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Fava v. Liberty Mutual Insurance Corp.

United States District Court, D. New Mexico

October 17, 2018

HECTOR FAVA and BARBARA FAVA, Plaintiffs,
v.
LIBERTY MUTUAL INSURANCE CORPORATION, Defendant.

          MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON PLAINTIFFS' BREACH OF CONTRACT CLAIMS

         THIS MATTER comes before the Court upon a Motion for Summary Judgment on Plaintiffs' Breach of Contract Claims, filed by Defendant Liberty Mutual (“Defendant” or “Liberty”) on June 1, 2018 (Doc. 70). Having reviewed the parties' briefs and applicable law, the Court finds that Defendant's motion is not well-taken and, therefore, is denied.

         BACKGROUND

         Plaintiffs Hector and Barbara Fava are homeowners who are suing Liberty for damages under a Homeowners Policy (“Policy”) issued by Liberty to Mr. Fava. Plaintiffs (or “the Favas”) allege property damages to their home stemming from a water leak under their home. Plaintiffs initially filed the Complaint on July 29, 2016 in the Second Judicial District, County of Bernalillo, and Liberty removed the case to federal court under diversity jurisdiction on April 17, 2017.

         According to the Complaint, on August 18, 2015, a pipe in the crawlspace underneath Plaintiffs' home burst, flooding the crawlspace with several inches of standing water. Almost immediately after the leak, Plaintiffs noticed cracks in load-bearing walls and a sloping floor. Plaintiffs took action to stop the leak and report the incident to Plaintiffs' insurer, Liberty. The water from the burst pipe caused the floor in Plaintiffs' kitchen and living room to begin sloping downward and large cracks to form in several load-bearing walls in the home. The Favas reported the damage to Liberty. Liberty investigated and concluded that much of the structural damage preexisted the water leak and that the water leak caused Plaintiff the structural damages and Plaintiffs disagreed with Liberty. Plaintiffs assert that Liberty repeatedly denied coverage of Plaintiffs' claim based on inadequate investigations of the cause of the damage to the home as well as its misrepresentations about those investigations. Since August 2015, Plaintiffs' home has had a 10' diameter hole in the living room, made when Liberty performed its inspection of the damage to Plaintiffs' home. Because of Liberty's improper denial of coverage and mishandling of Plaintiffs' claim, Plaintiffs' home continues to deteriorate, and Plaintiffs have been unable to use a significant portion of their home since that time.

         Defendant denies Plaintiffs' contentions. Following the reported water loss, Liberty retained independent adjusters to inspect the water loss and retained an engineer to inspect the water loss and report the findings. Based on those findings and the damages associated with the water leak, Defendant claims that it paid what was owed under the policy. The Complaint asserts four claims for relief against Defendant:

Count I: Breach of Contract and the Covenant of Good Faith and Fair Dealing;
Count II: Violation of Unfair Practices Act;
Count III: Violation of New Mexico Insurance Code; and
Count IV: Negligence.

         This motion is directed solely to Count I, which is based on Liberty's contractual duties to fully and fairly evaluate Plaintiffs' claim. Liberty contends that it is entitled to summary judgment either because either:

(1) a fact finder will not be able to attribute the damages to Plaintiff's home from the water leak discovered on August 18, 2015, or alternatively,
(2) even if the water leak caused the structural damage to Plaintiffs' home, the undisputed material facts establish that the insurance policy does not cover these damages based on certain uncovered or excluded perils, such as wear and tear, earth movement, water damage and seepage.

         DISCUSSION

         Summary judgment is appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th Cir. 1994). Whether there is a genuine dispute-as to a material fact depends upon whether the evidence presents a sufficient disagreement to require submission to a jury or conversely, is so onesided that one party must prevail as a matter of law. Anderson v. Liberty Lobby, 477 U.S. 242, 248- 49 (1986); Stone v. Autoliv ASP, Inc., 210 F.3d 1132 (10th Cir. 2000); Carey v. U.S. Postal Serv., 812 F.2d 621, 623 (10th Cir. 1987). A fact is “material” if it pertains to an element of a claim or defense; a factual dispute is “genuine” if the evidence is so contradictory that if the matter went to trial, a reasonable party could return a verdict for either party. Anderson, 477 U.S. at 248. The Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).

         The construction of an insurance policy is a matter of law which can be decided on summary judgment. Adams-Arapahoe Joint School Dist. v. Continental Ins. Co., 891 F.2d 772, 774 (10th Cir.1989); Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F.Supp. 1278, 1287 (D.Utah 1994), aff'd, 52 F.3d 1522 (10th Cir.1995). In construing an insurance policy, the Court in a diversity case looks to the law of the forum state and, if the state Supreme Court has not addressed the issue, the Court's duty is to determine, as best it can, how the issue would be resolved by the state Supreme Court. Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 52 F.3d 1522, 1527 (10th Cir. 1995).

