3 UNITED STATES DISTRICT COURT
4 DISTRICT OF NEVADA
5 * * *
6 WAYNE C. GOODRICH, Case No. 3:18-cv-00562-MMD-CLB
7 Plaintiff, ORDER v. 8 GARRISON PROPERTY AND 9 CASUALTY INSURANCE COMPANY, INC., dba USAA, 10 Defendant. 11 12 I. SUMMARY 13 This is an insurance coverage and bad faith dispute. Plaintiff Wayne C. Goodrich 14 asserts claims for breach of contract, breach of the implied covenant of good faith and 15 fair dealing, and violation of Nevada’s Unfair Claims Practices Act (“UCPA”) against his 16 insurer, Defendant Garrison Property and Casualty Insurance Company. (ECF No. 1-1.) 17 Before the Court is Defendant’s motion for summary judgment. (ECF No. 61 (“Motion”).) 18 Defendant argues that there is no coverage for Plaintiff’s loss under the homeowner’s 19 insurance policy (“Policy”), Plaintiff lacks sufficient evidence to demonstrate a breach of 20 the implied covenant of good faith and fair dealing, and Plaintiff’s UCPA claim fails as a 21 matter of law. Plaintiff responds there is a genuine dispute of material fact as to whether 22 the Policy covers his loss, whether Defendant’s denial of his claim was done in bad faith, 23 and whether Defendant is subject to liability under the UCPA. (ECF No. 62.) Because the 24 Court finds there is no coverage for Plaintiff’s loss under the Policy and Defendant had a 25 reasonable basis to deny his claim, the Court will grant Defendant’s Motion. 26 /// 27 /// 28 /// 2 The following facts are undisputed unless otherwise noted. 3 1. Plaintiff’s Loss 4 Plaintiff owns a house in Incline Village (“the Residence”) which he describes as a 5 “part-time home.” (ECF No. 61-1 at 3.) His other part-time residence is in the California 6 Bay Area. (Id.) In May of 2017, a friend who was staying at the Residence informed him 7 that there appeared to be water damage to the ground floor. (Id.) The friend sent Plaintiff 8 a photo of the apparent water damage. (Id.) At that time, Plaintiff was at his California 9 home. (Id.) On May 20, 2017, Plaintiff texted his contractor, Peter Angela, and forwarded 10 the picture. (ECF No. 61-13 at 2.) Angela agreed to go to the Residence to inspect the 11 damage and take additional photos. (Id.) On or about May 22, 2017, Plaintiff reported the 12 claim to Defendant, his insurer.1 13 Plaintiff reported his claim on the phone to claims adjuster, Jacob Bristow. (ECF 14 No. 61-3 at 2.) Based on his discussion with Plaintiff, Bristow made the following notes in 15 the claim log: “ground wtr issue,” “seepage,” “adv there is no coverage for seepage of 16 wtr,” “ni said he would like inspection” “set up for i/a,” and “**Pending** i/a inspection.” (Id. 17 at 3-4.) Bristow later testified that these notes indicated he had advised Plaintiff there was 18 likely not coverage because the type of damage he was describing would be excluded by 19 the Policy, and that Plaintiff then requested an inspection. (ECF No. 62-7 at 25.) Bristow 20 further testified that his call with Plaintiff would have taken approximately 10 minutes. (Id. 21 at 22.) 22 After determining Defendant did not have any field adjusters near the Residence, 23 Bristow requested that an independent adjuster be assigned to the claim to conduct the 24 investigation. (Id. at 25-26.) The independent adjuster assigned to the claim was Matt 25 Siebrandt, working for Crawford & Company (“Crawford”). (ECF No. 61-4 (“Crawford 26 Report”).) 27 1At his deposition, Plaintiff responded to the question “When did you first report the 28 damage to Garrison?” with “I believe that was May 23rd, 2017.” (ECF No. 61-1 at 3.) The 2 Siebrandt inspected the Residence on May 25, 2017, three days after Plaintiff 3 requested the inspection. (Id. at 2.) Siebrandt noted “[t]he appointment was set per the 4 insured’s availability.” (Id. at 2.) He met Angela at the Residence, and Angela 5 accompanied him during the investigation. (Id.) Siebrandt submitted to Defendant a two- 6 page written summary of his findings and twenty photographs of the damage. (Id. at 2-3, 7 7-16.) Siebrandt’s written evaluation determined: 8 The cause of the loss stems from what appears to be groundwater seeping up through the dwellings slab or stem wall causing water damages to the 9 bottom level of the residence. Upon inspection we found evidence of water damage and mold around the flooring and lower walls of main level of the 10 dwelling. It appears that due to the massive amount of snow in the Tahoe region this winter the recent melt has led to a high water table which has 11 caused the water to seep up through the slab. We understand any and all leaks have been ruled out. 12 13 (Id. at 3.) The photos in Siebrandt’s report depict discoloration at the entry (id. at 7-8), 14 possible mold or other growth on the baseboards (id. at 8-9), warping in the wood floors 15 (id. at 11-12), water stains on the garage floor and visible foundation (id. at 12-14), the 16 slope of the property (id. at 14-16), and a remnant of a snow pile next to the base of the 17 Residence (id. at 16). Siebrandt concluded the apparent cause of the loss was 18 “[g]roundwater due to high water table has led to damages on the ground floor” and that 19 the “[e]ntire loss appears to be excluded due to groundwater not being a covered peril.” 20 (Id. at 2.) 21 Bristow received Siebrandt’s report later that same day, May 25, 2017. (ECF No. 22 61-3 at 4.) Bristow determined after reviewing the report that the claim would be denied 23 because seepage is an excluded loss under the Policy. (ECF No. 61-3 at 4-5.) Bristow 24 then conferred with his manager, Kirbie Porter, whose job involves working with seven to 25 twelve adjusters to assist them in resolving property claims. (ECF No. 62-11 at 8-9.) 