Lua v. QBE Insurance Corp.

          ORDER ON SUMMARY JUDGMENT

          Kristen L Mix United States Magistrate Judge

         This matter is before the Court on Defendant QBE Insurance Company's Motion for Summary Judgment [#35]^[1] (“Defendant's Motion”) and Plaintiff's Motion for Partial Summary Judgment Re: the Duty to Defend [#40] (“Plaintiff's Motion”).^[2] The Court has reviewed Defendant's Motion [#35] and Plaintiff's Motion [#34], the Responses [#41 and #46], the Replies [#45 and #49], the case file, and the applicable law, and is sufficiently advised in the premises. For the reasons set forth below, Defendant's Motion [#35] is GRANTED IN PART AND DENIED IN PART. Plaintiff's Motion [#40] is GRANTED.^[3]

         I. Background^[4]

         Defendant issued David Bowser (“Bowser”) a Real Estate Services Errors & Omissions Insurance Policy, policy number QCR-3030501-01, for the policy period of January 1, 2016 to January 1, 2017 (the “Policy”). Def. Motion [#35] at 4 ¶ 1 and Ex. A. Mr. Bowser is the named insured. Pl. Motion [#40] at 2 ¶ 1. The Policy contains a liability limit of $1 million per wrongful act subject to an aggregate limit in this same amount. Id. The portions of the Policy relevant to the parties' motions are discussed in the Court's Analysis in Section III, infra.^[5]

         On January 27, 2016, Plaintiff filed a lawsuit against Mr. Bowser and others, in Adams County District Court, No. 16CV30137 (the “Underlying Case”). Pl. Motion, [#40] at 3 ¶ 3; Def. Motion, [#35] at 7 ¶ 10. The complaint asserted eleven claims: negligence/construction defects, breach of implied warranty, negligent misrepresentation, fraudulent inducement to contract, fraud-false representation, fraud-concealment and/or non-disclosure of material fact, breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the Colorado Consumer Protection Act, civil conspiracy, and unjust enrichment. Pl. Motion [#40], Ex. C. The Underlying Case related to the sale to Plaintiff of a residential property at 1601 Hanover Street, Aurora, Colorado (the “Home”), and the alleged lack of disclosure of construction defects in the Home. Id.; Def. Motion [#35] at 7 ¶ 11.

         The Home was sold to Plaintiff by Bowser, LLC on or around May 13, 2014. Def. Motion [#35] at 7 ¶ 12. In May of 2014, Bowser, LLC was owned by Mr. Bowser, who was the only owner of Bowser, LLC during the entirety of its existence and owned all shares of the company. Id. at 7 ¶ 13.

         Mr. Bowser was the listing agent for the sale of the Home to Plaintiff. Def. Motion [#35] at 7 ¶ 14. Mr. Bowser also filled out the Seller's Property Disclosure relating to the Home in connection with the sale to Plaintiff. Id. at 8 ¶ 15. Mr. Bowser did not obtain a home warranty for the Home, and he has no knowledge of anyone else purchasing a home warranty for the Home. Id. ¶ 17.

         On June 2, 2015, more than six months before the filing of the Underlying Case, Plaintiff, through his attorney, David Roth, sent Mr. Bowser a written letter concerning the Home which directed Mr. Bowser to “accept this Communication as a Notice of a Claim.” The letter set forth “claims of construction defects” at the Home that eventually gave rise to the Underlying Case. Def. Motion [#35] at 8 ¶ 19 and Exs. E, E-1, F.^[6] The June 2, 2015 letter informed Mr. Bowser that he had “a right to inspect” the Home, “to remedy the problems. . . or otherwise provide a settlement offer.” Id. at 9 ¶ 20 and Ex. E1. It also asked that Mr. Bowser “inform any applicable insurance company of this claim.” Id. Mr. Bowser testified in his deposition that he understood the June 2, 2015 letter to be an “attorney trying to get me to write a check.” Id. at 9 ¶ 21 and Ex. C, Bowser Dep. at 37:3-22.

