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Lewis v. Allstate Insurance Co.

United States District Court, D. Arizona

September 28, 2016

BOBBY LEWIS, Plaintiff,
v.
ALLSTATE INSURANCE COMPANY, Defendant.

         Prescott Division

          ORDER MOTION FOR SUMMARY JUDGMENT

          H. RUSSEL HOLLAND UNITED STATES DISTRICT JUDGE.

         Defendant moves for summary judgment.[1] This motion is opposed.[2] Oral argument was requested and has been heard.

         Facts

         Plaintiff is Bobby Lewis. Defendant is Allstate Insurance Company.

         In 2000, plaintiff and his then-girlfriend, Mildred Kenyon, purchased a 1533 square foot home at 17564 Ridgeway Drive, Yarnell, Arizona. Kenyon believed they paid around $65, 000 for the home.[3] Plaintiff believed they paid $85, 000 for the home but “[i]t might have been less.”[4]

         After purchasing the home, plaintiff and Kenyon purchased a homeowner's insurance policy from defendant. The policy provided for $88, 000 in Dwelling Protection coverage; $8, 800 in Other Structures Protection coverage; and $61, 600 in Personal Property Protection coverage.[5] Plaintiff testified that they purchased their home insurance from defendant because Kenyon had her automobile insured with defendant and wanted to stay with the same company for their house insurance.[6] Plaintiff testified that he never spoke to anyone at Allstate when they were deciding to purchase the homeowner's policy, that Kenyon took care of this matter.[7]

         Kenyon testified that she called David Vasquez, an agent for defendant, and “told him we needed house insurance and I kind of remember him asking me where a fire hydrant was, and I think maybe how many square feet. I don't remember anything else. He gave me a quote and that was it. I paid it.”[8] Kenyon testified that she did not ask specifically about certain coverages.[9] Kenyon testified that no misrepresentations were made by defendant to get them to buy the homeowner's policy.[10] Kenyon testified that she did not remember if Vasquez told her that he was “going to provide ... a policy that gives you full coverage.”[11] Kenyon testified that she never asked defendant to increase the policy limits and that she “just assumed that they [Allstate] knew what they were doing.”[12] She testified that she never reviewed the policy and declarations page that was sent each year.[13]Kenyon testified that she called Vasquez in 2010 to change the deductible on the policy from $500 to $1000 because “I thought the price was going up too fast too high, and he changed the deductible to $1, 000 to make the payment lower.”[14]

         Plaintiff testified that it was his understanding that he was “fully covered” but that no one at Allstate told him that he was “fully covered.”[15] Plaintiff testified that he never asked defendant to increase the policy limits.[16] With the Policy Declarations that were sent each year, defendant also sent a notice which provided that “[y]ou may want to add coverage, delete coverage, or change your coverage limits - or you may want to update coverage on valuable personal items, such as jewelry or artwork.”[17] Plaintiff testified that he did not think that he looked at the policy and declaration page each year, that he thought “we just wrote a check and sent them the money. They sent a bill and we paid it.”[18]

         Plaintiff and Kenyon met with Vasquez in 2007 to review their insurance policies.[19]Vasquez testified that at that time, he explained coverage limits to them and that

[t]he coverage limits based on our system automatically shows that it's sufficient. But reviewing the coverages with the client to ensure that they understood those coverages is what I did. And also to identify opportunities. So if they have opportuni- ties, if there's things that need to be changed, we can identify that, discuss that, and discuss possible changes at that time. No changes were made.[20]

         Plaintiff's policy limits increased each year. For plaintiff's policy for the period December 1, 2012 to December 1, 2013 (referred to as the “2013 policy” hereinafter), the Dwelling Protection coverage was increased by $1000 from the previous year to a total of $120, 000.[21] The increase was based upon the Marshall Swift Boeckh Publications Building Cost Index.[22] The court infers that the Index used a per square foot construction cost of $78 for 2012-2013 ($120, 000 ÷ 1533 = $78.27). Vasquez testified that defendant's computer system automatically assesses each year whether a home is sufficiently insured.[23] The 2013 policy also increased plaintiff's Other Structures Protection coverage to $12, 000 and his Personal Property Protection coverage to $84, 000.[24]

