Arreguin v. Farmers Ins. Co. of Idaho

SUBSTITUTE OPINION.

THE PRIOR OPINION ISSUED JANUARY 31, 2008 IS HEREBY WITHDRAWN.

This ease arises from an unpaid claim on a homeowners insurance policy. We must decide whether an exclusionary provision in the homeowners insurance policy is ambiguous.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellant Miguel Arreguin obtained a homeowners insurance policy from Respondent Farmers Insurance Company of Idaho (Farmers). Subsequent to the issuance of the policy, an agent of Farmers inspected the property and decided a detached garage on the property, which would normally be covered under the “Separate Structure” provision, should be excluded from coverage. As a result of that affirmative action, Farmers added an “Outbuilding” exclusionary provision to the policy and sent it to Arreguin. “Outbuilding” was not defined anywhere in the policy.

Arreguin made a claim on his policy after the detached garage sustained damage from a fire. Farmers denied Arreguin’s fire damage claim based on its conclusion that the detached garage was an “outbuilding” and, therefore, excluded from coverage under the policy.

Prior to the claim for fire damage, Arreguin made a claim for wind damage to the same detached garage. Though Farmers *461first denied the claim as to the structural damage based on the “Outbuildings” exclusionary provision, it ultimately covered the damage.

Arreguin sued Farmers for breach of contract and insurance bad faith for failure to pay for the structural damage to the garage caused by the fire. The district court granted Farmers’s motion for summary judgment. Arreguin timely appealed to this Court.

II. STANDARD OF REVIEW

When reviewing a district court’s grant of summary judgment, this Court uses the same standard a district court uses when it rules on a summary judgment motion. Jordan v. Beeks, 135 Idaho 586, 589, 21 P.3d 908, 911 (2001). Summary judgment shall be rendered when “the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” I.R.C.P. 56(e). This Court will liberally construe the record in favor of the party opposing the motion for summary judgment and will draw all reasonable inferences and conclusions in favor of that party. Farmers Ins. Co. of Idaho v. Talbot, 133 Idaho 428, 431, 987 P.2d 1043, 1046 (1999).

“When interpreting insurance policies, this Court applies the general rules of contract law subject to certain special canons of construction.” Clark v. Prudential Prop. & Cas. Ins. Co., 138 Idaho 538, 540, 66 P.3d 242, 244 (2003). “The general rule is that, because insurance contracts are adhesion contracts, typically not subject to negotiation between the parties, any ambiguity that exists in the contract ‘must be construed most strongly against the insurer.’” Talbot, 133 Idaho at 432, 987 P.2d at 1047 (quoting Mut. of Enumclaw Ins. Co. v. Roberts, 128 Idaho 232, 235, 912 P.2d 119, 122 (1996)). Whether an insurance policy is ambiguous is a question of law over which we exercise free review. Id.

III. ANALYSIS

Arreguin argues the “Outbuildings” exclusion in his homeowners insurance policy is ambiguous and, therefore, cannot be a basis for denial of coverage for the damage to the detached garage. Farmers argues the “Outbuildings” exclusion is unambiguous and that in any case Arreguin had notice the detached garage was an “outbuilding.” Finally, both parties assert they are entitled to an award of attorney fees on appeal. Each issue is addressed in turn.

A. The “Outbuildings” exclusionary provision is ambiguous.

Both parties agree that the detached garage is a “separate structure” within the meaning of the contract. However, Farmers denied coverage for the fire damage to the garage because it read the “Outbuildings” exclusionary provision to include the detached garage. Arreguin argues the “Outbuildings” exclusion is ambiguous and thus cannot be used to deny him coverage for the fire damage.

When we determine whether a policy is ambiguous we ask “whether the policy ‘is reasonably subject to conflicting interpretation.’ ” Talbot, 133 Idaho at 432, 987 P.2d at 1047 (quoting Mut. of Enumclaw v. Box, 127 Idaho 851, 853, 908 P.2d 153, 155 (1995) (quoting City of Boise v. Planet Ins. Co., 126 Idaho 51, 55, 878 P.2d 750, 754 (1994))). A provision that seeks to exclude the insurer’s coverage must be strictly construed in favor of the insured. Moss v. Mid-America Fire & Marine Ins. Co., 103 Idaho 298, 300, 647 P.2d 754, 756 (1982). The “burden is on the insurer to use clear and precise language if it wishes to restrict the scope of its coverage.” Id.

