ORDER
This matter is before the Court on plaintiffs Partial Motion for Judgment as a
I. BACKGROUND
This case arises out of an insurance coverage dispute. The Association is responsible for the operation, maintenance, preservation, and control of the Chateau Village North Condominiums (“Chateau Village Condos”) in Boulder, Colorado. Docket No. 52 at 2, Statement of Undisputed Material Facts (“SUMF”) 1. The Association purchased a commercial property and liability insurance policy (the “policy”) from defendant American Family, which became effective on February 1, 2013. Id., SUMF 2. The policy contains an exclusions section at Section I.B. Id. at 2-3, SUMF 3. The exclusions section is prefaced with an anti-concurrent causation clause (“ACC”):
B. Exclusions
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
Id.\ Docket No. 52-1 at 2. Section I.B.l.g. of the exclusions section excludes coverage for the following:
g. Water
(1)Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow;
(3) Water that backs up or overflows from a sewer, drain or sump; or
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
But if Water, as described in Paragraphs (1) through (4) results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage.
Docket No. 52 at 3, SUMF 4; Docket No. 52-1 at 3.
The policy includes a Condominium Enhancement Endorsement (the “endorsement”). See Docket No. 52 at 3-4, SUMF 5. At Section XVI, the endorsement adds coverage for sewer backup and sump overflow and replaces the water exclusion at Section I.B.l.g of the policy with language that omits any reference to sewer, drain, or sump backup. Id., SUMFs 5-6. Section XVI of the endorsement reads:
XVI. Sewer Back-Up and Sump Overflow
The following is added to paragraph A.5. Additional Coverages:
Sewer Back-Up and Sump Overflow
1. We will pay for direct physical loss or damage to Buildings or Business Personal Property, covered under Section I — Property, caused by or resulting from:
A. Water which backs up through or overflows from a sewer or drain; or
B. Water which overflows from a sump, even if the-overflow results from mechanical breakdown of a sump pump or its related equipment.
However, with respect to paragraph XVI.l.b above, we will not pay the cost of repairing or replacing a sump pump or its related equipment in the event of a mechanical breakdown.
2. We will not pay for loss or damage caused by sewer or sump back up or overflow which occurs or is in progress within five (5) days of the effective date of this endorsement.
3. The coverage described in paragraph XVI.l of this endorsement does not apply to loss or damage resulting from an insured’s failure to:
A. Keep a sump pump or its related equipment in proper working condition; or
B. Perform the routine maintenance or repair necessary to keep a sewer or drain free from obstructions.
4. With respect to the coverage provided under paragraph XVI., Exclusion B.l.g. Water in Section I-Property is replaced by the following exclusion:
Water
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow; or
(3) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c)Doors, windows, or other openings.
But if water, as described in paragraph XVI.4. results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion, or sprinkler leakage.
5.The most we will pay for loss or damage in any one occurrence is $300,000 per location.
Id. at 3-5, SUMFs 5-7; Docket No. 52-1 at 5.
Following severe rainstorms in September 2013 in Boulder, on September 12, 2013 Chateau Village Condos sustained water damage. Docket No. 52 at 5, SUMFs 8-9. The rainstorms caused sewer backups affecting Chateau Condo units and common areas. Id., SUMF 10; see Docket No. 51 at 2, SUMF 3. The sewer backups were, the result of groundwater infiltrating the sewer system. Docket No. 52 at 5, SUMF 10. Luke McConnell, president of the Association’s Homeowners Association (“HOA”), reported to others that “the damage was caused by two things: sewer back up and rain water.” Docket No. 52 at 6, SUMF 14. Mr. McConnell was contacted by unit owners on the night of the water intrusion and was told that water was collecting on the patio of at least one unit. Docket No. 52 at 5, SUMF 13.
Plaintiff made a claim under the policy. Defendant inspected the subject property twice, on September 19, 2013 and October 5, 2013. Id., SUMF 12. On September 19, 2013, Mark Foresee inspected the property on behalf of defendant. Id. at 6, SUMF 15. Mr. Foresee’s note from the September 19, 2013 inspection states: “I found water damage to the walls and floor covering in all rooms. This water entered in thru the exterior doors and foundation.” Docket No. 52-6 at 5. In its September 20, 2013 letter, defendant explains:
[Regarding claim for damage to Building A:] The inspections of the following properties revealed that surface and ground water has seeped through the door and foundation areas. In addition, water has backed up and overflowed from the toilets and bathtub drains. The surface and ground water mixed with the water that backed up and overflowed from the toilets and bathtub drains causing material damages in the buildings. Since the surface water mixed with the water that backed up through the toilets and bathtub drains, we are unable to separate the water damages.
