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Lakeland True Value Hardware, LLC v. the Hartford Fire Insurance

November 14, 2012


Appeal from the District Court of the First Judicial District of the State of Idaho, Kootenai County. Hon. John T. Mitchell, District Judge.

The opinion of the court was delivered by: Horton, Justice.

2012 Opinion No. 131

Stephen Kenyon, Clerk

The judgment of the district court and the district court's award of discretionary costs are affirmed.

After the roof collapsed on Lakeland True Value Hardware, LLC's (Lakeland) store, Lakeland sought payment for business personal property and business income losses from its insurer, The Hartford Fire Insurance Co. (Hartford). Lakeland filed suit, asserting bad faith and breach of contract. The district court granted summary judgment dismissing the bad faith claim for lack of evidence that Lakeland's claim was not fairly debatable. The breach of contract claim proceeded to trial, and the jury returned a verdict in favor of Hartford. On appeal, Lakeland challenges the order granting summary judgment. Lakeland also asserts: (1) the jury was confused as to the period of coverage and the district court's evidentiary rulings and jury instructions relevant to that issue were erroneous; (2) the jury verdict is not supported by substantial and competent evidence; and (3) that the district court erred by awarding discretionary costs to Hartford. We affirm.


The Lakeland True Value Hardware store located in Rathdrum, Idaho, is owned by Lakeland, which is in turn owned by Mike and Kathy Fritz. Hartford insured Lakeland against business personal property and business income losses. On January 28, 2008, heavy snowfall caused the store's roof to collapse. Shortly after Lakeland notified Hartford of the collapse, Hartford hired independent insurance adjuster Steve Bonanno to assess the claim. Bonanno met with Mike Fritz on February 4, 2008, and determined that approximately two-thirds of

Lakeland's inventory and some of Lakeland's fixtures had been damaged or destroyed.

That day, Fritz and Bonanno also met with a salvage company estimator. There is conflicting evidence as to the salvage plan the three of them reached. According to Bonanno, the salvage company was instructed to create three separate lists as it removed materials from the store: (1) undamaged materials removed and stored; (2) partially damaged but salvageable materials removed and separately stored; and (3) materials disposed of because they were destroyed. According to the salvage company representative, the salvage company was simply instructed to remove undamaged property from the areas unaffected by the roof collapse and store those materials, while discarding all materials buried by the collapse. Hartford contends that it was Lakeland's obligation to separate the undamaged and salvageable goods in order to enable a valuation of the business personal property claim. Lakeland responds that it was not informed that this was Hartford's position and that it would have objected that it was unable to pay for such a process.

On the same day, Hartford advanced $50,000 toward Lakeland's business personal property claim. Ultimately, the materials buried beneath the collapsed roof were discarded, and salvaged goods were placed into several storage trailers without any distinction made between those that were undamaged and those that were damaged but had limited retail value. These goods remained in storage for several months.

Meanwhile, Hartford hired MD&D, a forensic accounting firm, to evaluate Lakeland's business income claim. On several occasions, MD&D asked Lakeland to provide documentation regarding Lakeland's business income loss, often reiterating previous requests that had gone unfulfilled. Hartford also repeatedly instructed Lakeland to provide that documentation. Lakeland contends on appeal that it provided sufficient documentation to support its business income claim.

On March 18, 2008, Hartford advanced Lakeland $50,000 toward its business income claim. According to Hartford's claim notes, MD&D noted the business income loss schedule it had created in support of the advance payment was incomplete because MD&D lacked several items of requested documentation and MD&D was uncertain "about 1-the expense for the insds rental space during repairs 2-whether insd is paying his entire payroll." Hartford made additional business income payments on May 23, 2008 ($73,951) and July 17, 2008 ($30,144).

Ultimately, Hartford claims adjuster Melanie Copley determined that under the insurance policy, the Period of Restoration (the period during which Lakeland was entitled to payment for lost business income loss) ended on October 31, 2008. She reached this conclusion by taking into account the fact that Lakeland regained access to its retail space on September 1, 2008, then adding sufficient time for Lakeland to stock that space. Although she had been told that four to six weeks was sufficient to stock the store, Copley allowed eight weeks for Lakeland to restock. She thus determined that the Period of Restoration ended on October 31, 2008. Lakeland's financial ability to reopen did not play into Copley's assessment of the Period of Restoration.

