Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_04-cv-01924/USCOURTS-azd-3_04-cv-01924-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1446 Breach of Contract- Insurance

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

JACK LERCH and BEVERLY LERCH, )

husband and wife, )

)

Plaintiffs, ) 

) No. CIV 04-1924 PCT RCB

vs. ) 

) O R D E R

ALLSTATE INSURANCE COMPANY, ) 

believed to be an Illinois )

corporation; ABC CORPORATIONS )

I-X; and ABC PARTNERSHIPS I-X,)

)

Defendants. ) )

This action centers around a dispute over Defendant Allstate

Insurance Company's ("Allstate") handling and denial of fire loss

claims filed by Plaintiffs Jack and Beverly Lerch. Plaintiffs

originally brought suit in the Superior Court of Arizona in Navajo

County, asserting claims of breach of contract, negligence, and bad

faith. Notice (doc. # 1). Allstate removed the case on September

14, 2004. Id. Currently pending before the Court are Allstate's

Motion for Summary Judgment and Supplement to Motion for Summary

Judgment. Mot. (doc. ## 33, 37). The matter has been fully 

Case 3:04-cv-01924-RCB Document 60 Filed 06/27/06 Page 1 of 16
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1

 A report by industrial hygienist Kirsten H. Shaw, M.S., states

that the Rodeo-Chedeski forest fires produced 0.6 tons of smoke

particulate per week. PSOF ¶ 1.

2

 According to the industrial hygienist's report, soot has a

corrosive effect on glass and metal surfaces that is known to cause

damaging electrical arching in electronic equipment. PSOF, Ex. A.

Since the fires, Plaintiffs have observed erratic behavior in their

electrical appliances, such as a television that shuts off when the

volume controls are adjusted. Id. ¶ 19.

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briefed. See Resp. (doc. # 42, 51); Reply (doc. ## 53-54). Having

carefully considered the arguments raised, the Court now rules.

I. BACKGROUND

In June of 2002, Plaintiffs were evacuated from their home in

Clay Springs, Arizona as a result of the Rodeo-Chedeski forest

fires, which burned for four weeks and came within 300 feet of

their home. Def.'s Statement of Facts (doc. # 34) ("DSOF") ¶ 1;

Pls.' Statement of Facts (doc. # 43) ("PSOF") ¶ 1. At one point

during the evacuation period, Jack Lerch returned with the approval

of authorities to remove ammunition from the home, and observed ash

falling from above "just like snow."1 PSOF ¶ 14.

Plaintiffs returned 15 days after the evacuation to find their

home in disarray. Id. ¶ 2. Their refrigerator and freezer, which

had lost power while they were away, were filled with meat that had

thawed and rotted for days. See id. ¶ 3. Consistent with

firefighters' warnings, many of Plaintiffs' other electrical

appliances-- including a personal computer, microwave, stove,

television, and VCR-- had fallen from use or otherwise ceased to

function properly.2 See id. ¶¶ 10, 19. The metal roof of their

home had faded to lime green. See id. ¶ 12. According to

Plaintiffs, the smell of smoke lingered long after the fire in the

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3

 On June 9, 2003, Allstate sent a letter to Plaintiffs

acknowledging that it had received notice of their loss on June 20,

2002. See DSOF, Ex. E. at 000353. The letter states that "[a]t this

time, we would like to refer you to 'What You Must Do After a Loss'

on Page 20 of your policy." Id. Thus, nearly one year after having

received notice of Plaintiffs' loss, Allstate advised Plaintiffs of

the requirement to file a proof of loss within 60 days of the claimed

loss, a deadline which had obviously passed long before the mailing

of its letter. See id.

A proof of loss form was attached with instructions for

Plaintiffs to return the form by June 30, 2003. See id. However,

Allstate stressed that its provision of the form at that late date

was not intended as a waiver of any defenses under the Policy. See

id. On June 30, 2003, Allstate acknowledged receipt of Plaintiffs'

proof of loss, while reasserting its position of non-waiver. Id. at

000181.

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home and in the insulation between the ceiling and the roof, which

continued to rapidly fade in color. See id. ¶¶ 11-12. Outside,

the heat had killed the plants and trees, and is suspected to have

sterilized the soil. See id. ¶ 3.

