Pueblo
County District Court No. 17CV30403 Honorable Deborah R.
Eyler, Judge
Lee N.
Sternal, P.C., Lee N. Sternal, Pueblo, Colorado, for
Plaintiffs-Appellants
Morgan
Rider Riter Tsai, P.C., Tory D. Riter, Denver, Colorado, for
Defendant-Appellee
OPINION
BROWN,
JUDGE
¶
1 In this consolidated action, plaintiffs, Richard Morley and
Connie Morley, appeal the district court's entry of
summary judgment and its order awarding costs in favor of
defendant, United Services Automobile Association (USAA).
¶
2 Applying the unambiguous definition of "surface
water" articulated in Heller v. Fire Insurance
Exchange, 800 P.2d 1006, 1008 (Colo. 1990), we
distinguish this case from Martinez v. American
Family Mutual Insurance Co., 2017 COA 15, and conclude
that when precipitation falls or leaks into the insured's
dwelling through holes in a roof damaged by hail (or some
other covered peril), it does not fall within the plain
meaning of the term "surface water" because it was
never water "lying or flowing naturally on the
earth's surface." Therefore, we reverse the entry of
summary judgment and award of costs and remand to the
district court for further proceedings.
I.
Background
¶
3 The Morleys purchased a home in Colorado that they used as
a vacation property and visited, on average, four times a
year. They allege that in early June 2015, a severe hailstorm
damaged the flat roof of the home, which allowed rainwater to
leak through the roof, causing damage to the interior.
¶
4 At the time, USAA insured the home under an all-risk
property insurance policy (the Policy). Upon being notified
of the claim, USAA retained an independent insurance adjuster
to inspect the Morleys' home and estimate the cost to
repair the damage. Based on the estimate, USAA approved and
paid for a full roof replacement. USAA also sent a settlement
letter to the Morleys and authorized an additional payment to
repair the interior water damage that had been identified by
the adjuster.
¶
5 However, in March 2016, the Morleys told USAA that, while
performing repairs, their contractor had found additional
water damage to the interior of the home. The contractor
removed drywall, carpet, cabinets, and insulation, which
significantly increased the scope and cost of the repairs.
USAA denied the majority of the Morleys' claim for
additional interior damage, but did not cite the surface
water exclusion in the Policy as a reason for the denial.
¶
6 The Morleys filed suit, asserting breach of contract and
bad faith claims based on USAA's failure to pay the
additional claim for interior water damage. USAA moved for
summary judgment, arguing, in relevant part, that even if the
damage to the interior of the home was caused by rainwater
that had accumulated on and then penetrated the roof, under
Martinez, the Morleys' claims were barred by a
surface water exclusion in the Policy. The district court
agreed and granted the motion. It also awarded USAA $23,
533.91 in costs as the prevailing party under C.R.C.P. 54(d).
The Morleys appeal.
II.
Analysis
¶
7 The Morleys contend that the district court erred by
granting USAA's motion for summary judgment because (1)
the surface water exclusion in the Policy does not apply and
(2) USAA waived its right to rely on the surface water
exclusion. Because we conclude that the district court erred
by granting summary judgment based on the plain language of
the surface water exclusion, we need not address
waiver.[1]
¶
8 USAA contends that, even if the surface water exclusion
does not bar coverage, we may affirm on the alternative
ground that the claims are precluded because the Morleys
violated the Policy's fraud clause. Because we conclude
that material disputes of fact exist as to whether the
Morleys breached the fraud clause, we cannot affirm on this
alternative ground.
¶
9 For these reasons, we reverse the order entering summary
judgment and the award of costs and remand to the district
court for further proceedings.
A. The
District Court Erred by Entering Summary Judgment Based on
the Surface Water Exclusion
¶
10 We understand the Morleys to argue that the surface water
exclusion in the Policy does not preclude their claims
because (1) based on the Policy's plain language and
Colorado case law, water seeping through a storm-damaged roof
is not "surface water"; (2) even if the water on
the roof was "surface water," it lost that
character when it was diverted by the roof structure; and (3)
the surface water exclusion is ambiguous and extrinsic
evidence confirms that it does not apply in this case.
1.
Preservation
¶
11 USAA contends that several of the Morleys' arguments
are unpreserved and are being raised for the first time on
appeal. Recall that USAA's primary argument in its motion
for summary judgment was that the surface water exclusion
precluded coverage because all of the interior damage to the
Morleys' home was caused by surface water. In their
response to the motion for summary judgment, the Morleys
argued that "[m]aterial questions of fact do exist over
whether the water which entered plaintiffs' home from the
roof . . . really can be said to have been 'surface
water.'"
¶
12 The district court entered summary judgment based on its
interpretation of the surface water exclusion in the Policy
and its application of Colorado case law. In so doing, it
said that "[t]he parties agree that the damage was
caused by rainwater/hail penetrating the roof of the
home." Based on that fact, the court concluded, as a
matter of law, that the damage to the interior of the
Morleys' home was caused by surface water and that the
surface water exclusion in the Policy barred their recovery.
¶
13 Thus, the dispositive issues before the district court
were the meaning of the surface water exclusion in the Policy
and whether the water that caused the damage to the interior
of the Morleys' home was "surface water" such
that the surface water exclusion applied. The Morleys'
argument on appeal based on the plain language of the policy
is preserved. See Berra v. Springer & Steinberg,
P.C., 251 P.3d 567, 570 (Colo.App. 2010) ("[T]o
preserve the issue for appeal all that was needed was that
...