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Fava v. Liberty Mutual Insurance Corporation

United States District Court, D. New Mexico

January 8, 2019

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

          MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AS TO COUNTS II AND III AND GRANTING SUMMARY JUDGMENT ON COUNT IV NEGLIGENCE CLAIM

         THIS MATTER comes before the Court upon Defendant's Motion for Summary Judgment on Plaintiffs' Statutory Claims and Negligence (Counts II, III and IV), filed June 1, 2018 (Doc. 68). Having reviewed the parties' briefs and applicable law, the Court denies Defendant's motion as to Counts II and III, but grants Defendant's motion as to Count IV.

         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.

Doc. 1-3 (First Am. Compl.) at 15. The Court has become quite familiar with this lawsuit, having denied relief to Liberty on four of dispositive motions Defendant has filed. See Docs. 98, 99, 100 and 101 (denying relief on Docs. 66, 67, 69 and 70). This last motion, addressing Counts II, III and IV, is the last dispositive motion presented for the Court's consideration.

         The Policy provisions and factual background in this case have been set forth in detail by the Court's recent decisions denying summary judgment on Plaintiffs' claims for emotional injury, breach of contract and bad faith claims, see Docs. 99, 100 and 101, and there is no reason to reiterate them here.

         I. Count II: Violation of Unfair Practices Act

         Plaintiffs allege that Liberty violated the New Mexico Unfair Practices Act (“UPA”) by failing to deliver the quality and quantity of goods or services contracted for; representing that services have characteristics, uses, benefits, or quantities that they do not have; and knowingly making false or misleading oral and written statements in connection with the sale, lease, rental or loan of services. See NMSA 1978 §§57-12-2(D)(17). A claim under the UPA has four elements:

First, the complaining party must show that the party charged made an oral or written statement, visual description or other representation that was either false or misleading. Second, the false or misleading representation must have been knowingly made in connection with the sale, lease, rental or loan of goods or services in the extension of credit or . . . collection of debts. Third, the conduct complained of must have occurred in the regular course of the representer's trade or commerce. Fourth, the representation must have been of the type that may, tends to or does, deceive or mislead any person.

Guidance Endodontics, LLC v. Dentsply Intern., Inc., 749 F.Supp.2d 1235 (2010) (internal quotation marks omitted) (emphasis added) (quoting Stevenson v. Louis Dreyfus Corp., 1991- NMSC-051, 112 N.M. 97, 100, 811 P.2d 1308, 1311. “The gravamen of an unfair trade practice is a misleading, false, or deceptive statement made knowingly in connection with the sale of goods or services.” Diversey Corp. v. Chem-Source Corp., 1998-NMCA-112, ¶ 17, 125 N.M. 748.

         Defendant claims that even assuming that misrepresentations were made to Plaintiffs in connection with the August leak, they cannot have been made “in connection with” an insurance policy that had already been sold to them and Plaintiffs therefore cannot sustain a claim under the UPA. See Eisert v. Archdiocese of Santa Fe, 2009-NMCA-042, ¶¶ 22-28, 146 N.M. 179 (affirming summary judgment for defendants where plaintiff offered no evidence that defendants made knowing misrepresentations “at the time” services were contracted for).

         Plaintiffs contend that New Mexico law holds that an actionable misrepresentation under the UPA can be made after a sale of goods and services has been consummated as long as “it occurred in connection with the commercial relationship for which the Defendant[s] were compensated.” Maese v. Garrett, 2014-NMCA-072, ¶19, 329 P.3d 713. Plaintiffs' understanding of the law is accurate and is supported by both the legislative intent behind the statute as well as its plain language. A viable UPA claim is not foreclosed by the fact that the alleged misrepresentations took place after the sale of the policy. See Lohman v. Daimler-Chrysler Corp., 2007-NMCA-100, ¶ 30, 142 N.M. 437, 443, 166 P.3d 1091, 1097. An “unfair or deceptive trade practice” does not require “a misrepresentation in the course of a sale between plaintiff and defendant; it merely requires that a misrepresentation be “made in connection with the sale . . . of goods” generally. Id. (emphasis in original). The legislative intent of the UPA affords the statute a broad enough scope “to encompass misrepresentations which bear on downstream sales by and between third parties.” Id.; see also State ex rel. Stratton v. Gurley Motor Co., 105 N.M. 803, 808, 737 P.2d 1180, 1185 (Ct.App.1987) (interpreting UPA “liberally to facilitate and accomplish its purposes and intent.”).

         In Maese v. Garrett, the New Mexico Court of Appeals held that misrepresentations made after the sale of goods and services could support a claim under the UPA, specifically rejecting previous decisions suggesting that the alleged misrepresentation had to be made in the course of selling a product or services to the plaintiff. 2014-NMCA-072, ¶18. Defendant initially relied on Maese to argue that Plaintiffs could not pursue a UPA claim based on a misrepresentation made after the sale of the policy. After having been caught in what the Court considers to be a misstatement of the law in Maese, Defendant abandoned its initial approach in the reply and switched to the argument that Maese is factually distinguishable and therefore does not apply to Plaintiffs' UPA claim. Doc. 91 at 22. However, any factual distinctions do not change the black-letter statement of the law, which applies here as well as in Maese.

         Having determined the relevant legal standard, the next question is to decide whether Plaintiffs have presented any facts to dispute Defendant's position that there is no evidence of misrepresentation. The Court finds that Plaintiffs have done so:

• Factual Disputes Regarding Grounds for Denial: Liberty sent Plaintiffs three letters denying their claim: on October 3, 2015, March 21, 2016 and July 16, 2016. Doc. 100 at 12-13. The second and third letters contained different grounds for denial, and abandoned some of the grounds previously cited. Liberty offered no explanation why the ...

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