26 Porter agreed there was no coverage for Plaintiff’s loss because of “seepage.” (ECF 61- 27 3 at 5.) The next day, May 26, 2017, Bristow called Plaintiff and left a voice-message 28 2 No. 61-6 (“Denial Letter”)). 3 In the Denial Letter, Defendant states that, “based on the inspection by the 4 Independent Adjuster, the damage was caused by water below the surface of the ground 5 which exerts pressure or seeps through a foundation or building.” (Id. at 2.) The Denial 6 Letter provides the pertinent policy exclusion, “1. c. (4).” (Id.) 7 3. Post-Denial Expert Opinions on the Water Damage 8 The parties retained several experts to determine the cause of the water damage 9 with more precision. First, Plaintiff retained Marvin E. Davis & Associates (“Davis”), 10 geotechnical and civil engineers, to inspect the premises and draft corrective drainage 11 designs. (ECF No. 61-8.) After visiting the Residence on June 16, 2017, Davis prepared 12 a project description which noted “[w]ater seepage through the walls, including flooding 13 and mold damage to interior drywall, has required gutting and decontamination of the 14 finishes throughout the ground floor.” (Id. at 3.) They recommended several approaches 15 to “correct[] subsurface seepage and surface drainage.” (Id.) 16 Plaintiff then retained Midkiff & Associates, Inc. (“Midkiff”), planning and permitting 17 consultants, to obtain approval from the Tahoe Regional Planning Agency so that Davis 18 could improve the drainage of the property. (ECF No. 61-11 (“Midkiff Report”).) In its 19 September 19, 2017 report, Midkiff described the Residence as “impacted by offsite flows 20 generated from nearby Incline Golf Course. While impacts have been occurring for 21 several years, the most recent winter exasperated the situation significantly. The offsite 22 flows have impacted the house foundation . . . .” (Id. at 2.) 23 After Plaintiff made a claim against the Incline Village General Improvement 24 District, the District retained Lumos & Associates (“Lumos”), civil and structural engineers, 25 to investigate the cause of the water intrusion. (ECF No. 61-12 (“Lumos Report”).) Lumos’ 26 investigation, was completed in November 2017, concluded: 27 The 2016/2017 winter and spring were significantly above average in precipitation, snow pack, and spring runoff. There was no indication by the 28 property owner that surface runoff contributed to the flooding. The general slope of the surrounding topography and the property contributed to ultimately water seeping into the first floor. Based on the above information, 2 Lumos determined [redacted] flooded due to groundwater flow as a result of above average precipitation and snow melt. 3
4 (Id. at 18.) The Lumos Report contains substantial data about the level of the water tables 5 during that season and the impact of the increased snowpack on the discharge in spring 6 and summer. (Id. at 10-14.) 7 After Plaintiff filed his lawsuit, Defendant retained Ninyo & Moore (“Ninyo”), 8 geotechnical consultants, to again investigate the Residence. (ECF No. 61-14 (“Ninyo 9 Report”).) Ninyo concluded in its July 1, 2019 report that “offsite drainage from the golf 10 course located north of the residence and large accumulations of snow adjacent to the 11 foundation of residence are the primary sources of water contributing to the moisture 12 intrusion and saturation of subsurface soils.” (Id. at 8.) Ninyo considered possible 13 contributing factors to be “inadequate surface drainage conditions” and “inadequate 14 subsurface drainage provisions.” (Id.) 15 Finally, Plaintiff retained Nortech Geotechnical/Civil Consultants, Ltd. (“Nortech”). 16 (ECF No. 61-15 (“Nortech Report”).) Nortech conducted a review of the Crawford Report 17 and questioned how Siebrandt’s conclusion could be formed “without conducting a 18 subsurface investigation.” (Id. at 2.) Nortech continued, “there can be no confirmation of 19 what caused the wet and free water conditions in the residence.” (Id.) No evidence was 20 submitted that Nortech ever conducted a physical investigation of the Residence. 21 4. Procedural History 22 Plaintiff filed a lawsuit in the Eighth Judicial District Court of the State of Nevada 23 on October 15, 2018. (ECF No. 1-1.) In his Complaint, Plaintiff asserts five claims against 24 Defendant. The first is a claim for breach of contract, asserting that Defendant wrongly 25 denied Plaintiff’s loss because it was covered by the Policy. (Id. at 4.) The next two 26 claims—contractual and tortious breach of the implied covenant of good faith and fair 27 dealing tortious breach of the implied covenant of good faith and fair dealing—assert that 28 Defendant denied Plaintiff’s claim in bad faith. (Id. at 3-4.) Plaintiff’s fourth claim alleges 2 Trade Practices Act. (Id. at 4-5.) Finally, Plaintiff requests declaratory relief that the Policy 3 provides coverage for his loss. (Id. at 5.) 4 Defendant removed to federal court on November 26, 2018. (ECF No. 1.) After 5 conducting discovery, Defendant moved for summary judgment on all claims. (ECF No. 6 61.) 