Opinion
Case No. 21-CV-189-NDF
2022-08-02
199 EAST PEARL CONDOMINIUM OWNERS ASSOCIATION, Plaintiff, v. ACUITY INSURANCE COMPANY, Defendant.
Codie D. Henderson, Pro Hac Vice, Davis & Cannon, Sheridan, WY, Dennis Boyd Polk, Pro Hac Vice, Eric E. Torgersen, Pro Hac Vice, Holley Albertson & Polk PC, Lakewood, CO, for Plaintiff. Eric Hevenor, L. Kathleen Chaney, Lambdin & Chaney LLP, Denver, CO, for Defendant.
Codie D. Henderson, Pro Hac Vice, Davis & Cannon, Sheridan, WY, Dennis Boyd Polk, Pro Hac Vice, Eric E. Torgersen, Pro Hac Vice, Holley Albertson & Polk PC, Lakewood, CO, for Plaintiff.
Eric Hevenor, L. Kathleen Chaney, Lambdin & Chaney LLP, Denver, CO, for Defendant.
ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
NANCY D. FREUDENTHAL, UNITED STATES SENIOR DISTRICT JUDGE
This is an action for insurance coverage and bad faith. Defendant Acuity Insurance Company ("Acuity") moves for summary judgment on all claims against it. ECF 24 (motion), 25 (memorandum). Plaintiff 199 East Pearl Condominium Owners Association ("Plaintiff" or the "HOA") argues that material fact disputes preclude summary judgment on each claim. ECF 37. Acuity filed a late reply. As follows, the Court GRANTS the motion.
The initial pretrial order states that if a dispositive motion is filed before the dispositive motions deadline therein, the response and reply deadlines are governed by Local Rule 7.1. Therefore, Acuity's reply was due within seven days of Plaintiff's filing of the response. In this instance, Plaintiff has not objected to the late reply, and the Court exercises its discretion to consider it.
I. Facts
The following facts appear undisputed except where noted.
The property in question is located at 199 East Pearl Street, Jackson, Wyoming 82001 (the "Property"). Acuity insured the Property under a commercial package insurance policy attached to its motion as Exhibit A (the "Policy"). ECF 25-1. Acuity states that the policy period was June 10, 2016 to June 10, 2017. It inspected the property in July 2016 in connection with issuing the Policy.
The policy period for the policy that Acuity filed is actually June 10, 2017 to June 10, 2018. ECF 25-1 at 1 (certification); Id. at 2 (policy period for Commercial Excess Liability Coverage Part); Id. at 4 and 23 (policy period for Bis-Pak Coverage Form). However, Plaintiff does not dispute Acuity's assertion that the Policy attached to the motion is the policy applicable here. ECF 37 at 2 ¶ 1. The Court accordingly treats the Policy in ECF 25-1 as the applicable policy.
In December 2016, the owner of Unit 302, Laely Heron, informed the HOA's board of leaks in her ceiling. Heron Affidavit. On or about February 24, 2017, John Kemp of Y2 Engineers inspected the Property and provided a brief summary of the conditions he discovered to Plaintiff's insurance agent, Donnie Clark, including: (1) visible water damage due to leaks/penetration from roof, potentially from building exhaust; (2) frozen water inside roofing material; (3) very loose vent pipe on 2nd floor roof; (4) rotting/rusting wood and screws at outer wall 3rd floor; (5) ice dams at roof drains; (6) missing/inconsistent sealing at flashing/joints; (7) damp/wet interior walls/insulation; and (8) water damage at fire suppression piping penetrations. ECF 25-3. Plaintiff asserts this was a "limited visual inspection" as an engineer, not as the HOA's insurance adjuster.
On March 6, 2017, Plaintiff informed Acuity of water damage to the Property occurring on or about February 24, 2017. ECF 25-2 (Acord Property Loss Notice).
On April 5, 2017, Christopher Cardillo of Cardillo Forensics, LLC made a visual inspection of the Property for Acuity. He generally inspected the roof but could not examine the roof membrane underlying the deck area. On April 12, 2017, Cardillo issued a report identifying in his opinion the causes of openings in the roofing system of the Property that allowed for water intrusion into the building. The pertinent findings of the Cardillo report were: (1) the openings in the roof through which water entered were the "result of deficiencies inherent in the roofing system's installation as well as wear and mechanical damage over the life of the roofing and were not caused by ice dams;" and (2) ice dams on the roof increased the level of standing water which drove additional water through the preexisting openings in the roof. ECF 25-4 at 5. The Cardillo report further concluded: "It is unlikely that the roofing system needs to be replaced; a roofing rehabilitation plan that focuses on the breaches and wet areas only should be considered."
Plaintiff notes that Cardillo was not authorized by the HOA to discover physical damage or loss or to opine on causes. It further notes that Cardillo's report recognizes (as "background") that the Jackson area received "heavy snow that was followed by rain in February 2017 [leading] to widespread formation of ice dams on the roofs within Jackson and surrounding areas. According [to] the National Operational Hydrologic Remote Sensing Center (NOHRSC), ground snow depths in Jackson exceeded 50-inches and snow melted at a rate of over 0.30-inches per hour." ECF 25-4 at 2. Cardillo concludes the background section saying "[i]mpeded runoff from ice-dams led to water intrusion into the subject building." Id.
On April 21, 2017, Frontier Adjusters issued an estimate of damages to the interior of the Property – specifically, for nonstructural interior damage to the second and third floor lobbies, Unit 301 hallway, Unit 302 hallway and bath – in the amount of $12,531.39. The Frontier estimate explains its scope: "[a]s a result of information provided by Mr. Cardillo, roof replacement or repair will not be given consideration as an element of this claim." The Frontier estimate states that Mr. Kemp agreed with the scope of damage, but he did not sign the document.
Acuity agreed to pay for the damage to the interior of the Property that was exacerbated by the ice dams and issued a check to Plaintiff for $7,531.39 on April 26, 2017. ECF 38-2 (email to Ms. Humphreys). The $7,531.39 payment equaled the amount of the $12,531.39 estimate of damages by Frontier Adjusters minus Plaintiff's $5,000 deductible under the Policy. Plaintiff disputes that this check covered all damages to the property. Plaintiff asserts Acuity issued the April 2017 check without a reservation of rights, citing ECF 37-16 (Ex. 12, a November 27, 2019 email of Acuity to Plaintiff's insurance agent confirming "their [sic] was no denial [letter] sent regarding the roof" on the original claim). However, the April 26, 2017 email stated that Acuity could not consider any payment on the roof damage because it was caused by maintenance issues, not the ice dams. ECF 38-2. In June 2018, the HOA contracted with Wapiti Corporation to remove and replace the roof, replace the third-floor deck and replace HVAC equipment installed on the roof. Demolition of the third-floor deck, HVAC, and roof replacement work began in July/August/September 2018 and was completed in 2018. A "Timeline of Repairs" that Mr. Kemp sent to Plaintiff's insurance agent in September 2019 states that in December 2018, rotted joists were discovered at the Property during mold remediation work. ECF 25-7.
