised Statutes §§ 10-3-1115 & -1116, and common law insurance bad faith against Defendant Owners Insurance Company (Defendant).

         Now before the Court are the parties' cross motions for summary judgment. Plaintiff's Motion for Partial Summary Judgment Regarding Defendant's Second and Fifth Affirmative Defenses (ECF No. 93 (“Plaintiff's Motion”)) seeks judgment as a matter of law against Defendant's affirmative defenses that Plaintiff submitted a fraudulent claim and therefore is not allowed to collect any benefits it may otherwise be due. (ECF No. 93 at 1.) However, after the filing of Plaintiff's Motion, with the Court's leave (ECF No. 134), Defendant filed an Amended Answer (ECF No. 136), which recharacterized its fraud affirmative defenses as counterclaims. Because the counterclaims are based on the same facts as the affirmative defenses, the Court construes Plaintiff's motion for partial summary judgment on Defendant's second and fifth affirmative defenses as a full motion for summary judgment on Defendant's counterclaims. Also before the Court is Defendant's Motion for Summary Judgment (ECF No. 94 (“Defendant's Motion”)), which seeks judgment as a matter of law against all claims pled in this action by the Plaintiff. For the reasons set forth below, Plaintiff's construed Motion for Summary Judgment is denied, and Defendant's Motion for Summary Judgment is granted.


         Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the movant shows that 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); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A fact is “material” if, under the relevant substantive law, it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). An issue is “genuine” if the evidence is such that it might lead a reasonable trier of fact to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

         In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In addition, the Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. See Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).


         The following facts are undisputed, except where attributed to one party or another, or to specifically cited evidentiary materials.

         Plaintiff is a multi-family homeowners association which manages a property complex comprised of 23 separate condominium buildings, a clubhouse, and six garage buildings (“the Sunflower Property”). (ECF No. 62 ¶¶ 2, 5.) Sunflower purchased an insurance policy from Defendant to cover the common area property (“Insurance Contract”). (Id. ¶ 21.) On September 29, 2014, a wind and hail storm damaged the roofs, gutters, and screens of some of the condominiums and garage structures. (Id. ¶¶ 14-15.) According to Plaintiff, the damage to the Sunflower Property is covered under the Insurance Contract. (Id. ¶ 16.) Plaintiff claims that its “community management team noticed damage to [the Sunflower] property during a physical inspection of [the Sunflower] Property in the latter part of 2015.” (Id. ¶ 17.) On December 23, 2015, Plaintiff “submitted an insurance claim to Defendant related to damages resulting from the September 29, 2014 date of loss.” (Id. ¶ 18.)

         Defendant hired a cost-of-repair expert, Gary Stevens (“Stevens”), as an independent adjuster to investigate and report on the loss to the Sunflower Property. (Id. ¶ 21, 27.) Meanwhile, Plaintiff engaged Matrix Business Consulting (“Matrix”), represented by David Ford (“Ford”), to adjust its claim for the hailstorm damage. (Id. ¶¶ 23-24.) Plaintiff also hired R3NG LLC (“R3NG”), partially owned and represented by Jason Domecq (“Domecq”), to provide a cost-of-repair estimate (“R3NG/Ford estimate”). (Id.) Defendant's adjuster, Stevens, provided a replacement cost value estimate of $857, 233.89 and an actual cash value estimate of $590, 458.91. (ECF No. 113 at 2.)[1] R3NG provided an estimate of $1.8 million to Plaintiff for the cost of repair. (ECF No. 62 ¶ 25.)

         Defendant paid $515, 458.91 to Plaintiff in August 2016. (Id. ¶ 38.) Plaintiff claims that this was the undisputed amount of the claim (id.), while Defendant claims that this amount represents the actual cash value of the August 2, 2016 estimate less the $75, 000 deductible under the policy (ECF No. 99 at 7). Defendant tendered a supplemental payment of $92, 951.05 in April 2017. (ECF No. 113 at 2.) Plaintiff alleges that “Defendant has refused to make further payment” after the April 2017 payment. (ECF No. 62 ¶ 41.)

         Plaintiff sent Defendant its First Supplemental Disclosures, which included documentation that one of Plaintiff's board members had filed an auto insurance claim for damage to her vehicle resulting from the 2014 hailstorm. (ECF No. 93 at 4, ¶ 8.) In its discovery responses, Plaintiff initially claimed that it discovered the damage to the property in December 2015. (Id. ¶ 9.) Plaintiff states that it “subsequently amended this interrogatory answer voluntarily” after it learned that the material was incomplete or incorrect. (Id.) Defendant disputes “Plaintiff's assertion that it ‘voluntarily' amended its answer. After [Defendant] discovered documentation suggesting that Plaintiff's December 18 date of discovery was false, [Defendant] served Plaintiff with additional discovery requests, including a request that Plaintiff admit that Plaintiff “discovered the hail damage more than two months before the date [claimed in its] response to [Defendant's] Interrogatory 6.” (ECF No. 99 at 8, ¶ 9.) According to Defendant, Plaintiff denied this request for admission and, on the same day, served its revised interrogatory answer regarding the date of discovery. (ECF No. 99 at 9, ¶ 9.)

         In its Answer, Defendant raises counterclaims for recoupment and breach of contract. (ECF No. 136 at 18-20.) The Insurance Contract contains a fraud clause which states, “We will not pay for any loss or damage in case of: (1) Concealment or misrepresentation of a material fact; or (2) fraud committed by you or any other insured [] at any time and relating to coverage under this policy.” (Id. at 9 (“fraud clause”).) Defendant claims that Plaintiff violated the fraud clause in two main ways: (1) “plaintiff misrepresented the date when Plaintiff first knew or should have known that a hailstorm may have damaged the subject property” (id.); and (2) “plaintiff has attempted to maximize or inflate the cost of the claim” (id. at 10).