7 III. LEGAL STANDARD 8 “The purpose of summary judgment is to avoid unnecessary trials when there is 9 no dispute as to the facts before the court.” Nw. Motorcycle Ass’n v. U.S. Dep’t of Agric., 10 18 F.3d 1468, 1471 (9th Cir. 1994) (citation omitted). Summary judgment is appropriate 11 when the pleadings, the discovery and disclosure materials on file, and any affidavits 12 “show there is no genuine issue as to any material fact and that the movant is entitled to 13 judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). An issue 14 is “genuine” if there is a sufficient evidentiary basis on which a reasonable fact-finder 15 could find for the nonmoving party and a dispute is “material” if it could affect the outcome 16 of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248- 17 49 (1986). Where reasonable minds could differ on the material facts at issue, however, 18 summary judgment is not appropriate. See id. at 250-51. “The amount of evidence 19 necessary to raise a genuine issue of material fact is enough ‘to require a jury or judge to 20 resolve the parties’ differing versions of the truth at trial.’” Aydin Corp. v. Loral Corp., 718 21 F.2d 897, 902 (9th Cir. 1983) (quoting First Nat’l Bank v. Cities Serv. Co., 391 U.S. 253, 22 288-89 (1968)). In evaluating a summary judgment motion, a court views all facts and 23 draws all inferences in the light most favorable to the nonmoving party. See Kaiser 24 Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986) (citation 25 omitted). 26 The moving party bears the burden of showing that there are no genuine issues of 27 material fact. See Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). Once 28 the moving party satisfies Rule 56’s requirements, the burden shifts to the party resisting 2 Anderson, 477 U.S. at 256. The nonmoving party “may not rely on denials in the pleadings 3 but must produce specific evidence, through affidavits or admissible discovery material, 4 to show that the dispute exists,” Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 5 1991), and “must do more than simply show that there is some metaphysical doubt as to 6 the material facts.” Orr v. Bank of Am., 285 F.3d 764, 783 (9th Cir. 2002) (quoting 7 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). “The mere 8 existence of a scintilla of evidence in support of the plaintiff’s position will be insufficient[.]” 9 Anderson, 477 U.S. at 252. 10 IV. DISCUSSION 11 The Court will address first whether Plaintiff’s loss was excluded under the policy. 12 Then, the Court will turn to whether there is sufficient evidence for Plaintiff to sustain a 13 claim for bad faith. Finally, the Court will consider whether there is any evidence that 14 Defendant is liable for a violation of NRS § 686A.310. Because the Court finds that (1) 15 Plaintiff’s loss was excluded by the Policy, (2) Plaintiff has failed to provide evidence that 16 would create a genuine dispute of whether Defendant acted in bad faith, and (3) Plaintiff 17 has failed to provide evidence to support liability under NRS § 686A.310, the Court will 18 grant Defendant’s Motion. Consequently, Plaintiff’s request for declaratory relief will be 19 denied. 20 A. Coverage and Breach of Contract 21 The parties dispute whether Plaintiff’s loss is covered by the terms of the Policy. 22 Defendant argues that regardless of the source of the water that caused damage to the 23 Residence, the water damage exclusion applies to Plaintiff’s loss. (ECF No. 61 at 22.) 24 Plaintiff counters that the cause of the water damage—differentiating between a ‘sudden 25 and accidental’ loss and excluded ‘groundwater seepage’—could impact whether the 26 Policy covers Plaintiff’s loss. (ECF No. 62 at 25.) Because the Court finds that a loss can 27 be both ‘sudden and accidental’ and also excluded, the Court finds there is no genuine 28 dispute of material fact. Because there is no genuine dispute of fact, the Court will 2 Mut. Ins. Co., 184 P.3d 390, 392 (Nev. 2008). Moreover, because the language of the 3 Policy excludes coverage for Plaintiff’s loss, the Court will grant Defendant’s Motion on 4 the breach of contract claim. 5 Under Nevada law, “[t]he language of an insurance policy is broadly interpreted in 6 order to afford the greatest possible coverage to the insured.” United Nat’l Ins. Co. v. 7 Frontier Ins. Co., Inc., 99 P.3d 1153, 1157 (Nev. 2004) (internal quotations omitted). “An 8 insurance policy may restrict coverage only if the policy’s language clearly and distinctly 9 communicates to the insured the nature of the limitation.” Id. (internal quotations omitted). 10 “[A]ny ambiguity or uncertainty in an insurance policy must be construed against the 11 insurer and in favor of the insured.” Vitale v. Jefferson Ins. Co., 5 P.3d 1054, 1057 (Nev. 12 2000). But “the language of an insurance policy will be given its plain and ordinary 13 meaning from the viewpoint of one not trained in law.” United Nat’l Ins. Co., 99 P.3d at 14 1156-57 (internal quotations omitted). Accordingly, the court may not “rewrite contract 15 provisions that are otherwise unambiguous or increase an obligation to the insured where 16 such was intentionally and unambiguously limited by the parties.” Id. at 1157 (internal 17 quotations omitted). “The question of whether an insurance policy is ambiguous turns on 18 whether it creates reasonable expectations of coverage as drafted.” Id. 19 The Nevada Supreme Court has adopted the doctrine of efficient proximate cause 20 for insurance cases. See Fourth St. Place v. Travelers Indem. Co., 270 P.3d 1235, 1244 21 (Nev. 2011). “[W]here covered and noncovered perils contribute to a loss, the peril that 22 set in motion the chain of events leading to the loss or the ‘predominating cause’ is 23 deemed the efficient proximate cause or legal cause of loss.” Id. at 1243. “Generally, this 24 determination is left to the trier of fact, but when the facts are settled or undisputed, the 25 determination is for the court as a matter of law.” Id. at 1243-44. “The court then evaluates 26 the coverage of an insurance policy based on the determined efficient proximate cause 27 of the loss.” Id. at 1244. 