It is unclear from Plaintiff's response brief and the Wapiti contract in the record what precisely Plaintiff means in saying Wapiti completed a roof replacement in 2018. As will be seen infra, Plaintiff's additional fact M states that two years later, Plaintiff contracted with New West to among other things replace the roof. New West's report reflects extensive damage under the roof membrane at that time. ECF 37-27.
Plaintiff admits "that interior structural and other damage was discovered at the subject property in 2018," but the "HOA continued to discover physical damage after 2018." It cites the affidavits of Laely Heron and Scott Kirkpatrick. Ms. Heron noticed new water leaks in her unit after the rooftop work was completed in the fall of 2018. Mr. Kirkpatrick was aware when he bought Unit 301 in August 2019 that the HOA was addressing roof leaks in the building.
In late 2018, additional water leaks occurred in Unit 302 and the second-floor lobby. Wapiti and Y2 Consultants (including Kemp) conducted an intrusive investigation of the ceiling and wall cavities, revealing extensive structural and other interior damage not visible without removing wall and ceiling material. ECF 37-15 (Kemp January 2019 email). This damage was to a beam, roof joists and sheathing, which required structural repairs.
On September 27, 2019, Plaintiff's insurance agent, Donnie Clarke, informed Acuity of this damage through an email attaching John Kemp's Timeline of Repairs. ECF 25-8. On October 16, 2019, Acuity issued a check to Plaintiff for the full $15,000 Fungi, Wet or Dry Rot limits of the Policy.
On October 23, 2019, Acuity issued a denial letter to Plaintiff explaining that coverage under the Policy did not exist beyond the Fungi, Wet or Dry Rot provision under which Acuity had made payment of the Policy limit. ECF 25-9. After Plaintiff's insurance agent contacted Acuity a few days later, Acuity continued to adjust the claim. ECF 37-6 at 7-16. Citing its legal argument, Plaintiff disputes whether Acuity's October 23, 2019 letter effectively reserved Acuity's right to deny, or denied, coverage.
On December 10, 2019, Steven Houser of J.S. Held, LLC inspected the Property for Acuity and provided a report in January 2020, referred to as the J.S. Held report. He opined that the access door to the second story roof was set within a roof drain trough and had significant gaps directly above the area where rotting joists had been discovered a year earlier. He further opined that the deterioration of structural elements was consistent with long-term exposure to moisture, and that the water damage at the Property was associated with an "improperly installed roof access doorway, located on the third floor immediately above the second-floor Lobby containment." He concluded that water infiltration "has affected the localized area in the second-story Lobby since the building was constructed in 2004," and that "long-term water infiltration" caused the decay of structural supports, including the rotting joists that were first discovered in December 2018. In a January 6, 2020 letter to Acuity, the HOA estimated the cost of repairs at approximately $354,000. ECF 37-20 at 6 (letter from Beddow and Halloran as officers, disputing the denials of coverage).
In April 2020, at Acuity's request, Houser (through another company, Golden Forensics) interviewed five witnesses (Kemp, Karyn Humphreys, Beddow, Kirkpatrick, and Heron) and provided a second report to Acuity that month. ECF 25-11. This is referred to as the Golden Forensics report. It summarizes the witness interviews and constructs a new timeline of events regarding losses and repairs at the Property.
Kirkpatrick's affidavit asserts these interviews took place in March 2020.
The Golden Forensics report identifies Karyn Humphreys as the "Homeowners Association (HOA) Representative" and summarizes her comments as including that the "[s]econd-floor lobby has always leaked a minor amount since as far back as she can remember. Remembered always having odds and ends leaks throughout the building and thought that was typical for a ‘flat roof.’ "
According to one of Plaintiff's board members at the time, Michael Halloran, the HOA terminated Ms. Humphreys in "approximately February 2020," and she was not authorized to speak for the HOA on insurance matters after her termination. Halloran Aff. ¶¶ 5-6. He also asserts that prior to her termination, the HOA had not adopted a written resolution authorizing her to speak on behalf of the HOA regarding insurance matters. Kirkpatrick asserts similar facts, stating that the HOA had not authorized Humphreys to speak on its behalf. Kirkpatrick, Halloran and Heron refer to Ms. Humphreys as the HOA's bookkeeper at the time. Ms. Heron has owned Unit 302 since 2008 and has been an HOA board member since 2019. She was not aware of roof leaks in the building until she noticed them in her unit in 2016. Mr. Kirkpatrick has owned Unit 301 since August 2019 and has been a board member since late 2019.
As support that Ms. Humphreys was just a bookkeeper without authority to speak for the HOA, Plaintiff also cites Exhibit 25. ECF 37-30. This contains 47 pages of board minutes starting in 2005. It appears Plaintiff relies on page 29, minutes of a 2010 meeting in which the board discussed her job duties, and Ms. Humphreys was to prepare a memo delineating between her responsibilities and those of a Resort Management Group. One of the board members stated that Ms. Humphreys was responsible for "the building and HOA bookkeeping." Ms. Humphreys wrote the minutes of the meetings, and after that date she signed them variously as "Karyn Humphreys," "Karyn Humphreys 199 E. Pearl Condo Association," "HOA Bookkeeper" and "Homeowner Association Accountant." In its reply, Acuity disputes that Humphreys lacked authority and attaches an email from HOA officers referring Acuity to confer with her as a person who knew the history. ECF 38-1.
The Golden Forensics report also summarizes Kemp's comments as including that "the building has likely always leaked, but he was aware of leaks 5+ years prior to the engagement of Y2 in February 2017." Kemp's September 2019 timeline of repairs to Donne Clark states the same. ECF 25-7.
Plaintiff disputes that it knew of leaks before December 2016, when the board discussed a roof repair project – presumably to address the leaks that Ms. Heron reported in her ceiling that month. It cites the Heron and Kirkpatrick affidavits and the board minutes leading up to December 2016. ECF 37-30 at 1-38. Those minutes do not appear to mention any roof leaks, and there are several mentions of roof leaks or repairs starting that month.
In a letter dated June 29, 2020 (responding to the HOA's January 2020 letter), Acuity partially denied coverage and reserved its rights to recover funds paid "if it is later determined that the facts would justify its ability to deny coverage in full." ECF 37-21. In July 2020, Acuity paid an additional $10,000 on the HOA's 2019 claim. ECF 37-22 (copy of check dated July 2, 2020 for "2nd mold remediation").
In July 2020, Plaintiff contracted with New West to remove and replace the roof and repair other damage. When the roof was uncovered, substantial additional structural and other damage was discovered that required structural repairs, including replacing a wood beam with a steel beam. New West completed that work in approximately June 2021. Mike Gill and Rich Pampe, New West's project manager and superintendent on the HOA's project, opined:
Based on the preceding observations and the expanded scope of this project, our professional assessment is that the flashing below and around the door [to the roof] failed. It also appears that the area around the [roof] drain [in front of the door] failed. The failures could have been attributed to a multitude of factors, but if the roof membrane around and under the door, and around the drain, had been properly installed, the water would not have intruded into the building. During our discovery and observations, we did have the roofers drill core samples from different areas of the roof, at the direction of the building HOA association. Most of the core samples were saturated and it would appear the layer below the top TPO roofing membrane has been holding moisture between layers. During the project duration, it was recommended that the drains be re-flashed and, ultimately, the roof should be replaced soon.