At the time of the fires, Plaintiffs' home and personal

property were insured under a Deluxe Homeowners Insurance Policy

(the "Policy") with Allstate. DSOF ¶ 1. Within three weeks of

their return home, Allstate adjuster Jymm Schneider visited

Plaintiffs' home three times to inspect their losses, but

apparently never asked Plaintiffs to prepare a list of damaged

property or informed them of the requirement under the Policy to

submit a proof of loss.3

 Id. ¶¶ 2, 7. According to Jack Lerch,

the adjuster's inspections were cursory and unresponsive to

Plaintiffs' concerns. Schneider did not initially examine

Plaintiffs' garage or trailer, and, unlike other insurers, never

took any soil samples. Id. ¶¶ 3-5. In response to Plaintiffs'

concerns with the fetid freezer and refrigerator full of rotting

meat, Schneider apparently told Beverly Lerch that Allstate does

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not cover refrigerators. Id. ¶ 3. Plaintiffs received payment for

their losses directly from Schneider. Id. ¶¶ 5, 9; DSOF ¶ 2.

Subsequent to Schneider's visits, Jack Lerch claims that he

contacted Allstate by letter to voice his concerns. PSOF ¶ 6. He

states that after calling a telephone number listed on a letter

from Allstate, he was told by an Allstate employee that another

adjuster would be sent to inspect their losses. Id. ¶ 6. Allstate

disputes this, claiming that its "records . . . indicate no efforts

were made by the Plaintiffs to contact Allstate about any

investigation of the loss or coverage questions." Reply (doc. #

53) at 5. Having surmised after several months of silence that a

second Allstate adjuster would not be coming, Plaintiffs hired a

private adjuster who communicated with Allstate between January and

May of 2003. PSOF ¶ 8; DSOF ¶¶ 3-4. While awaiting resolution of

their claims, Plaintiffs maintain that they did not immediately

replace the allegedly damaged appliances due to financial hardship,

as Jack Lerch received only disability income and Beverly Lerch had

been missing work due to sinus infections. See PSOF ¶ 15.

In May of 2003, after being contacted by Plaintiffs' private

adjuster, Allstate sent a second adjuster, Mike Koepsell, to

reinspect Plaintiffs' property. PSOF ¶ 17; DSOF ¶ 4. Koepsell

noted that the area outside the home still smelled of smoke long

after the fire. PSOF ¶ 17. In his report, however, he indicated

that he smelled no smoke inside Plaintiffs' home. Id. Koepsell

also refused to take pictures of what Plaintiffs claimed were smoke

impressions on the walls inside the home, and ultimately concluded

that there were no additional damages. Id. ¶ 18; DSOF ¶ 4.

On June 13, 2003, Allstate requested recorded statements from

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Plaintiffs, and, on November 18, 2003, examined Plaintiffs under

oath. DSOF ¶¶ 6, 8-9. The examinations revealed that certain

electrical appliances reported in Plaintiffs' proof of loss were

not thoroughly inspected by Plaintiffs prior to reporting, and, in

any event, turned out to be partly or entirely functional. Id. ¶¶

10-11.

In July of 2003, Allstate hired Rimkus Consulting Group, Inc.

("Rimkus") to conduct an independent investigation. DSOF, Ex. J. 

Rimkus's laboratory results indicated "no evidence of significant

smoke damage." Id.

On March 22, 2004, Allstate denied Plaintiffs' additional

claims of damages for their roof, insulation, and electrical

appliances for, among other reasons, material misrepresentation. 

See id.

On August 20, 2004, Plaintiffs filed suit in state court. See

DSOF ¶ 14; Notice (doc. # 1). Allstate subsequently removed the

action to this Court. Notice (doc. # 1).

On May 16, 2005, Allstate obtained a legal opinion concurring

with its view that its investigation was timely, objective, and

thorough, that Plaintiffs' delay in presenting their claims had

prejudiced Allstate, but adding that there were, at a minimum,

"genuine issue[s]" as to Plaintiffs' claims. DSOF ¶ 15.

In June of 2005, Plaintiffs sold their Clay Springs home for

$240,000. Def.'s Supplement to Statement of Facts (doc. # 38)

("DSSOF") ¶¶ 1-2. At his deposition on August 10, 2005, Jack Lerch

estimated that, had Allstate honored Plaintiffs' claims, the home

might have sold for $263,000. Id. ¶¶ 3-4. Plaintiffs have also

obtained an affidavit from a realtor valuing the home at $325,000

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had appropriate repairs been made. Pls.' Supplement to Statement

of Facts (doc. # 52) ("PSSOF") ¶ 2.

