1 DISTRICT COURT, CITY AND COUNTY OF DENVER, COLORADO 1437 Bannock Street Denver, CO Plaintiffs: JON C. COOK, an individual, and THE LUMBERYARDS DEVELOPMENT, L.L.C., a Colorado Limited Liability Company, v. Defendants: AUTO-OWNERS INSURANCE COMPANY, a Michigan Corporation COURT USE ONLY Case Number: 11CV892 Div. 424 COURT ORDER THIS MATTER is before the Court on Defendants Motion to Dismiss Plaintiffs Cook and Lumberyards Development, L.L.C. s claims. The Court, having reviewed the Motion, Court file and the applicable legal authorities, finds and orders as follows: STANDARD OF REVIEW Motions to dismiss pursuant to C.R.C.P. 12(b)(5) are looked upon with disfavor and should not be granted unless it appears beyond doubt that the plaintiff can prove no set of facts that would entitle him to relief. Verrier v. Colo. Dept. of Corr., 77 P.3d 875 (Colo. App. 2003). In ruling on a motion to dismiss for failure to state a claim pursuant to C.R.C.P. 12(b)(5), the trial court must accept the facts of the complaint as true and determine whether, under any theory of law, plaintiff is entitled to relief. The complaint is sufficient if relief could be granted under such circumstances. W.O. Brisben Co., Inc. v. Krystkowiak, 66 P.3d 133 (Colo. App. 2002). In ruling on a motion to dismiss, a court may consider only the matters stated within the four corners of the complaint and must not go beyond the confines of the pleading. Jenner v. Ortiz, 155 P.3d 563 (Colo. App. 2006). STATEMENT OF FACTS Plaintiff John C. Cook ( Cook ) and Plaintiff The Lumberyards Development, L.L.C. ( Lumberyards ) (collectively, Plaintiffs ) are listed as Certificate Holders and Additional
2 Insureds under the Commercial General Liability Coverage on the fire and liability insurance policy that the tenant of Lumberyards property was required to obtain. The tenant took out a policy with Defendant Auto-Owners Insurance Company ( AO ), which included $300,000 for fire damage and building replacement coverage of $750,000. (Compl. 10.) There was a fire on the premises in June 2010, resulting in approximately $185,000 in damage. (Id. at 12.) Defendant AO allegedly failed to return phone calls and s from both the tenant and Lumberyards, failed to thoroughly investigate the claim, unreasonably denied benefits, and refused to reimburse the tenant and Lumberyards for the entirety of the loss. Lumberyards was not given permission to enter and repair the premises by AO until August 26, 2010, at which time AO also stated that its investigation involving the premises was concluded. (Id. at 17.) No payments had been disbursed and no resolution of the claim had been reached. Plaintiffs sued AO for breach of contract, bad faith breach of insurance contract, and breach of implied covenant duty of good faith and fair dealing. Defendant moves the Court to dismiss because as additional insured parties solely for the Commercial General Liability Coverage ( Liability Coverage ), neither Plaintiff Cook nor Lumberyards has a viable breach of contract claim under the Commercial Property Coverage ( Property Coverage ). Further, Defendant argues that neither Plaintiff has a claim for bad faith breach of insurance contract and relief under C.R.S & Finally, Defendant argues that the duty of good faith and fair dealing claim is duplicative of the previous causes of action and should be dismissed for that purpose. Defendant also asks for attorney fees for the defense of this suit under C.R.C.P. 11, C.R.C.P , and BREACH OF CONTRACT Property Coverage Portion of Insurance Contract Defendant AO argues that the Plaintiffs are not Additional Insureds under the Property Coverage portion of the insurance contract. The Court finds it clear under the plain language of the Tailored Protections Policy Declarations form ( Policy Declaration ) that Plaintiffs are not covered by the policy s Property Coverage. The Policy Declaration splits the Commercial Property Coverage and Commercial General Liability Coverage into two distinct portions. (See Id.) Plaintiffs are clearly listed as additional
3 insured parties under the Liability Coverage, but not under the Property Coverage. (Id. at 5-6.) For Plaintiffs to bring any breach of contract claim against Defendant based on the Property Coverage, they would have to be parties to that coverage. Commercial General Liability Coverage Defendant claims that Plaintiffs only had liability coverage, which would provide relief for those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. (Mot. To Dismiss Ex. A pt. 10, at 1.) Plaintiffs contend that their Liability Coverage covers fire damage because the Commercial General Liability Plus Endorsement ( Endorsement ) states that Exclusions c. through n. do not apply to damage by fire, lightning, explosion, or water damage to premises rented to you or temporarily occupied by you with permission of the owner. (Def. s Resp. to Mot. To Dismiss Ex. 1 pt. I, at 5.) Exclusion j., which is the exclusion for property damage in the original contract, would fall within that scope. The Liability Coverage expressly limits the insurer s liability to Plaintiffs to those sums that they become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. (Mot. To Dismiss Ex. A pt. 10, at 1.) Further, liability insurance in general, sometimes called third-party insurance, does not recompense the insured for his own loss. Browder v. U.S. Fidelity and Guaranty Co., 893 P.2d 134 n. 3 (Colo. 1995). Instead, liability insurance protects the insured against damages he may be liable to pay to others because of his own actions. Id. The Endorsement, which Plaintiffs cite as proof that fire damage is covered under the Liability Coverage, does not change the blanket limitation imposed in the original policy, that the insurer s liability extends to sums that the insured becomes legally obligated to pay. Further, the language of the pertinent portion of the Endorsement applies only to property rented to Free Soul Yoga, L.L.C. ( Tenant ), not property owned by the additional insured parties. According to the Commercial General Liability Form, you and your refer to the Named Insured shown in the Declarations, which in this instance would be the Tenant. (Mot. To Dismiss Ex. A pt. 10, at 1.) Plaintiffs are considered insureds for the purpose of the Contract. Id. If one substitutes