ECF 37-27 (May 25, 2021 report from New West).
The HOA again asked Acuity to reconsider its denial of coverage in June 2021. Acuity reiterated its denial in August 2021.
Plaintiff disputes that the Cardillo report, Frontier estimate, Kemp timeline, Houser reports – and other documents on which Acuity relies for its argument that Plaintiff discovered the full loss in 2017 – were conclusive of the nature, scope or timing of physical damage or loss to the property. Plaintiff disputes "that it had discovered all of the physical damage to the building in 2017," citing several exhibits and the Heron and Kirkpatrick affidavits. Ms. Heron reported leaks in the ceiling to the board in December 2016.
Plaintiff also disputes that its retained engineer (Mr. Kemp) was authorized to speak for the HOA on insurance matters. Kirkpatrick Affidavit ¶ 8; Halloran Affidavit ¶ 6-7. Neither Kirkpatrick nor Halloran were board members before late 2019.
Based on the foregoing, Plaintiff filed suit in the state district court for Teton County on September 1, 2021. The complaint is not a model of clarity. It brings four claims: (1) declaratory judgment to fix and determine the parties’ rights and obligations under the Policy, including Acuity's duty and obligation to act in good faith and fair dealing and a declaration that its denial of coverage was in bad faith; (2) breach of insurance contract by denying, delaying and hindering coverage; this claim also asserts Acuity is estopped from denying insurance benefits because of its conduct including failure to properly or adequately investigate and pay claims timely; (3) insurance bad faith under Wyoming common law; and (4) statutory insurance bad faith under Wyo. Stat. Ann. §§ 26-15-124 and 26-13-124. Each claim thus includes assertions of bad faith.
II. Legal Standard
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "A fact is material if, under the governing law, it could have an effect on the outcome of the lawsuit. A dispute over a material fact is genuine if a rational jury could find in favor of the nonmoving party on the evidence presented." Smothers v. Solvay Chems., Inc. , 740 F.3d 530, 538 (10th Cir. 2014) (citing Tabor v. Hilti, Inc. , 703 F.3d 1206, 1215 (10th Cir. 2013) ).
In considering a motion for summary judgment, the moving party has the burden of production and the burden of establishing that summary judgment is appropriate as a matter of law. Kannady v. City of Kiowa , 590 F.3d 1161, 1169 (10th Cir. 2010). If the movant does so, the nonmovant "must bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which it carries the burden of proof." Id. (quoting Jenkins v. Wood , 81 F.3d 988, 990 (10th Cir. 1996) ). To defeat a motion for summary judgment, the non-movant must show more than "[t]he mere existence of a scintilla of evidence in support of the [non-moving party's] position ... there must be evidence on which the jury could reasonably find for the [nonmoving party]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
"[E]vidence, including testimony, must be based on more than mere speculation, conjecture or surmise." Bones v. Honeywell Int'l, Inc. , 366 F.3d 869, 875 (10th Cir. 2004). Unsubstantiated conclusory allegations carry no probative weight in summary judgment proceedings and do not create a genuine issue of material fact. Id. (quoting Phillips v. Calhoun , 956 F.2d 949, 951 n.3 (10th Cir. 1992) ). Finally, in ruling on a motion for summary judgment, the Court may only consider evidence that can be presented at trial in a form that would be admissible in evidence — on a non-movant's objection, evidence whose content or substance cannot be presented in admissible form at trial should be disregarded. Fed. R. Civ. P. 56(c)(2) ; Johnson v. Weld Cty. , 594 F.3d 1202, 1210 (10th Cir. 2010).
III. Analysis
Acuity argues it is entitled to summary judgment on all claims because Plaintiff's complaint is barred under the Policy's limitation on actions; even if not barred, there is no coverage; and the bad faith claims fail on the undisputed facts. The Court takes these arguments in turn.
A. Is Plaintiff's Complaint Barred Under the Contractual Limitation Period?
Acuity first points to the Policy's limitation on legal actions against it:
4. Legal Action Against Us
No one may bring a legal action against us under this insurance unless:
a. There has been full compliance with all of the terms of this insurance; and
b. The action is brought within four years beginning from the date on which the direct physical loss or damage was discovered.
ECF 25-1 at 115.
"[C]ontractual periods of limitation are prima facie valid and will be enforced absent a demonstration by the party opposing enforcement that the clause is unreasonable or based upon fraud or unequal bargaining positions." Nuhome Inv., LLC v. Weller, 81 P.3d 940, 947, 2003 WY 171, ¶¶ 16-17 (Wyo. 2003). See also McFarland v. Ry. Officials’ & Emp. Acc. Ass'n of Indianapolis, 5 Wyo. 126, 38 P. 347, 354 (Wyo. 1894) (plaintiff admitted "the parties to a contract of insurance [could] ... reduce the time within which an action may be brought on such contract" and enforcing contractual limitation period). "The burden of showing an exception or an estoppel to prevent the running of a [contractual] limitation period rests upon the party asserting the exception or estoppel." Hawkeye-Sec. Ins. Co. v. Apodaca, 524 P.2d 874, 879 (Wyo. 1974) (enforcing contractual limitation on action).
In this case, Acuity argues that the deadline for Plaintiff to bring "claims arising from the February 24, 2017 water damage was February 24, 2021." It notes that Plaintiff did not file its complaint until September 1, 2021. Acuity also argues the HOA knew the Property's roof leaked well before 2017 – based on Humphreys’ and Kemp's statements noted above – and therefore the contractual limitation period "likely began to run years earlier."
In response, Plaintiff argues the contractual limitation is not enforceable due to ambiguity and unequal bargaining power. ECF 37 at 9. Plaintiff also argues the contractual limitation period does not apply to the bad faith claims, which are instead subject to Wyoming's four-year statute of limitation in Wyo. Stat. Ann. § 1-3-105(a)(1)(iv)(C).
Plaintiff argues Acuity is estopped from denying coverage, but it does not argue waiver or estoppel as to the limitation on action. Even if the Court could construe Plaintiff's response as raising such an argument, Plaintiff did not brief a factual theory to support it.
In the usual estoppel or waiver situation the insurance company is precluded from raising the bar because settlement negotiations were taking place or because of some other action or inaction on the part of the insurance company the insured was misled into believing the claim would be paid and therefore did not bring an action within the limitation period.
Hawkeye-Sec. Ins. Co. v. Apodaca, 524 P.2d 874, 880 (Wyo. 1974).
As for ambiguity, Plaintiff does not articulate how it believes the contractual limitation period is ambiguous. The burden is on Plaintiff to show why the limitation period should not be applied. Hawkeye-Sec. Ins., 524 P.2d at 879. The Court does not see any ambiguity on the face of this provision.