The insurance contract provides:

Coverage B — Separate Structures

We cover other structures on the residence premises separated from the dwelling, or connected to the dwelling by only a fence, utility line, sidewalk, driveway, patio or similar connection.

Wall-to-wall carpeting attached to the structure is part of the structure.

We do not cover land or the value of land, including land on which the separate structure is located or the cost to restore, replace, repair or rebuild land. If a covered *462loss causes damage to a separate structure and to the land on the residence premises, we do not cover any increased cost to repair or rebuild the separate structure because of damage to the land.

We do not cover separate structures which are intended for use in business or which are actually used in whole or in part for business purposes.

RESTRICTIVE ENDORSEMENT

We agree not to cancel this policy for 30 days from the date shown above. You and we agree that this policy does not cover loss by / to:

1. ALL OUTBUILDINGS.

This endorsement is part of your policy. It supersedes and controls anything to the contrary. It is otherwise subject to all other terms of the policy.

(Emphasis in original).

An insurance policy is ambiguous when it is reasonably subject to differing interpretations. Armstrong v. Farmers Ins. Co. of Idaho, 143 Idaho 135, 137, 139 P.3d 737, 739 (2006). “Outbuildings” is not defined anywhere in the contract. Here “outbuildings” is reasonably subject to at least two differing interpretations and thus is ambiguous.1 Its definition may reasonably encompass all structures on the property, including all the described structures under “separate structures” as well as attached structures to the dwelling.2 Another reasonable definition might encompass only those structures within the definition of “separate structures.”

Farmers cites various “outbuilding” definitions in an attempt to show that all definitions of “outbuildings” include a detached garage. These various definitions demonstrate that “outbuildings” is not necessarily subject to a single reasonable definition. For instance, one source defines “outbuilding” to include buildings both adjoining to and separate from the dwelling, and a different source defines “outbuilding” only as a detached building. Furthermore, during oral argument, Farmers was unable to say whether the pump house on Arreguin’s property would qualify as an “outbuilding.” An additional indication of ambiguity in this particular contract is that it defines many terms such as: aircraft, occurrence, residence premises, and water, but does not define “outbuilding” anywhere in the contract. See Moss, 103 Idaho at 301, 647 P.2d at 757 (noting that an indication of vagueness and ambiguity of the undefined terms in question was that more than forty terms were defined in the policy and thus address questions the insured might have about coverage).

Furthermore, a provision excluding coverage is strictly construed in favor of the insured and the insurer has the burden to use clear and precise language if it is restricting the scope of its coverage. Moss, 103 Idaho at 300, 647 P.2d at 756. “[Exclusions not stated with specificity will not be presumed or inferred.” Clark, 138 Idaho at 541, 66 P.3d at 245. If Farmers intended the “Outbuildings” provision to exclude coverage for the detached garage it could have simply used the word “garage” or similar clear and precise language to that used when it defined the “separate structures” covered under the contract.

Additionally, the fact that the policy’s other exclusions use clear and precise language and indicate to which part of the policy coverage they correspond, further bolsters our conclusion that the “Outbuildings” exclusion is ambiguous. For example, the “Sewer and Drain Water Damage Coverage Endorsement” specifically articulates that it applies to the coverage extended under: Coverage A — Dwelling, Coverage B — Separate Structures, and Coverage C — Personal Property. *463Contrarily, the “Outbuildings provision” lacks a reference to any portion of the existing contract and instead it is left to the imagination of the insured as to what the exclusion applies to with only the aid of the additional unspecific language that the exclusion “supersedes and controls anything to the contrary.”

