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Parks v. Safeco Insurance Company of Illinois

Supreme Court of Idaho

July 27, 2016

DAVID & KRISTINA PARKS, Plaintiffs-Appellants,
v.
SAFECO INSURANCE COMPANY OF ILLINOIS, Defendants-Respondents.

         2016 Opinion No. 84

         Appeal from the District Court of the Sixth Judicial District of the State of Idaho, Bannock County. Hon. Stephen S. Dunn, District Judge.

         The judgment of the district court is affirmed. Attorney fees and costs on appeal are awarded to respondent.

          Lowell N. Hawkes, Chartered, Pocatello, attorneys for appellants. Lowell N. Hawkes argued.

          Anderson, Julian & Hull, LLP, Boise, attorneys for respondent. Mark D. Sebastian argued.

          W. JONES, JUSTICE

         I. Nature of the Case

         David and Kristina Parks (collectively the "Parks") appeal from a district court dismissal on summary judgment. A wildfire destroyed the Parks' house, which was insured by Safeco Insurance Company ("Safeco"). The Parks purchased an existing house, and Safeco paid the Parks a total of $255, 000, the cost of the replacement house less the value of the land. The Parks filed a complaint against Safeco alleging: (1) they are entitled to $440, 195.55 under the policy and (2) Safeco committed bad faith in handling the claim. Safeco filed a Motion for Summary Judgment asserting that the policy was not breached and its conduct did not constitute bad faith. The Parks filed a Cross-Motion for Summary Judgment asserting that Safeco misrepresented the policy. Additionally, the Parks moved to amend their complaint to include a claim for punitive damages. The district court held that: (1) there was no breach of contract because the policy was unambiguous and the Parks received the amount due under the clear language of the policy; (2) Safeco did not commit bad faith in handling the claim because it complied with the terms of the policy and paid the Parks the amount owed; and (3) the Parks had not established a reasonable likelihood of proving facts at trial sufficient to support an award of punitive damages.

         II. Factual and Procedural Background

         On June 28, 2012, a fire in Pocatello, Idaho destroyed the Parks' house. The Parks' house was insured through a homeowners policy ("Policy") issued by Safeco, which provided a total home coverage of $464, 875. Following the fire, Safeco hired an appraiser to determine the actual cash value ("ACV") of the Parks' destroyed house. The Policy defined ACV as "the market value of property in a used condition equal to that of the lost or damaged property, if reasonably available on the used market." Mrs. Parks understood that, pursuant to the Policy, Safeco would pay the ACV as soon as the appraisal was completed, but the replacement cost payment would be handled once a replacement was made.

         The appraisal was completed on July 21, 2012, and stated that the ACV of the Parks' destroyed house was $169, 000. Accordingly, on July 26, 2012, Safeco mailed a check for $169, 000 to the Parks. Although the Parks believed the ACV of their house was higher than the appraisal, Mr. Parks acknowledged that he had no grounds upon which to argue. Safeco clarified to Mr. Parks that the ACV was not the complete payment; it was "just the beginning."

         In a letter sent with the ACV payment, Safeco informed the Parks that the limit of their coverage was $464, 875. The letter stated, "[i]n order to claim the full replacement cost, you must replace the dwelling." The letter included the relevant portions of the Policy and informed the Parks that Safeco was "in the process of obtaining a replacement cost bid for equivalent construction of your home. . . . You may replace your dwelling on the existing location; build on a new location or purchase an existing home."

         On September 20, 2012, Belfor Construction ("Belfor"), which was hired by Safeco, estimated that it would cost $440, 195.55 to replace the Parks' house, using equivalent construction. On October 17, 2012, the Parks' stated they could not agree that $169, 000 was the ACV of their house. Additionally, the Parks' asked whether Safeco was willing to be bound by the Belfor estimate. Safeco confirmed that it approved the Belfor estimate and clarified that it would "pay the replacement cost of the dwelling up [to] $440, 195.55 or the amount actually incurred, whichever is less."

         On December 6, 2012, the Parks purchased a home in the Idaho Falls area for $300, 000 (the house was valued at $255, 000 and the land was valued at $45, 000).[1] Mr. Parks acknowledged that the amount actually incurred as a result of the fire, in terms of replacing the existing structure, was $300, 000, less the value of the land.

