Chapter 10 - § 10.9 • BAD FAITH CLAIM NOT NECESSARILY BARRED BY INSURED'S FAILURE TO COMPLY WITH "NO ACTION" CLAUSE

• Jurisdiction: Colorado

§ 10.9 • BAD FAITH CLAIM NOT NECESSARILY BARRED BY INSURED'S FAILURE TO COMPLY WITH "NO ACTION" CLAUSE

Summit Bank & Trust v. American Modern Home Insurance Co., 71 F. Supp. 3d 1168 (D. Colo. 2014), arose from a claim for insurance benefits stemming from acts of burglary that occurred during the period July 8, 2011 through September 23, 2011. The burglarized property was located in Greeley, Colorado, and owned by City Center West LP. Summit Bank & Trust was the mortgagee, holding the first deed of trust on the property. City Center West LP failed to maintain property insurance coverage for the property, so Summit obtained a Blanket Mortgage Security Insurance Policy from American Modern Home Insurance Company (AMHIC). The policy provided coverage for damage due to vandalism and malicious mischief, which it defined as "the willful and malicious damage to or destruction of the property covered." Id. at 1171-72. Among other provisions, the policy also contained a clause that an insured and its mortgagor must "produce for examination, with permission to copy, all records and documents that [AMHIC] may require. . . . No action shall be brought unless there has been compliance with the policy provisions and the action is started within one year after the loss." Id. at 1172.

As noted above, the property was burglarized between July 8, 2011 and September 23, 2011. The burglars allegedly stole, inter alia, copper piping and conduit, causing damage to the property during the extraction of these materials. Summit submitted a claim based on the damage caused by the burglary.¹ Upon receiving the claim, AMHIC requested documentation related to the security maintained at the property, as well as documentation concerning inspections conducted from the end of 2011 through 2012. Although Summit did not respond to the written requests, it verbally discussed security with AMHIC and allowed AMHIC full access to the property.

AMHIC issued payment to Summit in the amount of $321,069. However, it reserved the right to deny coverage under applicable provisions of the policy related to the production of information following a claim. Id. at 1173. Ultimately, Summit filed suit against AMHIC, alleging claims for bad faith breach of insurance contract, breach of contract, violations of C.R.S. §§ 10-3-1115 and -1116, and declaratory judgment. AMHIC moved for summary judgment, arguing that Summit's claims failed because Summit did not comply with the terms of the policy. Specifically...