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Fava v. Liberty Mutual Insurance Corp.

United States District Court, D. New Mexico

December 20, 2018



         THIS MATTER comes before the Court upon a Motion for Summary Judgment on Plaintiffs' Bad Faith Claims, filed by Defendant Liberty Mutual (“Liberty” or “Defendant”) on June 1, 2018 (Doc. 69). Having reviewed the relevant pleadings of the parties and the applicable law, the Court finds that Defendant's motion is not well-taken and, therefore, is denied.


         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 tried to stop the leak and reported 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 pre-existed the water leak and that the water leak caused Plaintiff the structural damages.

         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.

         Liberty claims that the damage to Plaintiffs' home was caused by water coming into crawlspace from outside the house over a long period of time prior to bursting of the water pipe, and that coverage for such damage was excluded under the policy that was issued to Plaintiffs.

         Plaintiffs maintain that the damage was caused by the acute event of a burst water line causing water to flood the crawlspace area, which is a covered event under their 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.

         Defendant directs its arguments in this motion only to that part of Count I that is based on the covenant of good faith and fair dealing, seeking summary judgment solely on Plaintiffs' bad faith claims.


         The Court has already touched on the bad faith issue in its Memorandum Opinion and Order denying Defendant's Motion for Summary Judgment on Plaintiffs' Breach of Contract Claims. See Doc. 70. The Court found that disputes of fact exist which support both parties' positions on Plaintiffs' claims of Breach of Contract and the Covenant of Good Faith and Fair Dealing in Count I. See Doc. 100 at 8-10. The Court concluded that:

. . . facts presented by Plaintiffs could infer that Liberty's grounds for denying the Favas' claim were not decided in good faith and that Liberty breached the contract of insurance and the associated covenant of good faith and fair dealing by failing to investigate Plaintiffs' insurance claim and by denying the claim under the policy for frivolous or unfounded reasons. Compl., 44 & 45. In addition, the introduction of expert testimony in this case requires weighing by a fact finder and precludes disposition by summary judgment.[1]

         Because the same expert testimony would effectively preclude summary judgment on this motion as well, the Court does not intend to discuss in detail all the facts presented in the instant motion or to point out the entirety of disputed facts. There is also another reason why the Court declines to weigh in on all of the numerous facts presented in the pleadings to this motion, and that is because the parties (Defendant in particular) have again presented the issues in a way that makes it unnecessarily tedious to wade through these facts.[2] Defendant presents 53 “undisputed facts” and Plaintiffs present 77 “additional undisputed facts.” Instead of simply responding to the additional facts in the reply, Defendant refers to responses given to Plaintiffs' other additional facts from other motions. By the time Defendant's “response” is located in other briefs, it is difficult to remember the original additional fact. To illustrate, here is one example of the tedious process the Court was forced to follow in order to find Defendant's responses to Plaintiffs' additional facts:

• Defendant's response to Plaintiffs' additional fact V states: “Same as Plaintiffs' Additional Fact G in Doc. 75” (Doc. 79 at 11);
• Since Document 75 is the response brief to a previous motion for summary judgment filed by Defendant, [3] the Court must first locate the reply brief on the Court docket in order to find Defendant's response to “Plaintiffs' Additional Fact G in Doc. 75”'
• The reply brief containing Defendant's response to Plaintiffs' Additional Fact G in the summary judgment motion on Plaintiffs' emotional injury claims, is Document 90;
• Defendant's “response” to Plaintiffs' Additional Fact G in Doc. 90 (the reply brief to Defendant's summary judgment motion on Plaintiffs' emotional injury claims) states that the fact “is not supported by Plaintiffs' citation to the record.” Doc. 90 at 3.[4] Thus, the Court must assume that this is also Liberty's “response” to Plaintiffs' Additional Fact V for the instant summary judgment motion on Plaintiffs' bad faith claims.

         Liberty utilizes this method of responding to Plaintiffs' additional facts for the instant summary judgment motion to respond to almost three-quarters of Plaintiffs' additional facts. The Court will therefore include only a minimum number of facts to represent the disputed issues on Plaintiffs' bad faith claims.

         Parties have submitted separate binders containing exhibits that are relevant to all pending motions in the case. The exhibits in Plaintiffs' binder are designated by number, while those in Defendant's binder are by letter. Exhibits may be referred to either by its number or letter, or by its document number; for example, Doc. 79-1 is Exhibit 40 in the binder submitted by Plaintiffs.

         II. The Policy[5]

         The Court includes the relevant policy provisions here for context. 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:


         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.[6]
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 (“Earth Movement” and “Water Damage”)

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 concurrently or in any sequence to the loss.
b. Earth Movement, meaning earthquake including land shock waves or tremors before, during or after volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, ...

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