On September 4, 2008, Lakeland filed suit against Hartford, asserting bad faith and breach of contract claims. Hartford continued to request documentation after the suit was filed, and also made several payments to Lakeland. Hartford ultimately paid the policy limits of $370,000 for Lakeland's business personal property loss and $266,407 for Lakeland's business income loss.

On November 14, 2009, the district court ruled from the bench and granted summary judgment dismissing Lakeland's bad faith claim on the grounds that Lakeland had failed to provide evidence that its claim was not fairly debatable. Lakeland then filed a memorandum and affidavit of counsel in support of a motion to reconsider. The district court denied the motion, explaining:

The dispute in the value of Plaintiff's claim, that whole dispute was caused by the Plaintiff's inconsistent amounts that they claimed was due. There were different figures at different times. And it was caused - that dispute in the value of the Plaintiff's claim was also caused by the Plaintiffs not providing all the information the Defendant felt it needed, specifically, the inventory. And that is what led to the delay.

On February 14, 2010, Lakeland filed a second motion for reconsideration, supported by the affidavit of a certified public accountant, Dan Harper. The district court received argument on the motion on February 22, 2010, and again ruled from the bench, denying the motion for reconsideration for lack of proof that the claim was not fairly debatable. On March 9, 2010, Lakeland filed another motion for reconsideration of the grant of summary judgment dismissing its bad faith claims, which was denied on March 13, 2010, evidently due to the district court's scheduling order. On April 6, 2010, Lakeland filed its final motion for reconsideration of the grant of summary judgment as to its bad faith claims and a supporting memorandum. After a hearing, the district court took the motion under advisement and on May 17, 2010, the district court issued a memorandum opinion and order denying the motion.

The district court's opinion focused on the first two elements of a bad faith claim as articulated in this Court's decision in Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 45 P.3d 829 (2002):

In an insurance claim, the ball starts rolling with the insured making a claim upon the insurer, putting the insurer on notice of the claim. Then the insurer must evaluate that claim and act in good faith. But to prove bad faith, the insured must prove that: 1) the insurer denied a claim in which coverage was not fairly debatable, and 2) that the insured had proven coverage to the point that based on the evidence the insurer had before it, the insurer intentionally and unreasonably withheld the insured's benefits. Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 178, 45 P.3d 829, 834 (2002). ... At summary judgment on Lakeland's bad faith claim, fault upon Lakeland is wholly irrelevant. However, proving the claim was not fairly debatable and proving coverage to the point that based on the evidence before the insurer, the insurer then intentionally and unreasonably withheld benefits is not only relevant, it is dispositive, and, most importantly, it is Lakeland's burden to prove at summary judgment. Because Lakeland made unsupported, inconsistent and changing claim demands upon Hartford, at summary judgment Lakeland could not prove its own claim was not fairly debatable, and Lakeland could not prove coverage to the point[,] based on the evidence Lakeland had given to Hartford[,] that Hartford then intentionally and unreasonably withheld benefits.

(Emphasis original).

After the jury began its deliberations, in response to a question from the jury, the parties agreed that the district court should submit a substitute special verdict form. The jury returned a verdict in Hartford's favor, finding that Hartford had complied with the Period of Restoration term of the insurance policy. Over Lakeland's objection, the district court subsequently awarded Hartford some of its requested discretionary costs.

Lakeland appeals and challenges the district court's grant of summary judgment, as well as the sufficiency of the evidence supporting the jury verdict. Lakeland also challenges several evidentiary rulings made by the district court, the propriety of certain jury instructions, and the district court's order awarding discretionary costs. Lakeland requests attorney fees on appeal.


A. The district court's grant of summary judgment dismissing Lakeland's bad faith claim is affirmed.

Lakeland asserts that the district court improperly acted as factfinder at the summary judgment phase. Specifically, Lakeland contends that the court impermissibly found that Lakeland's conduct caused the very delays in payment which formed the basis of Lakeland's bad faith claim. Although the district court did make the statement to which Lakeland objects when it ruled from the bench, the judge explained "the primary reason for my decision as to dismissing all bad faith claims is the lack of proof that this claim is not fairly debatable." Thus, the issue before the Court is whether Lakeland provided the district court with sufficient evidence to demonstrate the existence of a genuine issue of material fact as to whether its claim was not fairly debatable.