[Regarding claim for damage to the Clubhouse and Buildings B, C, and D:] The interior water damages are excluded under the BUSINESSOWNERS COVERAGE FORM, []. Please refer to page eleven, B. Exclusions, page twelve, g. Water. (l)-(4). Based on the policy exclusion, we will be unable to provide coverage for the interior water damages as indicated above in the described loss locations.
Docket No. 51-9 at 1; see Docket No. 51 at 4, SUMFs 6, 8.
Scott Jones re-inspected the property on October 5, 2013. Docket No. 52 at 6, SUMF 16. Mr. Jones’ recollection of his conversation with Mr. McConnell and Brenda Feldman, property manager for the Association, is that there were two causes of loss in all affected buildings — (1) rainwater/groundwater/surfacewater
On March 3, 2014, plaintiff initiated this action. Docket No. 1 at 1. Plaintiff asserts three claims for relief: (1) breach of contract; (2) common law bad faith breach of insurance contract; and (3) violation of Colo. Rev. Stat. § 10-3-1115. Plaintiff moves for summary judgment on its breach of contract claim. Docket No. 51 at 16. Specifically, plaintiff argues that (1) the Section B exclusions do not apply to the sewer backup coverage in the endorsement, id. at 6, (2) any rain water that flowed into the sewer system is not “surface water,” id. at 14, and (3) any rain water that traveled through sewer pipes and backed up into the condos is not excluded from coverage. Id. Defendant moves for summary judgment on all claims. Docket No. 52 at 2. Defendant seeks a determination that, if surface water or ground water contributed to the damage plaintiff alleges, then the ACC precludes recovery by plaintiff. Id. Defendant also argues that plaintiffs common law and statutory bad faith claims should be denied because defendant acted reasonably and plaintiffs claim was denied for “fairly debatable reasons.” Id.
II. STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56, summary judgment is warranted when the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as
III. ANALYSIS
A. Applicability of ACC to Endorsement
An insurance policy is a contract, which should be interpreted consistently with the well-settled principles of contractual interpretation. Chacon v. Am. Family Mut. Ins. Co.,
American Family contends that the ACC applies to the language in the endorsement adding coverage for sewer backups. Docket No. 52 at 10. Plaintiff contends that the endorsement does not specifically state that the sewer backup provision is subject to any exclusions and that no exclusions can be implied from the policy language. Docket No. 51 at 7.
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow;
(3) Water that backs up or overflows from a sewer, drain or sump; or
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
Docket No. 51-lat 20. Thus, the basic terms of the policy exclude coverage for damage or loss due to sewer drain backup.
Plaintiffs policy, however, contains an endorsement called the “Condominium Enhancement Endorsement.” Docket No. 51-2 at 35. The endorsement includes additional coverage for “Sewer Back-Up and Sump Overflow” in Paragraph XVI.- The Endorsement adds the following language to Section A.5, “Additional Coverages”:
Sewer Back-Up and Sump Overflow
1. We will pay for direct physical loss or damage to Buildings or Business Personal Property, covered under Section I-Property, caused by or resulting from:
A. Water which backs up through or overflows from a sewer or drain; ' or
B. Water which overflows from a sump, even if the overflow results from mechanical breakdown of a sump pump or its related equipment.
However, with respect to paragraph XVI.l.b above, we will not pay the cost of repairing or replacing a sump pump or its related equipment in the event of mechanical breakdown.
Id. at 38. Thus, Subparagraph 4 of Paragraph XVI replaces Exclusion B.l.g on water to eliminate the exclusion for sewer backup and sump overflow.
Plaintiff argues that the endorsement does not state that the exclusion section of the policy, Section B, applies to the additional coverage added by the endorsement. Docket No. 70 at 7. Plaintiff
American Family argues that, “[i]f the jury finds that surface water or groundwater contributed to the damage [p]laintiff alleges, in any amount, then coverage for the claim must be denied pursuant to the insurance policy’s ACC clause.” Docket No. 52 at 11. Specifically, defendant argues that the ACC bars plaintiffs recovery because surface water and groundwater — uncovered perils — combined with the sewer backup to contribute to the damage to plaintiffs property. Docket No. 52 at 8. “An ACC denies coverage whenever an excluded peril and a covered peril combine to damage a dwelling or personal property.” Colorado Intergovernmental Risk Sharing Agency v. Northfield Ins. Co.,
B. Surface Water vs. Sewer Water
In its summary judgment motion, plaintiff asks the Court to construe the term “surface water” in the policy. Docket No. 51 at 13. Plaintiff argues that “[r]ain water that flowed across streets and into manhole covers.. .is not ‘surface water’” and that surface water “loses its character as such once it is directed into a man-made channel or pipe.” Id. Defendant argues that the “particular path by which the storm water was introduced into the Chateau buildings — whether through backup of sewer drains, or through seepage over, through and around foundation walls, or through some combination of the two — is of no moment for purposes of coverage analyses” because flood water caused the damage. Docket No. 69 at 14.
