In Semaho v. AMCO Insurance Company, the U.S. District Court for the District of Colorado addressed a familiar but consequential problem in commercial property insurance. Namely, how percentage deductibles apply when wind damages property that does not fit neatly into traditional "building" or "personal property" categories.
The court ultimately held that an ambiguous windstorm deductible endorsement must be construed in favor of the policyholder, granting summary judgment on breach of contract. At the same time, the court drew a firm boundary around extra-contractual exposure, concluding that the insurer's interpretation of the policy was reasonable and therefore could not support statutory or common law bad faith under Colorado law.
Factual Background
Semaho owned two commercial buildings in Broomfield, Colorado, insured under a commercial property policy issued by AMCO. After a windstorm damaged the buildings' roofs, Semaho's contractor staged roofing materials on one building's roof while repairs were underway. Before installation, a second windstorm destroyed or severely damaged most of those materials.
Semaho submitted a claim for the lost materials. AMCO did not dispute coverage for the loss. The sole disagreement concerned the applicable deductible under the policy's Windstorm or Hail Percentage Deductible Endorsement. Each building carried an agreed value of $22 million. The policy schedule reflected a 2% windstorm or hail deductible, calculated as $440,000 per building.
The Deductible Dispute
The endorsement required the deductible to be calculated as a percentage of "the value(s) of the property that has sustained loss or damage," and provided that deductibles apply separately to "each building" and "personal property in the open."
AMCO argued that the damaged roofing materials were covered only because the policy's "Building" coverage included builders' risk-type property such as construction materials. Under that interpretation, the relevant "property" for deductible purposes was the building itself, making the deductible 2% of the $22 million building value. Because AMCO concluded the materials loss did not exceed $440,000, it issued no payment.
Semaho countered that the policy's description of "building" set the scope of coverage but did not redefine the ordinary meaning of the word "building" throughout the policy. Under Colorado law, uninstalled construction materials remain personal property. Because the materials were stored on the roof and not yet incorporated into the structure, Semaho argued they fell within the endorsement category of "personal property in the open," requiring a deductible based on the value of the materials, not the building.
Contract Interpretation Under Colorado Law
Applying Colorado law, the court emphasized several well-established principles of insurance contract interpretation. Courts seek to give effect to the intent and reasonable expectations of the parties, read policy provisions as a whole, and give words their plain and ordinary meaning unless the policy clearly indicates otherwise. Cyprus Amax Mins. Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003). Where policy language is reasonably susceptible to more than one interpretation, the ambiguity must be construed against the insurer and in favor of coverage. Cary v. United of Omaha Life Ins. Co., 108 P.3d 288, 290 (Colo. 2005).
The Court's Analysis
The court concluded neither party's interpretation could be deemed unambiguously correct.
AMCO's position found support in the policy's coverage grant, which treated builders risk materials as part of "Building" coverage. The policy schedule also tied the windstorm deductible to the buildings' agreed values, suggesting that the deductible was intended to apply at the building level.
At the same time, the court found significant force in Semaho's argument that the coverage grant did not function as a policy-wide definition of the word "building." The endorsement itself did not adopt any specialized definition and instead used ordinary, uncapitalized language. Reading "building" to include uninstalled materials would produce strained results in other policy provisions referring to collapse, interior damage, and foundations, all of which assume a conventional understanding of a physical structure.
Because both interpretations were reasonable and the policy did not clearly resolve how deductibles should apply to uninstalled materials damaged by the wind, the court found the endorsement ambiguous. Under Colorado law, that ambiguity had to be resolved in the policyholder's favor. Cary, 108 P.3dat 288. The court therefore held that the windstorm deductible must be calculated as 2% of the value of the lost materials, not 2% of the building value, and granted summary judgment to Semaho on breach of contract liability.
Bad Faith Claims: A Separate Inquiry
Semaho also asserted statutory bad faith under Colo. Rev. Stat. §§10-3-1115 and 1116, as well as common law bad faith. Both claims required proof that AMCO unreasonably delayed or denied benefits, with the common law claim further requiring evidence that AMCO knowingly or recklessly disregarded the validity of the claim. Am Fam. Mut. Ins. Co. v. Barriga, 418 P.3d 333, 342 (Colo. 2004).
The court granted summary judgment to AMCO on both bad faith theories. While AMCO ultimately lost the contract interpretation issue, its reading of the policy was objectively reasonable. Colorado courts have consistently held that an insurer does not act in bad faith by advancing a reasonable interpretation of ambiguous policy language. Avalon Condo Ass'n v. Secura Ins., 2015 WL 565528 at *5 (D. Colo. Sept. 25, 2015).
The court also found no evidence of unreasonable claims handling independent of the coverage dispute. Allegations that the adjuster failed to meaningfully consider Semaho's position were unsupported, and disagreements over valuation alone could not establish bad faith. Without evidence of unreasonable investigation, delay, or deviation from industry standards, the bad faith claims failed as a matter of law.
Conclusion and Practice Implications
Semaho highlights how percentage deductible endorsements can produce outsized disputes when applied to property associated with construction or repair. It also reinforces an important distinction in Colorado insurance law. Ambiguous policy language favors coverage, but it does not automatically expose insurers to bad faith liability. During a coverage dispute, an insurers' letter explaining its interpretation of the policy should also acknowledge and or confirm receipt of the insured's interpretation. For insurers and policyholders alike, the decision underscores the importance of precise drafting and careful claims documentation when deductible calculations hinge on how "property" is characterized after a loss. For insurers, this decision reinforces the notion that it needs to keep meticulous records of its claims handling process. As the Court explained, Bad Faith claims are typically adjudicated by the jury. However, AMCO was able to defeat Semaho's bad faith claims through Summary Judgment because the records it kept were sufficient for the Court to find no genuine issues of material fact.
