No Bad Faith in Insurer’s Denial of Collapse Claim

    The Tenth Circuit affirmed the district court's grant of summary judgment to the insurer on the insured's claims for collapse and bad faith. Christopher M. Wolpert Saddletree Holding, LLC v. Evanston Ins. Co., 2024 U.S. App. LEXIS 10377 (10th Cir. April 30, 2024). 

    On May 7, 2019, Saddletree filed a claim with Evanston for damages sustained to its building which was used as a community events center. After a winter of heavy snowfall, Saddletree discovered that the building's steel support columns had buckled two or more inches and the roof had deflected downward approximately six inches.

    Evanston retained an engineer to inspect the building. The engineer determined that the damage was the result of the building's inadequate "design and/or construction." Evanston disclaimed coverage under the policy's exclusion for damage caused by "hidden or latent defects" or "any quality in property that causes it to damage or destroy itself." 

    Saddletree then sued its builder, Dreams Carports & Buildings, Inc. To support its suit, Saddletree requested Evanston's engineering report, but Evanston declined. Saddletree then retained its own engineer who determined that the original design was deficient. Further, "it is very fortunate the structure has not collapsed based on the levels of deficiencies determined." The district court entered default judgment against Dreams and awarded Saddletree over $2.2 million in damages. Saddletree was still attempting to collect on the judgment.

    On July 8, 2021, more than two years after Saddletree filed its insurance claim- Saddletree's new counsel wrote to Evanston again requesting that they turn over their engineering report. Evanston disclosed the report on August 10, 2021. Two months later, Saddletree wrote demanding that Evanston reverse its coverage denial pursuant to, among other things, the policy's "Collapse" provision. Evanston declined, contending that the building had not collapsed under the policy's definition. Saddletree sued for breach of contract and substantive and procedural bad faith. 

    The district court entered summary judgment for Evanston on all claims. The breach of contract claim was barred by the policy's two-year contractural limitations period. Further, the parties' dueling expert reports rendered Evanston's coverage denial "fairly debatable" precluding Saddletree's claim for bad faith. 

    On appeal, Saddletree first argued that Evanston should be estopped from relying on the policy's limitations period. Saddletree argued Evanston lulled it into inaction  by failing to disclose the engineering report until after the policy's limitations period ran. But Saddletree testified it had "no idea" what it would have done differently had it received Evanson's engineering report sooner. Further, Saddletree identified no authority indicating Evanston had a duty to provide its engineering report. Absent an affirmative duty to provide the report, Evanston did not act inappropriately in refusing to provide it, and that refusal did not lead to estoppel.

    Nor did waiver apply. Saddletree did not preserve this argument for appellate review. But even if it had, Evanston did not waive reliance on the policy's limitations period. Evanston never indicated it would provide coverage, but denied coverage from the beginning. 

    The Tenth Circuit determined there was no substantive bad faith. By the policy's terms, coverage did not apply to a building that was standing even if it was "cracking, bulging, sagging, bending, or leaning." Because the building was still standing, it was at least "fairly debatable" whether the abrupt collapse provision applied.

    Nor did procedural bad faith apply. Evanston's conduct did not constitute procedural bad faith as a matter of law. Further, Saddletree did not identify recoverable damages necessary to sustain its claim. Saddletree argued Evanston was liable for procedural bad faith for (1) initially refusing to turn over its engineering report and (2) allegedly not disclosing that the building was unsafe to occupy during the winter months. Saddletree did not identify any legal authority requiring Evanston to disclose its engineering report. Further, testimony disclosed that Saddletree's representative accompanied Evanston's engineers during their initial inspection. Following the inspection, Saddletree locked to doors because the inspectors said that the structure of the building was too weak. From that point on, the building's only use was for personal storage.