II. STANDARD OF REVIEW

Summary judgment is appropriate "when there is no genuine

issue of material fact" such that "the moving party is entitled to

judgment as a matter of law." Fed. R. Civ. P. 56. In determining

whether to grant summary judgment, a district court must view the

underlying facts and the inferences to be drawn from those facts in

the light most favorable to the nonmoving party. See Matsushita

Elec. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

If a party will bear the burden of proof at trial as to an

element essential to its claim, and fails to adduce evidence

establishing a genuine issue of material fact with respect to the

existence of that element, then summary judgment is appropriate. 

See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Not

every factual dispute is capable of defeating a properly supported

motion for summary judgment. Rather, the party opposing the motion

must show that there is a genuine issue of material fact. See

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A

factual dispute is genuine if the evidence is such that a rational

trier of fact could resolve the dispute in favor of the nonmoving

party. Id. at 248. A fact is material if determination of the

issue might affect the outcome of the case under the governing

substantive law. Id. Thus, a party opposing a motion for summary

judgment cannot rest upon bare allegations or denials in the

pleadings, but must set forth specific facts demonstrating a

genuine issue for trial. See id. at 250. If the nonmoving party's

evidence is merely colorable or not significantly probative, a

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court may grant summary judgment. See id. at 249; see also Cal.

Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, 818 F.2d

1466, 1468 (9th Cir. 1987).

III. DISCUSSION

In its motion for summary judgment, Allstate argues that (1)

Plaintiffs' noncompliance with the terms of the Policy, e.g., by

failing to file a timely proof of loss, should bar all their

claims, (2) there is no evidence to support Plaintiffs' claim of

bad faith, (3) there is no evidence to support Plaintiffs' prayer

for punitive damages, (4) Plaintiffs' evidence of damages related

to the loss in value of their residence should be limited to

estimates made by Jack Lerch at his deposition, and (5) some of the

personal property claimed by Plaintiffs would not have been covered

under the policy. The Court addresses each argument in turn.

A. Plaintiffs' Compliance with Terms of Insurance Policy

Because Plaintiffs did not request an appraisal to dispute

their initial settlement or submit a timely proof of loss within

the 60-day window required by the Policy, Allstate contends that

Plaintiffs should not recover on their claims for breach of

contract, negligence, and bad faith, or receive any punitive

damages. See Mot. (doc. # 33) at 6-7.

In its motion, Allstate quotes extensively from the Policy,

but provides no citation for the Court to verify the relevant

provisions. See Mot. (doc. # 33) at 4-6. Although Allstate had

apparently intended to include the Policy as an exhibit to its

statement of facts, see DSOF ¶ 1, it did not do so. See DSOF, Ex.

A-L; DSSOF, Ex. 1-4. Any argument based on coverage or Plaintiffs'

alleged noncompliance with the Policy would therefore fail for

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Allstate's failure to adduce evidence of the Policy terms.

Even if Allstate had produced such evidence, there are genuine

issues of material fact that would preclude summary judgment. In

response to Allstate's argument concerning the tardy filing of the

proof of loss, Plaintiffs contend that Allstate was responsible for

the delays and should therefore be estopped from enforcing those

time limitations against them. See Resp. (doc. # 42) at 6-7

(citing Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 650 P.2d

441 (1982)). For instance, Plaintiffs claim that Jymm Schneider,

the adjuster initially assigned to their claim, was unresponsive to

their concerns and did not provide them with a proof of loss form. 

Resp. (doc. # 42) at 5-6. Indeed, based on the record provided by

Allstate, it appears that Allstate first provided Plaintiffs with a

proof of loss form nearly one year after it had received notice of

Plaintiffs' loss. See DSOF, Ex. E. at 000353. Furthermore,

Plaintiffs claim that Jack Lerch attempted to contact Allstate by

letter and by phone to discuss their loss during the first few

months after the fires. PSOF ¶ 6. Although Allstate denies any

such contact, and maintains that many of Plaintiffs' claims were

presented for the first time months after the loss, those factual

disputes must be resolved by the jury. See Reply (doc. # 53) at 5. 

Accordingly, even if Allstate had produced evidence of the Policy

terms allegedly breached by Plaintiffs, its motion for summary

judgment would still be denied.