We are compelled to strictly construe the exclusionary provision in favor of the insured and the insurance company bears the burden to use clear and precise language when restricting the scope of coverage. Moss, 103 Idaho at 300, 647 P.2d at 756. It is unclear whether “outbuildings” covers the buildings defined in separate structures or the attached structures defined under dwelling. Unlike the other clear and detailed exclusionary provisions, the “Outbuildings” provision fails to reference any other part of the contract. Therefore, because Farmers has not met its burden to use clear and precise language in this particular exclusionary provision, we hold the “Outbuildings” exclusionary provision is ambiguous and reverse the district court’s grant of summary judgment to Farmers.

B. We decline to consider Farmers’s notice argument.

Farmers argues that prior to the fire damage, Arreguin knew the “Outbuildings” exclusionary provision encompassed the detached garage. Arreguin asserts that he did not have notice and that in any case, notice is irrelevant.

In the order granting summary judgment to Farmers, the district court stated:

This Court further finds Arreguin had adequate notice of the lack of insurance coverage for his detached garage because Farmers had previously denied a claim by Arreguin for damages to the detached garage, citing the same clause in the restrictive endorsement.

Although unclear, the district court’s factual finding is either addressing an issue raised in Arreguin’s complaint which is not on appeal or Farmers’s argument that “outbuildings” should include the detached garage because Arreguin had actual notice the detached garage was excluded from coverage.

First, Arreguin argues the district court’s finding is irrelevant because it pertains to a separate allegation in his complaint — not an issue on appeal — that the “Outbuildings” exclusion was added to his insurance policy without notice. We agree that if the finding does address this issue of whether Arreguin had notice Farmers considered the detached garage to fall under the “Outbuildings” provision, it is irrelevant for purposes of this appeal.

Second, the district court’s finding may be a factual finding that Arreguin had notice the “Outbuildings” exclusion included the detached garage. Prior to the fire damage to the detached garage, Arreguin made a claim against his insurance policy for wind damage to the detached garage. Though Farmers covered damage to personal property in the garage, it denied coverage for structural damage to the garage based on the “Outbuildings” exclusionary provision. However, according to the record before us, Farmers ultimately decided to cover structural damage to the garage and issued funds to Arreguin accordingly.

In any case, this would be an inappropriate factual finding that we will not consider. When a contract is ambiguous, the interpretation of the contract terms presents a question of fact. Moss, 103 Idaho at 302, 647 P.2d at 758. Hence, the degree to which Arreguin’s previous notice that Farmers considered the detached garage excluded from coverage should inform the interpretation of the term “outbuildings” is a question of fact and not a matter to be resolved on summary judgment. See I.R.C.P. 56(c). Therefore, we decline to consider whether Arreguin had notice of Farmers’s interpretation of “outbuildings” and whether such notice leads to a contract interpretation that “outbuildings” includes Arreguin’s detached garage.

C. Attorney Fees.

Arreguin argues that he is entitled to an award of attorney fees on appeal pursuant to I.C. § 41-1839. An insurer must pay reasonable attorney fees when it issues a *464contract of insurance and “fail[s] for a period of thirty (30) days after proof of loss has been furnished as provided in such policy ... to pay to the person entitled thereto the amount justly due under such policy____” I.C. § 41-1839(1). To be entitled to an award of attorney fees under this provision, the insured must prevail. Slaathaug v. Allstate Ins. Co., 132 Idaho 705, 711, 979 P.2d 107, 113 (1999). Since we are remanding the ease, whether Arreguin is ultimately the prevailing party and thus, entitled to attorney fees has yet to be determined. If Arreguin is entitled to attorney fees below, he will also be entitled to attorney fees for this appeal.

Farmers requests an award of attorney fees on appeal pursuant to I.C. § 41-1839(4) which allows an award of attorney fees when a case is “brought, pursued or defended frivolously, unreasonably or without foundation.” Arreguin has prevailed on this appeal, consequently he has not pursued this appeal unreasonably. Therefore, we decline to award Farmers attorney fees.

IY. CONCLUSION

We reverse the district court’s grant of summary judgment to Farmers and remand the case to the district court. Costs awarded to Appellant.