As for unequal bargaining power, this requires a "demonstration by the party opposing enforcement." Nuhome, 81 P.3d at 947 (citing Durdahl v. National Safety Assocs., Inc., 988 P.2d 525, 527–28 (Wyo. 1999) ). This is because the Wyoming Supreme Court "has often show[n] its commitment to uphold the right of competent parties to freely contract for various provisions." Nuhome , 81 P.3d at 945. This Court has found a two-year contractual limitation period in an insurance contract was unenforceable based on unequal bargaining power. Thompson v. Protective Ins. Co., 12-cv-148-F, 2013 WL 11834242, at *6 (D. Wyo. Apr. 24, 2013). But in that case, the insured argued he "had no bargaining power in entering into the Work Accident Policy and that no alternative insurance policies were available to him as a self-employed contractor with FedEx. Nothing in the record contradicts Plaintiff's testimony on this point or suggests that the insurance policies in this case differed from most others." Id. The Court noted that "[s]uch standardized polic[i]es are generally considered ‘contracts of adhesion’ in light of the parties’ uneven bargaining positions," citing cases from the Northern District of Oklahoma and Connecticut.
Here, Plaintiff states – but does not attempt to demonstrate – it had such unequal bargaining power that the contractual limitation period is unenforceable. It thus appears Plaintiff relies on the principle that standardized policies in insurance contracts are generally considered contracts of adhesion.
The Wyoming Supreme Court has "repeatedly recognized the unequal bargaining power between an insurance company and an insured, and in a number of cases, we have held that insurance policies are contracts of adhesion." Century Sur. Co. v. Jim Hipner, LLC, 377 P.3d 784, 789, 2016 WY 81, ¶ 11 (Wyo. 2016). But that general principle does not make all terms in insurance contracts unenforceable merely on that basis. Wyoming law requires the person opposing enforcement to show something more. For instance, in Evans v. Farmers Ins. Exch., 2001 WY 110, ¶ 9, 34 P.3d 284 (Wyo. 2001) – a case Century Surety cites on this point – the fact that insurance contracts are contracts of adhesion meant only that "if the language is ambiguous , the policy is strictly construed against the insurer." Id. at 286 (emphasis added). Again, here, the Court does not see any ambiguity in the contractual limitation period.
In Thompson , meanwhile, the contractual limitation period was only two years. The Court found this time period unreasonably short, as it gave insurers an incentive to delay settlement of claims until the limitation period passed. The same is not true here. Plaintiff had four years to file suit. Any incentive an insurer may have to delay settlement of claims for four years to avoid contractual claims is surely outweighed by the countervailing incentive to not be sued for bad faith – for which by statute ( Wyo. Stat. Ann. § 26-15-124 ) the insurer can be liable for not only the insured's actual damages but also prejudgment interest at a rate of ten per cent annually, plus the insured's reasonable attorney fees – as will be seen below. In short, Plaintiff's unequal bargaining power argument is not persuasive.
McFarland and Hawkeye-Security enforced insurance contracts’ limitation periods of one year, but the plaintiffs in those cases did not argue unfair bargaining power – likely because the doctrine had not yet been developed to the extent it is now. In Hawkeye-Security , the plaintiff also failed to support its waiver or estoppel argument.
Plaintiff next argues that Acuity misinterprets the contractual limitation period, and that the four-year limitation period runs only from when Plaintiff discovered each damage. It argues there are material fact disputes as to when it discovered each instance of damage. Plaintiff cites no cases in support of this interpretation of the limitation period.
Acuity, on the other hand, cites cases regarding the statutory limitations period. ECF 25 at 9. As Plaintiff notes in its response, Wyoming is a discovery jurisdiction, meaning that for purposes of the statute of limitations, causes of action accrue when a reasonable plaintiff should have been on notice that it has a claim. Robert L. Kroenlein Trust ex rel. Alden v. Kirchhefer, 2015 WY 127, ¶ 16, 357 P.3d 1118, 1124 (Wyo. 2015). This is true regardless that a plaintiff might not know the full extent of its damages at that time. "The occurrence of a subsequent incident does not extend the statutory period. Absent such a conclusion, in cases where there is an ongoing condition, such as water seepage, there would be no means to determine when the statute of limitations should commence." Rawlinson v. Cheyenne Bd. of Pub. Util., 17 P.3d 13, 16, 2001 WY 6, ¶ 12 (Wyo. 2001). However, Acuity does not cite any authorities applying this law – known as the "discovery rule" – to a contractual limitation of action. This is a question of interpreting an insurance contract, so the Court first turns to Wyoming's principles specific to the task.
1. "[T]he words used will be given their common and ordinary meaning.... Neither will the language be ‘tortured’ in order to create an ambiguity."
2. "The intention of the parties is the primary consideration and is to be ascertained, if possible, from the language employed in the policy, viewed in the light of what the parties must reasonably have intended."
3. "Such [insurance policy] contracts should not be so strictly construed as to thwart the general object of the insurance.... [T]he parties have the right to employ whatever lawful terms they wish and courts will not rewrite them."
4. "Absent ambiguity, there is no room for construction and the policy will be enforced according to its terms."
5. "[W]here such [insurance policy] contracts are so drawn as to be ambiguous and uncertain and to require construction, the contract will be construed liberally in favor of the insured and strictly against the insurer. Also, if the contract is fairly susceptible of two constructions, the one favorable to the insured will be adopted."
Aaron v. State Farm Mut. Auto. Ins. Co., 2001 WY 112, ¶ 15, 34 P.3d 929, 933–34 (Wyo. 2001).
Here, the limitation period runs from "the date on which the direct physical loss or damage was discovered." The Policy does not define "direct physical loss," and the parties’ briefs do not attempt to do so either.
In any case, the limitation period begins when the insured discovers the direct physical loss or damage. In arguing its claims are timely, Plaintiff argues "the direct physical loss or damage" is each instance of damage it found – including the damage it did not find until 2019. But this essentially adds words to the provision; it does not specify each instance of direct physical loss or damage. The same phrase or paraphrases thereof appear throughout the Policy. See, e.g., ECF 25-1 at 45-46 ("Property Coverages" section: "We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss," which are: "Risks of Direct Physical Loss ," unless excluded or limited elsewhere in the Policy. See also Id. at 124 (Condominium Association Coverage). If the limitation of action begins anew with each instance of physical loss or damage, the same interpretation would apply throughout the Policy.
The Policy is what is sometimes known as an "all risks" policy, meaning all risks are covered unless excluded or limited. See infra. In this context, there appears to be no reason for the parties to expressly define "direct physical loss" or to distinguish that term from "damage.
Thus, if Plaintiff were correct, it needed to also make separate claims for each instance of direct physical loss or damage. It is undisputed that Plaintiff did not do so. There is only one applicable Policy in this case – the one in effect for June 10, 2016 to June 10, 2017. In September 2019, when Plaintiff made the further claim to Acuity through its insurance agent, it made the claim under the 2017 policy. Moreover, in forwarding Mr. Kemp's timeline of repairs to notify Acuity of the claim, the insurance agent retained Kemp's subject line saying it was a "Claim to Re-open." Id. Plaintiff disputes that Kemp was authorized to speak on its behalf on insurance matters, but Plaintiff's insurance agent adopted that language in notifying Acuity of the claim. And Plaintiff does not dispute that its insurance agent was authorized to speak on its behalf to Acuity. In its reply, Acuity also points to Plaintiff's discussion of a singular direct physical loss that it had been addressing since 2017. ECF 37-28 at 2. See also ECF 37-6 (Acuity's claims activity log, March 2017 through 2021, reflecting a single claim).
