Blakely v. United Statesa Cas. Ins. Co.

ALAN BLAKELY; COLELYN BLAKELY, Plaintiffs - Appellants, v. USAA CASUALTY INSURANCE COMPANY, Defendant - Appellee.

No. 15-4059

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

June 27, 2017

(D.C. No. 2:06-CV-00506-BSJ)

(D. Utah)

ORDER AND JUDGMENT^*

Before HOLMES, MURPHY, and BACHARACH, Circuit Judges.^**

Plaintiffs-Appellants Alan and Colelyn Blakely appeal from an adverse summary judgment in which the district court determined that they failed to demonstrate the damages necessary to advance a cognizable claim for breach of the implied covenant of good faith and fair dealing ("Implied Covenant") againsttheir homeowner's insurance provider, USAA Casualty Insurance Company ("USAA"). This is the third time the Blakelys have appealed to this court based on the same underlying facts and allegations.¹ Exercising jurisdiction under 28 U.S.C. § 1291, we affirm the district court's grant of summary judgment in favor of USAA.

I

Mr. and Ms. Blakely own a home in Bountiful, Utah, which was insured under a homeowner's insurance policy issued by USAA. The policy insured against losses to the home and personal property.² In August 2002, a fire brokeout in the basement of the home after a flooring contractor, Desert Rose Roofing, Inc., doing business as Stone Touch ("Stone Touch"), applied a flammable sealant. Although the fire was contained within the basement, smoke and soot damaged other sections of the home, including floor joists, exposed subflooring, and personal property.

The Blakelys prepared an inventory of their losses and made a claim under their USAA policy. USAA then sent an adjuster to inspect the damage, and USAA's preferred contractor ultimately repaired most of the damage to the home. By mid-2003, USAA had paid out $93,332.20 on the claim—viz., $47,789.94 for the home, $37,832.70 for personal property, and $7,709.56 for temporary housing. However, the Blakelys were dissatisfied with the repairs to their home and the extent to which their personal property had been cleaned or replaced. Although USAA refused to authorize additional expenses, the Blakelys paid for further cleaning and repairs themselves. Around this time, the Blakelys also filed suit against Stone Touch.³

In January 2005, the Blakelys invoked their contractual right to an appraisal.⁴ The Blakelys asserted that they were entitled to $468,575.05 on theclaim; however, in October 2005, the three appraisers retained under the policy's terms—one by the Blakelys—awarded only $291,356.52. After a credit for the $93,332.20 that USAA had already paid under the policy, the Blakelys were still owed $197,524.32.⁵ The Blakelys admit that with the payment of the remaining appraisal award on December 5, 2005, USAA owes them nothing further under the policy's plain terms.

In 2006, the Blakelys filed suit against USAA in state court, claiming breach of contract, breach of the Implied Covenant, breach of industry and statutory standards, and intentional infliction of emotional distress. The Blakelys alleged, inter alia, that they suffered financial and emotional damages resulting from USAA's failure to make adequate and timely repairs, reimbursements, andinvestigations. USAA removed the suit to federal court based on diversity jurisdiction. Following discovery, the district court granted summary judgment in favor of USAA on all claims except the claim for breach of the Implied Covenant. Instead of summary judgment, the district court granted USAA's oral motion to dismiss the Blakelys' Implied-Covenant claim as frivolous under Federal Rule of Civil Procedure 16(c)(2)(A).

The Blakelys appealed for the first time, and our court affirmed the district court's grant of summary judgment, but reversed the dismissal of the Implied-Covenant claim. Without expressing an opinion "on the merits of the Blakelys' claim for breach of the implied covenant of good faith and fair dealing," we specifically held that

the Blakelys alleged and put forth the following evidence suggesting that USAA acted unreasonably in taking its initial position regarding the loss amount: the appraisal award was nearly three times, or $200,000 more, than USAA's initial payout of $93,322.20; USAA's adjuster refused to communicate with the Blakelys; USAA's adjuster claimed that he could not smell smoke when the smell proved noticeable [to the appraisers] in the house three years later; USAA delegated adjustment of the contents claim to a non-adjuster; and USAA refused to pay for any repairs other than structural ones.

Blakely v. USAA Cas. Ins. Co., 633 F.3d 944, 950 (10th Cir. 2011). On remand, the district court granted summary judgment in favor of USAA on the Blakelys' Implied-Covenant claim. See Blakely v. USAA Cas. Ins. Co., No.2:06-CV-00506, 2011 WL 6218212 (D. Utah Dec. 6, 2011), reversed and remanded by 500 F. App'x 734 (10th Cir. 2012) (unpublished).

