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Oltz v. Safeco Insurance Co. of America

United States District Court, D. Montana, Missoula Division

February 5, 2018

TAFFORD and LaRAYNE OLTZ, Plaintiff,



         This case arises from a dispute over a homeowner's insurance policy. Plaintiffs Tafford and LaRayne Oltz (the "Oltzes") argue that Defendant Safeco Insurance Company of America ("Safeco") wrongfully refused to provide coverage for losses to their home. Safeco rebuts that the Oltzes' losses are not covered because they were caused by excluded perils. Safeco has filed a motion for summary judgment, (Doc. 15), and the matter is ripe for ruling. Safeco's motion is granted because the undisputed material facts, viewed in the light most favorable to the Oltzes, show that Safeco properly denied coverage for the losses to the Oltzes' home.


         The following facts are undisputed, (see Fact Statements, Docs. 17, 24), or viewed in the light most favorable to the Oltzes, Tolan v. Cotton, 134 S.Ct. 1861, 1863 (2014) (per curiam).

         The Oltzes own a home at 11 Golf Drive, in Whitefish, Montana, and since January 13, 2013, have purchased their homeowner's coverage from Safeco. (Compl., Doc. 4 at 17; Ans., Doc. 2 at ¶ 7.) In the summer of 2015, the Oltzes noticed instability in the deck posts of their home and that the deck was beginning to pull away from the house. (Plaintiffs Statement of Disputed Facts, Doc. 24 at ¶ 1.) They were at that time insured under Safeco Homeowners Policy No. OM02493299 (the "Policy"). (Id. at 14.)

         The Oltzes contracted with Teksu Rivera of Native, Way, Inc. to investigate and repair their deck. (Id. at 12.) Rivera inspected the deck in July and advised the Oltzes to stop using it. (Id.) After discovering that the area where the deck attached to the home was rotted, Rivera and his employees began removing portions of the deck for safety reasons. (Id.) During the removal, a portion of the deck collapsed completely. (Id.) Subsequent removal of the home's siding revealed water damage extending in a triangular pattern from the roof to the deck. (Id. at ¶ 3.) The damage at the level of the deck was roughly 15 feet wide, and the deck had pulled away from the house where the attachment points were rotted out. (Id.)

         The Oltzes submitted a claim to Safeco on October 27, 2015. (Id. at ¶ 4.) Rivera spoke with claims adjuster Michael Hoover, who agreed to Rivera's request to hire a civil engineer to investigate the damage. (Doc. 4 at ¶ 19; Doc. 2 at ¶ 19.) The Oltzes then hired Paul Wells of WMW Engineering, Inc., a consulting civil and structural engineer, to inspect the damage. (Doc. 24 at ¶ 10.) Wells is a consulting civil and structural engineer. (Id.) He performed an inspection on October 28, 2015. (Doc. 4 at ¶ 20.) His report, which he provided to Rivera two days later, concluded that the sheathing and framing of the northeast wall had suffered "extensive water damage, " mostly like due to water being routed "into the area of the roof/wall connection via a heat cord." (Doc. 24-4 at 1.) Wells' report stated that an ice dam may have "greatly increased" the amount of water so routed. (Id.)

         On October 29, 2015, Safeco sent the Oltzes a Reservation of Rights letter, informing them that coverage was under investigation.[1] (Doc. 24 at ¶ 5.) Safeco then hired Wade Sticht of CASE Forensic Engineering, who conducted an inspection of the Oltzes' home on November 5, 2015. (Doc. 24 at ¶ 6.) Sticht concluded that the deck most likely detached because the wood where it was fastened had "deteriorated, " and suspected, though did not observe, that "it had been minimally fastened to the home." (Doc. 17-3 at ¶ 5.) Sticht wrote it was "more probable than not that the primary cause of the deterioration of the exterior wall framing and sheathing was long-term chronic exposure to moisture." (Id. at ¶ 6.) Sticht concluded that the "seepage/penetration of water" occurred "as a result of: the as-built roof and wall configuration, inadequate weatherproofing, inadequate flashing at the roof-to-wall interface, and the absence of adequate flashing at the windows." (Id. at ¶ 9.)

         The Oltzes assert that, following Sticht's inspection, Safeco claims handler Trevor Evans instructed Rivera to submit all bills for payment to him, requested an estimate of the total cost to repair, and instructed Rivera and the Oltzes to continue with demolition and repair. (Doc. 4 at ¶ 24.) Safeco states that Evans specifically reminded Rivera and the Oltzes that coverage had not been determined.[2] (Doc. 2 at ¶ 24.) Stich sent his report to Evans on November 23, 2015. (Doc. 4 at ¶ 25; Doc. 2 at ¶ 25.)

