United States District Court, D. New Mexico
MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S
MOTION FOR SUMMARY JUDGMENT ON PLAINTIFFS' BAD FAITH
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
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,
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.
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.
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.
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.
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.
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.
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.
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. 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,
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.
• 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. 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.
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.
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.
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:
1 - PERILS INSURED AGAINST
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
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
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
Doc. 66-1 at 11 (emphasis added). The Liberty policy also
listed specific losses that were expressly excluded from
1 - EXCLUSIONS (“Earth Movement” and “Water
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, ...