Finally, Plaintiff's interpretation presents the same intractable problems that Rawlinson noted would arise for statutes of limitation if subsequent incidents or events could extend the limitation period. In short, the contractual limitation of action is unambiguous and began to run when Plaintiff discovered the roof leaks, regardless that it later discovered further damage from the same problem.
Plaintiff argues to the contrary, the contractual limitation period is like a period of repose, citing National Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc., 764 F.3d 1199, 1211 (10th Cir. 2014). But a period of repose "is based on when a specific event occurs, regardless of whether the plaintiff is aware of the injury." Id. This does not help Plaintiff. Plaintiff is arguing Acuity must show when Plaintiff became aware of each instance of direct physical loss or damage.
Accordingly, Plaintiff had until February 27, 2021 in which to file suit against Acuity "under this insurance." Plaintiff's breach of contract and declaratory judgment claims are barred as untimely.
This leaves Plaintiff's argument that the contractual limitation period does not apply to the bad faith claims, but rather the four-year statute of limitation in Wyo. Stat. Ann. § 1-3-105(a)(iv)(C) ("[a]n injury to the rights of the plaintiff, not arising on contract and not herein enumerated"). In its reply, Acuity does not dispute that this would be the statute of limitation to apply to the bad faith claims, if there were no contractual limitation period. Cf. , Gookin v. State Farm Fire and Cas. Ins. Co. , 826 P.2d 229 (Wyo. 1992) (no statute of limitation issue raised on bad faith claims filed four years after hailstorm that caused loss). Acuity states that it believes the contractual limitation period applies to these claims as well, but does not cite any authority. As both the contractual and statutory limitation periods are four years, the only significance here is whether the "discovery rule" applies or if the Court must instead apply its above interpretation of the contractual provision to these claims as well.
The limitation provision in this case specifies that it regards only actions "under this insurance." "Plaintiff's bad faith claim is not subject to the contractual terms of the ... Policy as this claim sounds in tort." Thompson, 2013 WL 11834242, at *6. The bad faith claims are not claims "under this insurance," and therefore they are subject to the statutory limitation.
Plaintiff's response brief does not separately address for the statute of limitation issue what conduct it believes first put it on notice that it may have a bad faith claim against Acuity. Nor does Acuity brief this issue. The Court is not obligated to comb the record for facts, but in the interest of efficiency rules as follows based on the record facts it has otherwise reviewed on the motion.
In order for the bad faith claims to be barred as untimely, Plaintiff would need to reasonably be on notice that it had such claims by August 31, 2017. To support the bad faith claims, Plaintiff asserts (in relevant part) that:
Acuity made a payment for water damage in April 2017 without a reservation of rights. Exhibit 8; Exhibit 12, p. 1. Acuity closed its file for some eighteen months, Exhibit 4, p. 5 (4/26/17), and
failed to inform the HOA of Acuity's coverage position until the HOA submitted its 2019 claim. At that point, Acuity paid $15,000 under its Fungi, Wet Rot or Dry Rot additional coverage, and only then informed the HOA of its coverage position. [Doc. 25-9]. Acuity paid $10,000 under its Fungi coverage in 2020. Exhibit 18. During the intervening period, the HOA incurred substantial costs in the remediation and repair of damage to the building.
Although the HOA demonstrated a prima facie case of coverage under the Acuity policy, a reasonable insurer would not have closed the file, Exhibit 4, p. 5 (4/26/17), for eighteen months before denying coverage, [Doc. 25-9], when the insurer knew or should have known that the insured was obliged to remediate damage and repair the building, Exhibit 4, pp. 4-5 (3/27/2017 - 4/26/17), and expected that insurance proceeds would fund those expenses, Exhibit 16, 23.
ECF 37 at 23-24. The cited Exhibit 4 is the Acuity Claims Activity Log, ECF 37-6, which is labeled ACUITY 0164 apparently for production in this case. It reflects a "run date" of October 5, 2021 and contains redactions. Nothing about the document (or anything else in the record) suggests that Acuity gave this document to Plaintiff before this litigation ensued. Acuity's November 27, 2019 email to Plaintiff's insurance agent confirmed that "their [sic] was no denial sent regarding the roof" on the 2017 claim. ECF 37-16 (Ex. 12). More specifically, Acuity made that statement in answering the insurance agent's question, "Was there a letter that went out with the findings on the original report of this claim[?]" Id. at 4 (emphasis added). With its reply brief, Acuity provides its email of April 26, 2017 which informed Plaintiff (through Ms. Humphreys) that:
Based on Mr. Cardillo's findings, it does not appear there were any damages to the roof membrane that was [sic] caused by ice dams, but from maintenance issues. Therefore, we are unable to consider any payment for the roof membrane.
ECF 38-2 at 1. Acuity's April 26, 2017 email plainly denied coverage for the roof and stated why.
Acuity's claim activity log reflects that its representative called Plaintiff's insurance agent in May and June of 2017 to follow up on the status of Plaintiff's claim. In June 2017, there is a note that she will continue to follow up. ECF 37-6 at 6. On January 17, 2018, the representative notes "auth IA to close file. As there has been no activity." Id. But neither side briefed the significance of this note – the Court does not know if "IA" is the Plaintiff's insurance agent or someone else. Nor did either side brief whether or when Plaintiff or its insurance agent communicated with Acuity leading up to August 31, 2017.
The current record, taken in the light most favorable to Plaintiff, shows a material fact dispute of whether Plaintiff reasonably should have known by August 31, 2017 that it may have a bad faith claim against Acuity or instead could reasonably still assume at that time that a letter with further findings was to follow after Acuity's April 26, 2017 email denying the roof claim (such as Acuity sent later on October 23, 2019, ECF 25-9). Acuity has not shown the bad faith claims are barred by the statute of limitations.
Accordingly, Acuity's motion for summary judgment is granted on all of Plaintiff's contractual claims, i.e., all assertions in Claims One and Two that do not regard bad faith or the duty of good faith and fair dealing.
B. Do Plaintiff's Bad Faith Claims Survive on the Merits?
Acuity also seeks summary judgment on the merits of Plaintiff's bad faith claims. "While an insured may state claims for breach of contract and breach of the duty of good faith and fair dealing, the insured does not need to prevail on the contract claim to pursue the bad faith claim." Matlack v. Mtn. W. Farm Bureau Mut. Ins. Co., 2002 WY 60, ¶ 19, 44 P.3d 73, 81 (Wyo. 2002). Thus, the Court must address Acuity's arguments on the merits of the bad faith/duty of good faith and fair dealing claims, regardless that the contract claims are dismissed.
The parties and Wyoming caselaw do not distinguish between bad faith and a violation of the duty of good faith and fair dealing. For simplicity's sake, the Court refers to Plaintiff's allegations of both as bad faith.