         The facts in this case are numerous and many are disputed, but they can all be neatly categorized as belonging to one of the two grounds for which Defendant seeks summary judgment: (1) whether the burst pipe caused the structural damage to the Favas' home (the causation issue); and/or (2) and whether Liberty breached its contract with the Favas when it denied coverage, even assuming that the damage was caused by the water leak.

         After reviewing all the facts presented by the parties with their accompanying exhibits, the Court concludes that material disputes of fact exist for both grounds. Both sides have retained at least one engineering expert to support their respective positions on the causation issue, namely, Gordon McKeen for Plaintiffs and Vic Chavez for Defendants. See Exs. 8 & 13 (McKeen reports); Ex. Y (Chavez report).[1] The Court recently denied Defendant's motion to strike Plaintiffs' experts, see Doc. 98, and so experts on both sides will testify at trial. These experts, not surprisingly, do not agree with each other as to whether the structural damage to the residence was caused by water coming into crawlspace from outside the house over a long period of time prior to the water leak (Defendant's position) or whether the damage was caused by the acute event of a burst water line which caused water to flood the crawlspace area (Plaintiffs' position). This conflict in testimony requires resolution by the jury, and not by a court on summary judgment. See Zuchel v. Spinharney, 890 F.2d 273, 275 (10th Cir. 1989) (generally speaking, summary judgment is not advisable in situations in which there is a conflict in expert testimony, even when the evidence leans one way); see also Tenth Cir. Pattern Jury Instr. §1.17, “Expert Witness.” There are also disputes of material fact with respect to whether the structural damage to the Favas' residence should have been covered by the policy if it was caused by the water leak from the burst pipe. Thus, the question of whether Liberty's denial of coverage was a breach of their insurance contract with the Favas cannot be resolved on summary judgment.

         The Court's review of the copious facts was especially taxing because of the manner in which Liberty chose to respond to many of Plaintiffs' Additional Facts, requiring a tedious search through other pleadings before finding the response. For example, in order to read Defendant's responsive statement to Plaintiffs' Additional Fact (“PAF”) G (“Same as response to PAF G in Doc. 79”), one is led to the pleadings on Defendant's motion for summary judgment on Plaintiffs' bad faith claims (“Same as Plaintiffs' Additional Fact B in Doc. 77”), and then to the pleadings on Defendant's motion for summary judgment on Plaintiffs' statutory and negligence claims (Doc. 91, reply). The Court was dispatched on a similar search for Defendant's response to PAF S (“response to PAF V in Doc. 79”), which refers the reader first to summary judgment pleadings on Plaintiffs' bad faith claims (“Same as Plaintiffs' Additional Fact G in Doc. 75”) and then on to the pleadings for summary judgment on Plaintiffs' emotional injury claims.

         The Court found Liberty's manner of responding to Plaintiffs' facts particularly irksome because the responses failed to create material factual disputes despite the trouble it took to hunt them down. Liberty's reply brief contains many more examples of “responses” to Plaintiffs' Additional Facts that are buried within several layers of other briefs, but further examples would be pointless. Instead, the Court will present a few examples of relevant disputed facts that preclude summary judgment, starting with relevant language from the insurance policy for background and context. In setting out these facts below, the Court will omit any responses to Plaintiffs' facts that are either immaterial, irrelevant or unresponsive.

         I. The Policy [2]

         Liberty issued a policy for the policy period of February 10, 2015-February 10, 2016, to Barbara Fava and Hector Fava to insure their home located in Albuquerque, New Mexico. Doc. 66-1. The policy provided in pertinent part as follows, describing losses that were excepted from coverage:SECTION 1 - PERILS INSURED AGAINST

         We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to Property. We do not insure, however, for loss:

. . .
2. Caused by: . . .
(e) Any of the following:
1. Wear and tear, marring, deterioration;
2. Inherent vice, latent defect, mechanical breakdown;
3. Smog, rust or other corrosion, mold, wet or dry rot;
6. Settling, shrinking, bulging or expansion, including resultant cracking of pavements, patios, foundations, walls, floors, roofs or ceilings;
. . .
9. Seepage, meaning a gradual, continuous, or repeated. seepage or leakage of water, steam or fuel over a period of .14 days or more, resulting in damage to the structure, whether hidden or not.[3]
If any of these [coverage exceptions in Section 2(e)] cause water damage not otherwise excluded, from a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance, we cover loss caused by the water including the cost of tearing out and replacing any part of a building. necessary to repair the system or appliance. We do not cover loss to the system or appliance from which this water escaped.
3. Excluded under Section 1 - Exclusions.
Under items 1. And 2., any ensuing loss to property described in coverages A and B not excluded or excepted in this policy is covered.

Doc. 66-1 at 11 (emphasis added). The Liberty policy also listed specific losses that were expressly excluded from coverage:

SECTION 1 - EXCLUSIONS
1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is. excluded regardless of any other cause or event contributing ...

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