         Safeco sent a second Reservation of Rights letter on November 24, 2015, which included excerpts from the Policy exclusions. (Doc. 24 at ¶ 5.) Tafford Oltz emailed Evans on November 27, 2015, asking for an "immediate commitment that either Safeco is going to cover the repairs or not." (Doc. 4 at ¶ 27; Doc. 2 at 127.) Evans emailed Rivera on November 29, 2015. (Doc. 4 at ¶ 33; Doc. 2 at ¶31). The Oltzes state the email informed Rivera that it would still be several weeks before a coverage decision would be made, (Doc. 4 at ¶ 33), while Safeco states the email informed the Oltzes they could move forward with demolition and related repairs, but that coverage was under investigation and Safeco could not commit to coverage or payments at that time, (Doc. 2 at ¶ 31.) The email does not appear in the record. On January 15, 2016, Safeco sent a third Reservation of Rights letter, which again included excerpts from the Policy exclusions. (Doc. 24 at 15.)

         Safeco denied the Oltzes' claim on January 19, 2016. (Id. at ¶ 8.) The letter included exclusion language from the Policy, and the following explanation of denial:

As you can see in the above-referenced policy provisions losses resulting from continuous or repeated seepage or leakage of water, inherent defect, weather, faulty, inadequate or defective design, workmanship and construction, and wet or dry rot, are not covered. The exterior sheathing and windows are non-covered losses due to improper flashing and roof construction with non-covered ensuing loss of repeated seepage and leakage of water. The Additional Property Coverage for Collapse excludes coverage for decks unless the loss is a direct result of the collapse of the dwelling or part of the dwelling to which it is attached. Therefore, according to the terms and conditions of your policy, we are unable to provide any coverage for this loss.

(Doc. 1-1 at 72.) Safeco did not initially consider Wells' report, but did so after the Oltzes' counsel provided it in February 2016. (Doc. 24 at ¶ 15; Doc. 17-2 at ¶ 13.) Safeco concluded the report did not affect its coverage decision. (Id.) Work on the Oltzes' home was completed in April 2016. (Doc. 24 at ¶ 16.) The Oltzes assert they were unable to completely repair their home in the most appropriate manner because Safeco refused to pay for their losses. (Id.)

         The Oltzes sued Safeco on August 16, 2016, in the Eleventh Judicial District Court, Flathead County, Montana. (Doc. 1.) The Oltzes request declaratory relief (Count I) and allege breach of contract (Count II), breach of the covenant of good faith and fair dealing (Count III), common law bad faith (Count IV), and violation of Montana's Unfair Trade Practices Act (Count V). Safeco simultaneously removed the action to this Court and filed its Answer on September 21, 2016. (Doc. 2.) Safeco subsequently moved for summary judgment. (Doc. 15.)


         A party is entitled to summary judgment if it can demonstrate that "there is no genuine dispute as to any material fact and [it] is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Summary judgment is warranted where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). On summary judgment, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are drawn in his favor." Id. at 255 (citation omitted). Only disputes over facts that might affect the outcome of the lawsuit will preclude entry of summary judgement-factual disputes that are irrelevant or unnecessary to the outcome are not considered. Id. at 248.


         I. Coverage and Exclusions

         Safeco argues that Policy exclusions bar coverage for the Oltzes' losses. (Doc. 16 at 14.) The Oltzes insist both that their losses are not excluded, and that factual questions regarding the cause of their losses preclude summary judgment. (Doc. 25 at 9.)

         "[T]he interpretation of an insurance contract is a question of law." Steadele v. Colony Ins. Co., 260 P.3d 145, 149 (Mont. 2011). Insurance policies are "construe[d] ... strictly against the insurer and in favor of the insured." Id. That means that "[w]hen a court reviews an insurance policy, it is bound to interpret its terms according to their usual, common sense meaning as viewed from the perspective of a reasonable consumer of insurance products, " and that "[exclusions from coverage are to be narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy." Id. (citations omitted). The Oltzes bear the initial burden of establishing their claim falls within the Policy's scope of coverage, after which the burden shifts to Safeco to establish the claim is excluded. Travelers Cas. and Sur. Ins. Co. v. Ribi Immunochem Research, Inc., 108 P.3d 469, 476 (Mont. 2005). If Safeco meets its burden, the Oltzes may still show an exception to the applicable exclusion applies. Id.