Wyoming recognizes both substantive and procedural bad faith in the insurance context. See Sonnett v. First Am. Title Ins. Co., 309 P.3d 799, 806–07 (Wyo. 2013). Plaintiff brings both types of claim.
1. Substantive Bad Faith
The elements of a claim for substantive bad faith are (1) the absence of a reasonable basis for denying the claim, and (2) the insurer's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Cathcart v. State Farm Mut. Auto. Ins. Co., 2005 WY 154, ¶ 25, 123 P.3d 579, 589 (Wyo. 2005) ; Matlack, 2002 WY 60, ¶ 19, 44 P.3d at 81.
The first element requires the plaintiff to "show that a reasonable insurer under the circumstances would not have acted as it did by denying" the claim. Sonnett, 309 P.3d at 806-07. "While an insured may state claims for breach of contract and breach of the duty of good faith and fair dealing, the insured does not need to prevail on the contract claim to pursue the bad faith claim." Matlack , 2002 WY 60, ¶ 19, 44 P.3d at 81. The standard for whether a claim was denied in bad faith is "an objective one which questions whether the validity of the denied claim was not fairly debatable." Sonnett , 309 P.3d at 806 (internal quotations and citations omitted). "The validity of a claim is fairly debatable if a reasonable insurer would have denied or delayed payment of benefits under the facts and circumstances." Cornhusker Cas. Co. v. Skaj, 786 F.3d 842, 858 (10th Cir. 2015) (citing Harper v. Fidelity & Guar. Life Ins. Co., 234 P.3d 1211, 1221 (Wyo. 2010) ). "Whether a claim is ‘fairly debatable’ necessarily implicates the question whether the facts necessary to evaluate the claim are properly investigated and developed or recklessly ignored and disregarded." Cathcart , 2005 WY 154, ¶ 34, 123 P.3d at 591.
Moreover, "[t]he logical premise of the debatable ... standard is that if a realistic question of liability does exist, the insurance carrier is entitled to reasonably pursue that debate without exposure to a claim of violation of its duty of good faith and fair dealing."
Id. (citing Gainsco Ins. Co. v. Amoco Prod. Co., 2002 WY 122 ¶ 33, 53 P.3d 1051, 1062 (Wyo. 2002) ).
Acuity argues it had a reasonable basis to deny Plaintiff's claim because there was no coverage under the Policy, and therefore it acted reasonably in denying Plaintiff's claims. It makes several arguments against coverage: (1) the Policy was void due to Plaintiff's failure to disclose material facts, (2) the claim was invalid because Plaintiff failed to comply with its obligations under the Policy, and (3) several exclusions apply. Plaintiff opposes each argument.
Thus, the Court must reach the coverage issues – at least enough of them to determine whether Plaintiff's claim was "fairly debatable." Having carefully considered each of Acuity's arguments and the parties’ respective evidence in the record, at least one of its arguments shows all of the unpaid portion of Plaintiff's claim was fairly debatable for the entire time period: an exclusion for continuous or repeated seepage or leakage of water.
Before reaching that exclusion, the Court begins with the property coverage provisions that Plaintiff identifies in its response:
PROPERTY COVERAGES
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
...
3. Covered Causes of Loss
Risks of Direct Physical Loss unless the loss is:
a. Excluded in Property Exclusions; or
b. Limited in paragraph 4, Limitations; that follow.
ECF 25-1, at 45-46. See also Id. at 124 (Condominium Association Coverage). There is no dispute that the Property is Covered Property. As discussed above, the Policy does not define "direct physical loss." It simply covers all risks unless excluded or limited.
This type of insurance is sometimes referred to as "all-risk" or "open peril."
All-risk insurance policies are designed to cover any fortuitous loss not resulting from an excluded risk or from fraud by the insured. ... A fortuitous event ... is an event which so far as the parties to the contract are aware, is dependent on chance. See also Jane Massey Draper, Coverage Under All–Risk Insurance, 30 A.L.R.5th 170 (1995) ("[A] fortuitous event [is] one that is unexpected and not probable, and caused by an external force, that is, not resulting from an internal characteristic of the property....").
MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co., 558 F.3d 1184, 1191–92 (10th Cir. 2009) (other internal citations and quotation marks omitted, applying Colorado law). Cf. , Compass Ins. Co. v. Cravens, Dargan and Co., 748 P.2d 724, 727 (Wyo. 1988) ("all risks" policy defining an occurrence as an accident causing injury or damage neither expected nor intended by the insured).
The "all-risk insured needs to establish only that a loss occurred; the burden then shifts to the insurer to show that the loss was caused by an exception." B.S.C. Holding, Inc. v. Lexington Ins. Co., 625 F. App'x 906, 912 (10th Cir. 2015) (citation omitted, applying Kansas law). See also Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287 (10th Cir. 2006) (applying Colorado law). Thus, Acuity bears the burden of proving an exclusion applies.
In this case, Acuity asserts an exclusion for "[c]ontinuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more." ECF 25-1 at 62, § 2.p. Acuity has cited this exclusion since giving its coverage decision in October 2019. It essentially argues this excludes Plaintiff's losses because the Property has had roof leaks for more than 14 days. In its view, once even an intermittent roof leak occurs for more than 14 days, any loss from that leak is excluded from coverage.
Plaintiff argues to the contrary, this exclusion must be interpreted according to the plain meaning ascribed by a reasonable insured, citing Gainsco Ins. Co. v. Amoco Production Co., 2002 WY 122, ¶ 47, 53 P.3d 1051, 1066 (Wyo. 2002), to require continuous exposure to water infiltration for 14 consecutive days or longer. Plaintiff asserts that if this exclusion is interpreted otherwise, it is ambiguous. Plaintiff further notes that while Cardillo and Kemp opined that the Property had roof leaks over a long period of time, Acuity offers no evidence that the building was exposed to water infiltration continuously for 14 days or more. Plaintiff also argues a provision of affirmative coverage for loss from thawing snow or ice as overriding this exclusion:
[Acuity will not pay for loss to] [t]he interior of any building or structure or the property inside any building or structure caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not," unless:
(a) The building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which rain, snow, sleet, ice, sand or dust enters; or
(b) The loss or damage is caused by or results from thawing of snow, sleet or ice on the building or structure.
ECF 25-1 at 46 § 4.a(5) (emphasis added).
Plaintiff also points to additional coverage for damage from "covered water:" "If loss or damage caused by or resulting from covered water ... occurs, we will also pay the cost to tear out and replace any part of the building or structure to repair damage to the system or appliance from which the water or other substance escapes." ECF 25-1 at 49 § 5.f. This argument fails. Plaintiff does not allege water "escaped" from a "system or appliance." This provision further refers to replacing "damaged parts or fire extinguishing equipment" due to freezing, and Plaintiff does not claim any parts or fire extinguishing equipment froze.