28 /// 2 The parties make much of the distinction between a “sudden and accidental loss” 3 and loss that falls within an enumerated exclusion in the Policy. But this distinction is 4 irrelevant to the outcome of the coverage dispute. A loss can be both “sudden and 5 accidental” and fall under an enumerated exclusion. The Policy begins: “We insure 6 against ‘sudden and accidental’ direct, physical loss to tangible property described in 7 PROPERTY WE COVER coverages A and B unless excluded in Section I – LOSSES WE 8 DO NOT COVER.” (ECF No. 61-2 at 27.) The water damage exclusion appears in Section 9 I as one of several losses not covered by the Policy. (Id. at 30.) Plaintiff argues that 10 because his loss was “sudden and accidental,” the Policy provides coverage. (ECF No. 11 62 at 27-29.) Although Defendant’s briefs muddle the issue somewhat by attempting to 12 contrast “‘sudden and accidental’ events” from “water damage” (ECF Nos. 61 at 23, 63 at 13 11), their central argument that the water damage exclusion precludes coverage for 14 Plaintiff’s loss ultimately is correct. Under the plain meaning of the Policy, a loss may be 15 sudden and accidental, yet excluded from coverage if it falls within an enumerated 16 exclusion. Plaintiff’s claim that the language “sudden and accidental” provides coverage 17 is therefore unresponsive to the applicability of the groundwater exclusion. 18 When considered as a whole, the Policy anticipates that water damage may arise 19 without anticipation and still be excluded. The section containing the water damage 20 exclusion also addresses exclusions for other unanticipated catastrophic losses, 21 including earthquakes, landslides, volcanic eruptions, power failures, war, nuclear 22 reaction, or radioactive contamination. (ECF No. 61-2 at 30-31.) In context, the water 23 damage exclusion contemplates not only routine water damage but also unanticipated, 24 drastic events like a once-in-several-decades snowpack melting on the premises. This is 25 further evidenced by the other types of events listed within the exclusion, including floods, 26 tsunamis, and levee breaks. (Id. at 30.) Plaintiff’s argument that a jury could find the 27 snowmelt was “sudden and accidental” does not therefore create a triable issue of fact 28 2 accidental. 3 Moreover, there is no genuine dispute that Plaintiff’s loss was fortuitous. Defendant 4 creates needless confusion on this issue in their Motion and Reply by contrasting “sudden 5 and accidental” events with water damage. (ECF Nos. 61 at 23, 63 at 11.) But Defendant’s 6 offhand remarks never seriously contend that damage to the Residence would not be 7 covered even if no exclusion applied. (ECF No. 61 at 23.) Instead, Defendant’s argument 8 focuses on the applicability of the water damage exclusion. (Id. at 21-22.) The Court 9 agrees that whether there is coverage under the Policy turns on the applicability of an 10 enumerated exclusion, and will now consider whether the water damage exclusion 11 precludes coverage for Plaintiff’s loss. 12 2. The Water Damage Exclusion 13 The parties do not genuinely dispute that the damage occurred because the 14 ground was oversaturated with water which then intruded into the ground floor of the 15 Residence. Subsection four of the water damage exclusion—which excludes “damage 16 caused by or consisting of . . . [w]ater or water-borne material below the surface of the 17 ground, including water which exerts pressure on or seeps through a building, sidewalk, 18 driveway, foundation, swimming pool, or other structure”—accurately describes the type 19 of water that damaged the Residence. (Id.) Plaintiff offers nothing to contradict 20 Defendant’s proffered evidence that water damaged the Residence by seeping through 21 the foundation or walls. In fact, both parties’ retained consultants attribute the damage to 22 excess water in the ground.2 (ECF Nos. 61-4 at 2 (Crawford Report), 61-11 at 2 (Midkiff 23 Report), 61-12 at 18 (Lumos Report), 61-14 at 9 (Ninyo Report).) Plaintiff’s own testimony 24
25 2Some of the consultants attribute the increased saturation of the ground to the nearby golf course and/or otherwise heightened water tables in the region from the 26 unusual snowpack that season. The parties do not address whether water from an off- site source contributing to the groundwater accumulation surrounding the Residence 27 would be specifically covered or excluded; however, the Court’s reasoning remains unchanged whether the increased groundwater accumulation originates on the premises 28 of off-site. 2 overflowing the saturated ground.” (ECF No. 61-1 at 6.) The parties agree that whether 3 caused by melting snow or not, the ground was unable to contain the volume of water 4 without that water intruding into the Residence. The facts are not in dispute and there is 5 no relevant argument that the terms of the Policy are ambiguous.3 See Vitale, 5 P.3d at 6 1057. Accordingly, the Court will interpret the Policy as a matter of law. 7 Under the water damage exclusion’s plain and ordinary meaning, Plaintiff’s loss is 8 excluded. The Policy excludes coverage for water damage that is “caused by” one of the 9 enumerated occurrences and damage that is “consisting of” types of water described in 10 the following subsections. (ECF No. 61-2 at 30.) Plaintiff sometimes attempts to 11 distinguish “snowmelt” from “seepage” as two types of water