         On June 30, 2013, plaintiff's home and its contents were destroyed in a wildfire. Defendant sent an estimator, Matt Martinez, to evaluate the loss. Martinez estimated that it would cost $146, 750.55 to rebuild plaintiff's home; $2, 995.41 to replace the other structures; and $9, 146.46 to replace the trees/plants.[25]

         On July 14, 2013, defendant sent plaintiff a check for $120, 000, the full amount of the 2013 policy's Dwelling Protection coverage.[26] Plaintiff testified that he received his check “quickly” and that defendant's employees were “extremely nice” during the claims process.[27]

         Plaintiff contends that the home was underinsured. As noted above, defendant's estimate to rebuild plaintiff's house was $146, 750.55. A September 25, 2013, estimate by Division Nine Contracting calculated the replacement cost of plaintiff's house as $268, 420.00.[28] Plaintiff's public adjuster, Unity Adjustments, calculated the replacement cost to be $272, 226.65.[29]

         Plaintiff also made a Personal Property Protection claim. Plaintiff submitted a personal property inventory, which lists property valued at $135, 250.59.[30] Plaintiff has yet to be paid anything on his Personal Property Protection claim. Defense counsel advised at oral argument that defendant now has adequate proof of loss and is in the process of paying plaintiff's personal property claim. It was not clear whether defendant is going to pay the $84, 000 Personal Property Protection policy limits or some other amount.

         Plaintiff testified that he does not believe that defendant intended to underinsure him. Rather, he believes that defendant was negligent.[31] Vasquez testified that it would be counterintuitive for him to have underinsured plaintiff given that his commission is based on the premium paid on the policy.[32]

         In his reformed complaint, plaintiff asserts six claims against defendant. Count 1 is a claim for breach of contract. Plaintiff alleges that defendant breached the insurance contract by underinsuring his home.[33] Count 2 is a claim for consumer fraud. This claim is based on allegations that defendant intentionally made material misrepresentations of fact and/or intentionally withheld information to induce plaintiff to purchase and/or renew his policy and that defendant intentionally underinsured plaintiff.[34] Count 3 is a claim for breach of the covenant of good faith and fair dealing. Plaintiff alleges that defendant

misuse[d] the “360 Value” and “RCT” software in estimating the costs of rebuilding; fail[ed] to research the actual construction costs for rebuilding homes in Yavapai County; misrepresent[ed] policy terms to the [p]laintiff[]; arbitrarily changed the insured's replacement cost values and their actual cash values to lower amounts without giving any basis for doing so; and wrongfully ma[de its] insured[] “jump through hoops” in the processing of [his] claims...[35]

         Count 4 is a claim for negligence. Plaintiff alleges that defendant owed him a duty to “properly prepare and submit estimates to rebuild the Property, rebuild its dwelling extensions, and replace the contents that were destroyed.”[36] Plaintiff alleges that defendant breached its duties by “improperly making use of inadequate software in an effort to deprive [him] of the benefits to which he was entitled under the Policy, arbitrarily and intentionally disregarding replacement cost values, conditions, depreciation, and actual cash values of items submitted to [defendant] by [its] insured[.]”[37] Count 5 is a claim for negligent misrepresentation. Plaintiff alleges that defendant provided plaintiff, “both orally and in writing, with false and incorrect information about the scope of [his] insurance coverage and/or rights under the Policy.”[38] Count 6 is a claim for equitable reformation. Plaintiff alleges that the insurance contract should be reformed because “[a]ll parties intended that Mr. Lewis' Property be fully insured against losses from fire under the Policy.”[39]

         Defendant now moves for summary judgment on all of plaintiff's claims.

         Discussion

         Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The initial burden is on the moving party to show that there is an absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party meets its initial burden, then the non-moving party must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In deciding a motion for summary judgment, the court views the evidence of the non-movant in the light most favorable to that party, and all justifiable inferences are also to be drawn in its favor. Id. at 255. “[T]he court's ultimate inquiry is to determine whether the ‘specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence.” T.W. Elec. Service, Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir. 1987).

         Count 1 - Breach of Contract Claim

         In Count 1, plaintiff alleges that defendant breached the insurance contract by underinsuring his house.[40] “If an insured's claim for benefits does not fall within the coverage of the policy, the insurer's failure to pay the claim does not constitute a breach of the insurance contract.” Deese v. State Farm Mut. Auto. Ins. Co., 813 P.2d 318, 321 (Ariz.Ct.App. 1991), reversed on other grounds, 838 P.2d 1265 (Ariz. 1992).

