Summary
The United States District Court for the District of Colorado considers American Economy Insurance Company’s motion for summary judgment in a declaratory-judgment action arising from a fire at a home under construction. The court holds that the defendants did not reside at the Madison Street property and therefore grants summary judgment on the issue of coverage for building-property damage and the related breach-of-contract claim. The court reserves or declines to resolve other issues, including whether the defendants sought coverage for damaged personal property.
Topics
Practice areas
Questions Presented
- Whether the Madison Street home qualified as a policy-defined residence premises and was covered for building-property damage from the fire.
- Whether defendants' failure to inform American Economy that they had demolished the Belcaro Drive home violated a condition precedent to coverage for personal-property damage.
- Whether the absence of coverage defeated defendants' breach-of-contract counterclaim.
- Whether the absence of benefits owed defeated defendants' statutory bad-faith claim under Colorado law.
- Whether defendants' common-law bad-faith claim could proceed despite the absence of coverage when it alleged bad faith in the investigation, handling, and adjustment of the claim.
Holdings
- The Madison Street home did not qualify as a residence premises under the policy because defendants did not reside there; no reasonable jury could conclude that they actually lived or dwelled there at the time of the fire. Consequently, there was no building-property coverage for the fire damage to that home.
- Defendants' failure to inform American Economy that they had demolished the Belcaro Drive home violated an unambiguous condition precedent requiring notice of any change in title, use, or occupancy. Therefore, no coverage was available for personal-property damage arising from the fire.
- Defendants could not prevail on their breach-of-contract counterclaim to the extent it was based on denial of dwelling or personal-property benefits because the policy did not provide coverage for those losses.
- Defendants could not succeed on their statutory bad-faith claim because no benefits were owed under the policy.
- The court did not decide whether defendants' common-law bad-faith claim could proceed. It reserved ruling pending a surreply addressing whether defendants could produce evidence that American Economy violated applicable insurance-industry standards.
Key quotations
“At bottom, to reside at a place, a person must live or dwell there for at least a considerable amount of time.” (at 13)
“The Policy did not require the Sepics to inform American Economy of an intent to change the title, use, or occupancy. It required them to inform American Economy of the change itself.” (at 19)
“However, a common law bad faith claim can “encompass[] the entire course of conduct” between the insured and the insurer” (at 22)
Factual background
American Economy issued a homeowners' insurance policy covering the property identified in the declarations as 3500 Belcaro Drive. Defendants demolished the Belcaro Drive home in December 2020 without informing American Economy and began constructing a new home at 800 South Madison on the same lot. Defendants never moved into or slept at the Madison Street home, maintained another lodging location, and were present at the Madison Street property primarily to oversee construction. A fire damaged the Madison Street home while it was under construction on December 30, 2023, before a certificate of occupancy had issued.
Procedural history
American Economy filed a diversity declaratory judgment action after defendants sought insurance coverage for fire damage to a home under construction. Defendants asserted counterclaims for breach of contract and insurance bad faith. The court previously denied most of defendants' motion for partial summary judgment but granted relief on some affirmative defenses. On American Economy's later motion, the court granted summary judgment concerning building-property coverage, the breach-of-contract claim, and the statutory bad-faith claim, but reserved ruling on the common-law bad-faith claim and left other portions of the declaratory judgment claim unresolved.