In reply, Acuity states that to the extent there is evidence the water intruded as a result of thawing snow or ice, "it must [still] be determined whether any exclusions apply to bar coverage." ECF 38 at 7. It further argues that Plaintiff's interpretation of the continuous or repeated seepage or leakage clause is incorrect because it ignores the words "or repeated." Acuity points to the Cardillo and J.S. Held reports (ECF 25-4, 25-10) and the New West report (ECF 37-27) to support that the damage was caused by continuous or repeated seepage or leakage. It further points to Ms. Heron's affidavit that she reported water coming in from the roof in December 2016 and again in 2018. It appears undisputed that the Property experienced roof leaks "repeatedly" from December 2016 to at least February 24, 2017 (the day Kemp inspected it) and beyond.
In interpreting the provisions of the Policy, "[t]he intention of the parties is the primary consideration and is to be ascertained, if possible, from the language employed in the policy, viewed in the light of what the parties must reasonably have intended." Aaron , 34 P.3d at 933. Acuity's interpretation – at least in the posture presented in this case – would seemingly preclude coverage for any roof leaks unless the insured not only becomes aware of the leak within 14 days of its inception but also has it completely repaired within those 14 days – regardless of whether Acuity pays the claim in that time or not. On the other hand, Plaintiff's interpretation makes the word "repeated" superfluous. The exclusion is not just for continuous seepage or leakage of water. It is for continuous or repeated seepage or leakage of water. Gainsco , the case Plaintiff cites for interpreting this exclusion, does not address this language. Indeed, neither side cites any cases interpreting an exclusion for continuous or repeated seepage or leakage.
Although it appears the Wyoming Supreme Court has not interpreted the "continuous or repeated seepage or leakage of water" exclusion, several other courts have interpreted it and have taken widely diverging approaches. In Wheeler v. Allstate Ins. Co. , 687 F. App'x 757 (10th Cir. 2017), the court held that under Utah law, this exclusion for leakage lasting for "weeks" only applied to damages caused by "weeks" of leakage. Therefore, where the insured sought damages only for the first fourteen days of a continuous, two-month plumbing leak, summary judgment for the insurer was in error. A similar decision is Hicks v. American Integrity Insurance Company of Fla., 241 So.3d 925, 926-927 (Fla. App. 2018), which held that under Florida law "an insurance policy excluding losses caused by constant or repeated leakage or seepage over a period of fourteen days or more does not unambiguously exclude losses caused by leakage or seepage over a period of thirteen days or less." Id. at 927.
But meanwhile, other courts have held that the exclusion bars the entire claim. See, e.g. , General Star Indem. Co. v. Sherry Brooke Revocable Trust, 243 F. Supp. 2d 605, 610-11 (W.D. Tex. 2001). In General Star , sewer lines had discharged water under the insured's apartment buildings for a period of at least weeks or possibly months. The court rejected the insured's arguments that the exclusion did not apply to the first fourteen days of the loss. The District of Arizona has found General Star persuasive and Hicks unpersuasive, although this was at least in part because the exclusion at issue also contained an anti-concurrent causation clause. Karon v. Safeco Ins. Co. of Am., No. CV-20-1522-PHX-DJH, 2021 WL 3419037, at *4 (D. Ariz. Aug. 5, 2021), appeal pending (granting summary judgment to insurer under this exclusion where refrigerator water line continuously discharged water for over two weeks). See also Landrum v. Allstate Ins. Co. , No. 5:18-cv-00458-TES, 2019 WL 5068656, at *3–4 (M.D. Ga. Oct. 9, 2019) (declining to follow Wheeler and Hicks where insured did not present evidence separating loss into first 13 days of 25 day leak). Cf. , Ellis v. State Farm Fire and Cas. Co., 322 F. App'x 594, 595 (10th Cir. 2009) (applying Oklahoma law, affirming summary judgment for insurer under this exclusion because it was undisputed that a broken drain line leaked continuously under foundation "over a period of time"); Council Oaks Learning Campus, Inc. v. Farmington Cas. Co., 210 F.3d 389 (Table), 2000 WL 376623, at *1 (10th Cir. 2000) (unofficially published) (under Oklahoma law, insured's estoppel argument failed because claim for water damage from roof leaks experienced over the course of five years was barred by this exclusion).
Although neither side briefs it, the Policy in this case likewise contains such a clause but it does not apply to the continuous or repeated seepage or leakage exclusion.
The affirmative coverage provision for loss caused by thawing snow or ice does not remove the fair debate of Plaintiff's claim. Plaintiff does not cite any cases that interpret a continuous or repeated seepage exclusion in conjunction with an affirmative coverage provision. The Court is unable to locate any cases deciding how this exclusion relates to coverage for damage from thawing snow or ice. Perhaps more importantly, the Court has not found any cases that agree with Plaintiff's assumption that an affirmative coverage provision overrides an otherwise applicable exclusion. Just the opposite. See, e.g. , Iroquois on the Beach, Inc. v. General Star Indem. Co., 550 F.3d 585, 587–88 (6th Cir. 2008) (under Michigan law, exclusion for seepage of water barred claim regardless that windstorm, a covered cause of loss, initiated the sequence of events that resulted in the loss); Hall v. American Indem. Group, 648 So.2d 556, 558–59 (Ala. 1994) (exclusion for loss from water pressure applied to insured's claim for loss caused by water pressure from a burst underground water line, despite a coverage provision for leakage from plumbing system). Cf. , Miles v. Continental Cas. Co., 386 P.2d 720, 722–23 (Wyo. 1963) (where one proximate cause of death was covered under life insurance policy and the other was excluded, insured's claim was excluded).
With no Wyoming case interpreting a continuous or repeated seepage exclusion, and no clear majority among other jurisdictions that have ruled on whether the exclusion in this Policy would bar Plaintiff's entire claim or only the loss after the first fourteen days, Plaintiff's claim was (and remains) fairly debatable. This is particularly true here, where Plaintiff has never limited its claim to loss incurred in the first fourteen days of roof leaks.
Although Plaintiff presents evidence that Acuity closed its file in January 2018 (the Acuity claims activity log) without notifying Plaintiff that it was denying the claim on the roof, this does not raise a material fact dispute that Acuity reasonably investigated that claim. By that time, it had already reviewed Kemp's report from February 2017 and Cardillo's report from April 2017. Cardillo's report opines among other things that when he inspected, "Water-related damage was observed at the second-story lobby near the interface between the two- and three-story roof tiers. Drywall had been removed, and the underlying wood framing exhibited water-related stains and some decay. The stains exhibited multiple fronts, and, when coupled with the observed decay, were indicative of multiple wetting events occurring over time." ECF 25-4 at 3. The Cardillo report also pointed to openings and other problems on the roof that were long-term. Id. at 5. Although Plaintiff argues that Cardillo did not act on its behalf in the inspection, it does not dispute that Cardillo is a licensed professional engineer in the state of Wyoming. Nor does Plaintiff dispute that Cardillo is an appropriate third-party to act as an adjuster for Acuity. Moreover, Cardillo's opinions are not inconsistent with those of the professional engineer that Plaintiff hired to visually inspect the roof, Mr. Kemp of Y2 Consultants. ECF 25-3. Mr. Kemp's February 2017 report likewise notes multiple openings and problems were "potential sources of water penetrating into the roof/walls." Id. at 1-2. And although Acuity apparently did not receive the New West report until this litigation, New West's opinions are not inconsistent with Cardillo's opinions. Accordingly, there is no material fact dispute whether Acuity had a reasonable basis to believe the exclusion for repeated seepage or leakage of water applied.