         Defendant contends that plaintiff is not alleging that defendant failed or refused to make payment under the applicable coverages of the policy. Rather, defendant contends that plaintiff's only basis for his breach of contract claim is that the policy should have provided more coverage for Dwelling Protection. But, defendant argues that this is not an allegation that can support a breach of contract claim.

         In his response, plaintiff makes no argument as to his breach of contract claim. Although there is a heading in his responsive brief entitled “Breach of Contract/Insurance Bad Faith”, the argument under that heading is devoted entirely to plaintiff's bad faith claim. Thus, it appears that plaintiff has abandoned his breach of contract claim. See Shakur v. Schriro, 514 F.3d 878, 892 (9th Cir. 2008) (quoting Jenkins v. Cty. of Riverside, 398 F.3d 1093, 1095 n.4 (9th Cir. 2005)) (“ a plaintiff has ‘abandoned ... claims by not raising them in opposition to [the defendant's] motion for summary judgment'”).

         Because plaintiff has abandoned his breach of contract claim, defendant is entitled to summary judgment on this claim.

         Count 2 - Consumer Fraud Claim

         Plaintiff concedes that his fraud claim is subject to dismissal because he has no evidence to support this claim.[41] Thus, defendant is entitled to summary judgment on Count 2 of plaintiff's reformed complaint.

         Count 3 - Breach of the Covenant of Good Faith and Fair Dealing Claim

         In Count 3, plaintiff alleges that defendant “engaged in a variety of bad faith practices designed to delay and underpay [plaintiff's] claim[]”, including misusing its software programs to estimate the cost of rebuilding, failing to research the cost of rebuilding homes in Yavapai County, misrepresenting policy terms to plaintiff, changing “replacement cost values and their actual cash values to lower amounts without giving any basis for doing so;” and making plaintiff “jump through hoops” in the processing of his claims.[42]

         “The tort of bad faith only arises when an insurance company intentionally denies or fails to process or pay a claim without a reasonable basis for such action.” Lasma Corp. v. Monarch Ins. Co. of Ohio, 764 P.2d 1118, 1122 (Ariz. 1988). “Thus, the tort will not lie for claims which are ‘fairly debatable.'” Id. (quoting Noble v. Nat'l Amer. Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981)).

         Defendant argues that the evidence does not support plaintiff's allegations of bad faith. Defendant points out that plaintiff has admitted that defendant's representatives were all “extremely nice” to him during the claim process, [43] that it is undisputed that defendant paid the policy limits for Dwelling Protection within two weeks of the fire, and that plaintiff has admitted that there is no evidence defendant intentionally underinsured his property. And, defendant's expert, Anthony Cannon, opines that “Allstate's handling of [plaintiff's] claim was entirely consistent with insurance industry standards.”[44]Defendant argues that in light of this evidence no reasonable jury could find for plaintiff on his bad faith claim.

         Plaintiff, on the other hand, argues that there is substantial evidence to support his bad faith, primarily that of his expert, Frederick C. Berry, Jr. In his lengthy expert report, Berry opines that defendant acted in bad faith during its investigation and its evaluation of plaintiff's claim.[45] In particular, Berry opines that defendant failed to adequately investigate plaintiff's contention that his home was underinsured.[46] Berry also opines that defendant is biased against insuring dwellings to their full replacement value due to fears of insurance fraud by the insured.[47] Berry further opines that defendant did not take into account Vasquez's failure to provide plaintiff with appropriate advice as to coverage limits.[48]

         There are genuine issues of material fact as to whether defendant acted in bad faith as to plaintiff's claim for Dwelling Protection coverage. Defendant is not entitled to summary judgment on plaintiff's bad faith claim as that claim pertains to plaintiff's Dwelling Protection coverage.

         Plaintiff also argues that there is evidence that defendant acted in bad faith by failing to promptly and fully pay the uncontested portion of his Personal Property Protection claim.

         As an initial matter, defendant argues that plaintiff's argument that it acted in bad faith in connection with his Personal Property Protection claim fails because plaintiff's complaint does not contain any allegations with respect to this claim. Defendant has, however, misread plaintiff's reformed complaint, which, in the “general allegations” section defines the “property” at issue to include the “contents” of plaintiff's home.[49] The latter terms are incorporated by reference into plaintiff's bad faith claim.[50] Plaintiff's ...


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