Modified on Denial of Rehearing December 26, 2019.
County District Court No. 17CV30403 Honorable Deborah R.
Sternal, P.C., Lee N. Sternal, Pueblo, Colorado, for
Rider Riter Tsai, P.C., Tory D. Riter, Denver, Colorado, for
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, 413 P.3d 201, 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.
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
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.
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
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.
District Court Erred by Entering Summary Judgment Based on
the Surface Water Exclusion
10] We understand the Morleys to argue that the