that are somehow different 12 in kind (ECF No. 62 at 25), while at other times arguing that “determining the origin of the 13 damage is crucial.” (ECF No. 62 at 27.) Defendant likewise contemplates a difference 14 between “seepage” and “melting snow” as separate types of water, but ultimately argues 15 that regardless of the water’s origin, the Residence suffered water damage from water in 16 the ground. (ECF No. 61 at 22.) As further explained below, the Court finds that any 17 distinction between “snowmelt” and “seepage” is one without a difference for the purposes 18 of the water damage exclusion here. 19 Whether the intruding water was originally snowmelt or water from another source 20 is of no consequence. The original source of the intruding water does not control whether 21 the water damage exclusion applies. By its terms, the water damage exclusion 22 encompasses losses “arising from, caused by or resulting from human or animal forces, 23 any act of nature or any other source.” (Id.) Even construing the exclusion narrowly, water 24 damage resulting from a winter that bore a greater than anticipated snowpack certainly 25 falls within an “act of nature” or, at the very least, from “any other source.” (Id.) The global 26 3Plaintiff contends that any ambiguity regarding what qualifies as a “sudden and 27 accidental loss” should be construed in his favor. (ECF No. 62 at 27.) The Court agrees, but as explained above, whether Plaintiff’s loss is sudden and accidental is not ultimately 28 determinative of whether the loss is excluded from coverage. 2 covered cause of Plaintiff’s loss, the resultant water damage is not covered and thus the 3 loss is excluded. The Policy’s language applicable to all exclusions states: 4 We do not insure for damage consisting of or caused directly or indirectly by any of the following regardless of: 5 (i) The cause of the excluded event or damage that; or (ii) Other causes of the loss that; or 6 (iii) Whether the event or damage occurs, suddenly or gradually, involves isolated or widespread damage, or occurs as a result of any 7 combination of these to; or (iv) Whether other causes or events act concurrently or in any sequence 8 with the excluded event to produce the loss. 9 (Id.) Interpreted plainly, this umbrella clause informs the insured that the Policy excludes 10 coverage for an excluded loss irrespective of its precipitating cause or causes. The 11 original source of the water—whether from melting snow or some other water saturating 12 the ground—does not control the applicability of the groundwater subsection of the water 13 damage exclusion. 14 But even if the language of the exclusions section and the water damage exclusion 15 were less clear, Nevada law also leads the Court to conclude that Plaintiff’s loss is 16 excluded from coverage. The parties agree that water damage—whether the result of 17 snow melting on the surface of the ground, water rising from the ground, runoff water from 18 the nearby golf course, or some other source—caused the damage to the Residence. 19 (ECF Nos. 61 at 22-23, 62 at 4-6.) Had water from outside the Residence not 20 accumulated, either above or below the surface of the ground, because of the snowstorm 21 or from another cause, the Residence would not have sustained water damage. 22 Accordingly, the water damage is efficient proximate cause of the Plaintiff’s loss. See 23 Fourth St. Place, 270 P.3d at 1244. Even if an otherwise covered antecedent event 24 contributed to the water damage,4 the loss is excluded because the efficient proximate 25
26 4Contrary to Plaintiff’s assertion that snow or melting snow is not included in the enumerated weather exclusions (ECF No. 62 at 27), the Policy further states “[w]e do not 27 insure for loss caused by any of the following . . . . Weather Conditions which includes but is not limited to heat, cold, humidity, rain, ice, snow, sleet, wind, hail or drought” (ECF 28 No. 61-2 at 31). While it is unnecessary to reach whether Plaintiff’s loss is “caused by” 2 find that a reasonable interpretation of the Policy would cover otherwise excluded 3 groundwater damage simply because the original source of the water was snowmelt. 4 Because the loss was excluded under the Policy, Defendant did not breach the 5 contract by denying Plaintiff’s claim. Accordingly, the Court will grant Defendant’s Motion 6 as to the breach of contract claim. As a necessary result, the Court will deny Plaintiff’s 7 requested declaratory relief. 8 B. Bad Faith and the Implied Covenant of Good Faith and Fair Dealing 9 The parties dispute whether Plaintiff’s bad faith claims are appropriate for 10 resolution at summary judgment. Plaintiff argues that he has produced sufficient evidence 11 for a trier of fact to find that Defendant denied his claim without having a reasonable basis 12 to do so. (ECF No. 62 at 17.) Specifically, Plaintiff argues that Defendant’s failure to 13 properly investigate the claim and its disregard of its insured’s interest provide a genuine 14 dispute of material fact that can only be determined by the factfinder. (Id. at 21, 23.) 15 Defendant counters that summary judgment is appropriate because the Court may 16 determine whether an insurer’s actions were reasonable as a matter of law, and that is 17 the only issue in dispute. (ECF No. 61 at 23.) As further explained below, the Court agrees 18 with Defendant and will therefore grant its Motion on the bad faith claims. 