Mike Gill and Rich Pampe (New West's project manager and superintendent) opine in their May 2021 report that "[t]he failures could have been attributed to a multitude of factors." They ultimately conclude that had the roof been constructed properly, the water would not have intruded. ECF 37-27.
Finally, Plaintiff argues this claim survives summary judgment because:
Acuity made a payment on the 2017 claim, closed its file for eighteen months, then paid $15,000 in October 2019, and $10,000 in 2020 after purportedly denying coverage. As explained ... supra, whether the HOA's claims are covered involves genuine issues of material fact. Acuity's payments contradict its denial of coverage for the HOA's property damage. There are genuine issues of material fact as to whether Acuity's denial of those claims was unreasonable.
Acuity's payment for interior damage from the roof leaks in 2017 without a reservation of rights, and its later payments under the limited coverage for fungi, wet rot or dry rot, does not undercut this conclusion. Acuity "did so based on the mere possibility that ice dams caused additional water to accumulate on the damaged roof and, therefore, forced more water through the damaged portions of the roof membrane than would otherwise have occurred." ECF 25 at 21. See, e.g., ECF 38-2 (Acuity email of April 26, 2017 to Karyn Humphreys). I.e., the ice dam of February 2017 (which both Kemp and Cardillo noted) arguably caused a one-time increase in seepage or leakage from the roof that could have caused the interior damage, and Acuity chose to err on the side of caution. This does not support Plaintiff's contention that Acuity's application of the exclusion to the roof damage was in bad faith. All evidence supports that the roof was damaged by repeated seepage or leakage of water that occurred over more than 14 days. Again, the law was and remains quite mixed on whether the repeated seepage exclusion would bar the roof damages entirely or only for damage after the first 14 days of leaks. Plaintiff also does not appear to have argued such damages were separable.
On the undisputed facts, Acuity had a reasonable basis to deny the claim and is therefore entitled to summary judgment on Plaintiff's claim for substantive bad faith.
2. Procedural Bad Faith
For procedural bad faith, Plaintiff argues that an "insurer may breach the duty of good faith and fair dealing by the manner in which it investigates, handles or denies a claim." Matlack , 2002 WY 60, ¶ 19, 44 P.3d at 81. Plaintiff also cites Wyo. Stat. Ann. § 26-15-124(b), which provides: "Claims for benefits under a property or casualty insurance policy shall be rejected or accepted and paid by the insurer or its agent designated to receive those claims within forty-five (45) days after receipt of the claim and supporting bills." As procedural bad faith, Plaintiff points to:
Acuity made a payment for water damage in April 2017 without a reservation of rights. Exhibit 8; Exhibit 12, p. 1. Acuity closed its file for some eighteen months, Exhibit 4, p. 5 (4/26/17), and failed to inform the HOA of Acuity's coverage position until the HOA submitted its 2019 claim. At that point, Acuity paid $15,000 under its Fungi, Wet Rot or Dry Rot additional coverage, and only then informed the HOA of its coverage position. [Doc. 25-9]. Acuity paid $10,000 under its Fungi coverage in 2020. Exhibit 18. During the intervening period, the HOA incurred substantial costs in the remediation and repair of damage to the building.
Although the HOA demonstrated a prima facie case of coverage under the Acuity policy, a reasonable insurer would not have closed the file, Exhibit 4, p. 5 (4/26/17), for eighteen months before denying coverage, [Doc. 25-9], when the insurer knew or should have known that the insured was obliged to remediate damage and repair the building, Exhibit 4, pp. 4-5 (3/27/2017 - 4/26/17), and expected that insurance proceeds would fund those expenses, Exhibit 16, 23.
The only facts here that the Court did not already address on the substantive bad faith claim is that Acuity closed its file for eighteen months allegedly without notifying Plaintiff that it had denied coverage for the roof damage, knowing that Plaintiff was obliged to fix the roof in the meanwhile and expected the proceeds on its claim to pay those expenses.
In its Reply, Acuity notes that on April 26, 2017, it sent an email to Plaintiff (specifically, to Karyn Humphreys):
Plaintiff does not dispute that Ms. Humphreys at the time was authorized to receive communications from Acuity on behalf of the HOA and had provided her email address for that purpose. See, e.g., ECF 25-2 notice of claim at 1. Plaintiff disputes only whether she was authorized to speak on its behalf to Acuity.
Enclosed is a copy of the estimate for water damage to the building at 199 East Pearl Street, Jackson, WY. The estimate in the amount of $12,531.39 was written and is agreed with your contractor, John Kemp of Y2 Construction. When demolition is complete, Mr. Kemp will contact Barbara Maston with Frontier Adjusters if additional insulation requires replacement, or if any other aspect of the damages are found. A check will be mailed today for the repair less the applicable deductible of $5,000.
In addition, please find enclosed Mr. Chris Cardillo with Cardillo Forensics, LLC engineer report. He ... pointed out the following:
*The openings in the roof through which water entered were the result of deficiencies inherent in the roofing system's installation as well as wear and mechanical damage over the life of the roofing and were not caused by ice dams.
*The presence of ice dams on the roof greatly increased the amount of standing water, driving it through the openings in the roofing system that were caused by deficient installation, wear and mechanical damage.
...
Based on Mr. Cardillo's findings, it does not appear there were any damages to the roof membrane that was [sic] caused by ice dams, but from maintenance issues. Therefore, we are unable to consider any payment for the roof membrane.
ECF 38-2 at 1 (emphasis added). Accordingly, regardless that Acuity did not mail a "letter ... with the findings on the original report of this claim" (ECF 37-16, email chain of November 2019), Acuity did timely notify Plaintiff in April 2017 that it was denying the claim for roof damage.
Acuity's claim activity log reflects that its representative also left a voicemail for Karyn (Humphreys) the same day. ECF 37-6 at 5. Acuity followed up the next two months with Plaintiff's insurance agent regarding the status of the repairs – as noted in the April 26 email, Acuity expected there might be additional interior water damage found when the walls were opened for the repair. Id. at 6. The log states as of January 17, 2018 "there has been no activity" and in both June 2017 and January 2018, Acuity expected that if a supplement was necessary, it would hear from Plaintiff's contractor. Id. Plaintiff does not assert that anyone from or on behalf of the HOA, its contractor, or its insurance agent ever contacted Acuity between January 2018 and September or October 2019.
On these facts, no reasonable jury could find that Acuity acted unreasonably in closing its file on the claim, following up for two months, and then simply waiting to hear from Plaintiff's contractor if they found additional interior water damage. The procedural bad faith claim fails as a matter of law, and Acuity is therefore entitled to summary judgment on this claim as well.
IV. Conclusion
For the reasons stated above, Acuity's motion for summary judgment is GRANTED on all claims.