4 the specific parties of this case for you, your, and owner in the language of the Endorsement, the Endorsement states: Exclusions c. through n. do not apply to damage by fire, lightning, explosion or water damage to premises rented to [Free Soul Yoga, L.L.C.] or temporarily occupied by [Free Soul Yoga, L.L.C.] with permission of the [Plaintiffs John C. Cook and The Lumberyards Development, L.L.C.]. (Def. s Resp. to Mot. To Dismiss Ex. 1 pt. I, at 5.) The plain language of the Endorsement states that AO will cover the Tenant s liability as to property they occupy, but it does extend that coverage to Plaintiffs for damage to their own property. Because there is no allegation that Plaintiffs have been legally obligated to pay any of the damages alleged, and because Plaintiffs only have Liability Coverage, Plaintiffs do not have a valid claim for breach of contract. BAD FAITH BREACH OF INSURANCE CONTRACT Due to the special nature of insurance contracts and the relationship between the insurer and the insured, an insurer s bad faith breach of an insurance contract can give rise to additional tort liability in addition to regular breach of contract. Nunn v. Mid-Century Ins. Co., 244 P.3d 116, 119 (Colo. 2010). Such bad faith tort liability can arise in two circumstances: first-party and third-party bad faith. Id. First-party bad faith occurs when an insurance company delays or refuses to make payments owed. Id. (citing Goodson. v. Am. Standard Ins. Co., 89 P.3d 409, 414 (Colo.2004)). Third-party bad faith arises when an insurance company acts unreasonably in investigating, defending, or settling a claim brought by a third person against its insured under a liability policy. Id. [The insurer's duty of good faith and fair dealing extends only to its insured, not the third party. Id.] Defendant AO claims that Plaintiffs first-party bad faith claim for property damages is barred because as non-parties to the Property Coverage portion of the contract, Plaintiffs are not entitled to any payment from Defendant for damage to their property. Because the Court finds that Defendant did not owe any payment to Plaintiffs under the Property Coverage, Plaintiffs claim for bad faith breach of insurance contract is dismissed. BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING Defendant asserts that the Breach of Implied Covenant of Good Faith and Fair Dealing claim is barred because it is duplicative of the claim of Bad Faith Breach of an Insurance Contract. The
5 Court recognizes that Bad Faith Breach of Insurance Contract and the Duty of Good Faith and Fair Dealing are separate claims under the law, because they are recognized as such by Colorado Jury Instruction 25:8. However, the claims in this case are based on the existence of a contractual relationship between AO and the Plaintiffs. Because there is no contractual relationship between the parties under the Property Coverage, Plaintiffs breach of implied covenant of good faith and fair dealing claim cannot survive. See generally Decker v. Browning-Ferris Industries of Colorado, Inc., 931 P.2d 436, 441 (Colo. 1997). ATTORNEY FEES Defendant claims it is entitled to attorneys fees incurred in the defense of this action pursuant to C.R.C.P. 11, C.R.S (5), C.R.S , and C.R.S , et seq. Defendant justifies this assertion by claiming that Plaintiffs claims are not warranted by existing law or a good faith argument for transforming existing law under Rule 11. However, the Court finds that Plaintiffs asserted a good faith belief that they had coverage for property damage under the complex terms of the contract. Accordingly, the Court will not award Defendant attorneys fees under Rule 11. Defendant further asserts that C.R.S requires courts to award defendants attorney fees when courts dismiss a tort claim against the defendant. Even though Plaintiffs have asserted two tort claims that are being dismissed, this action is grounded in contract law. When a suit is based in contract law, even if some of the claims are tort claims, this statute does not apply. Accordingly, attorney fees will not be awarded for the Defendant under C.R.S Defendant also asserts that C.R.S , et seq. allows for the award of attorney fees when an action is prosecuted that is substantially without merit or substantially frivolous. Because the Court does not find the action to be substantially without merit or frivolous, it will not award attorney fees under C.R.S , et seq. For the same reasons, the Court will not award attorney fees under C.R.S (5). CONCLUSION For the foregoing reasons, Defendant s Motion to Dismiss Plaintiffs Claims is GRANTED, but Defendant s request for attorney fees is DENIED.
6 SO ORDERED this 29th day of June, BY THE COURT Sheila A. Rappaport District Court Judge