19 1. Legal Standard 20 “Although every contract contains an implied covenant of good faith and fair 21 dealing, an action for tort for breach of the covenant arises only in ‘rare and exceptional 22 cases’ where there is a special relationship between the victim and tortfeasor.” Ins. Co. 23 of The West v. Gibson Tile Co., Inc., 134 P.3d 698, 702 (Nev. 2006) (quoting K Mart Corp. 24 v. Ponsock, 732 P.2d 1364, 1370 (Nev. 1987)). Accordingly, liability in tort exists only 25 where such a special relationship exists, as between an insurer and its insured. See 26 Aluevich v. Harrah’s, 660 P.2d 986, 987 (Nev. 1983) (observing there is “a cause of action 27 snow under this limitation because the water damage is the efficient proximate cause of 28 the loss, the Court notes that even an antecedent contributing cause to Plaintiff’s damage 2 fails to deal fairly and in good faith with its insured by refusing, without proper cause, to 3 compensate its insured for a loss covered by the policy”). “An insurer breaches the duty 4 of good faith when it refuses ‘without proper cause to compensate its insured for a loss 5 covered by the policy.’” Pioneer Chlor Alkali Co., Inc. v. Nat'l Union Fire Ins. Co., 863 F. 6 Supp. 1237, 1242 (D. Nev. 1994) (quoting United States Fid. & Guar. Co. v. Peterson, 7 540 P.2d 1070, 1071 (1975)). 8 “To establish a prima facie case of bad-faith refusal to pay an insurance claim, the 9 plaintiff must establish that the insurer had no reasonable basis for disputing coverage, 10 and that the insurer knew or recklessly disregarded the fact that there was no reasonable 11 basis for disputing coverage.” Powers v. United Serv. Auto. Ass’n, 962 P.2d 596, 604 12 (Nev. 1998). Put another way, “a bad faith claim has both an objective element and a 13 subjective element.” See Flonnes v. Prop. & Cas. Ins. Co. of Hartford, Case No. 2:12-cv- 14 01065-APG-CWH, 2013 WL 3109381, at *4 (D. Nev. Jun. 17, 2013); see also Am. Excess 15 Ins. Co. v. MGM Grand Hotels, Inc., 729 P.2d 1352, 1354 (Nev. 1986) (“Bad faith involves 16 an actual or implied awareness of the absence of a reasonable basis for denying benefits 17 of the policy.”). “Poor judgment or negligence on the part of an insurer does not amount 18 to bad faith.” USF Ins. Co. v. Smith’s Food & Drug Ctr., Inc., 921 F. Supp. 2d 1082, 1093 19 (D. Nev. 2013), as corrected (Mar. 27, 2013). “[T]he insurer is not liable for bad faith for 20 being incorrect about policy coverage as long as the insurer had a reasonable basis to 21 take the position that it did.” Pioneer Chlor Alkali Co., Inc., 863 F. Supp. at 1242. Instead, 22 “[b]ad faith involves something more than an unreasonable action, a negligent action, by 23 the insurer.” Schumacher v. State Farm Fire & Cas. Co., 467 F. Supp. 2d 1090, 1095 (D. 24 Nev. 2006) (citing Pioneer Chlor Alkali Co., Inc., 863 F. Supp. at 1243). “Bad faith exists 25 where an insurer denies a claim with knowledge that no reasonable basis exists to deny 26 the claim.” Id. 27 “When there is a genuine dispute regarding an insurer’s legal obligations, the 28 district court can determine if the insurer’s actions were reasonable.” Allstate Ins. Co. v. 2 arises when relevant facts are in dispute or when facts permit differing inferences as to 3 the reasonableness of insurer’s conduct.” United Fire Ins. Co. v. McClelland, 780 P.2d 4 193, 197 (Nev. 1989). “Generally, a bad-faith claim is subject to summary judgment if the 5 defendant demonstrates that there was a genuine dispute as to coverage, because if the 6 insurer had a reasonable basis to deny coverage, the insurer is unlikely to know it was 7 acting unreasonably.” McCall v. State Farm Mut. Auto. Ins. Co., Case No. 2:16-cv-01058- 8 JAD-GWF, 2018 WL 3620486, at *3 (D. Nev. Jul. 30, 2018) (internal quotation omitted). 9 “Where the undisputed evidence shows that the insurer had some reasonable basis for 10 acting as it did, there is no bad faith.” Igartua v. Mid-Century Ins. Co., 262 F. Supp. 3d 11 1050, 1054 (D. Nev. 2017). 12 2. Failure to Investigate 13 Plaintiff first argues that Defendant failed to adequately investigate before denying 14 his claim. (ECF No. 62 at 19.) Plaintiff supports his argument with six reasons: (1) 15 Defendant only interviewed Plaintiff, not the investigating adjuster or any expert, before 16 denying the claim; (2) the investigating adjuster who visited the property prior to the claim 17 denial was not an expert; (3) the quality of the investigation was insufficient to support a 18 reasonable basis for denial; (4) Defendant violated its own procedures in denying the 19 claim; and (5) Defendant failed to try to discover evidence that the claim could be covered 20 as a “sudden and accidental loss”. (Id. at 19-21.) Defendant argues that Plaintiff has failed 21 to produce any evidence that its denial was unreasonable or otherwise evinced that 22 Defendant knew or recklessly disregarded that there was no reasonable basis to deny 23 Plaintiff’s claim. The Court agrees with Defendant, as explained further below. 24 An insurer’s failure to properly investigate an insured’s claim can support a claim 25 for bad faith under Nevada Law. See Powers, 962 P.2d at 604 (denying summary 26 judgment when there was “abundant evidence” that “[the insurer’s] investigation was 27 improper, incomplete, poorly done, [and] in violation of [its] own procedures”). However, 28 evidence that an insurer failed to properly investigate is only probative insofar as it 2 to do so. None of Plaintiff’s proffered evidence demonstrates that Defendant denied 3 Plaintiff’s claim knowing there was no reasonable basis for the denial. 