Opinion ID: 160332
Heading Depth: 2
Heading Rank: 3

Heading: Royal's Alleged Breach of its Duty of Good Faith and Fair Dealing

Text: 34 As to Royal's coverage obligations, Signature contends that Royal breached its duty of good faith and fair dealing as to settlement proceedings. Signature claims that it produced sufficient evidence to trigger Royal's implied duties of good faith and fair dealing as to settlement proceedings and that Royal breached these duties. The district court determined that there was no evidence as to what damages flowed from Royal's alleged breaches because Signature failed to present any evidence that any of the subject homes suffered damage during Royal's policy period. Signature contends it produced such evidence, relying primarily on (1) the slow and progressive nature of the damages; (2) the reports from Royal's adjuster that provide evidence of these damages; and (3) Royal's offers of settlement and reserve ratios that serve as admissions of liability.
35 Signature first submits that the progressive and continuous nature of damages to the subject homes is evidence that property damage resulted in physical injury to the tangible property under the policy. Rec. vol. 3 at R01060. Signature offers two cases to support progressive damages in the subject homes: Public Serv. Co. of Colo. v. Wallis & Cos., 986 P.2d 924 (Colo. 1999) and American Employers Ins. Co. v. Pinkard Constr., 806 P.2d 954, 955 (Colo. App. 1990). Neither case, however, bolsters Signature's arguments. 36 In Wallis & Cos., environmental damages necessitating remediation were sustained over a period of several years. The Colorado Supreme Court focused on the allocation formula that should be applied to multiple insurers should a particular insurer be found liable at trial. See 986 P.2d at 935-36. Although potentially relevant to provide an allocation method should coverage be established, Wallis & Cos. has no application where there is no evidence that the homes covered by Royal sustained damage during the coverage period. 37 Next, American Employers involved continuous damages to a roof that was insured by multiple carriers. The court noted that [w]hen actual damages were sustained is difficult to assess in a situation in which, as here, the property damage occurred progressively over a period of time. 806 P.2d at 956. The evidence of damages, although not immediately apparent... shows that progressive and continuous deterioration of the roof infected the integrity of the structure causing actual property damage during the respective policy periods. Id. Although it provides a helpful definition of progressive damages, American Employers presupposes irrefutable evidence of damages during the relevant coverage period: It is undisputed that corrosion occurred during each policy period. Consequently, we conclude that there was an `occurrence' triggering coverage under each policy. Id. 38 In contrast, we have here only the report of Royal's independent investigator, which does not establish specific damages to any of the homes covered under the Royal policy. Mr. Aiello's report in fact suggested that the damage may have resulted from poor workmanship which would be excluded under the policy. Rec. vol. II at R00314. Without more, we cannot determine that there exists genuine issue of material fact as to when the damages occurred. 39 In its response to Royal's motion for summary judgment, Signature averred that some of the Royal homes... sustained significant damage. Rec. vol. 2, tab 11 at 6. Signature provided only one address that sustained approximately $30,000 in damage and required a new floor. This home was at initially covered by Royal's policy, but Signature provided no evidence that the damage occurred during Royal's policy period.
40 Signature also relies heavily on the one report and one letter from Royal's adjustment team as admissions of Royal's liability. Signature cites Mr. Aiello's report for stating that a majority of [the 51 potentially covered homes] began experiencing soil related problems within the first year. Rec. vol. 2 at R00314. As noted above, however, Signature does not address the adjuster's suggestions that the damage may have resulted from poor workmanship or shifting of the structure, which may have been excluded from coverage. We agree with the district court that even viewed in a light most favorable to Signature, the proffered evidence is not sufficient to create a reasonable factual issue. 41
42 Signature also suggests that Royal's $100,000.00 settlement offer, coupled with Royal's internal estimated exposure of $400,000.00, is an admission of liability. Compromise or settlement offers are not admissions of liability and Signature cites no authority to suggest otherwise. See, e.g., Martin v. Principal Cas. Ins. Co., 8535 P.2d 505 (Colo. Ct. App. 1991), rev'd on other grounds by Budget Rent-A-Car Corp. v. Martin, 855 P.2d 1377 (Colo. 1993); Colo. R. Evid. 308. We are also unwilling to infer that settlement authority invariably constitutes a final, objective assessment of a claim's worth to which an insurer may be held on penalty of bad faith. Kosierowski v. Allstate Ins. Co., 51 F. Supp.2d 583, 592 (E.D. Pa. 1999). See also Voland v. Farmers Ins. Co., 943 P.2d 808, 812 (Ariz. Ct. App. 1997) (stating that [c]ontrary to plaintiff's contention, that the carriers considered her claim's `fair value' to be $30,000 and therefore offered to settle for that amount does not mean they acknowledged that was `the minimal amount the insurer's own adjuster ha[d] evaluated as being owed to the insured.'). In fact, even an insurer that has entered into a settlement agreement may be able to recover where the insurer defended pursuant to a reservation of rights. See e.g., Maryland Cas. Co. v. Imperial Contracting Co., 212 Cal. App. 3d 712 (4th Dist. 1989). Similarly, Royal's reserve calculation is merely an amount it set aside to cover potential future liabilities. See, e.g., Black's Law Dictionary 1309 (7th ed. 1999) (defining policy reserve as [a]n insurance company's reserve that represents the difference between net premiums and expected claims for a given year). We agree with the district court that Signature is unable to establish damages it incurred from Royal's alleged breach of good faith and fair dealing as to its duty to settle.