Appeal from the District Court of the Fourth Judicial District of the State of Idaho, in and for Ada County. The Hon. Deborah A. Bail, District Judge.
The opinion of the court was delivered by: Eismann, Justice.
The judgment of the district court is affirmed.
This is an appeal from the grant of summary judgment against insureds who contended that the liability coverage provision in their homeowner's policy required the insurer to defend a lawsuit brought by a contractor the insureds had hired to repair fire damage to their home and to remodel the home and that the insurer was required to indemnify against any recovery by the contractor. We affirm the judgment of the district court and award attorney fees on appeal to the insurer.
On January 17, 2007, the home of Richard and Lindsey Linford was damaged by fire. Their home was insured by State Farm Fire and Casualty Company, and they promptly submitted a claim under the policy. By letter dated January 19, 2007, a State Farm representative offered them three options for repairing their home, and the Linfords chose an option that entailed them hiring their own contractor to make the repairs. State Farm estimated the cost of the repairs to be $153,751.40, and it paid the Linfords that sum.
On March 20, 2007, the Linfords entered into a contract with a contractor to repair the home for the amount of State Farm's estimate. On May 9, 2007, they entered into a separate contract to have the contractor remodel the undamaged part of their house. The remodel contract provided that the Linfords would pay the cost of material, the cost of subcontractors plus 20%, and labor at $50.00 per hour per man. State Farm increased its estimate of the cost to repair the home several times to the sum of $197,065.67, but the contractor contended that it was entitled to be paid more than the estimate.
On August 13, 2009, the contractor filed this action against the Linfords contending that it substantially completed the construction on April 25, 2008, and that the amount owing as of June 4, 2009, together with accrued interest, was the sum of $91,357.82 for both the fire damage and the remodel. The Linfords answered and filed a counterclaim against the contractor alleging that the contractor had agreed to repair the fire damage for $153,751.40 and that the Linfords had already paid $159,494.17, which was more than the contract price. They also alleged that they had paid the contractor $73,390.10 under the remodeling contract, which was $24,668.87 more than the value of that work. They asked for dismissal of the complaint and damages against the contractor in an amount to be proved at trial. The Linfords also filed a third-party claim against State Farm alleging that it had failed to fully pay for the repairs to the house; that it was required to indemnify them for the expenses they incur in defending the contractor's lawsuit; that it had breached the covenant of good faith and fair dealing; and that it had committed the tort of insurance bad faith.
Under Coverage A, the insurance policy insured the Linfords' house against accidental direct physical loss. By written agreement dated June 2, 2010, the Linfords and State Farm agreed "to resolve and set the amount of loss under Coverage A of the Policy by appraisal." A third party was mutually selected to conduct the appraisal, and on October 13, 2010, he submitted his determination that the replacement cost value of the fire damage was $205,757.63. By letter dated November 1, 2010, State Farm sent the Linfords a payment of $8,691.96, which was the difference between the appraisal and the amount already paid.
On November 3, 2010, State Farm moved for partial summary judgment on the issues of duty to defend the contractor's action against the Linfords and duty to indemnify them for any sums that the contractor may recover against them. On January 31, 2011, State Farm moved for partial summary judgment on the claims of breach of contract, breach of the covenant of good faith and fair dealing, and bad faith. After the matters were briefed and argued, the district court granted both motions. It entered judgment in favor of State Farm dismissing the third-party claim with prejudice, and it certified that judgment as final pursuant to Rule 54(b) of the Idaho Rules of Civil Procedure. The Linfords timely appealed.
On January 11, 2011, the Linfords moved for partial summary judgment against the contractor. In response, the contractor filed his affidavit stating that the total charge for the fire repairs and the remodel was $294,341.87 and that the amount owing by the Linfords, after deducting payments and credits, was $119,722.79, plus interest. The district court denied the Linfords' motion for partial summary judgment.
The contractor's cause of action against the Linfords was tried to the court on May 1 and 2, 2012.*fn1 The court found that the contractor had made multiple estimates regarding the amount of its charges attributable to the fire renovation, but it had contractually agreed that the work would be done within the State Farm estimates. The court held that the third-party appraisal done pursuant to the agreement between the Linfords and State Farm established the amount due for the fire restoration. It concluded that the Linfords had paid the amount owing for the fire restoration in full, but they still owed the contractor $10,278.81, plus interest, under the remodel contract.
Did the District Court Err in Holding that State Farm Did Not Have a Duty to Defend the Linfords?
The Linfords argue on appeal that the district court erred in determining that State Farm had no duty to defend them against the contractor's claims in this lawsuit. They contend that the duty to defend arose under the provisions of both Coverage A and Coverage L.
In order for the insurer to have a duty to defend, the insurance policy must provide that the insurer has a duty to defend the insured against the type of claim alleged. Constr. Mgmt. Sys., Inc. v. Assurance Co. of America, 135 Idaho 680, 683, 23 P.3d 142, 145 (2001) (duty to defend against a specific type of advertising injury did not apply to copyright infringement); Foremost Ins. Co. v. Putzier, 100 Idaho 883, 889, 606 P.2d 987, 993 (1980) ("The policy provision giving rise to the duty to defend is addressed only to direct actions against the insured for damages, and is totally inapplicable where the action is for a declaration of rights under the policy itself."). For there to be a duty to defend, the complaint's allegations, in whole or in part, when read broadly, must allege a claim to which the duty to defend applies under the terms of the insurance policy. Constr. Mgmt. Sys, 135 Idaho at 682-83, 23 P.3d at 144-45.
Coverage A. The Linfords' house was covered under Coverage A for "accidental direct physical loss to the property" from fire and smoke, among other hazards. With respect to such a loss, subsection 1.a.(2) of the section of policy dealing with loss settlement for damage to the house provided that "when the repair or replacement is actually completed, we will pay the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property, or an amount up to the applicable limit of liability shown in the Declarations, whichever is less." The Linfords argue on appeal that State Farm's obligation to pay "the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property" includes any expenses they incurred in defending the contractor's lawsuit.
State Farm points out in its brief that the Linfords did not argue in the district court that there was a duty to defend under Coverage A. The Linfords acknowledge in their reply brief that "[i]t is well established in Idaho that an appellate court is 'limited to the evidence, theories and arguments that were presented . . . below,' " but they contend that they adequately raised this issue in the district court because they argued that State Farm had a duty to defend under the insurance policy and there was a copy of the policy in the record. They add, "If this Court accepts State Farm's limited view [that they were required to cite to the district court the particular provision in the policy upon which they were ...