4 Only one of Plaintiff’s proffered reasons is both supported by evidence and 5 relevant to the Court’s determination. As stated above, whether Plaintiff’s loss was 6 “sudden and accidental” is not determinative of coverage if an exclusion applies. 7 Moreover, an insurer’s choice of whether to conduct interviews or retain experts to 8 support its determination that a loss is excluded may be probative of whether it had a 9 reasonable basis to deny a claim, but is by no means dispositive. Similarly, an insurer’s 10 speed in handling a claim could indicate that it had not adequately investigated, but 11 efficiency does not necessarily prove inadequacy. The Court ultimately must consider 12 whether (1) there was an objectively reasonable basis for Defendant’s decision and, if 13 not, whether (2) Defendant subjectively knew or recklessly disregarded that no 14 reasonable basis to deny the claim existed. See Flonnes, 2013 WL 3109381 at *4. 15 Plaintiff offers no evidence that his claim was denied absent any reasonable basis. 16 First, Plaintiff claims Defendant determined there was no coverage for the loss within “the 17 first few seconds” of the initial claim report. (ECF No. 62 at 19.) But this is not supported 18 by the evidence. It is undisputed that Bristow received the initial report of claim from 19 Plaintiff, spoke with him for a few minutes, and entered notes into Defendant’s internal 20 system indicating he believed the claim implicated a policy exclusion. (ECF Nos. 61-3 at 21 3.) But these notes were not a denial; instead, Bristow testified that the notes in his log 22 were just “key points” he wrote down “so that [he] can reference them.” (ECF No. 62-7 at 23 21.) He admits he spoke to Plaintiff for “approximately ten minutes or so, during which 24 time he told Plaintiff that there was likely no coverage because of the seepage exclusion. 25 (Id. at 22, 25.) But at that time, the claim remained open pending the field investigation. 26 (ECF No. 61-3 at 3-4.) Defendant denied Plaintiff’s claim only after retaining an 27 independent adjuster to gather information from the Residence on which it could base its 28 determination and reviewing that report. (ECF No. 62-12.) The Denial Letter expressly 2 provides the water damage exclusion as the reason for denial. (Id. at 2.) 3 Next, Plaintiff offers no evidence that Defendant violated its own procedures. He 4 asserts that because a typical water damage claim takes an average of 19 to 36 days to 5 investigate but Plaintiff’s claim was denied after only four days, Defendant’s denial was 6 unreasonable. But this ignores that in those four days, Defendant ordered an investigation 7 of the premises, reviewed the photographs of the damage, and independently determined 8 the observable damage was caused by water intruding into the house from the ground. 9 The claims log reflects that Defendant retained Siebrandt, an independent adjustor from 10 Crawford, to go to the Residence and gather evidence to determine whether Plaintiff’s 11 loss was caused by groundwater. (ECF No. 61-3 at 4.) Siebrandt returned his report to 12 Defendant, replete with 20 photographs of the damage, including a pile of snow near the 13 foundation. (ECF No. 62-10 at 10-19.) Bristow testified that when he receives a report 14 from an independent adjuster, he then conducts an independent review based on the 15 photographs to determine whether the loss is covered. (ECF No. 61-5 at 7.) 16 Finally, Plaintiff’s arguments about the quality of the investigation—that Siebrandt 17 was not an expert and that the investigation did not rule out other potential causes for the 18 water damage—do not sufficiently demonstrate that Defendant denied Plaintiff’s claim 19 without a reasonable basis. Plaintiff offers Nortech’s conclusion that because Siebrandt 20 did not conduct a “subsurface investigation” he could not have concluded the water 21 damage was caused by groundwater. (ECF No. 61-15 at 2.) But there is no legal 22 requirement that an insurer retain an expert to determine the cause of every claim before 23 denying it. Nor must an adjuster rule out every possible alternate cause for a loss. Even 24 if a claim is wrongly denied, an insurer is not necessarily liable for bad faith, provided it 25 had a reasonable basis for its determination. See Pioneer Chlor Alkali Co., Inc., 863 F. 26 Supp. at 1242. Plaintiff ultimately fails to provide evidence that Defendant knew—or 27 recklessly disregarded its obligation to determine—that there was no reasonable basis to 28 deny Plaintiff’s claim. 2 As a second justification for his bad faith claim, Plaintiff argues Defendant acted in 3 bad faith by not considering its interests “equally” with Plaintiff’s. (ECF No. 62 at 21.) 4 Defendant argues this duty arises only during settlement negotiations and applies to bad 5 faith claims for refusal to settle, but not to any duty in determining whether to approve or 6 deny a claim. (ECF No. 63 at 14-15.) The Court agrees with Defendant. 7 Nevada law does not expressly recognize a duty for insurers to consider the 8 insureds’ “interests” before denying a claim. Plaintiff cites to Avila v. Century National 9 Insurance Company, Case No. 2:09-cv-00682-RCJ-GWF, 2010 WL 11579031, at *4 (D. 10 Nev. Feb. 10, 2010) to support his assertion that an insurer must “equally consider 11 [Plaintiff’s] interests as part of the fiduciary relationship.” (ECF No. 62 at 23.) But 12 Defendant correctly points out that Avila and the Nevada Supreme Court case that it 13 references are both analyzing the insurer’s particular duties to its insured regarding the 14 duty to defend, indemnify, or settle. See id. (considering summary judgment for a bad 15 faith refusal to settle claim); Allstate, 212 P.3d at 325-26 (finding an insurer may be liable 16 for bad faith by failing to adequately inform an insured in settlement). In fact, the Nevada 17 Supreme Court in Allstate expressly distinguished its analysis applicable to duty to defend 18 from other claims for insurance bad faith. Id. at 325 (previewing its reasoning by stating 19 “a bad faith action applies to more than just an insurer’s denial or delay in paying a claim. 