B. Bad Faith

Under Arizona law, the tort of bad faith occurs when an

insurer "intentionally denies, fails to process or pay a claim

without a reasonable basis." Noble v. Nat'l Am. Life Ins. Co., 128

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Ariz. 188, 624 P.2d 866, 868 (1981). A plaintiff establishes bad

faith on the part of an insurance company by showing that the

company (1) denied the claim without a reasonable basis for the

denial, and (2) either knew or recklessly disregarded the fact that

it did not have a reasonable basis for denying the claim. Noble,

624 P.2d at 868. The first prong of the test for bad faith is an

objective test based on reasonableness. Trus Joist Corp. v. Safeco

Ins. Co., 153 Ariz. 95, 735 P.2d 125, 134 (Ct. App. 1986). The

second prong is a subjective test, requiring the plaintiff to show

that the defendant insurance company committed consciously

unreasonable conduct. Id.

One factor relevant to considering whether the insurer's

conduct was reasonable under the first prong is whether the claim

was "fairly debatable." Deese v. State Farm Mut. Auto. Ins. Co.,

172 Ariz. 504, 838 P.2d 1265, 1268 (1992). The fair debatability

of a claim is not dispositive. Zilisch v. State Farm Mut. Auto.

Ins. Co., 196 Ariz. 234, 995 P.2d 276, 280 (2000) (Martone, J.) (en

banc) ("[A]s we have held, while fair debatability is a necessary

condition to avoid a claim of bad faith, it is not always a

sufficient condition."). Instead, "[t]he appropriate inquiry is

whether there is sufficient evidence from which reasonable jurors

could conclude that in the investigation, evaluation, and

processing of the claim, the insurer acted unreasonably and either

knew or was conscious of the fact that its conduct was

unreasonable." Id.

Allstate argues that Plaintiffs' claim of bad faith fails as a

matter of law, insisting that they acted reasonably in handling a

fairly debatable claim, and that there is "[n]o evidence

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demonstrat[ing] any unfair or dishonest treatment." Reply (doc. #

53) at 5-7; Mot. (doc. # 33) at 8. For much of the same reasons

discussed above, the Court rejects this argument. There is ample

evidence from which a jury could find that Allstate acted knowingly

in an unreasonable manner in handling Plaintiffs' claim. For

example, Plaintiffs' evidence suggests that Allstate's adjuster,

Jymm Schneider, did not conduct a thorough investigation of

Plaintiffs' losses, may have misinformed Plaintiffs' as to coverage

under the Policy by telling Beverly Lerch that refrigerators were

not covered, and did not advise Plaintiffs of the need to submit a

list of damaged property or provide them a proof of loss form for

doing so. PSOF ¶¶ 3-5, 7. Indeed, as explained above, the record

supplied by Allstate suggests that it first provided Plaintiffs

with a proof of loss form nearly one year after the date on which

it acknowledged having received notice of Plaintiffs' loss-- well

beyond the 60-day filing window it faults Plaintiffs for missing.

See DSOF, Ex. E. at 00353. Regardless of whether any of

Plaintiffs' claims were fairly debatable, the evidence is not such

that a reasonable jury could only conclude that Allstate was

reasonable in its processing of Plaintiffs' fire loss claims.

Allstate suggests that the existence of a factual dispute

actually advances, rather than defeats, its argument for summary

judgment. Reply (doc. # 53) ("'[W]hen there is a question of fact

as to liability on the underlying policy, then as a matter of law,

the insurance company is not liable for bad faith.'") (quoting

Knoell v. Metro. Life Ins. Co., 163 F. Supp. 2d 1072, 1075 (D.

Ariz. 2001) (Teilborg, J.)). Allstate's reliance on Knoell is

misplaced. In Knoell, the court acknowledged that the insurer's

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belief that the claim was fairly debatable "[wa]s a question of

fact for the jury," but granted summary judgment only because the

plaintiff had failed to offer any evidence calling into question

the insurer's belief. Knoell, 163 F. Supp. 2d at 1077.

Unlike Knoell, there is sufficient evidence in the instant

case to cast doubt on Allstate's belief that Plaintiffs' claim was

fairly debatable. For example, Schneider apparently ignored

Plaintiffs' complaints regarding damage to the landscaping,

although other insurers were taking soil samples. PSOF ¶ 4. 

