Insurance Attorneys Flip $1M Hail Claim into Nearly $2M Suit for Contractor Interference

What began as a lawsuit filed against Church Mutual Insurance Company on a $1 million-plus claim dispute turned into a potential $2 million award against a contractor after a jury found the contractor intentionally interfered with the insurance contract and caused the litigation.

The case, The Calvary Baptist Church of Denver and Church Mutual Insurance Company V. Skyyguard Corp., came about after it was discovered a contractor orchestrated an inflated appraisal process. That prompted the church to settle with Church Mutual for $50,000 and side with the carrier.

In a counterclaim that played out in the U.S. District Court for the District of Colorado, the church sued the contractor for breach of contract and negligent misrepresentation, and the insurer sued for fraud and intentional interference of the insurance contract causing a breach of the misrepresentation clause and punitive damages.

“I think this is the first time, certainly in Colorado, that I’ve seen a claim be brought for intentional interference with the insurance contract for breach of the misrepresentation clause and we were very intentional in how we brought that claim,” said Jeremy Moseley with Spencer Fane, who represented Church Mutual along with attorney Will Brophy.

The jury awarded damages in a May 22 finding to both the church and Church Mutual, and it found that the contractor intentionally interfered with the insurance contract and caused the litigation between the church and insurer.

It awarded $115,000 for the church, $282,000 for fraud to the carrier and awarded $823,000 in punitive damages. The finding requires repayment of the $1.1 million paid on the claim for a total judgment that could exceed $2 million.

One legal expert watching the case sees the case an example abuse in the appraisal process that has become too common.

“This is a perfect example of a building owner being misled by a contractor trying to maximize its profits,” said Steven Badger, an attorney in the Dallas office of Zelle LLP, who has a track record as a defender of insurance companies in disputed weather-related claims. “Building owners just want their damage fixed. And they are led to believe by contractors that the insurance company is being unreasonable in what it is offering.”

Attorneys for the contractor were reached out to for comment.

The case stems from a June 18, 2018, hail and windstorm that struck the Denver area and caused damage to the church property, including the roof. Church Mutual issued a policy for the property in effect between 2017 and 2020 for direct physical loss and damage.

The church hired Skyyguard as a general contractor on the repairs later that year. According to the pleadings, Skyyguard took control of the church’s claim and directed the church to start the appraisal process.

Following a series of appraisals and supplements to the appraisals, the contractor claimed a cost of nearly $2 million and additional needed work that was later found. Due to policy limits, roughly $1.1 million was paid out on the claim and legal proceedings ensued. In reality, all the work was completed by the roofing contractor for $760,000, the lawsuit shows.

When the church and Church Mutual discovered the misrepresentation, the carrier sued Skyyguard for breach of contract, negligent misrepresentation and tortious interference.

Often in a case of misrepresentation, a counterclaim is filed against the insured, but going after the ones involved in the fraud and improper conduct helped to bring the insured in the loop, Moseley noted.

“I think it’s something the entire insurance industry should be aware of and focused on, to say, ‘Let’s go after those who actually caused the problem in the claim,'” he added. “And then the flip side is that those who are doing this kind of thing maybe should have a little bit stronger disincentive to do it.”

The reality is that some contractors are trying to enrich themselves off a claim, said Badger, who enjoyed seeing insurer and insured work together to defend themselves.

“Once this church learned the true facts, it teamed up with the insurance company to go after the bad guy,” Badger said. “That’s refreshing to see.”