20 An insurer’s failure to adequately inform an insured of a settlement offer may also 21 constitute grounds for a bad-faith claim.” (internal citations omitted)). 22 This is not to say an insurer owes no duty to its insureds when evaluating a claim. 23 Neither is it the case that a “special relationship” does not exist between an insurer and 24 its insured. See Ins. Co. of The West v., 134 P.3d at 702; see also Powers, 962 P.2d at 25 603 (finding that an insurer acted in bad faith when it concealed information from its 26 insured). This special relationship provides the justification for extending tort liability to 27 insurers for acting in bad faith. See Ins. Co. of The West, 134 P.3d at 702. But the 28 standard for assessing whether the implied covenant of good faith and fair dealing has 2 deciding whether to approve or deny a claim, that standard is whether the insurer knew 3 or acted with reckless disregard about whether there was not a reasonable basis for its 4 decision to deny the claim. See Powers, 962 P.2d at 604; Schumacher, 467 F. Supp. 2d 5 at 1095. 6 As explained above, under the appropriate standard, Plaintiff has failed to provide 7 evidence that Defendant knew there was no reasonable basis to deny Plaintiff’s claim. 8 Accordingly, the Court will grant Defendant’s Motion as to the claims for breach of the 9 implied covenant of good faith and fair dealing. 10 C. Unfair Claims Practices 11 The parties dispute whether Defendant can even be liable pursuant to Nevada’s 12 Unfair Claims Practices Act under the facts presented. Defendant argues Plaintiff has 13 failed to provide sufficient evidence that “an officer, director, or department head of the 14 insurer” knowingly permitted or had prior knowledge of a violation of NRS § 686A.310, a 15 threshold requirement for liability. See NRS § 686A.270. In response, Plaintiff attests that 16 Porter, Bristow’s manager, meets the statutory requirement. (ECF No. 62 at 24.) 17 Defendant replies that Porter is not a department head, but a claims manager within the 18 claims department, and therefore does not satisfy the statutory requirement. (ECF No. 63 19 at 16.) The Court agrees that Porter does not qualify as a department head and, in the 20 absence of any evidence that another person does qualify who would have possessed 21 the requisite prior knowledge, the Court will grant Defendant’s Motion on this claim. 22 The Nevada Unfair Insurance Practices Act prohibits more than a dozen unfair 23 trade practices by insurers and provides plaintiffs with a private right of action for 24 violations of the statute. See NRS § 686A.310. But “[t]he unfair practices statute clearly 25 requires proof that an officer, director, or department head was aware of the violations.” 26 Hackler v. State Farm Mut. Auto. Ins. Co., 210 F. Supp. 3d 1250, 1255 (D. Nev. 2016) 27 (finding “Claims Teams Managers” did not qualify under the statutory requirements of 28 NRS § 686A.270); see also Yusko v. Horace Mann Servs. Corp., Case No. 2:11-cv- 2 judgment where plaintiff had not presented any evidence that an officer, director, or 3 department head was aware of the conduct in question). Moreover, “the statute’s 4 unambiguous language requires prior knowledge, not after-the-fact ratification.” Skinner 5 v. Geico Cas. Ins. Co., Case No. 2:16-cv-00078-APG-NJK, 2018 WL 1075035, at *7 (D. 6 Nev. Feb. 26, 2018). 7 Claims managers generally do not qualify as department heads, officers, or 8 directors. See Hackler, 210 F. Supp. 3d at 1255 (“If the legislature wanted to include 9 managers in the list of officials, they likely would have included the term manager.”). 10 Porter testifies that at the time Defendant received Plaintiff’s claim, she managed a team 11 of adjusters and assisted them in resolving claims. (ECF No. 62-11 at 8-9.) While Plaintiff 12 was free to offer any evidence that per Defendant’s managerial structure, Porter qualified 13 as a department head or otherwise qualified as an officer or director, Plaintiff failed to do 14 so. Nor does Plaintiff argue or proffer any evidence that another individual satisfied the 15 statutory requirements of NRS § 686A.270 and had the requisite knowledge prior to any 16 alleged statutory violation. Plaintiff has therefore failed to meet his burden of establishing 17 any officer, director, or department head had knowledge of any violation of NRS § 18 686A.310. Accordingly, Defendant’s Motion will be granted as to the unfair trade practices 19 claim. 20 V. CONCLUSION 21 The Court notes that the parties made several arguments and cited to several 22 cases not discussed above. The Court has reviewed these arguments and cases and 23 determines that they do not warrant discussion as they do not affect the outcome of the 24 motion before the Court. 25 /// 26 /// 27 /// 28 /// 1 It is therefore ordered that defendant’s motion for summary judgment (ECF No. 2 || 61) is granted. 3 The Clerk of Court is directed to enter judgment accordingly and close this case. 4 DATED THIS 16 Day of March 2021.
6 MIRANDA M. DU 7 CHIEF UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21