The Blakelys appealed a second time to this court, mounting a challenge to the district court's determination that they had put forward no genuine issue of material fact. See Blakely, 500 F. App'x at 738. A panel of this court concluded that the following four material facts suggested that USAA acted unreasonably: viz., (1) USAA refused to replace several charred floor joists, and only replaced a small section of burned subflooring after repeated complaints from the Blakelys; (2) USAA's structural adjuster refused at times to communicate with the Blakelys; (3) the structural adjuster claimed not to be able to smell smoke, even though the appraisers could smell smoke three years later; and (4) USAA's personal-property adjuster did not travel to Utah, delegated her duties to a person who was not an adjuster, and denied coverage for numerous personal and household items. See id. at 739-40. Pointing to Jones v. Farmers Insurance Exchange, 286 P.3d 301 (Utah 2012), the panel explained that summary judgment was inappropriate under Utah law, because "[a] jury could conclude [USAA] breached its duties by undervaluing [the Blakelys'] loss" or "acted unreasonably by not instructing [the Blakelys] to submit their claims in a signed proof of loss." Id. at 741.

On remand a second time, the district court again granted summary judgment in USAA's favor. This time, however, the district court reasoned thatthe Blakelys "failed to proffer plausible damages attributable to the alleged breach of the implied contract covenant," and "[a]bsent viable damages, the exercise of trial pursuant to the Tenth Circuit's mandate and application of Jones would be purely academic." Aplts.' App., Vol. VIII, at 1683 (Dist. Ct. Order, dated Apr. 2, 2015). More specifically, the district court considered the Blakelys' alleged damages for emotional distress, economic loss, and attorney's fees and costs, and concluded that none were recoverable under Utah law.

The Blakelys timely appealed this decision of the district court.

II

This appeal presents the single issue of whether the Blakelys advanced a theory of recoverable damages as part of their claim against USAA for breach of the Implied Covenant. We review de novo the district court's dismissal of their claim on a motion for summary judgment. See Hertz v. Luzenac Grp., 576 F.3d 1103, 1107 (10th Cir. 2009) ("We review the dismissal of these claims on a motion for summary judgment de novo."); accord Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125, 1129 (10th Cir. 2003). "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); accord Macon v. United Parcel Serv., Inc., 743 F.3d 708, 712 (10th Cir. 2014).

Because this is a diversity case, we must independently discern the content of and apply state law—specifically, Utah law. See, e.g., Mid-Continent Cas. Co.v. Circle S Feed Store, LLC, 754 F.3d 1175, 1178 (10th Cir. 2014) ("Because this is a diversity case, we ascertain and apply state law—in this case, New Mexico law."); Yousuf v. Cohlmia, 741 F.3d 31, 47 (10th Cir. 2014) (noting that, where jurisdiction is based on the parties' diverse citizenship, a federal court is "not to reach our own judgment regarding the substance of the common law, but simply to ascertain and apply state law." (quoting Kokins v. Teleflex, Inc., 621 F.3d 1290, 1295 (10th Cir. 2010))); McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 253 (10th Cir. 1993) ("We review de novo the district court's rulings with respect to Kansas law."). Under Utah law, the construction of an insurance policy is a legal question, which we review de novo. See Mid-Continent Cas. Co., 754 F.3d at 1178; see also S.W. Energy Corp. v. Cont'l Ins. Co., 974 P.2d 1239, 1242 (Utah 1999) ("Interpretation of an insurance policy involves ordinary rules of contract construction. We accord no deference to the trial court's interpretation of the policy, but review the court's legal conclusions for correctness." (citation omitted)).

A

"When the federal courts are called upon to interpret state law, the federal court must look to the rulings of the highest state court, and, if no such rulings exist, must endeavor to predict how that high court would rule." Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1077 (10th Cir. 2007) (quoting Johnson v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002)). "The decision of anintermediate appellate state court is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise." Kokins, 621 F.3d at 1297 (quoting Stickley, 505 F.3d at 1077); accord Etherton v. Owners Ins. Co., 829 F.3d 1209, 1223 (10th Cir. 2016); cf. A.M. v. Holmes, 830 F.3d 1123, 1140-41 (10th Cir. 2016) ("When a state Supreme Court has not spoken on the question at issue, we assume (without deciding) that a reasonable officer would seek guidance regarding the scope of proper conduct at least in part from any on-point decisions of the state...