         The certified mail receipt on the written notice of claim letter states that it was delivered on June 5, 2015. Def. Motion [#35] at 9 ¶ 22 and Ex. E. Mr. Bowser testified that he received a copy of the June 2, 2015 notice of claim letter in June of 2015. Id. at 9 ¶ 23 and Ex. C, Bowser Dep. at 32:4-25, 33:1-19.

         By June 18, 2015, Mr. Bowser had consulted with an attorney, Avi Sicker, regarding the allegations of defects in the Home. Def. Motion [#35] at 9 ¶ 24 and Ex. C, Bowser Dep. 41:9-18, 43:21-:44:18. Avi Sicker engaged in email correspondence with Plaintiff's attorney, David Roth, on June 18, 2015, regarding the allegations of defects. Id. at 9 ¶ 25. Mr. Sicker forwarded his emails with Mr. Roth to Mr. Bowser on June 18, 2015. Id. The emails Mr. Sicker forwarded to Mr. Bowser included pictures of the defects and a March 18, 2015 report from Stone Creek Engineering discussing problems with the Home's foundation. Id. at 10 ¶ 26, Ex. C, Bowser Dep. at 42:1-25, 43:1-17, Ex. G.

         Mr. Bowser did not send the June 2, 2015 letter to Defendant. Def. Motion [#35] at 10 ¶ 27. Rather, Mr. Bowser first reported and tendered defense of the Underlying Case to Defendant more than nine months later, on or about March 24, 2016, when he was served with the original complaint in the Underlying Case. Id. at 10 ¶ 28 and Ex. C, Bowser Dep. at 36:15-20; Pl. Motion [#40], at 3 ¶ 4.

         After investigating and evaluating the allegations and claims of the Underlying Case, Defendant, through Greg Johnson of Specialty Claims Management, denied the tender by letter dated April 19, 2016. Def. Motion [#35] at 10 ¶ 29; Pl. Motion [#40] at 3 ¶ 5, Ex. 4.^[7]

         Thereafter, Plaintiff and Mr. Bowser entered into a pair of settlement agreements which resulted in Mr. Bowser admitting liability to Plaintiff in the Underlying Case, paying him $10, 000, and agreeing to have the amount of Plaintiff's damages determined by a stipulated judgment or some other appropriate method. Pl. Motion [#40] at 3 ¶ 6. Ultimately, as reflected in an Arbitration and Assignment Agreement, Plaintiff opted to have the amount of damages determined through binding arbitration before former Judge James Miller at JAMS in Denver, Colorado. Id. at 3 ¶ 7; Def. Motion [#35] at 10 ¶ 30.

         Mr. Bowser admitted liability on various grounds in the Arbitration and Assignment Agreement, and the Agreement indicated that the total cost to repair and replace the damage to Plaintiff's home was estimated by Demand Construction Services at $577, 678.55. Pl. Motion [#40] at 3-4 ¶ 8. Mr. Bowser also assigned to Plaintiff his rights and claims under the Policy so that Plaintiff could pursue recovery of the arbitration award “and other damages, penalties, and other remedies from the insurer directly.” Def. Motion [#35] at 10 ¶ 31; Pl. Motion [#40] at 2; First Am. Compl. [#28] ¶ 12.^[8]

         Judge Miller issued an arbitration award on July 21, 2017, awarding Plaintiff $577, 678.85 in damages and $16, 454 in costs, for a total award of $594, 132.85. Def. Motion [#35] at 10 ¶ 32 and Ex. D.^[9] This was the full amount of the estimate by Demand Construction Services. Pl. Motion [#40] at 4 ¶ 10. Judge Miller awarded the damages on the claim for intentional misrepresentation. Def. Motion [#35] at 10-11 ¶ 33 and Ex. D. He stated that the “negligent misrepresentation and other claims are subsumed by my determination of the intentional misrepresentation claim.” Id.