         The Policy provides that "[Safeco] cover[s] accidental direct physical loss to property described in Building Property We Cover except as limited or excluded." (Doc. 1-1 at 23.) Covered property in turn includes "the dwelling . .. including structures attached to the dwelling other than fences, driveays, or walkways." (Id.) Accordingly, the accidental direct physical loss to the Oltzes' dwelling and attached deck is covered under the Policy unless specifically excluded. Safeco points to several exclusions it asserts preclude coverage, each of which are discussed in turn below.

         A. Moisture

         Safeco first argues the Oltzes' losses are not covered because the Policy excludes coverage for losses caused by long term exposure to water and moisture, regardless of the source of that moisture. (Doc. 16 at 14.) Safeco argues three specific exclusions apply: (1) continuous or repeated seepage or leakage of water; (2) weather that contributes to an uncovered cause; and (3) wet or dry rot. (Id. at 2.) The Oltzes insist both that an ice dam is the proximate cause of their losses and that questions of material fact preclude summary judgment. Safeco has the better argument.

         1. Seepage or leakage exclusion

         The Property Coverages section of the Policy provides a number of exclusions under the heading "BUILDING PROPERTY LOSSES WE DO NOT COVER." (Doc. 1-1 at 23.) The fifth exclusion states that Safeco will not cover losses caused "directly or indirectly by ... continuous or repeated seepage or leakage of water or steam, or the presence or condensation of humidity, moisture or vapor which occurs over a period of weeks, months or years." (Id. at 23-24.)

         As an initial matter, the experts here agree that moisture caused the damage to the Oltzes' home.[3] Safeco's Engineer, Wade Sticht, concluded in his report that the "primary cause" of the "material deterioration of the exterior wall framing and sheathing" was "long-term, chronic exposure to moisture, " as "evidenced by the nature and locations of the observed stain patterns and the severity and extent of the deterioration." (Doc. 17-3 at 15; Doc. 24 at ¶ 7.) Sticht also concluded the deck detachment "was most likely caused by the deterioration of the wood into which the deck attachment thru-bolts were fastened." (Doc. 17-3 at 16; Doc. 24 at ¶ 6.) The Oltzes' engineer, Paul Wells, assumed in his report that the damage was "water damage, " concluding that "the extensive water damage that has occurred to the sheathing and framing ... is, most likely, the result of excessive water being routed into the area of the roof/wall connection via a heat cord." (Doc. 24-4 at 1.) And Hafferman Engineering, Inc., a firm the Oltzes' hired to review expert reports, photos, deposition, and video, so it could "render an opinion on the most probable cause of the moisture damage" concluded that "the major damage was caused by melting water from ice melting, either natural warming and cooling patterns, or from the heat from around the heat tape cord." (Doc. 24-5 at 2, 8.) Hafferman further concluded that, "[although water may be entering the residence by following the heat tape cord and some minor damage may be occurring from rainfall runoff, the ice damming will have first created a pathway for moisture to enter into the house, " and noted particularly that "all parties make continual reference to the ice dam and the moisture from the melting ice that's causing the damage." (Id. at 8.)

         Next, there is also expert consensus that the damage occurred over an extended period of time, although the exact length of time is unclear. Sticht states in his affidavit that "[i]t is more probable than not that the amount of deterioration [he] witnessed would have taken multiple years to occur." (Doc. 17-3 at 3.) In his deposition, Wells agreed that the plywood sheeting composing the side of the Oltzes' home had wet rot caused by repeated exposure to moisture. (Doc. 17-6 at 6; Doc. 24 at ¶ 11.) Finally, Hafferman Engineering noted in its report that "the ice damming and subsequent moisture damage may have occurred over a long period of time but because it only was occurring and creating damage during short periods of time during any given year, years of damage, once revealed, could appear to have occurred during several months of continuous moisture rather than several years of intermittent moisture." (Doc. 24-5 at 7.)

         Thus there is expert consensus that the damages were caused by repeated exposure to moisture over an extended length of time. In turn, the Policy excludes from coverage "losses resulting from "continuous or repeated seepage or leakage of water . . . which occurs over a period of weeks, months or years." (Doc. 24 at ¶ 5.) As such, Safeco's conclusion that the losses to the Oltzes' home were caused by an excluded peril is correct. Nevertheless, the Oltzes argue that is not the end of the inquiry, because the water ...

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