         On December 26, 2012, the Parks sent a demand letter to Safeco requesting payment of $440, 195.55, less the credit of the ACV check, for a net payment of $271, 195.55 as their "direct financial loss." Additionally, the Parks explained that they purchased an existing house in the Idaho Falls area instead of rebuilding on the lot of their destroyed house. Safeco responded to clarify that it agreed to pay up to $440, 195.55 for the cost of replacement or the amount actually incurred, whichever was less. Safeco also requested documentation to confirm the replacement had been made and the amount actually spent. After receiving no response, Safeco sent another letter, on January 22, 2013, again requesting documents to confirm the purchase of a new house. The following day, the Parks reiterated that their actual loss was $440, 195.55. Again, Safeco requested the documents necessary to determine the replacement cost. Safeco also stated: "We agree the replacement cost of the damaged structure will be provided up to the amount of $440, 195.55. Upon receipt of the documentation to confirm replacement and the amount actually spent, we will promptly review for replacement cost payment per the Loss Settlement provision of our policy." Safeco continued to request the documents necessary to determine the amount due for the replacement. On May 31, 2013, the Parks provided documentation of the Idaho Falls house purchase, but disputed Safeco's claim that the replacement cost was limited to the amount actually spent.

         On June 8, 2013, Safeco agreed "to pay the additional undisputed amount for the difference between the market value and replacement cost of the dwelling which has been incurred by Mr. And Mrs. Parks at this time." In response, the Parks notified Safeco they would be "filing suit against Safeco on the house loss given Safeco's rejection of the Parks' right to recover their actual insured loss - their 'Direct Financial Loss' - acknowledged by Safeco and as determined by its own selected evaluator." On June 14, 2013, Safeco paid the Parks $86, 000 for the undisputed dwelling replacement cost ($300, 000 for the cost of the Idaho Falls home, less $45, 000 for the land, less the $169, 000 previously paid).[2]

         On June 13, 2013, the Parks filed a complaint against Safeco, alleging that they were entitled to $440, 195.55 under the Policy and that Safeco acted in bad faith in the handling of the matter. Safeco filed a Motion for Summary Judgment asserting that it did not breach the Policy and it did not act in bad faith. The Parks filed their own Motion for Summary Judgment, arguing there was no genuine issue of fact as to their entitlement to the full amount of the replacement cost for the loss of their house. The Parks' motion also requested an order allowing them to amend their complaint to add a claim for punitive damages. The Parks included a declaration from an insurance industry expert that the word "incurred" as used in the Policy must mean the amount estimated to repair or replace the loss. Safeco moved, inter alia, to strike the expert's declaration because it was: (1) untimely and (2) irrelevant and infringed on the court's determination of questions of law.[3] Ultimately, the district court granted Safeco's motion for summary judgment, denied the Parks' motion for summary judgment, and denied the Parks' motion to amend their complaint.

         First, the district court held that the Replacement Cost provision of the Policy was unambiguous. Specifically the district court held that the word "replace" was unambiguous. The district court noted that the Parks had three options to replace their destroyed home: (1) rebuild their house in the same location; (2) build a house in a new location; or (3) purchase an existing home. Despite the fact that the definition of "replace" varied depending on the context, the district court held that it was not reasonably subject to conflicting interpretations. Thus, "[w]ithin the context of the Replacement Cost provision, all interpretations of 'replace' as used in the Policy plainly provide that [Safeco had] three options to 'supply or substitute an equivalent for' the [Parks'] destroyed home." Additionally, the district court held that the term "incur" in the Replacement Cost provision was unambiguous. The district court held that the term could not reasonably be interpreted to include the Belfor estimate; rather, the Parks "incurred or brought on themselves an expense to replace their destroyed home by buying a replacement home in Idaho Falls."

         Second, the district court held there were no genuine issues of fact regarding Safeco's compliance with the obligations under the Policy. The district court noted: "[t]here is nothing in the Policy that allows Plaintiffs to purchase a less expensive house and then claim the difference between the less expensive house and the cost to rebuild." Therefore, the district court held that the Policy was unambiguous, the Parks were bound by its plain terms, and the Parks received the amount due under the clear language of the Policy.

         Third, the district court noted that to recover under a claim of bad faith, there must also have been a duty under the Policy that was breached. The district court found there was no breach of contract, and, therefore, Safeco could not have committed bad faith in handling the Parks' Policy.

         Fourth, the district court denied the Parks' motion to amend the complaint to add a claim for punitive damages because the Parks had "not established a reasonable likelihood of proving facts at trial sufficient to support an award of punitive damages."

         The Parks appealed.

         III. ...


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