         Judge Miller also found that “David Bowser, with what I find to be full knowledge of those defects, failed to disclose any of th[e] defects to the Lua's [sic]. Mr. Bowser, in completing the Disclosures upon which the Lua's relied, denied any of the material and serious defects . . . .” Def. Motion [#35], at 8 ¶ 16 and Ex. D. He further stated, “[b]ased on all of the evidence, I find that Mr. Bowser individually and on behalf of Bowser, LLC intentionally and fraudulently misrepresented the condition of the home sold to the Lua's [sic]. I find that the Lua's [sic] reasonably relied on Mr. Bowser's misrepresentations and sustained damages.” Id. at 11 ¶ 34 and Ex. D.

         In the instant case, Plaintiff, as the assignee of Mr. Bowser, sues Defendant for its handling of its defense obligations under the Policy and its claims handling generally, and alleges that Defendant breached its duty to defend. First Am. Compl. [#28] at 2-5. Plaintiff asserts claims against Defendant for breach of contract, common law bad faith, and statutory bad faith under Colo. Rev. Stat. §§ 10-3-1115 and 1116. Id. at 6-8. Plaintiff seeks “compensatory damages caused by Defendant's breach of contract and bad faith breach of insurance contract, including but not limited to the full amount of the arbitration award (with post-award interest)”. Id. at 9. Thus, Plaintiff asserts that he does not seek indemnity coverage for the arbitration award. Pl. Motion [#40] at 2; Pl. Resp. Def. Motion [#41] at 12.

         For its part, Defendant seeks summary judgment because Plaintiff's claims are barred by the date-certain notice requirement and by other policy exclusions. Defendant does not separately address Plaintiff's claim for breach of the duty to defend.

         II. Standard of Review

          The purpose of a motion for summary judgment pursuant to Fed.R.Civ.P. 56 is to assess whether trial is necessary. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Pursuant to Fed.R.Civ.P. 56(a), summary judgment should be entered if the pleadings, the discovery, any affidavits, and disclosures on file show “that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” An issue is genuine if the evidence is such that a reasonable jury could resolve the issue in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         A fact is material if it might affect the outcome of the case under the governing substantive law. Id.

         The burden is on the movant to show the absence of a genuine issue of material fact. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir. 1998) (citing Celotex, 477 U.S. at 323). When the movant does not bear the ultimate burden of persuasion at trial, the “movant may make its prima facie demonstration [of the absence of a genuine issue of material fact] simply by pointing out to the [C]ourt a lack of evidence for the nonmovant on an essential element of the nonmovant's claim.” Id. at 671. If the movant carries the initial burden of making a prima facie showing of a lack of evidence, the burden shifts to the nonmovant to put forth sufficient evidence for each essential element of his claim such that a reasonable jury could find in his favor. See Anderson, 477 U.S. at 248. The nonmovant must go beyond the allegations and denials of his pleadings and provide admissible evidence, which the Court views in the light most favorable to him. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Panis v. Mission Hills Bank, N.A., 60 F.3d 1486, 1490 (10th Cir. 1995) (citing Celotex, 477 U.S. at 324).

         Conclusory statements based merely on conjecture, speculation, or subjective belief are not competent summary judgment evidence. Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004). The nonmoving party's evidence must be more than “mere reargument of [his] case or a denial of an opponent's allegation” or it will be disregarded. See 10B Charles Alan Wright et al., Federal Practice and Procedure § 2738 (4th ed. 2017).

         III. Analysis

         Plaintiff's Motion [#40] seeks an order from the Court finding, as a matter of law, that Defendant owed and breached a duty to defend Mr. Bowser in the underlying proceedings.

