Colorado Hospitality Services, Inc. v. Owners Insurance Company, 1:14-cv-01857

Owners Insurance insured Days Inn under a commercial property policy; Days Inn claimed hail damage from a June 6, 2012 storm and reported the loss on October 25, 2013.
Owners retained engineer Timothy Phelan (PT&C) who inspected the property on Nov. 20, 2013 and reported on Nov. 22, 2013 that the roof showed no hail damage from the alleged storm.
On Dec. 5, 2013 Owners denied coverage citing Phelan’s investigation; Days Inn later retained engineer Ryan Hardesty who inspected on Apr. 2, 2014 and issued a report on Apr. 20, 2014 concluding there was hail damage.
Days Inn sued Owners for statutory and common-law bad faith after Owners declined to change its denial following receipt of Hardesty’s report; the case was removed to federal court.
Owners moved for partial summary judgment seeking dismissal of the bad faith claims; Owners argued its investigation and reliance on Phelan were reasonable. Days Inn argued Owners acted unreasonably by failing to reconsider after receiving Hardesty’s report.
The court found a genuine dispute of material fact whether Owners reasonably refused to reconsider the denial after receiving the contrary expert report and denied Owners’ motion for partial summary judgment.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Owners acted reasonably in denying the claim based on Phelan’s report	Denial became unreasonable when Owners refused to reconsider after Hardesty’s contrary report	Denial was reasonable because Owners retained and relied on a qualified independent engineer; not required to accept later report	Court did not decide initial denial; held a triable issue exists on reasonableness of Owners’ refusal to reconsider after Hardesty’s report
Whether post-denial conduct (failure to reopen) supports bad faith	Post-denial refusal to reconsider constitutes bad faith if unreasonable	Post-denial refusal was reasonable because insurer had a prior, competent investigation	Court held material factual dispute as to whether post-denial conduct was reasonable, precluding summary judgment
Whether insurer may rely on expert report not available at denial time	Hardesty’s later report undermines reasonableness of continuing denial	It can rely on its contemporaneous expert and deny claim; not obligated to accept subsequent report without review	Court distinguished Sipes and found refusal to consider later report can create triable bad faith claim here
Standard for summary judgment and admissible evidence	Plaintiff must show genuine dispute about insurer’s reasonableness	Defendant asserts evidence supports its reasonable conduct	Court applied Rule 56 standards and denied summary judgment due to disputed material facts about post-denial investigation

Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment allocation of burdens)
Anderson v. Liberty Lobby, 477 U.S. 242 (genuine issue and materiality standard)
Scott v. Harris, 550 U.S. 372 (do not adopt blatantly contradicted factual narratives at summary judgment)
Goodson v. American Standard Insurance Co., 89 P.3d 409 (Colo.) (common-law bad faith tied to insurer reasonableness)
Vaccaro v. American Family Insurance Group, 275 P.3d 750 (Colo. App.) (statutory bad faith centers on denial without reasonable basis)
Sipes v. Allstate Indemnity Co., 949 F. Supp. 2d 1079 (D. Colo. 2013) (insurer not unreasonable for not considering expert report unavailable at denial time)
Glacier Construction Co. v. Travelers Property Casualty Co. of America, [citation="569 F. App'x 582"] (10th Cir.) (insurer’s further investigation and expert use can justify denial on reconsideration)
Saiz v. Charter Oak Fire Ins. Co., [citation="299 F. App'x 836"] (10th Cir.) (reopening investigation after additional information can still support later denial)