Likewise, Allstate's oblique denial of Plaintiffs' claim for roof

damage might reasonably be questioned in light of the replacement

of neighbors' roofs by other insurers presented with claims under

ostensibly similar policies. Id. ¶¶ 11-13. The reasonableness of

Allstate's belief can also be doubted in light of the observations

and actions of its second adjustor, Mike Koepsell. After observing

that the smell of smoke had lingered in the area long after the

fire, Koepsell claimed not to smell any smoke in Plaintiffs' home,

in spite of Plaintiffs' observations to the contrary. PSOF ¶¶ 17.

In view of these genuine issues of material fact, summary

judgment is inappropriate. It will be for the jury to decide

whether the claims were fairly debatable, and whether "in the

investigation, evaluation, and processing of the claim, [Allstate]

acted unreasonably and either knew or was conscious of the fact

that its conduct was unreasonable." See Zilisch, 995 P.2d at 280. 

Accordingly, Allstate's Motion for Summary Judgment (doc. # 33)

will be denied as to Plaintiffs' claim of bad faith.

. . .

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C. Punitive Damages

Under Arizona law, an award of punitive damages requires

evidence that the "defendant either (1) 'intended to injure the

plaintiff . . . [or (2)] consciously pursued a course of conduct

knowing that it created a substantial risk of significant harm to

others.'" Gurule v. Ill. Mut. Life & Cas. Co., 152 Ariz. 600, 734

P.2d 85, 87 (1987) (quoting Rawlings v. Apodaca, 151 Ariz. 149, 726

P.2d 565, 578 (1986)) (alteration in original). The Supreme Court

of Arizona has noted that, on a motion for summary judgment on the

issue of punitive damages, "the evidence and all reasonable

inferences that may be drawn from the evidence should be construed

in a light most favorable to the non-moving party." Thompson v.

Better-Bilt Aluminum Prods. Co., 171 Ariz. 550, 832 P.2d 203, 211

(1992). Finally, "[w]hile some of the evidence might equally

reasonably support alternative inferences that do not suggest an

evil mind, the choice among reasonable inferences is one properly

reserved for the jury." Id.; accord Borland v. Safeco Ins. Co. of

Am., 147 Ariz. 195, 709 P.2d 552, 557 (Ct. App. 1985) ("If there is

a reasonable view of the evidence that will support punitive

damages the question should be left to the jury.").

Allstate contends that Plaintiffs should be precluded from

pursuing punitive damages, because they "have produced no facts

suggesting any intent to injure Plaintiffs, or any wrongful

conduct, let alone wrongful conduct driven by spite, actual malice

or intent to defraud." Mot. (doc. # 33) at 9. Plaintiffs respond

that Allstate's "evil mind" need not be established by direct

evidence, but may be inferred from its conduct. See Resp. (doc. #

42) at 10-11 (citing Gurule, 734 P.2d 85); see also Thompson, 832

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P.2d at 210 ("The plaintiff can, of course, satisfy this burden of

proof through direct evidence, i.e., an admission by the defendant. 

Because such admissions are relatively rare, however, the plaintiff

can also make its case with indirect and circumstantial

evidence.").

In the present case, it would require much more than

reasonable inferences from the evidence submitted for Plaintiffs to

maintain their claim for punitive damages. Plaintiffs contend that

Allstate's accusations of material misrepresentation in its denial

of their later claims are at odds with its payment on a plumbing

claim. See Resp. (doc. # 51) at 7-8. Allstate's denial, however,

was based only partly on alleged material misrepresentations by

Plaintiffs. See DSOF, Ex. J. The Court finds no reason to impute

that basis for denial to all claims so as to create the appearance

of duplicitous intent implied by Plaintiffs' response. Moreover,

while it may be troubling that meat had rotted in Plaintiffs'

refrigerator for six days during the evacuation period, and that

Beverly Lerch subsequently suffered from sinus infections some time

after the fires, see PSOF ¶¶ 3, 15, 19, there is no additional

evidence to support a reasonable inference that the refrigerator

posed a dire health risk to Plaintiffs or that Beverly Lerch's

sinuses were irritated as a result of the smoke in the home. In

sum, none of the evidence supports a reasonable inference that

Allstate consciously pursued a course of conduct knowing that it

created a substantial risk of significant harm to Plaintiffs, much

less intended to injure them. See Gurule, 734 P.2d at 87. 

