2019 COA 169
Colo. Ct. App.2019Background:
- Richard and Connie Morley owned a vacation home insured by USAA under an all‑risk homeowner policy.
- In June 2015 a severe hailstorm allegedly damaged the home’s flat roof, and subsequent precipitation caused interior water damage.
- USAA inspected, paid for a full roof replacement and authorized some interior repairs, but denied most additional interior damage claims and refused further payment.
- The Morleys sued for breach of contract and bad faith; USAA moved for summary judgment based principally on the policy’s surface water exclusion; the district court granted summary judgment and awarded costs to USAA.
- On appeal the core factual dispute is how the water entered the home: (a) precipitation pooled and ran off the roof (arguably “surface water”), or (b) precipitation leaked directly through holes in a hail‑damaged roof (arguably not “surface water”).
- The Court of Appeals applied the Colorado Supreme Court’s definition of “surface water” from Heller and reversed summary judgment, finding material factual disputes and that water entering through roof penetrations may not be “surface water.”
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the policy’s “surface water” exclusion bar coverage where precipitation caused interior damage after contacting the roof? | Morley: Water that leaked through hail‑created holes never was water "lying or flowing naturally on the earth’s surface," so it is not surface water. | USAA: Precipitation that first contacts the roof becomes surface water (relying on Martinez and other authority) and is excluded. | Court: Apply Heller; if water entered by leaking through roof holes (never lying/flowing naturally on earth’s surface) it is not surface water. Reversed summary judgment; material facts remain. |
| Did USAA waive the right to rely on the surface water exclusion? | Morley: USAA’s earlier payments and communications waived reliance on exclusion. | USAA: No waiver; insured cannot use waiver to bring within coverage risks expressly excluded. | Court: Declined to decide waiver because it resolved appeal on the surface water exclusion’s plain language. |
| Does the policy’s fraud clause bar coverage for alleged nondisclosure of a pre‑loss roof inspection? | Morley: They did not conceal material facts; the inspection did not show imminent leak. | USAA: Morleys failed to disclose an October 2014 inspection showing rotten areas, permitting denial under the fraud clause. | Court: Genuine disputes of material fact exist regarding content, materiality, and intent; cannot affirm summary judgment on fraud ground. |
Key Cases Cited
- Heller v. Fire Ins. Exchange, 800 P.2d 1006 (Colo. 1990) (defines "surface water" as water "lying or flowing naturally on the earth's surface" and distinguishes transient surface runoff from permanent watercourses)
- Hartford Live Stock Ins. Co. v. Phillips, 372 P.2d 740 (Colo. 1962) (earlier Colorado authority on surface water concepts cited for historical context)
- Empire Cas. Co. v. St. Paul Fire & Marine Ins. Co., 764 P.2d 1191 (Colo. 1988) (waiver cannot be used to expand coverage to risks expressly excluded by the policy)
- Allstate Ins. Co. v. Huizar, 52 P.3d 816 (Colo. 2002) (policy interpretation is a question of law reviewed de novo)
- Cary v. United of Omaha Life Ins. Co., 108 P.3d 288 (Colo. 2005) (ambiguous policy language must be construed against insurer)