The Court agrees with plaintiff. In the insurance context, surface water has been defined as “water from melted snow, falling rain, or rising springs, lying or flowing naturally on the earth’s surface, not gathering into or forming any more definite body of water than a mere bog, swamp, slough or marsh.... Surface water... is not of a substantial or permanent existence, has no banks, and follows no defined course or channel.” Front Row Theatre, Inc. v. American Mfr’s. Mut. Ins. Cos.,
Having rejected defendant’s theory regarding the character of water that backs up out of a sewer, the Court turns to the issue of the character of water that damaged Chateau Village Condos. Although the parties discuss many facts in connection with the briefing, they do ask the Court to enter summary judgment based on these facts. See, e.g, Docket No. 52 at 11 (“If the jury finds that surface water or groundwater contributed to the damage [p]laintiff alleges... ”). In the event that the parties ask the Court to enter summary judgment on the facts, the Court finds that there are genuine issues of material fact regarding the character of the water that caused the damage to Chateau Village Condos that preclude summary judgment. See, e.g., Docket No. 52 at 6, SUMFs 14, 17, 19. The Court also finds that there are genuine issues of material fact as to whether the damage to Chateau Village Condos was exclusively caused by sewer water backup. See id.
D. Common Law and Statutory Bad Faith Breach of an Insurance Contract
Plaintiff brings both common law and statutory bad faith claims. Docket No. 3 at 3, 5. To establish the common law “tort of bad faith breach of an insurance contract, a plaintiff must show that the insurer acted both unreasonably and with knowledge of or reckless disregard of its unreasonableness.” Hyden v. Farmers Ins. Exchange,
Plaintiffs statutory bad faith claim is based on Colo. Rev. Stat. § 10-3-1115(1), which provides that “[a] person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.”
American Family seeks summary judgment on plaintiffs bad faith claims on the ground that its denial of coverage was based on “fairly debatable” reasons. Docket No. 52 at 2. Specifically, American Family argues that its denial of the Association’s claim was timely and reasonable in light of the facts and circumstances known to American Family at the time of its denial. Id. at 16. The Association asserts that American Family’s denial was not reasonable and that a jury could conclude that American Family could not reasonably rely on the statements offered by Ms. Feldman and Mr. McConnell. Docket No. 70 at 12-13.
When resolving claims, “[a]n insurer is under no obligation to negotiate a settlement when there is a genuine disagreement as to the amount of compensa-ble damages payable under the terms of an insurance policy.” Vaccaro,
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that plaintiffs Partial Motion for Judgment as a Matter of Law Pursuant to F.R.C.P. 56 [Docket No. 51] is GRANTED in part and DENIED in part. It is further
ORDERED that defendant’s Motion for Summary Judgment [Docket No. 52] is GRANTED in part and DENIED in part.
. The following facts are undisputed unless otherwise indicated.
. Mr. Jones uses the terms groundwater and surface water interchangeably to mean the same thing, Docket No. 52-7 at 3 (Jones Depo., 52:15-19), and explains that Mr. McConnell and Ms. Feldman referred to groundwater and surface water as rainwater. Docket No. 51-3 at 1.
. Subparagraph 4 provides:
4. With respect to the coverage provided under paragraph XVI., Exclusion B.l.g. Water in Section I-Property is replaced by the following exclusion:
Water
(1)Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow; or
(3) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows, or other openings.
But if water, as described in paragraph XVI.4. results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion, or sprinkler leakage.
. The Colorado Supreme Court granted review in Northfield Insurance on the issue of "[wjhether this court’s ruling in Kane v. Royal Ins. Co.,
. Since the Court agrees with defendant that the ACC applies to Exclusion B.l.g as modified, defendant’s argument in Section B of its motion for summary judgment is moot. See Docket No. 52 at 11-13.
. Defendant’s response to plaintiff’s motion for partial summary judgment also discusses the term “flood,” Docket No. 69 at 13, but defendant did not seek summary judgment as to the meaning of "flood” and therefore the Court will not consider it.
. The Association attaches a 27-page expert opinion from Professor Garth H. Allen that