         Plaintiff asserts that if Defendant owed Mr. Bowser a duty to defend, it may be held responsible for all damages proximately caused by its breach and has no right to the summary relief requested in Defendant's Motion. Id. at 2. Defendant's Motion [#35] seeks an order from the Court finding, as a matter of law, that Plaintiff's breach of contract claim fails because there is no coverage under the Policy. It argues that Plaintiff's common law and statutory bad faith claims fail in the absence of coverage.

         A. Breach of Contract Claim

         1. Whether the Allegations of the Complaint in the Underlying Case Invoked the Duty to Defend

         The Court first addresses Plaintiff's argument that the complaint in the Underlying Case alleged facts that required Defendant to defend the lawsuit. “Whether there is a duty to defend is a question of law.” Carl's Italian Rest. v. Truck Ins. Exchange, 183 P.3d 636, 639 (Colo. 2007).

         “The duty to defend pertains to the insurance company's duty to affirmatively defend against pending claims.” Constitution Assocs. v. New Hampshire Ins. Co., 930 P.2d 556, 563 (Colo. 1996). “Generally, the duty to defend arises where the alleged facts even potentially fall within the scope of coverage ..... ” Id. (emphasis in original); see also Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1089-90 (Colo. 1991). The duty to indemnify, on the other hand, “relates to the company's duty to satisfy a judgment entered against the insured”, and arises only if “the policy actually covers the alleged harm.” Id. In some instances, an insurer will be found to have a duty to defend even though it may have no duty to indemnify. Compass Ins. Co. V. City of Littleton, 984 P.2d 606, 613 (Colo. 1999). This is because “[t]he duty to defend is triggered more easily than is the duty to indemnify.” Constitution Assocs., 930 P.2d at 563.

         The Colorado Supreme Court “has set a high standard for an insurance company seeking to avoid its duty to defend that focuses on an examination of the allegations in the underlying complaint against the insured[.]” Compass Ins. Co., 984 P.2d at 613. “‘An insurer's duty to defend arises when the underlying complaint . . . alleges any facts that might fall within the coverage of the policy.'” Id. (quoting Hecla Mining Co., 811 P.2d at 1089). This has been referred to as the complaint rule. Id. at 615. Thus, “‘[t]he actual liability of the insured to the claimant is not the criterion which places upon the insurance company the obligation to defend.'” Hecla Mining Co., 811 P.2d at 1089 (citation omitted). “Rather, the obligation to defend arises from allegations in the complaint, which if sustained, would impose a liability covered by the policy.” Id.

         As explained in Hecla Mining Company, “‘where the insurer's duty to defend is not apparent from the pleadings in the case against the insured, but the allegations do state a claim which is potentially or arguably within the policy coverage, or there is some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer must accept the defense of the claim.'” 811 P.2d at 1089 (citation omitted). The court further stated in that case that “[d]etermining the duty to defend based on the allegations contained within the complaint comports with the insured's legitimate expectation of a defense, and prevents the insurer from evading coverage by filing a declaratory judgment action when the complaint against the insured is framed in terms of liability coverage contemplated by the insurance policy.” Id. at 1090.

         “The insured need only show that the underlying claim may fall within policy coverage; the insurer must prove that it cannot.” Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 301 (Colo. 2003). The Colorado Supreme Court indicated that “[t]he appropriate course of action for an insurer who believes that it is under no obligation to defend, is to provide a defense to the insured under a reservation of its rights to seek reimbursement should the facts at trial prove that the incident resulting in liability was not covered by the policy, or to file a declaratory judgment action after the underlying case has been adjudicated.” Hecla Mining Co., 811 P.2d at 1089.

         Turning to the Policy in the instant case, the insuring agreement states in PART 5. INSURING AGREEMENTS AND EXCLUSIONS:

         A. What We Insure

We will pay on Your behalf those sums in excess of the Retention and up to the applicable Limit of Liability stated in Item 5. of the Declarations Page that You become legally obligated to pay as Damages or Defense Costs because of Claims as a result of a Wrongful ...