Blakely v. USAA Casualty Insurance Company

(10th Cir. 01/25/2011)


Before TACHA, SEYMOUR, and LUCERO, Circuit Judges.

Plaintiffs-appellants Alan and Colelyn Blakely appeal the district court’s entry of judgment in favor of defendant-appellee USAA Casualty Insurance Company (“USAA”) on the Blakelys’ claims for breach of contract, breach of the implied covenant of good fath and fair dealing, and intentional infliction of emotional distress. We have jurisdiction pursuant to 28 U.S.C. § 1291. We AFFIRM in part and REVERSE in part.


In August 2002, a fire damaged the Blakelys’ home in Bountiful, Utah. The fire was caused by Stone Touch, a contractor who the Blakelys had hired to refinish the floors in their basement. The fire caused significant damage to the Blakelys’ home and personal belongings, and they were temporarily forced to find alternate housing.

At the time of the fire, the Blakelys were insured under a homeowners’ insurance policy issued by USAA. The policy insured against losses sustained to the dwelling itself and to the Blakelys’ personal property, as well as against expenses incurred to obtain temporary living arrangements. To file a claim under the policy, the contract required the Blakelys to prepare an inventory of their loss amount and submit it to USAA. The policy also contained the following “appraisal clause” related to the determination of the loss amount:

Appraisal. If you and we do not agree on the amount of loss, either party can demand that the amount of the loss be determined by appraisal. If either makes a written demand for appraisal, each will select a competent, independent appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers will then select a competent, impartial umpire. If the two appraisers are not able to agree upon the umpire within 15 days, you and we can ask a judge of a court of record in the state where the residence premises is located to select an umpire.

The appraisers will then set the amount of loss. If they submit a written report of any agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree within a reasonable time, they will submit their differences to the umpire. Written agreement signed by any two of these three will set the amount of the loss. Each appraiser will be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire will be equally paid by you and us.

Aplt. App. at 652.

The contract also set forth the schedule for paying out claims: Loss Payment. We will adjust all losses with you. We will pay you unless some other person is named in the policy or is legally entitled to receive payment. Loss will be payable 60 days after we receive your proof of loss and:

a. reach an agreement with you;

b. there is an entry of a final judgment; or

c. there is a filing of an appraisal award with us. Id. (emphasis added).

The Blakelys timely reported the fire to USAA. USAA then sent an adjuster to meet with the Blakelys and inspect the damage, and USAA’s preferred contractor repaired the damage to their home. Ultimately, USAA paid out $93,332.20 under the policy allocated as follows: dwelling/structural: $47,789.94; personal property: $37,832.70; temporary housing: $7,709.56.

Throughout the process, however, the Blakelys were dissatisfied with the work to their home and the extent their personal property was cleaned and/or replaced. Because USAA refused to authorize the additional expenses sought by the Blakelys, they did the work (and paid for it) themselves.

In 2005, approximately two and a half years after the fire, the Blakelys invoked the appraisal demand clause and notified USAA of their appraiser. USAA timely responded and named its appraiser. An umpire was selected, and on October 18, 2005, a final appraisal award was issued. The award totaled nearly $300,000. After a credit for the $93,332.20 USAA had already paid under the policy, the appraisal stated that the difference USAA owed the Blakelys was $197,524.32. On December 5, 2005, USAA paid the Blakelys $197,524.32. The Blakelys admit that with the payment of the appraisal award, no further amounts are either claimed or owing under the policy.

In March 2006, the Blakelys filed the instant lawsuit against USAA asserting four claims: breach of contract, breach of the implied covenant of good faith and fair dealing, breach of industry standards and statutes, and intentional infliction of emotional distress. In relevant part, the Blakelys allege that USAA failed to make adequate and timely repairs, reimbursements, and investigations under the policy, and that they suffered both financial and emotional damages as a result.

After the close of discovery, USAA sought summary judgment on all claims except for breach of the implied covenant of good faith and fair dealing. The district court dismissed the Blakelys’ claim for breach of industry standards and statutes during a pretrial conference on March 31, 2008, and that ruling is not at issue in this appeal. At another pretrial conference held on June 5, 2008, the district court granted USAA’s summary judgment motion as to the Blakelys’ claim for intentional infliction of emotional distress. During its final pretrial conference, the district court granted the motion as to the Blakelys’ breach of contract claim, and it also granted USAA’s oral motion to dismiss the claim for breach of the covenant of good faith and fair dealing as frivolous under Fed. R. Civ. P. 16(c)(2)(A). USAA then prepared a written Order of Dismissal disposing of those final two claims. This appeal followed. We begin by addressing the claims for breach of contract and breach of the implied covenant of good faith and fair dealing. We then turn to the claim for intentional infliction of emotional distress.