Allstate moved for partial summary judgment arguing that its denial of coverage was reasonable based upon the foregoing facts and conclusions and thus it had a reasonable belief that Mr. Sipes had intentionally set fire to the rental property and misrepresented information during the investigation, thereby placing his claim outside Allstate’s policy limits.  Allstate further contended that, based upon its investigation of Mr. Sipes’ coverage claim, it had a reasonable belief that it could present a valid defense of arson.  Sipes disputed that he set the fire at the rental property and argued that there were genuine disputes of material fact about the inferences Allstate drew from the evidence during its investigation.

Under Colorado law, an insurer may not “unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first party claimant.”  Colo.Rev.Stat. §10-3-1115(1)(a).  The determination of whether an insurer has breached its duties to its insured is one of reasonableness under the circumstances.  Estate of Morris v. COPIC Ins. Co., 192 P.3d 519, 523 (Colo. App. 2008).

The Court found that Allstate had no reason to question the validity of the origin and cause reports provided by the Clifton Fire Department and the private investigator.  It was apparently undisputed that the opinions contained in the Clifton Fire Department report were reached by relying in part on NFPA 921.  “The parties here do not dispute that NFPA 921 is a generally accepted peer reviewed fire investigation guide that is the industry standard for investigation of fires and explosives.”  Additionally, the Clifton Fire Department utilized a generally accepted systematic approach to determining the origin of the fire and the “use of negative corpus, or process of elimination, to rule out all ignition sources present in the area of origin” to conclude that the fire was incendiary, was a generally accepted methodology that complied with NFPA 921 at the time of the investigation.  The Court specifically noted that the fire investigator’s methodology, including the use of the negative corpus, was generally accepted by the relevant scientific community at the time Allstate sent its claim denial letter.  Although such an analysis would no longer comply with NFPA 921.

Further, the Court noted that although the private investigator’s origin and cause report did not utilize NFPA 921, it cited to NFPA 921 in finding the report reliable because “deviations from NFPA procedures are not necessarily wrong or inferior, but need to be justified.”  The Court did find that the private investigator’s report did comply or was consistent with NFPA 921 in other respects. 

Ultimately, the Court concluded that although it was reasonable for Allstate to rely on the origin and cause reports, those reports fell short of establishing that Mr. Sipes intentionally set the fire.  Although the reports concluded that the fire was incendiary, there was also evidence that the rental property was unlocked on the day of the fire, allowing for the possibility that someone other than Mr. Sipes set the fire.  Thus, on the record before it, the Court could not conclude that the incident fell within the intentional acts exclusion of the Allstate policy. 

In summary, although it was reasonable for Allstate to infer that the fire at the rental property was potentially caused by human act, there remain genuine disputes of material fact about whether it was reasonable for Allstate to infer that Mr. Sipes had a motive to commit arson and whether it was reasonable for Allstate to infer that Mr. Sipes committed arson because of the circumstantial evidence based upon the fire origin and cause reports.   "Accordingly, the Court finds that Allstate is not entitled to summary judgment on its defense that it had a reasonable belief to deny Mr. Sipes’ claim because it fell within the “intentional act” exclusion of the insurance policy."