Therefore, Allstate's Motion for Summary Judgment (doc. # 33) on

the issue of punitive damages will be granted.

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4

 Even if Allstate had raised the matter by the proper motion,

its request would be denied, because the evidence and legal arguments

presented do not adequately establish a basis for the exclusion of

Plaintiffs' evidence of damages.

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D. Damages to Plaintiffs' Former Home

Under Arizona law, if property can be replaced or restored at

a cost that can be readily ascertained, "the proper measure of

damages is the replacement or restoration cost not to exceed the

diminution in market value." A.I.D. Ins. Servs. v. Riley, 25 Ariz.

App. 132, 541 P.2d 595 (Ct. App. 1975).

Allstate, in its supplement to its motion for summary judgment

(doc. # 37), essentially seeks to preclude Plaintiffs from offering

newly obtained evidence on the issue of damages. Allstate would

apparently have the Court limit Plaintiffs' presentation of damages

to the deposition testimony of Mr. Lerch. See Supplement (doc. #

37) at 3 ("[P]laintiffs should be precluded as a matter of law from

requesting any additional damages for their former home."). 

Because a motion for summary judgment is not the proper procedural

vehicle for the relief requested by Allstate, its supplemented

motion for summary judgment (doc. ## 33, 37) as to the issue of

damages will be denied.4

E. Covered Property

Finally, in its supplement to its motion for summary judgment,

Allstate contends that it could not be liable for breach of

contract, negligence, or bad faith in connection with its handling

and denial of Plaintiffs' claims for certain personal property,

because Plaintiffs apparently did not throughly inspect every item

reported as damaged. See Supplement (doc. # 37) at 3-4. Thus,

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Plaintiffs had managed to report personal property that had not

suffered a "direct physical loss," and that would not be covered

under the Policy. See id.

As an initial matter, any coverage issue relating to personal

property does not dispel the controversy surrounding Plaintiffs'

other claims for roof damages and landscaping. Moreover, as

explained before, Allstate's failure to include the evidence of the

Policy terms precludes summary judgment on an argument that turns

so closely upon the terms of the Policy. Even if such evidence had

been provided, Allstate's argument would fail for the following two

reasons.

First, there are factual disputes whether Plaintiffs' personal

property suffered a "direct physical loss" as a result of the fire. 

For example, Allstate emphasizes the fact that Plaintiffs'

television functions, while Plaintiffs maintain that it does not

function properly, shutting off unexpectedly when the volume is

adjusted. See PSOF ¶ 19. Consistent with Plaintiffs'

observations, the report of Kirsten H. Shaw, M.S., industrial

hygienist, explains that the corrosive effect of soot on glass and

metal surfaces is known to cause damaging electrical arching in

electronic equipment. Id., Ex. A.

Second, just as Allstate denied Plaintiffs' claims on the

basis of material misrepresentation, its argument insinuates that

Plaintiffs did not act in good faith by reporting appliances that

were functional. See DSOF, Ex. J. However, Plaintiffs profess

that their claims were made in a good faith belief, based on

representations made to them by firefighters, that their electronic

equipment was susceptible to damage on account of the fire. See

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PSOF ¶ 10. Plaintiffs may have been justified in reporting those

items in good faith, with the expectation that Allstate would

subsequently make a fair determination of coverage. Given the

exigencies of the circumstances following the disaster, the jury

could reasonably accept Plaintiffs' explanation that they did not

have the time to conduct more thorough testing prior to reporting

their losses to Allstate, or it may adopt Allstate's view that

Plaintiffs had knowingly exaggerated their losses.

Based on the evidence and arguments presented, the issues of

coverage must be reserved for the consideration of the jury. 

Allstate's supplemented motion for summary judgment (doc. ## 33,

37) on questions of coverage will therefore be denied.

IT IS THEREFORE ORDERED that Defendant's Motion for Summary

Judgment (doc. ## 33, 37) is GRANTED in part and DENIED in part.

The Motion for Summary Judgment (doc. # 33) is GRANTED with respect

to the issue of punitive damages only. Defendants Motion of

Summary Judgment (doc. ## 33, 37) is DENIED with respect to all

other issues.

DATED this 27th day of June, 2006.

Copies to counsel of record

Case 3:04-cv-01924-RCB Document 60 Filed 06/27/06 Page 16 of 16