When this Court reviews an order granting summary judgment, we apply the same standard used by the trial court. Partout v. Harper, 145 Idaho 683, 685, 183 P.3d 771, 773 (2008). All disputed facts and reasonable inferences are construed in favor of the nonmoving party. Id. A plaintiff may only avoid summary judgment if it provides proof of each element of its claim. Zollinger v. Carrol, 137 Idaho 397, 399, 49 P.3d 402, 404 (2002). A party that merely pleads an allegation or provides a scintilla of evidence does not introduce a genuine issue of material fact. Petricevich v. Salmon River Canal Co., 92 Idaho 865, 871, 452 P.2d 362, 368 (1969) (citing 3 Barron & Holtzoff, Federal Practice and Procedure § 1234 (Rules ed. 1958)). Rather, "there must be evidence on which a jury might rely." Id. Where "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law," this Court will affirm the trial court's grant of summary judgment. I.R.C.P. 56(c).

A claim for bad faith exists where "(1) the insurer intentionally and unreasonably denied or withheld payment, (2) the claim was not fairly debatable, (3) the denial or failure to pay was not the result of a good faith mistake, and (4) the resulting harm is not fully compensable by contract damages." Anderson v. Farmers Ins. Co. of Idaho, 130 Idaho 755, 759, 947 P.2d 1003, 1007 (1997) (citing White v. Unigard Mut. Ins. Co., 112 Idaho 94, 98-100, 730 P.2d 1014, 1018- 20 (1986)). As the second element indicates, an insurer does not act in bad faith if it declines to pay sums that are reasonably in dispute. Lucas v. State Farm Fire & Cas. Co., 131 Idaho 674, 677, 963 P.2d 357, 360 (1998). Rather, a claim for bad faith arises only where an insurer intentionally denies or delays payment, even though the insured's claim is not fairly debatable. Robinson, 137 Idaho at 176-77, 45 P.3d at 832-33 (citing Anderson, 130 Idaho at 759, 947 P.2d at 1007). Whether a genuine issue of material fact exists as to whether a claim was fairly debatable is a question of law subject to de novo review. Lucas, 131 Idaho at 677, 963 P.2d at 360 (citing State v. Larios, 125 Idaho 727, 728, 874 P.2d 538, 539 (1994)).

We affirm the district court's grant of summary judgment. However, we do not do so based on the narrow ground that Lakeland made "inconsistent and changing claim demands upon Hartford." We decline to follow this line of reasoning because, even though an insured may make differing requests for compensation, the claim may be not fairly debatable if the insurer possesses sufficient information to make a reasonably certain valuation of the claim.

Thus, we have closely examined the evidence identified by Lakeland in support of its contention that its claim was not fairly debatable.*fn1 This has been difficult, because Lakeland's citations to the record have been largely unhelpful. Lakeland repeatedly cites trial testimony and exhibits which, of course, were not before the district court at the time of its decision on Hartford's motion for summary judgment and the subsequent motions for reconsideration. Lakeland's citation to Hartford's memorandum in support of its motion for summary judgment is similarly unhelpful, as Hartford's observation that "[i]t is remarkable to note that the report of Lakeland's own expert, when appropriately adjusted to reflect the value of surviving inventory and the actual historical gross profit margin, establishes a claim value of less than what Hartford has already paid" has no bearing upon whether Lakeland's claim was fairly debatable.

A review of the record reveals that Hartford repeatedly requested information from Lakeland relating to both Lakeland's business personal property claim and its claim for lost business income, which information was not provided prior to the lawsuit. The record further reveals that the delay in payment of Lakeland's claims was directly related to the absence of the requested information. The district court's observation as to the constantly changing claims advanced by Lakeland reflects the reasonableness of Hartford's requests for information. Indeed, the varying demands demonstrate the necessity for Lakeland to fulfill its obligation to provide necessary information so that Hartford could evaluate whether the claims were properly payable.

As the district court correctly noted, the record is devoid of evidence that Lakeland's claim was not fairly debatable, i.e., that Hartford actually possessed the necessary information to determine that Lakeland's business income and personal property claims were properly payable and thereafter failed to timely pay those claims. Therefore, we affirm the district court's grant of summary judgment.

B. We affirm the district court's evidentiary rulings, jury instructions, and special verdict.

On appeal, Lakeland challenges a number of the district court's rulings at trial. First, Lakeland appeals the district court's decision to exclude Lakeland's proposed bad faith expert witness, Robert Underdown. Second, Lakeland contends that the district court erred by not excluding parol evidence that confused the jury by conflating policy terms. Third, Lakeland appeals several of the jury ...

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