         As construed by the Court, Plaintiff moves for summary judgment seeking judgment as a matter of law against Defendant's counterclaims. (See ECF No. 93.) Plaintiff raises two main arguments in support of dismissing Defendant's counterclaims. First, Plaintiff maintains that “Defendant cannot prove that the date [Plaintiff] discovered the damage was false, or that [Plaintiff] intended [Defendant] to take any specific action as a result of the date of discovery.” (ECF No. 93 at 6.) Second, Plaintiff contends that “Defendant cannot prove that the R3NG/Ford estimate was a material fact or that [Defendant] was ignorant of its falsity.” The Court will consider each of Plaintiff's arguments in turn. Defendant countered these arguments in their Response in Opposition to Plaintiff's Motion for Partial Summary Judgment. (ECF No. 99 (“Defendant's Response”).) Plaintiff then filed a Reply in support of Motion for Partial Summary Judgment Regarding Defendant's Affirmative Defenses. (ECF No. 112 (“Plaintiff's reply”).)

         A. Plaintiff's Arguments Regarding Date of Discovery

         Plaintiff argues that

Under common law, ‘a plaintiff seeking to prevail on a fraud claim must typically establish five elements: (1) that the defendant made a false representation of a material fact; (2) that the one making the representation knew it was false; (3) that the person to whom the representation was made was ignorant of its falsity; (4) that the representation was made with the intention that it be acted upon; and (5) that the reliance resulted in damage to the plaintiff.

(ECF No. 93 at 6.) Plaintiff argues that Defendant cannot prove the first, second, or fourth elements of a fraud claim for two reasons. (Id.)

         First, Plaintiff contends, Defendant cannot prove “that [Plaintiff] discovered the damage on a different date, and therefore that [Plaintiff's] representation regarding its discovery is false.” (ECF No. 93 at 7.) Plaintiff argues that Defendant “has provided evidence that [Plaintiff] could have discovered the damages earlier, but not that [Plaintiff] actually discovered the damages earlier and misrepresented the date of discovery to [Defendant].” Plaintiff says that the only evidence Defendant “has regarding the allegedly ‘false' date of discovery is an interrogatory response that was subsequently voluntarily amended, and information that someone at Sunflower submitted an insurance claim for their car following the date of loss.” (Id.) Thus, Plaintiff further argues that it “should not be prejudiced for supplementing any discovery responses when it learns that ‘in some material respect, the information is incomplete or incorrect.'” (Id. at 7 (quoting Fed.R.Civ.P. 26(e).)

         Second, Plaintiff claims that Defendant cannot prove “that [Plaintiff] intended [Defendant] to take any action with regards to the date of discovery.” (Id.) According to Plaintiff, “the date that the damage was discovered is entirely immaterial to the claim-it has nothing to do with the date of loss and whether the claim is covered. It is simply the date that the damage was discovered.” (Id.)

         Tenth Circuit and Colorado courts have found that fraud clauses, like the one in this Insurance Contract, are enforceable and void the entire claim, not just the portion to which the fraud pertains. American Diver's Supply & Mfg. Corp. v. Boltz, 482 F.2d 795, 797-98 (10th Cir. 1973); Martinez v. Hartford Underwriters Ins. Co., 2014 WL 2016569, at *2 (D. Colo. May 15, 2014). In cases where there is a fraud clause in the contract, the Tenth Circuit finds

the common law pre-contract cases . . . to be inapplicable, because the fraud clause intentionally imposes different standards of responsibility and damages-absolute honesty and forfeiture of all benefits of the policy and not merely unintended benefits-which removes this case from situations where a party seeks to rescind a contract without such a clause and thus must meet all of the requisites of common law fraud.

American Diver's, 482 F.2d at 797 (emphasis in original). In this District, under the fraud clause, the Defendant needs to prove three elements. First, defendant must prove that the plaintiff misrepresented or omitted some fact. Martinez, 2014 WL 2016569, at *2. Second, the insurer needs to show that “the misrepresentations or omissions were “material.” Id. And finally, a defendant needs to show an “intent to deceive on the part of the insured.” Id.

         Plaintiff tries to argue that Defendant is required to prove the fourth element of common law fraud-namely, that the person to whom the representation was made was ignorant of its falsity. Plaintiff bases this claim on language from American Diver's, 482 F.2d at 797, which states, “if the law. . . were to require that the insurer demonstrate that it has been misled to its prejudice by the fraud, the policy provision would be virtually worthless.” Plaintiff claims that the Tenth Circuit's statement merely reiterates that where there is a fraud clause in the insurance contract, the Defendant does not need to prove detrimental reliance in its fraud clause claim, but still has to prove ignorance. (ECF No. 112 at 7.)

         In accordance with Tenth Circuit case law, the parties agree that Defendant does not have to prove detrimental reliance in a fraud clause claim. However, the Court is not convinced that ignorance is an element of the fraud clause claim. Defendant could have brought this claim as a Plaintiff in an affirmative lawsuit, before paying Plaintiff any money under the claim, seeking declaratory judgment voiding the contract due to violation of the fraud clause. In that scenario, Defendant would not be required to establish detrimental reliance. In order to bring such a claim affirmatively, Defendant would necessarily have had to be aware of the falsity of Plaintiff's actions. Accordingly, ignorance would not be an element in an affirmative lawsuit brought by Defendant on the violation of the fraud clause. It therefore follows that it ...

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